NRIs can now invest in National Pension System

This post was originally published on 30 October 2015.

In an exciting move that would help millions of Indians overseas, Reserve Bank of India has allowed Non-Resident Indians (NRIs) to invest in the National Pension System to provide them access to old-age income security.

“With a view to enabling NRIs’ access to old age income security, it has now been decided, in consultation with the Government of India, to enable National Pension Scheme (NPS) as an investment option for NRIs,” the RBI said in a statement posted on its website on Thursday.

Opening new doors for NRIs

The scheme, which is governed and administered by the Pension Fund Regulatory and Development Authority, would open new doors for NRIs, especially the millions based in the Gulf.

A lot of interest has been generated around the new scheme with the Union Budget 2015 giving additional tax benefits for investments up to Rs 50,000. However, there is no ceiling on the investment amount.

The subscription amounts can be paid by the NRIs through normal banking channels or from their funds held in NRE/FCNR/NRO accounts.

Minimum annual subscription under NPS is Rs 6,000 while allocation to equities is capped at 50% of investment.

NPS investments mature when the investor turns 60. If the corpus is less than Rs 2 lakh, the entire sum can be withdrawn. If it is more, the subscriber must put at least 40% of the corpus into an annuity to get a monthly pension.

There will be no restriction on repatriation of the accumulated savings, the central bank said.

Long-term investment

Under the NPS, the pension funds are invested in three separate asset classes depending upon the choice of investor ie equity, government securities and a range of fixed income instruments.

NPS aims to institute pension reforms and to inculcate the habit of saving for retirement amongst the citizens. Initially, NPS was introduced for the new government recruits (except armed forces).

With effect from May 1, 2009, NPS has been provided for all citizens of the country, including the unorganised sector workers, on voluntary basis.

During the tax year 2013-14, the eight pension funds used for central government employees showed returns of between 8-14 per cent.

How to open NPS accounts

NPS is distributed through authorized entities called Points of Presence (POP). Almost all the banks (both private and public sector) in India are enrolled to act as Point of Presence under NPS.

To invest in NPS, you are required to open an NPS account through a POP bank, preferably where you have your NRI account. You can send your NPS application form to your bank for opening of the NPS account.

Documents required for opening NPS accounts

The following documents need to be submitted to your Bank (POP) for opening of a NPS account:

  • Completely filled subscriber registration form
  • Copy of Passport
  • Proof of Address, if the local address is different from the address in your passport

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