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How does National Pension Scheme work?

-The Economic Times

Anyone between 18 and 55 years can join National Pension Scheme.

There are three intermediaries: A point of presence to collect funds, a fund manager to handle investments based on your decision and a record-keeper to keep track of your investment.

You can select your fund manager from a list of seven - UTI, LIC, SBI, IDFC, ICICI Prudential, Kotak Mahindra and Reliance Capital. Annual portability is allowed free of cost.

You can choose the investment mix between equity (high risk with high returns), mainly debt (medium risk and returns) and pure debt or G (which offer low returns but very little risks). Equity investment is capped at 50%.

There is also an Auto Choice, where the debt-equity mix varies, depending on the age of the subscriber. The investment option can be changed annually The government now intends to introduce a scheme offering minimum guarantee.

There is no annual investment ceiling although you have to invest at least 6,000.

The funds are locked in till you are 60 years and on retirement, you are entitled to a lump sum payment, with at least 40% used to buy annuities that will earn a monthly pension.

The only leeway is that an individual can withdraw 25% of the contribution before he or she turns 60.

There is also a Tier-II scheme, which gives you the option to withdraw funds as and when you want. But for that you have to mandatorily have a Tier I account.