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BW Businessworld

NPS Made Investor Friendly

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To keep one’s funds liquid has always been an important parameter while deciding any investment.  However, not all investments have liquidity options especially when they are long term in nature. Even if there are withdrawals options, they could be at a high cost. The Pension Fund Regulatory and Development Authority (PFRDA) has recently come out with regulations on exits and withdrawals from the National Pension System (NPS).  
NPS has till now not been a favourite among investors. But, its structure is changing and changing for the good. One at a time, the regulator is bringing in modifications in the product to suit investor’s requirement. 
What’s new: Earlier, NPS didn’t allow any partial withdrawals, while PPF, its country cousin and a retirement focussed investment, had withdrawal and loan facility in place. To make NPS more investor friendly, rules for NPS has been modified and now partial withdrawals have been allowed.
Conditions: The withdrawal has been linked to one’s contribution and is available only after one has run the NPS scheme for at least ten years. The maximum that one may withdraw is twenty-five per cent of the contributions made and not of the balance outstanding. 
Unlike withdrawals from mutual funds and Ulips, where you do not need to provide a reason, in NPS the withdrawals have been allowed provided the funds are used for three specific reasons 
  • Firstly, for higher education of his or her children, 
  • Or, for the marriage of his or her children 
  • Or, for the purchase or construction of a residential house in his or her own name or in a joint name.  And just in case, you already own a house either individually or in the joint name (other than ancestral house), withdrawals will not be permitted. 
  • And, lastly for the treatment of specified illnesses requiring hospitalisation of parents, self, spouse or children. The specified illness includes, cancer, Kidney Failure (End Stage Renal Failure), Primary Pulmonary Arterial Hypertension, Multiple Sclerosis, Major Organ Transplant, Coronary Artery Bypass Graft, Aorta Graft Surgery, Heart Valve Surgery, Stroke, Myocardial Infarction, Coma, Total blindness, Paralysis, Accident of serious/ life threatening nature or any other critical illness of a life threatening nature as stipulated from time to time.  
It’s good that withdrawals have been allowed in NPS. However, they will not be available at will. You would be allowed to withdraw only a maximum of three times during the entire tenure. Further, not less than a period of five years shall have elapsed from the last date of each of such withdrawal. The 5-year ‘waiting period’ will, however, not apply in case of treatment for specified illnesses.
Conclusion: If you have been waiting for NPS to offer partial liquidity in time of need, it’s in place now. If that was the only reason for you not to start saving for your retirement, then probably you need to get in touch with your advisor soon.