Key Takeaways
- • PFRDA Chairman Sivasubramanian Ramann said the National Pension System (NPS) could offer better long-term returns than mutual funds for individuals seeking retirement security, once tax treatment is factored in.
- • NPS allows investors to switch investment schemes without incurring capital gains tax, whereas switching between mutual fund schemes may trigger capital gains tax.
- • PFRDA launched the NPS Tatkal facility, enabling pension account opening in three clicks via UPI apps using existing bank KYC information.
- • PFRDA targets a pension corpus of around Rs 100 lakh crore (Rs 100 trillion) by 2040 and aims to enrol 40-50 million new NPS members over the next 2-3 years.
- • Banks are positioned as the principal distribution channel, with points of presence earning an annual commission of about 0.2% of assets under management.
Summary
Pension regulator PFRDA chairman Sivasubramanian Ramann has said that the National Pension System (NPS) may be a better option than mutual funds for individuals who plan to invest over the long term and want financial security after retirement, according to ETV Bharat. He made the remarks as mutual fund investments are reaching record highs. Ramann argued that once tax exemptions and the ability to switch between investment schemes without capital gains tax are taken into account, NPS can deliver better benefits over the long run. He said PFRDA compared the two options with tax benefits in mind before reaching this conclusion.
The comparison rests on several structural differences. Changing schemes within NPS carries no additional cost and does not trigger capital gains tax, while moving funds from one mutual fund scheme to another may. The annuity or regular pension received from NPS is taxed according to the account holder's income tax slab. Ramann also noted that NPS and mutual funds serve distinct roles: NPS funds are not easily withdrawn, which helps maintain retirement savings, while mutual fund investments can be redeemed readily when needed.
PFRDA has launched the NPS Tatkal facility, which allows customers to open pension accounts in three clicks through UPI apps, using KYC information already held by the bank. Ramann said approximately 800 million people in India use UPI, and that banks could become the principal distribution channel for NPS, requiring banks to develop new systems. He said the feature would let banks acquire NPS customers at almost zero expenditure, with points of presence receiving an annual commission of about 0.2% of AUM. Contributions can be as small as Rs 10 a day or even hourly through UPI, according to Ramann.
PFRDA aims to grow the pension corpus to around Rs 100 lakh crore by 2040, a target Ramann tied to expected long-term savings needs in a growing economy. He said the regulator targets 40-50 million new NPS members over the next two to three years. The current subscriber base is approximately 15 million government and 10 million non-government subscribers, per the article.
The comparison rests on several structural differences. Changing schemes within NPS carries no additional cost and does not trigger capital gains tax, while moving funds from one mutual fund scheme to another may. The annuity or regular pension received from NPS is taxed according to the account holder's income tax slab. Ramann also noted that NPS and mutual funds serve distinct roles: NPS funds are not easily withdrawn, which helps maintain retirement savings, while mutual fund investments can be redeemed readily when needed.
PFRDA has launched the NPS Tatkal facility, which allows customers to open pension accounts in three clicks through UPI apps, using KYC information already held by the bank. Ramann said approximately 800 million people in India use UPI, and that banks could become the principal distribution channel for NPS, requiring banks to develop new systems. He said the feature would let banks acquire NPS customers at almost zero expenditure, with points of presence receiving an annual commission of about 0.2% of AUM. Contributions can be as small as Rs 10 a day or even hourly through UPI, according to Ramann.
PFRDA aims to grow the pension corpus to around Rs 100 lakh crore by 2040, a target Ramann tied to expected long-term savings needs in a growing economy. He said the regulator targets 40-50 million new NPS members over the next two to three years. The current subscriber base is approximately 15 million government and 10 million non-government subscribers, per the article.
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