Financial Institutions Mutual & Pension Funds: NPS, Government Pension Scheme Commerce YouTube Lecture Handouts Part 2

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Financial Institutions Mutual & Pension Funds: NPS, Government Pension Scheme | Commerce

Pension Fund

  • Pensions in India include various financial programs to support Retirement in India.
  • There are three major components to the Indian pension system:
    • the civil servant՚s pension, the mandatory pension programs run by the Employees՚ Provident Fund Organization of India, and the unorganised sector pension called the National Social Assistance Programme (NSAP) .
  • The State of Uttar Pradesh has implemented E-pension system which allows filling up of pension forms, checking, verification and payment using an online system.

National Pension System

  • The National Pension System (NPS) is a voluntary defined contribution pension system in India.
  • National Pension System, like Public Provident Fund (PPF) and Employment Provident Fund (EPF) is an EEE (Exempt-Exempt-Exempt) instrument in India where the entire corpus escapes tax at maturity and entire pension withdrawal amount is tax-free.
  • It is administered and regulated by the Pension Fund Regulatory and Development Authority (PFRDA) .
  • NPS is considered one of the best tax saving instruments, after 40 % of the corpus was made tax-free at the time of maturity and it is ranked just below equity-linked savings scheme (ELSS) .
  • NPS is an attempt by the government to create a pensioned society in India.
  • NPS is readily available and tax efficient under Section 80 CCC and Section 80 CCD.
  • Under the NPS, an individual can contribute to his retirement account. Also, his employer can contribute to the welfare and social security of the individual.
  • NPS is a market-linked annuity product.
  • Investment in NPS is eligible for tax benefits as follows:
  • Up to INR 1,50, 000 under Section 80 CCD (1) . The benefit is additionally capped at 10 % of basic salary. The benefit under Section 80C, Section 80 CCC and Section 80 CCD (1) is capped at INR 1,50, 000.
  • The Civil Service Pension Scheme is an unfunded defined benefit, pay-as-you-go scheme. Employees do not contribute, while the respective employer pays 8.3 % and the government adds 1.16 % . To qualify for a pension, ten years of service are necessary, and the pensionable age is 58.
  • Employees՚ Provident Fund Organization – a statutory body of the Government of India that administers a compulsory Provident Fund Scheme, Pension Scheme and an Insurance Scheme.
  • Provident Fund is applicable for employees across establishments (private as well as government, subject to criteria) .
  • The National Social Assistance Programme (NSAP) is a Centrally Sponsored Scheme of the Government of India that provides financial assistance to the elderly, widows and persons with disabilities in the form of social pensions.
National Social Assistance Programme

Government Pension Scheme

  • Government of India launched Pradhan Mantri Shram Yogi Maan-Dhan (PMSYM) in February 2019 to provide an assured pension of ₹ 3,000 per month to unorganised workers.
  • Pradhan Mantri Shram Yogi Maandhan is a social welfare scheme launched by the Ministry of Labour and Employment of the Government of India in February 2019 for poor labourers in the unorganised sector from minimum 18 years of age to maximum 40 years.
  • Pradhan Mantri Shram Yogi Maandhan is available to unorganized workers between 18 to 40 years of age.
  • Further, the monthly income of the worker should be below ₹ 15,000.
  • Under the scheme, the subscriber will receive a minimum assured pension of ₹ 3,000 per month after attaining the age of 60 years.
  • However, to benefit from the scheme, workers have to contribute ₹ 55 monthly (for age 18) and it varies according to age. Maximum contribution for a year cannot exceed ₹ 2400 (₹ 200 per month) .
  • Further, if the subscriber dies, the spouse of the beneficiary shall be entitled to receive 50 % of the pension as family pension. Family pension is applicable only to spouse.
  • Due to the erratic nature of the works of unorganized sector, the exit provisions have been kept flexible.
  • As such the subscriber can exit prematurely and the amount will be returned with interest at the saving bank account rate, or the rate at which the fund earned income (if the subscriber exits after 10-year period) , whichever is higher.
  • Further, the spouse has the option to continue the scheme and to contribute on the subscriber՚s behalf.
  • To avail the scheme, the concerned person has to visit the Community Service Center. Aadhaar and Jan Dhan Bank account are necessary.


Q. Name the participants of mutual fund structure in India.

Answer: Mutual funds comprise of five basic participants, namely a Sponsor, Mutual Fund Trustee, Asset Management Company, Custodian & Registrar and a Transfer Agent.

Q. Government of India launched ________ in February 2019 to provide an assured pension of ₹ 3,000 per month to unorganised workers.

Answer: Pradhan Mantri Shram Yogi Maan-Dhan (PMSYM)

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