When you are investing, the cost of investing may impact your returns i.e. if the cost of investing is too high, it will compromise your returns. We have already seen how a small intermediary commission in regular plans of mutual funds can affect performance as compared to direct plans of MF schemes.
National Pension scheme (NPS) has attracted a lot of attention in the latest few years owing to exclusive tax benefits under Section 80CCD(1B). Union Budget 2016 added a sweetener to the maturity corpus providing exemption up to 40% of the accumulated corpus
Low fund management charges in NPS have been touted as NPS’s biggest strength. Can’t question that. However, fund management charge is the not only cost that you incur when you invest in NPS. There are many other charges. In this post, let’s look at the cost/charges that are involved when you invest in NPS.
List of NPS Charges
Applicable Charges in case of eNPS
PFRDA has introduced eNPS platform to opening NPS account online and make contributions online.
You can go to eNPS portal and open NPS account in the two ways.
- Using Aadhaar details
- Using a combination of bank account details and PAN
Do note if you open NPS account through eNPS, CRA charges will still be applicable. But you may save on PoP charges. Go through the following post for more on this topic.
Subsequently, you can make contributions online.
Even those subscribers who had opened account through a Point of Presence can make further contributions through eNPS.
Service Charges for online Contribution through eNPS
PoP charges for contribution are not applicable for contributions through eNPS.
However, you will have to incur a service charge of 0.05% of the contribution amount if you make contribution through eNPS. This service charge is subject to a minimum of Rs 5 and a maximum of Rs 5,000 per contribution
This is in order to incentivize PoPs which played a part in initial on boarding of subscriber.
If you had opened NPS account through a Point of presence and make contribution through eNPS, then this charge shall be applicable. This service charge is also applicable if you had opened account through eNPS portal using PAN and bank account details.
However, if you have opened NPS account through eNPS portal using your Aadhaar card, then such service charge shall not be applicable.
This charge is not applicable if you are making contribution through a PoP.
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Payment Gateway Charges for eNPS
Through eNPS portal, you can contribute to your NPS account online. However, you will have to pay payment gateway charges for online payments. If you are making a payment through net banking, then the charge is only Rs 0.6 per transaction. However, if you plan to make payment through debit or credit card, the charge is steep at 0.8% and 0.9% of the contribution amount respectively. The payment gateway charges are subject to revision.
Hence, if you are contributing through eNPS, make payment through net banking. Otherwise, you are much better off making contribution through a Point of Presence.
NPS Charges for NRIs
The charges for NRI, especially PoP charges are a bit different. Charges for other intermediaries such as CRA, PFM etc are same as for residents. The charges depend on whether account is getting serviced in India or abroad. You can read about the charges in this PFRDA circular.
By the way, even NRIs can open NPS account through eNPS portal.
Proponents of NPS point to the low fund management charges (investment management fee) of NPS. The fund management charges are actually quite low as compared to even direct plans of MF schemes. Moreover, fund management fee is on a continuous basis (and not one time). NPS is clearly ahead on this front.
However, ancillary charges can be extremely high especially if you are investing small amounts.
There are floors on charges. For instance, if you are making contribution through PoP, you pay contribution charge of 0.25% subject to a minimum of Rs 25 (plus service tax). If you are making a contribution of Rs 1,000, contribution charge is 2.5% (excluding service tax) of the investment amount. For a contribution amount of Rs 5,000, the contribution charge is 0.5% of the investment amount.
And this is before CRA charge of Rs 4 per contribution.
For all the hype about low cost structure of NPS, it can be very expensive product for someone who is contributing small amounts. Fortunately, these charges are on per contribution basis (and not on continuous basis).
Do note this is only for subscribers under All Citizen model. PoP charges are not applicable for Government NPS subscribers.
Personally, I do not see any reason why you should be investing more than Rs 50,000 per financial year in NPS (unless your contributions are mandatory). Rs 50,000 is the maximum benefit under Section 80CCD (1B) for investment in NPS.
If you are planning to contribute to NPS, you must:
- Consider these cost floors in mind. You may be better off investing in 1 or 2 installments rather than on a monthly basis.
- Make contributions through eNPS portal.
- Use net banking to make the payment.
And if you want to contribute to NPS and have not yet opened your account, open it through eNPS portal using your Aadhaar card.
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