Can NRI invest in NPS (National Pension Scheme)

There are a lot of NRIs who are out of India at present but wish to return back to India in later years and settle. Can NRI invest in NPS for their retirement? Can NRI invest in NPS to take benefit of low cost? Can NRI invest in NPS to take benefit of taxation?

Till now there was no option for them to invest in any pension product, but recently RBI with consultation and recommendation of Government of India has allowed NRIs to invest and avail benefit from National Pension Scheme or NPS, which is managed by PFRDA (Pension Fund Regulatory & Development Authority of India.

Before this notification, only resident Indians were allowed to invest in NPS. But NRIs looking forward to settling in India will have a good option to invest in NPS. RBI has made it clear that NRI can invest in NPS by fulfilling the standard procedure and adhering to eligibility norms under the purview of FEMA (Foreign Exchange Management Act.)

Check the Latest Returns as on 5 Sept 2023

Can NRI invest in NPS – Details

YES – Following NRIs are eligible to open account under NPS

• Age limit 18-60 years
• Only individual accounts are opened. No joint holding allowed.
• Should comply with know your customer (KYC) norms.
• The first initial amount for opening the account should be made through inward remittance using normal banking channels or through their NRE or NRO account.
• Only Tier 1 Account Allowed

Update 30 Oct 2019: Via a notification dated 30/10/2019, PFRDA allowed OCIs (Overseas Citizens of India) will also be allowed to invest in Tier 1 NPS Account. However, like NRIs Tier 2 is still not allowed.

Where can NRIs open an NPS account?

PFRDA has the list of POP (point of presence), where an NRI can go and open his account. The entire list can be seen at PFRDA website. For convenience, many public sector banks like SBI with 6 associate banks and Private banks like ICICI Bank and Citibank Bank are part of this list.

Procedure to open NPS account by NRI Investor:

• First, fill the NPS form for NRIs. This can be obtained from PFRDA or NSDL or Banks website.
• Deposit the form with the POP with all relevant documents like Passport, contact details, date of birth proof, colored passport size photos, overseas address proof and Indian permanent address.
• Pay the initial deposit. Minimum subscription amount for Tier 1 accounts is Rs 500 and Rs 100 for Tier 2 accounts. The details of these accounts are mentioned below.
• Once the bank of POP verifies the documents, it takes 15 days to generate the 12 digit number PRAN (Permanent Retirement Account Number) which is allocated to the subscriber by the Central Recordkeeping Agency (CRA).
• This number is sent via SMS. All future transactions are notified over SMS.
• The CRA sends the account opening intimation along with PRAN card, information brochure, telephone pin and internet pin to help investor transact online.

Under NPS account, two sub-accounts – Tier I & II are provided. Tier I account is mandatory and the subscriber has the option to opt for Tier II account opening and operation. The following are the salient features of these sub-accounts:

Tier-I account:

This is a permanent retirement account where under withdrawals up to 25% of the subscribers’ own contribution are permitted as per the Withdrawal and Exit.

Tier-II account:

This is a voluntary savings facility available as an add-on to any Tier-1 account holder. Subscribers will be free to withdraw their savings from this account whenever they wish.

Key features and benefits of NPS

• NPS is a product to accumulate till attaining 60 years of age and then availing annuity for rest of life. Hence it is a social security enhancement product.
• At least 40% of accumulated amount has to be used to generate pensions. Rest amount can be computed as a lump sum.
• Pension or annuity is available is 7 mode as mentioned below. The subscriber has to choose the option when account matures at 60 years of age. The pension options are:
1. Pension payable for life at a uniform rate to the annuitant only.
2. Pension payable for 5, 10, 15 or 20 years certain and thereafter as long as you are alive.
3. Pension for life with return of purchase price on death of the annuitant (Policyholder).
4. Pension payable for life increasing at a simple rate of 3% p.a.
5. Pension for life with a provision of 50% of the annuity payable to spouse during his/her lifetime on death of the annuitant.
6. Pension for life with a provision of 100% of the annuity payable to spouse during his/her lifetime on death of the annuitant.
7. Pension for life with a provision of 100% of the annuity payable to spouse during his/her lifetime on death of the annuitant and with the return of purchase price on death of the spouse. If the spouse predeceases the annuitant, payment of annuity will cease after the death of the annuitant and purchase price is paid to the nominee.

Funds structure under NPS

• The funds are managed by professional fund managers and in accordance with PFRDA guidelines. The funds are of 4 types Equity, Corporate bonds, Government Securities & Alternate Investments. These are available in various combinations.
• These 2 approaches are used to manage funds:

1. Active choice – Here the individual would decide on the asset classes in which the contributed funds are to be invested and their percentages (Asset class Equity (maximum of 50%), Asset Class Corporate bonds, Asset Class Alternate Investments and Asset Class G-Sec).
2. Auto choice – Lifecycle Fund- This is the default option under NPS and wherein the management of investment of funds is done automatically based on the age profile of the subscriber. As age increases Equity investments are lowered and investments in Debt is increased to manage risk.

• Facility to invest small amounts and as low as Rs 500.
• One can invest an additional Rs 50000 to avail tax benefit over Rs 1.5 Lakh as specified under Sec 80C.
• Maintain NPS account from any geography as all transactions can be made online. Also, the POP are widespread hence making NPS totally portable.
• The fund management charges are the lowest among available products managing funds like mutual funds and ULIPs.
• The returns of these funds under NPS is totally market-linked and have yielded 14% in last few years. But as said this is just past performance and future performance is market and fund manager performance linked.
• Nomination facility available.

Conclusion on Can NRI invest in NPS?

Hope you got the answer to Can NRI invest in NPS? in fact NPS is the best plan to invest for NRIs as the scheme is now border free, efficient and low cost. So in case you are planning to settle in India, open the NPS account now.