New NPS Rules: 100% Equity Option & Early Exit Explained

The National Pension System (NPS) has always been a popular choice for retirement planning in India. However, it had strict rules regarding how much you could invest in the stock market (equity) and when you could withdraw your money (usually at age 60).

Now, the Pension Fund Regulatory and Development Authority (PFRDA) has introduced a major upgrade called the Multiple Scheme Framework (MSF).

This new framework changes the rules of the game, offering more freedom and choices to investors. Here is a simple breakdown of what has changed and what the new schemes look like.

1. The Big Change: 100% Equity is Now Possible

In the traditional NPS, there were limits on how much money you could put into the stock market. Under the new MSF, fund managers can offer schemes with up to 100% equity exposure.

This is great for young investors who want high growth and are willing to take risks.

Examples from the New Framework (Based on the Image):
Several Pension Funds (PFs) have launched schemes focused heavily on equity:

• Kotak PF NPS Kuber Equity Fund: This is an aggressive fund that invests 80% to 100% in Equity. It avoids government bonds (G-Secs) entirely.
• UTI PF Wealth Builder: This scheme focuses on growth stocks (midcap focused) with an equity allocation of 90% to 100%.
• HDFC PF NPS Equity Advantage Fund: A growth-oriented fund with 80% to 100% equity.

2. Options for Every Risk Appetite

The MSF isn't just about high risk; it allows fund houses to create specific products for different needs. Looking at the list of schemes, we can see a wide variety:

• For Balanced Investors: Schemes like ICICI PF NPS My Family My Future Plan offer a mix, with 50% to 85% in equity and the rest in government securities.
• For Conservative Investors: If you prefer safety, the HDFC PF Surakshit Income Fund limits equity to just 25%, putting the majority (50-100%) in Debt instruments.
• For Value Seekers: The DSP PF NPS Long-term Equity Fund follows a "Value Investing" philosophy, allowing up to 100% in equity but with a focus on long-term value stocks.

3. New Exit Rules: You Don't Have to Wait Till 60

One of the biggest complaints about the old NPS was the long lock-in period. You generally had to wait until you turned 60 to access the money.

The MSF changes this.

• Minimum Vesting Period: You can exit the scheme after 15 years.
• Why this helps: This allows you to plan for mid-life goals like children’s higher education, buying a house, or early retirement, rather than waiting until old age.

4. Withdrawal and Tax Rules (The 20-20-60 Rule)

When you decide to withdraw money from these new MSF schemes (after 15 years), the rules are slightly different from the traditional NPS:

1. 20% Annuity: You must use 20% of your money to buy an annuity plan (which gives you a monthly pension).
2. 20% Taxable Lump Sum: You can withdraw 20% as cash, but you will have to pay tax on this amount.
3. 60% Tax-Free Lump Sum: The remaining 60% can be withdrawn as cash, and it is completely tax-free.

5. Important Things to Note

• Cost: The expense ratio (fees) for these schemes is capped at 0.30% of the Assets Under Management (AUM). While this is slightly higher than traditional NPS schemes, it is still very low compared to standard Mutual Funds.
• Switching: If you are unhappy with an MSF scheme, you can transfer your money back to the traditional NPS. However, you cannot switch between different MSF schemes.
• Independence: These schemes operate independently. Maturing or redeeming an MSF scheme does not affect your traditional NPS account.

Conclusion

The Multiple Scheme Framework (MSF) transforms the NPS from a rigid retirement product into a flexible investment tool. Whether you want the high growth of the Kotak or UTI equity schemes or the safety of the HDFC debt schemes, there is now an option tailored for you.

With a 15-year horizon and the ability to invest 100% in equities, the NPS is becoming a strong competitor to long-term mutual funds.

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