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We are all aware of Unit Linked Insurance Plans (ULIPs), but what exactly are Unit Linked Pension Plans (ULPPs)? Read more to find out.
A ULPP is similar to their ULIP counterparts, but it does not offer life insurance cover. Established long back as a pension plan, the ULPP has been circulated in the market again by the Insurance Regulatory and Development Authority of India as a direct competitor to National Pension System (NPS). It is flexible and expensive in comparison to NPS.
The fund works similar to a ULIP scheme where your money is invested in your choice of funds for a minimum lock-in period of 5 years. You do not have an option of partial withdrawal and you can liquidate only 1/3rd of the corpus amount while the balance is annualized as a single premium pension policy.
NPS or New Pension Scheme or National Pension System is a pension plan circulated by the Government of India in order to provide pension and investment to citizens who do not come under any pension scheme of India. This scheme is available in two options, Tier 1 where the corpus if non-withdrawable and Tier 2, where the corpus is withdrawable. The Tier two account can only be availed post creation of the basic Tier 1 account.
To begin with, you need to submit a monthly amount of ₹500 or ₹6000 annually in your NPS account. Remember, you are not allowed to liquidate your money before the age of 60 years and if you do, 90% of it will be annuitized while the remainder 10% will be given as a lump sum.
|Investment Type||Market Linked||Market Linked|
|Lock-in Period||5 years||60 years|
|Partial Withdrawal||None||Post 3 years|
|Corpus Withdrawal||None||25% of self-contribution|
|No of partial withdrawal||None||3|
|No of partial withdrawal||33.33% of the corpus amount||60% of the corpus amount|
|Fund Management Fee||1.35% of the fund value||0.01% of the fund value|
|Tax exemption on maturity amount||33.33% of the corpus amount is Tax-Free||60% of the corpus amount is Tax-Free|
Good Returns : Under the New Pension Scheme, you have 4 distinct investment avenues ranging from equity, average risk, low risk and auto allocation. The fund management is similar to a ULIP where the portfolio can be revised in order to generate good returns over a long run.
Equity Based : You can invest up to 75% in equities in order to avail maximum market-related returns.
Flexibility : You can make partial withdrawals in case of an emergency in the near future.
Tax Saving : Extra deduction of Rs 50,000 under section 80CCD(1b) of the Income Tax Act, in addition to the overall deduction of ₹1.5 lakh as per section 80C of the Income Tax Act, 1961.
From the above table, we can clearly understand that in terms of tax benefits, flexibility and expenses, the National Pension System has an upper hand. E.g. If you invest ₹1,00,000 per year (@8% in returns) in each of the policies for a period of 15 years, the corpus amount will be ₹29 lakhs under a National Pension System and ₹24 lakhs under a ULPP scheme.
Additionally, you receive an extra tax deduction of ₹50,000 under Sec 80C and you do not have to pay any GST on annuities purchased via NPS. In case of a corpus availed under pension plan other than NPS, a GST of 1.8% is applicable.
Simply put, the New Pension Scheme or the National Pension Scheme is a low cost product which offers good and regular income post-maturity. It is ideal for not only pension seeking individuals but for normal investors as well.
Can I have Atal Pension Yojana and NPS?
Yes, you can certainly enroll for both APY and NPS at the same time. Two PRANS will be allocated to you in this case. The Atal Pension Yojana is a part of the NPS scheme but caters to the unorganized sector.
Can I have two NPS account?
Yes, you can have both, Tier 1 and Tier 2 accounts under the NPS.
Can I invest lump sum in NPS?
Yes, there is no upper limit on your NPS investment.
How can I transfer money to NPS account?
You can make contributions to your Tier 1 and Tier 2 NPS accounts via online baking through the official portal of NPS.
How much can I invest in NPS?
There is no such upper limit on your NPS investment. You can invest as much as you like.
Should I invest in Atal Pension, NPS, or ULIP for my retirement?
Atal Pension Yojana is a government-backed pension benefit plan designed for the working people from the unorganised sector. National Pension System (NPS) is a voluntary, defined contribution pension scheme, which is better suited for investors with a low-risk appetite. ULIPs – which offer the dual benefit of insurance and investment – have the potential to offer higher returns compared with other pension products. They can be opted by individuals with both high and low-risk appetite, since the investor can choose between equity and debt fund investments. Hence, one should check his requirement, risk appetite and eligibility criteria for each scheme before going ahead.