What can be done, for newbie earners to maintain the same level of lifestyle after retirement?

The best solution is to join to NPS scheme and contribute regularly to the NPS account. NPS will give a guaranteed corpus return at the time of retirement and offer a regular income after retirement.

The National Pension System is a government-sponsored voluntary contribution pension scheme in India for creating the corpus for retirement savings. The scheme designed to enable the subscribers to make their retirement future, through systematic savings during their working lifetime. NPS helps to inculcate the saving habit for retirement for newbie earners of India.

KEY POINTS:

• NPS account can be open between the age of 18 to 60 years by an Indian citizen or NRI.
• NPS is a pension scheme, withdrawal is possible only after 60 years of age.
• The account can be transferred to any city or to any organization at any time.
• NPS subscribers can choose Active or Auto investment choice options for fund investment.
• There are 4 different asset classes available for the money investment in NPS.
• The account can be open through authorized banks or directly through eNPS in an online or offline option.
• Under NPS, subscribers can open 2 different accounts called Tier I and Tier II account.
• A tier I account is mandatory and a Tier II account is optional, for those who have a Tier I account.
• Investment to Tier I account is Tax exempted. A Tier-II account is like a saving account.
• From the Tier-I account maximum of up to 60% amount is possible to withdraw, once reaches 60 years, the remaining amount needs to invest in a pension plan. The full amount from Tier-II account can withdraw any time.  
• There is flexibility on the amount which needs to invest in a year but the minimum amount needed to invest in an FY to maintain the account. It is different for Tier-I and Tier-II account.
• There is no fixed rate of interest or returns for NPS holding, it depends on the market performance. Subscribers can expect average returns of 9 to 12%, but not guaranteed.

Benefits of NPS?

NPS is an easy to open and flexible scheme for the investment and to create the retirement corpus.

Voluntary investment: 

Contribute to the account can be done at any time in a Financial Year. The investment amount subscriber can decide, by meeting the minimum annual investment limit.

Simple to Open:

Opening an account is very simple and can be done through any authorized bank or through eNPS (https://enps.nsdl.com/eNPS/) using the online or offline option.

Flexible:

Subscribers can choose their own pension fund for the invested amount and monitor money growth and have the option to change the fund manager if needed.

Portable: 

Subscribers can operate NPS account from anywhere, even after they change the employment and city.

Regulated:

NPS is regulated by PFRDA. NPS Trust will monitor the performance of the fund manager and it offers transparent investment norms.

Age limit for the NPS account?

An Indian citizen or NRI of a minimum age of 18 and maximum age up to 60 can open an NPS account. Under the NPS scheme, a person between the age of 18 to 60 years can open an account and get a PRAN (Permanent Retirement Account Number).

Tax benefits of NPS investment?

Investment up to Rs. 50,000 in NPS Tier I account is tax exempted under subsection 80CCD (1B) of the Income Tax Act. This amount is over and above the exemption of Rs. 1.5 lakh under section 80C. Hence total of 2 lakh will get tax exemption for NPS investment.

What are the two investment choices available in NPS?

For subscribers, NPS offers two investment choices, on the basis of the mode of its operation. After the selection of fund manager for the NPS account, the subscriber needs to select one among the below choice of investment.

1. Active choice
2. Auto choice

Active Choice:

In Active choice, subscribers need to selects the percentage of fund allocation into different asset classes. The total percentage should be 100 percent among all the asset classes.

Auto Choice:

In Auto choice, funds are automatically allocated among the available asset classes. Allocation is done on the base of a defined matrix, and it is based on the age of the subscriber at the time of account opening.

NPS Account Opening Process

Any Indian citizen or the NRI can open an NPS Pension account through eNPS using one of the following options

Option 1 – Registration using Aadhaar e-KYC

Documents required for the registration using e-KYC

• Aadhaar Registered Mobile Number.
• Aadhaar Paperless Offline e-KYC.
• scanned copy of PAN card and CanceledCheque.
• scanned Signature.

Step by step for the account opening process.

Step 1: Need to upload the Aadhaar Paperless Offline e-KYC ZIP file in the eNPS portal.

Step 2: Enter the 4-characters code created at the UIDAI website

• Demographic details (Name, Gender, Date of Birth, Mobile no, Address and Photo) will be fetched from Aadhaar Offline e-KYC Zip

Step 3:  Upload scanned copy of PAN card and Cancelled Cheque

Step 4:  Upload scanned Signature.

Step 5:  In the payment gateway, make the NPS payment through Internet Banking.

• Contributions are credited in PRANs on a T+2 basis

Step 6: Select the option to eSign or Print and Courier the registration form to CRA.

Option 2 – Registration using PAN

Documents required for the registration using PAN and verification by Bank/Non-Bank POP.

• Permanent Account Number’ (PAN)
• Bank / Demat /Folio account details.
• CanceledCheque
• scanned Signature

Step by step process for NPS account opening.

Step 1: fill up all the mandatory details online in the eNPS portal.

Step 2: Upload scanned copy of PAN card and Canceled Cheque.

• KYC verification will be done by the Bank selected by the subscriber during the registration process

Step 3: Upload your scanned Photograph and Signature.

Step 4: In payment gateway, make the NPS payment through Internet Banking

• Contributions are credited in PRANs on a T+2 basis

Step 5: Select the option to eSign or Print and Courier the registration form to CRA.

Additional documents needed for NRI subscribers.

• Bank Account Status i.e., Non-Repatriable account or Repatriable account
• NRE/NRO bank account details
• Scanned copy of passport.
• preferred address for communication.

Which all asset classes money will get invested in NPS?

Under NPS, there are 4 different types of asset classes available for investment. An asset class is classified on the basis of the nature of the underline assets.

Equity or E

• It is a high return-high risk’ asset class.
• In it, funds are fully invested in the equity market, hence the growth of the fund is based on the performance of the market.

Corporate Debt or C

• It is a medium return-medium risk’ asset class.
• In it, funds are invested on fixed income bearing financial instruments.

Government Securities or G

• It is a low return-low risk’ asset class.
• In it, funds are invested purely in Government Securities and bonds.

Alternative Investment Funds or A

• It is also a ‘low return-low risk’ asset class.
• In it, investment asset classes are instruments like CMBS, MBS, AIF, REITS, etc.

Based on the subscriber’s risk-taking capability they can choose to invest their entire pension wealth in the E, A, C, or G asset class.

What are the different types of NPS account?

NPS provides two types of accounts to the subscribers:

• Tier I
• Tier II

Tier I is a mandatory retirement account, as part of the NPS account. Along with the Tier-I account, subscribers can open a voluntary saving Account associated with PRAN it is called Tier II account.

From Tier-I account maximum up to 60% amount only possible to withdraw from the accumulated corpus. For withdrawal of the accumulated amount in NPS, the Tier-II account offers greater flexibility. Amount in the Tier-II account can be withdrawn at any point in time.

What are the benefits of a Tier-II account?

Tier II NPS Account is a part of the NPS account and it can be opened voluntarily after opening the Tier I account, it has the following advantages.

1. No additional
2. Withdrawal is possible from Tier-II account at any point in time.
3. Easy Transfer facility for the fund to pension account at any time.
4. No minimum balance required.
5. No exit load.
6. Nomination facility, even provide the Separate
7. Different Investment pattern can select for Tier-II account from Tier-I

Who can open a Tier II account?

NPS Subscriber who has an active Tier I account is eligible to open a Tier II account

• Any resident Indian can open a Tier-II account if they have an active Tier I account.
• NRI can’t activate the Tier-II account.

What is the minimum contribution needed from NPS subscribers for Tier I and Tier II account?

For Tier I Account :

Minimum number of contributions in a year: 1 Time

Minimum contribution for account opening: Rs 500

The minimum amount for subsequent contribution: Rs 500

For Tier II Account :

Minimum number of contributions in the year: Nil

Minimum contribution for account opening: Rs 1000

The minimum amount for subsequent contribution: Rs 250

How returns calculated in Tier I and Tier II account?

The contribution remitted into the NPS account is passed on to the PFMs (Fund Management system) as selected by the subscriber at the time of NPS registration. Each day of business PFMs declares the Net Asset Value (NAV) of the invested money. On the base of NAV, units are credited into the Subscriber’s account. By multiplying the units held with the NAV, subscribers can calculate the present value of the investment.

Is NPS assured return / div / bonus?

The return under NPS is market-driven, hence, there is no defined amount of return, the performance of the fund will be based on the performance of the market. The returns generated will not be distributed by the way of dividend or bonus, it will be accumulated for the pension corpus.

Do subscribers need to re-open another NPS account when change Jobs?

No. As NPS account can be operated from anywhere irrespective of location and employment in the country. Subscribers can shift PRAN from one sector to another like private to Central Government sector or to State Government or vice-versa.

What are the disadvantages of NPS?

• The annuity or pension which subscribers receive regularly during retirement time is taxable as per the Income.
• After the NPS schemes mature only 60% of the investment eligible to withdraw and the remaining 40% need to invest in some pension scheme.

What is the NPS interest rate?

The interest rate can’t be predicted, as the base investment is on the equity market. The return will be calculated based on the performance of the market. The average expected return rate on the National Pension Scheme (NPS) will be around 9% to 12%. The scheme does not offer any fixed rate of interest. NPS subscribers can choose to switch their investment options and fund managers for a better return if the performance is not met as per the expectation.

Conclusion.

As NPS is a government backed pension scheme, it is the best and easy option for the newbie earners to create their retirement corpus and maintain the standard of living after retirement. NPS helps the subscribers to become self-dependent even after retirement. The NPS allows, on retirement, subscribers can withdraw a part of the corpus, which created by contributing regularly to the NPS account during working time and use the remaining corpus to buy an annuity to get a regular income after retirement.

As an early start will help to create greater corpus returns, it is the time for newbie earners to start the NPS account.

Thanks & Regards.

Harry

The objectives of personal finance learning for newbie earners are to get them basic financial knowledge and necessary tools that help them to build the life which they envision. This personal financial learning for newbie earners blog will cover the basics about the following 4 topics which are essential for all new earners to understand before getting the first salary in hand.

1. 10 easy Investment options for newbie earners.
2. What is Personal financial literacy?
3. What are Personal financial responsibilities?
4. How to excellent Personal financial literacy?

10 easy investment options for newbie earners.

Saving and investing our hard-earned money in the right options is one of the important financial decisions of newbie earners. Personal financial learning helps newbie earners to take suitable decisions in selecting investment options among low-risk, medium-risk, and high-risk investments.

In general, bank FD, RD, ULIP, PPF  NPS… are considered low-risk savings and investment options. Equity and market-linked investments like MF and direct equity investments are considered high-risk investments. A combination of market-linked investments and fixed return investments are considered as medium-risk investments.

10 easy investment options for newbie earners.

1. Bank FD-Fixed Deposit & RD- Recurring Deposit.

• In RD-Recurring deposit, investment is made at a fixed period regularly for the predefined time period.
• FD- Fixed deposit is the investment in which investment is done for one-time for a specific period of time.
• For both, the percentage interest rate for the invested amount will remain the same.

2. ULIP – Unit-linked Insurance Plan.

• Unit Linked Insurance Plans (ULIPs) is moderate risk, a goal-based financial instrument that offers benefits of protection and Investment for the long term.
• Unit linked Insurance Plan is linked directly to the equity market.
• It offers flexibility to invest units in debt funds or in equity depending upon our risk appetite.
• ULIPs provide long term capital gains and also offer a protection cover.

3. PPF- Public provident fund.

• The public provident fund scheme is a safe and low-risk financial instrument.
• PPF is mandated by the government and provides a fixed return.
• The minimum time period is for 15 years and it can be continued.
• The investment minimum amount is 500 rupees and a maximum of 1.5 Lakh annually.
• PPF provides the option to avail loan against the amount in the account.

4. MF- Mutual Funds.

• A mutual fund is a market-linked financial instrument that pools money from a group of investors and put it into a portfolio of financial instruments.
• The portfolio includes stocks, bonds, and government securities…
• Buying and selling shares in a mutual fund are doing as units of portfolio.
• The risk of Mutual fund investment, Is based on the financial instrument on with the units are invested.

5. NPS- National Pension Scheme.

• NPS is a government-sponsored pension scheme.
• During retirement, NPS allows investors to withdraw a part of the corpus and use the remaining corpus to buy an annuity of security.
• NPS helps investors to get a regular income after retirement.

6. Investment in Direct Equity.

• Direct equity investment is a high-risk investment that will ensure long term growth.
• Growth of our investment fund based on the way the price of a share of the company performs.
• Investors are eligible for getting the dividend as and when companies offer it to the shareholders.

7. Bonds come under RBI Regulations.

• Bonds are fixed-income instruments, hence it is a low-risk instrument.
• Bonds issued by government bodies or companies to raise capital from investors.
• During maturity, investors will get back the investment amount with interest.
• Bonds are available as Fixed-Rate Bonds and Floating-Rate Bonds

8. Gold / Gold ETF

• Gold-ETF (Exchange Traded Fund), is a commodity-based Mutual Fund investment.
• In Gold- ETF amount is invested in assets like gold.
• Gold ETF  investors will get the unit’s equivalent in cash instead of actual gold.

9. Post Office Saving Scheme.

• Most of the post office fixed deposit investment is for a period of 10 years.
• It is a low-risk investment and provides a higher return than normal bank FD.
• The annual interest of the deposit is credited to the investor’s savings account.

10. IPO – Initial Public Offerings.

• Through IPO shares of a private company are offered to the public.
• Once the IPO is realized, investors can apply through the Demat account and get it.
• IPOs help companies to obtain capital through the primary market.

Well thought out decision based on personal financial literacy is needed to select the suitable investment options, which help newbie earners to meet the Personal financial responsibilities.

What Is Personal Financial Literacy?

Personal Financial literacy is the capability to understand the financial principles, which help to manage money effectively and wisely. The essential part of personal financial literacy is knowing how to manage money. To become personal financial literate, newbie earners need to take a step to implement personal financial principles in life.

• Financial Literacy is important for newbie earners because a proper understanding of personal finance concepts helps them to manage the earning effectively.
• Money is easy to mismanage, it will lead to a financial struggle in the future.
• If newbie earners spend time to learn how to manage money and apply those skills in life, they can build wealth easily.

What Are The Benefits of Personal Financial Literacy?

The benefits of personal financial literacy are countless however here are a few important points to the lookout.

• Net worth will grow continually, irrespective of what you earn.
• Helps to avoid going into debt, even with lower earnings.
• Less Financial Struggle in the older ages, even if don’t have any income.
• Better Household Finances, even in the situation of increasing expense.

What are personal financial responsibilities?

Financial responsibility means having a lifestyle that meets the social standards within means, regardless of the level of income. To succeed in personal finances, newbie earners needs to have a close look at the financial situations, evaluate earning, and make adjustments in the spending habits to match it. As Financial responsibility had a big impact on the future, it is important to expertise on personal financial literacy from an early stage of earnings.

Key points of Personal Financial Responsibilities. 

• The management of personal finances effectively to meet the financial needs of individuals and family.
• Meeting the standard of lifestyle irrespective of economic, cultural, social, and technologies.
• Able to support yourself and family financially for at least six months irrespective of zero income and adverse circumstance.
• Having an organized plan for saving and spending money.
• Making the right decisions early in life to become financially independent and having a comfortable retirement life.
• Understanding the four basic components of finance, like income, Expenses, Assets, and Dept.
• Having a good understanding of the difference between a Good and Bad Debt

To get expertise in the subject of personal finance, one need to understand personal financial planning concepts and applications. Application of Personal finance includes cash in and outflow, net worth and asset, income taxes, insurance, and consumer debt… A Financially Responsible person avoids Debt and should meet the financial emergencies from the savings or investments.

How to excel in personal financial literacy?

People will spend years getting a degree to get a well-paid career. To manage the earnings from the career newbie earners need proper financial literacy. It doesn’t take years to get financial literacy for beginners. With a focused effort, anyone can become financially literate over the course of a few weeks.

To develop personal finance literacy, newbie financial learners have many options like,

• Take a paid or free courses online or offline from some experts,
• By reading a couple of personal finance for beginners books.
• Learning from YouTube, Blogs, or Articles from any search engine.

5 practical steps to excel in personal financial literacy.

In-spite of learning to become experts in the domain of financial literacy needs to practice the following 5 steps.

1. Track Your Income and Net Worth.

• The difference between assets and debt tells where newbie earners stand financially.
• Keep an eye on income and expense help to keep the track of the progress of financial literacy.
• Manage Money by Creating a personal investment portfolio help to increase the net worth, irrespective of earning.
• Newbie Earners need to focus on regulating expenses wisely to become Personal financial responsible in society.

2. Set a Budget, time Period.

• As part of Personal Financial Learning, all newbie Earners should prepare a checklist of expenses.
• The checklist helps to knockout unwanted expenses and meet the personal budget with within the income.
• This budgeting is the starting point of for financial goals in life.
• Proper budgeting help to spend judiciously and deal with surplus cash.

3. Take a Daily Money Minute

• It is important to spend at least one minute every day to check financial transactions.
• Now there are many online apps available to manage and monitor our daily expenses.
• Preparation of money minutes helps to identify overall expenses and keep track of financial goal progress.
• This also helps to set the spending tone for the rest of the days in the month.
• In money minutes it is important to add a personal balance sheet and tax paid.

4. Allocate at Least 20% for the future.

• Planning for Retirement should be one of the prime objectives of Personal financial responsibilities.
• Newbie earners need to priorities, their savings, and investments.
• First priority of fund allocation should for building up emergency savings and retirement funds.
• Managing the debt wisely will help to safeguard the money for the future.

5. Spend at least 10% of Your Income on Lifestyle and fun.

• Spending the money for lifestyle and fun is an important part of Personal financial learning for Newbie Earners.
• If we don’t spend the money for the fun, during our retirement age, we may have a corpus of the amount in our hand, however, it may lead to regret about not enjoying life at a younger age.
• Income for Lifestyle and fun should include movies, outing, travel… ideally anything that doesn’t cover under the basic life

Conclusion:

For newbie earners, it is essential to spend time developing Personal financial literacy. through that, they can meet Personal financial responsibilities. Making proper budgeting and tracking the expenses is the fundamental of Personal financial literacy. The goal of every newbie earner should be to have a hassle-free retirement life with financial freedom, as early as possible. Practicing the knowledge earned through financial literacy is an important factor to enhance the skills.

Thanks & Regards.

Harry.