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(Pension nahi yeh PRAN hai)


Roll No: - 52

Bat ch: - 2009-2011

In partial fulfillment of the requirements for

Master of Management Studies (MMS) Two
Year Full Time Degree Course

C.K. Thakur Institute Of Management

Studies and Research,
New Panvel
(Affilia ted to University of Mumbai)

Year: - 2009-2011

Executive Summary

As a part of Summer Internship Project (SIP) CKTIMSR had suggested

students to undergo training in the industry with the purpose of acquainting the students
with the industry norms & culture.

In this process CKTIMSR had approached the management of Nirmal Seeds

Pvt. Ltd. with a request to accommodate one student for undergoing training / SIP in the

Accordingly the internship was planned in the Accounting and Finnance

department of Nirmal Seeds Pvt. Ltd. At Pachora during the months of May- July 2010.

Project on “New Pension Scheme” was selected

Based on the detail study, project report has been developed & submitted highlighting
the compliance status & opportunity for the improvements.


I hereby certify that the work reported in the dissertation has been carried

out by Mr Dinesh Subhash Patil himself and that the material from other

sources included in the dissertation, if any, is acknowledged.

The work described in the dissertation has not been used by the candidate

for the award of any other degree or diploma.

Date : - Guide

Place : - New Panvel Prof. Nilesh Manore


I hereby declare that the work reported in the dissertation has been carried

out by me and that the material from other sources included in the dissertation, if

any, is acknowledged. The work described in the dissertation has not been used

for the award of any other degree or diploma.

Date: - Signature
Place: -New Panvel Mr. Dinesh Patil



Abstract: -

New Pension Scheme is a social security scheme for 89 per cent of India’s

workforce that doesn’t have a formal retirement solution. The New Pension

System (NPS), as it is now referred to, was fittingly launched on Labour Day, 1


It is a pure defined-contribution product. Investor can choose the fund

option as well as the fund manager. Retirement corpus will be given to investor

when he turns 60. Of this, he gets 60 per cent in his hands, while the remaining

goes into buying an annuity plan (to ensure pension money) from an insurer.

The system discourages early withdrawal by giving just 20 per cent and

annuitising 80 per cent of the corpus.

India Inc is looking towards this product as a new investment avenue. In

this report I have tried to research whether this product will gain popularity or



Grateful acknowledgements are due to Prof. Nilesh Manore who has

been a great philosopher and guide to me during my study. I am deeply indebted
to him for guiding me in my research work. I convey my helpful gratitude to
I am grateful to Mr.Suresh Patil A.G.M.(Finnance ) Of Nirmal Seeds
Pvt. Ltd for providing valuable guidance necessary for this endeavour.
Although it is not possible to give Individual thanks to so many other
members of teaching staff, non teaching staff and to the colleagues who helped
me in their way. I wish to express my gratitude to all of them.
I also thank the authorities of the Mumbai University for giving me the
wonderful opportunity to carry out this research work. I acknowledge for the
timely help given to complete this work to the University and Management
Department of C.K.Thakur Institute Of Management Studies and research New
If I do not give my sincere acknowledgment for the blessing and affection
received from the Cordinator of Department of Management Prof. Nilesh
Manore. I shall be failing in my duties if I do not thank the library and
computer Lab staff of the Dept.
I will like to specially mention the wholehearted support and co-operation
from my family members.
I shall feel amply rewarded if the dissertation proves helpful in the
development of genuine research work.

Dinesh Patil


NO. Particular

1 Introduction
1.1 Importance of the topic
1.2 Objectives of the study
2 New Pension Scheme
2.1 An overview of New Pension Scheme
2.2 Terminologies
2.3 Mechanism
2.4 Overview of the system
2.5 Investment options
3 About the organization
3.1 History of the organization
3.2 Evolution of the organization
3.3 Objectives of the organization
3.4 Structure of the organization
3.5 Products or services offered
3.6 Various Departments of the organization
3.7 About account & finance department of the organization
4 Research Methodology
4.1 Formulation of Hypothesis
4.2 Sources of data
4.3 Composition of sample
5 Finding and Analysis
5.1 Analysis of Questionnaire
5.2 Frequently Asked Questions (FAQ)
5.3 SWOT Analysis
6 Conclusion
6.1 Discussion on Answer of Hypothesis
6.2 Limitation of Project Work
6.3 Scope for Further Research
6.4 Bibliography
7 Annexure
7.1 Questionnaire
7.2 Related Articles

New Pension Scheme

Pension N ahi Yeh PRAN Hai


1.1 Importance of the Topi c: -

Nearly one eighth of world’s elderly population lives in India. The vast majority of
this population is not covered by any formal pension scheme. Instead, they are dependent on
their own earning and transfer from their children. These informal systems of old age income
security are imperfect and are becoming increasingly strained. People above the age of 60
years have grown at an annual rate of growth of 3.8 percent (75.9 million in 2001 and 55.3
million in 1991) during the period 1991-2001, as against the annual growth of 1.8% for the
general population.

Pension Policy in India has traditionally been based on financing through employer
and employee participation. As a result, the coverage has been restricted to the organized
sector and a vast majority of the workforce in the unorganized sector has been denied access
to formal channels of old age financial support. Only about 12 per cent of the working
population in India is covered by some form of retirement benefit scheme. Besides the
problem of limited coverage, the existing mandatory and voluntary private pension system is
characterized by limitations like fragmented regulatory framework, lack of individual choice
and portability and lack of uniform standards. High incidence of administrative cost and low
real rate of returns characterize the existing system, which has become unsustainable.

Non-sustainability of the existing pension system is accentuated by the sharp increase

in financial burden on the Government and the other employers on account of pension
liabilities. The total pension liability on account of the Central Government employees has
risen from 0.6% of GDP (at constant prices) in 1993-94 to 1.66% of GDP (at constant prices)
in 2002-03.

As a percentage of net tax revenue, the total pension liability has increased from 9.7%
to 12.68% during the same period. For the sub-national (State) Governments, the compound
annual growth rate in pension expenditure during the period 1995-96 to 2000-01 was 27.1
percent. As a percentage of revenue receipts, the pension expenditure of the States has
increased from 5.4% in 1990-91 to over 10 percent in 2000-01

For solving this purpose Govt. of India has come along with a new pension plan which
will be applicable to all Indian citizens irrespective of their status of employment and there is
no need of employer’s interferes in this scheme.
1.2 Ob ject ives of the stud y: -

a. To study the new pension plan in detail

b. To do the SWOT analysis of the scheme

c. To study the structure and mechanism of NPS

d. To study the returns that NPS can provide

e. To study the response of people to new pension plan

f. To Compare NPS to other schemes such as PPF and Mutual Funds



The objective of this chapter is to study the New Pension Scheme with its pros and


New Pension Scheme is a social security scheme for 89 per cent of India’s workforce
that doesn’t have a formal retirement solution. The New Pension System (NPS), as it is now
referred to, was fittingly launched on Labour Day, 1 May.

It is a pure defined-contribution product. You can choose the fund option as well as
the fund manager. You get a retirement corpus when you turn 60. Of this, you get 60 per cent
in your hands, while the remaining goes into buying you an annuity plan (to ensure pension
money) from an insurer. The system discourages early withdrawal by giving just 20 per cent
in your hands and annuitising 80 per cent of the corpus.


1) Regulator: -

Pension Fund Regulatory and Development Authority was established by the

Government of India on 23rd August 2003 to promote old age income security by
establishing, developing and regulating pension funds, to protect the interests of subscribers to
schemes of pension funds and for matters connected therewith or incidental thereto. Mr. D.
Swarup is the Chairman of the PFRDA.

2) NPS Trust: -

Trust is a set up under the Indian Trusts Act, which is responsible for taking care of
the funds under the New Pension Scheme (NPS) and protects subscriber interests

3) Point of Presence (PoP): -

It is the first point of interaction. The 21 registered PoPs have authorised branches to
act as collection points and extend services to customers

Allahabad Bank Axis Bank Ltd

Central Bank of India Citibank N.A.
Computer Age Service Pvt. Ltd. ICICI Bank Ltd.
IDBI Bank Ltd. IL&FS Securities Services Ltd.
Kotak Mahindra Bank Ltd. Oriental Bank of Commerce
Reliance Capital Ltd. State Bank of Bikaner & Jaipur
State Bank of Hyderabad State Bank of India State
Bank of Indore State Bank of Mysore
State Bank of Patiala State Bank of Travancore
The South Indian Bank Ltd. Union Bank of India
UTI Asset Management Co. Ltd.
4) Central Record Keeping Agency (CRA): -

The back office for maintaining records, administration and customer service
functions. National Securities Depository Ltd has been designated the CRA

5) Pension Fund Managers: -

Pension Fund Managers are the agencies appointed for providing the asset
management services to the customer. They will do the job of churning the investment on
behalf of the customer. There are six Fund managers available to the customer they are as

1) ICICI Prudential Pension Funds Management Co. Ltd.

2) IDFC Pension Fund Management Co. Ltd.
3) Kotak Mahindra Pension Fund Ltd.
4) Reliance Capital Pension Fund Ltd.
5) SBI Pension Funds Private Ltd.
6) UTI Retirement Solutions Ltd.
6) Trustee Bank: -

Bank of India is the designated agency to facilitate fund transfers across various
entities such as subscribers, the fund managers and the annuity service providers

7) Permanent Retirement Account Number (PRAN): -

It is a permanent account number that you get when you open a Tier I account with
NPS. Just like your PAN card, which serves as your identification, PRAN will serve as your
identification number with the CRA. The number will enable portability, i.e. retain a single
account anywhere, in any job.

8) Annuitising: -

To create regular payment stream out of retirement corpus


Source: - Outlook Money dated 9 April 2009

The new pension system would be based on defined contributions. It will use the
existing network of bank branches and post offices etc. to collect contributions. There will be
seamless transfer of accumulations in case of change of employment and/or location. It will
also offer a basket of investment choices and Fund managers. The new pension system will be

The system would, however, be mandatory for new recruits to the Central Government
service (except the armed forces). The monthly contribution would be 10 percent of the salary
and DA to be paid by the employee and matched by the Central Government. However, there
will be no contribution from the Government in respect of individuals who are not
Government employees. The contributions and returns thereon would be deposited in a non-
withdrawable pension account. The existing provisions of defined benefit pension and GPF
would not be available to the new recruits in the central Government service.

In addition to the above pension account, each individual can have a voluntary tier-II
withdrawable account at his option. Government will make no contribution into this account.
These assets would be managed in the same manner as the pension. The accumulations in this
account can be withdrawn anytime without assigning any reason.

Individuals can normally exit at or after age 60 years from the pension system. At exit,
the individual would be required to invest at least 40 percent of pension wealth to purchase an
annuity. In case of Government employees, the annuity should provide for pension for the
lifetime of the employee and his dependent parents and his spouse at the time of retirement.
The individual would receive a lump-sum of the remaining pension wealth, which she would
be free to utilize in any manner. Individuals would have the flexibility to leave the pension
system prior to age 60. However, in this case, the mandatory annuitisation would be 80% of
the pension wealth.

There will be one or more central record keeping agency (CRA), several pension fund
managers (PFMs) to choose from which will offer different categories of schemes.

The participating entities (PFMs, CRA etc.) would give out easily understood
information about past performance & regular NAVs, so that the individual would able to
make informed choices about which scheme to choose.

2.4 System Overview: -

New pension system announced by the government was initially targeting new
entrants to central government service (excluding Armed Forces). After a few months, it was
made available to all other citizens of India. Each member of the new pension scheme will be
allotted a unique Personal Retirement Account (PRA) number. This pension system will
initially be based on two types of sub-accounts created by individual members:

(a) A Tier-I non-withdrawable and tax deferred pension account

(For all individuals), and

(b) A Tier-II withdrawable savings account with no tax advantages

(For all individuals subject to minimum deposits per year in the Tier-I a/c)

The number of such sub-accounts may be altered as the system evolves and depending
on the needs and performance of the pension system.

A member will accrete savings towards his retirement into his PRA through his
working life. This PRA will stay with the member regardless of where he stays or works –
including spells of unemployment, self-employment, and changes in jobs or location. He will
be able to use a nation-wide network of competing pension service providers (POPs) to access
this system for opening a PRA, accreting new contributions, receiving account or system
information and for obtaining retirement benefits.

A member will have complete control on how his contributions and savings in his
PRA are managed. He will be able to select a professional Pension Fund Manager (PFM)
from a pool of competing pension fund managers. Each PFM in this system will offer a
choice of three simple and standard pension schemes with different risk and return profiles. If
he desires, the member will be free to allocate his savings across multiple PFMs and schemes.
If a member is unable to select a PFM, his savings will be directed to a 'Default' scheme. He
will also be free and seamlessly able to switch his savings between fund managers and
products as and when he desires. With individual accounts

Roles of participants in the new pension system

• This scheme will target two categories of participants (members): -

It will be applicable to all employees of the central government (excluding Armed

Forces) who join service after 01 January 2004. For these employees, participation and
contributions to the Tier-I (pension) account will be mandatory. Every month, the government
will deduct 10% of the salary (basic plus DA) of these new employees, match it with an
identical contribution from its side, and transfer this full 20% contribution into the relevant
employee's Tier-I pension account. The employee will select the PFM(s) and scheme(s) to
which this 20% monthly contribution will flow. The cost of opening this account and the fees
and charges levied by the CRA / PFMs on all twelve depositions in a year may be borne either
by the employer or by the employee as per the terms of employment.

Every employee may voluntarily invest either in Tier-I (non-withdrawable) or in Tier-

II (withdrawable) subject to certain stipulations. The Tier-II account will allow deposits /
withdrawals at any P&AO / POP location on a voluntary basis. The fees and charges levied
by P&AOs / POPs /CRA /PFMs for all transactions on Tier-II will be borne by the employee.
The amount and periodicity of contributions into this Tier-II account will be decided by the
employee and will be over and above the mandatory contributions into the Tier-I pension
account. The government will not contribute to this account. If a government employee
decides to resign from service, his pension wealth and his PRA will be unaffected.
However, once he ceases government service, he will obviously no longer be eligible
for the 10% government contribution and will thereafter be free to contribute voluntarily into
his Tier-I account. The status of tier-II account, however, shall not change.

The second category of members will include all other citizens of India including non-
resident Indians (NRIs) who will participate in this scheme on a voluntary basis. This
category of members will also be allowed to operate the Tier-I and Tier-II accounts. These
members will be free to decide the amount and periodicity of contributions into these
accounts. For these members, there will be no matching contribution by the Government.
However, employers will be free to make contributions into the PRAs of their employees if
they wish. Unlike in the case of the government, these contributions by employers may not be
mandatory1. The members who choose to open Tier-II accounts may do so after they have
invested at least Rs. 3600 (2003-04 prices) into their Tier-I accounts (implying a contribution
of Rs.10 per day).

Once an account has been opened, the transaction logic would be the same for both
categories of members. In both categories of members and account types, the members will a
receive a unique account number, accrete contributions into this account, select a PFM and
product, switch between PFMs and products, and receive consolidated account statements.

Points of presence (POPs) will be the service providers for members and will offer a
host of services. POPs will assist members in opening new PRAs and issue PRA I- Cards;
collect, verify and transfer contributions and/or instructions regarding PFMs and schemes to
the CRA with relevant and correct member account information; collect and transfer
complaints from members to the CRA; provide performance data as well as account
information and statements to members; and communicate changes in personal information of
members to CRA. Once a member retires, the CRA may use this same network to deliver the
lump sum terminal accumulations to the bank account of relevant member. Banks, post
offices, depository participants and other secure entities which are capable of electronic
connectivity with the CRA will serve as POPs.

For central government officers including Civil Services, Railways and Department of
Posts, the relevant Pay & Account Offices (P&AOs) which manage the government's payroll
process, will perform some of the POP functions. The P&AOs will be responsible for the
initial services to government employees including (a) handing over of a system information
brochure on joining service, (b) account opening, (c) deducting and transferring the 10%
employee contribution and 10% government contribution to the CRA on behalf of each
employee as per the choice of PFM and scheme, and (d) deduction and transfer of employee
contributions to Tier-II accounts to the CRA as per the choice of PFM and scheme. Once this
initial contribution reaches the PFM and the units are credited into the PRA of the relevant
employee, he will be able to avail of all other services (switching PFMs and schemes, account
statements, NAV information etc.) by opening a service account with a POP or by directly
accessing the CRA over the Internet or phone. The transaction and service charges of this
service account will be borne by the employee.

The recordkeeping, administration and customer service functions for all members of
this pension system will be centralized and performed by the Central Recordkeeping Agency
(CRA). The CRA will issue a unique account number to each member, maintain a master
database of all personal retirement accounts and record the transactions related to each
member's PRA. The CRA will receive and consolidate member contributions and instructions
and transmit them to the relevant PFM and scheme on a daily basis. The CRA will
periodically provide consolidated PRA statements to each member. The CRA will also
enforce operational guidelines of the PFRDA (on service providers) as well as report
compliance on mandatory contributions by government employees.

An initially limited number of competing, specialized professional pension fund

managers (PFMs) will manage the retirement savings of members. Every day, the CRA will
receive payments and/or instructions regarding (a) new contributions to PFMs and schemes,
(b) changes (switches) in PFMs or schemes, and (c) terminal withdrawals. The CRA will
reconcile and collate all such instructions and funds received from members through the POP
/ P&AO / bank network or the Internet. For each scheme of each PFM, the CRA will arrive at
a single amount which will include the sum of fresh contributions as well as incoming
transfers from other schemes. From this, the CRA will deduct the total outflow from the
specific scheme (which may be on account of transfers or terminal withdrawals) to arrive at a
net amount payable or receivable from each scheme of each PFM. Once all such balances are
determined, the CRA will remit a single, netted amount to the PFM (which be the sum total of
the netted amounts across all three schemes of the PFM) along with a statement specifying the
exact amount to be invested under each of the 3 schemes on a daily basis. PFMs will comply
with the investment guidelines issued by the PFRDA for allocating these assets under each
scheme. Firms with requisite fund management experience and which satisfy the eligibility
criteria specified by PFRDA will be eligible to apply for a PFM license.
When a member retires, he will be mandated to use a specified part of his terminal
accumulations in his PRA to buy an annuity from a pool of competing annuity providers who
will be responsible for delivering a regular monthly pension to the member for the rest of his
life. Life insurance firms which are registered with the IRDA will serve as annuity providers.
The retirement age for non-government employees, which is the age at which they will be
able to withdraw their savings and buy an annuity will be decided by the PFRDA.

Authorized Retirement Advisors (ARAs) will help in marketing the new system to
potential members. They will advise and assist members with opening retirement accounts, as
well as with selecting appropriate pension fund managers and products. The ARAs will
conform to a uniform code of conduct and ethics and will have to pass a certification
examination prescribed by the PFRDA in order to obtain a periodically renewable work
license. The ARAs may be affiliated to specific PFMs, POPs or may work as independent
advisors. Existing agents and financial intermediaries of mutual funds and insurance firms
will also be able to serve as ARAs by passing this certification examination. The transaction
forms filled by the members of the new pension scheme and deposited through an ARA will
bear the latter's certification number. Using this, the CRA will keep a track of the all the ARA
transactions and the volume of transactions transacted through each ARA. The PFRDA shall
determine the cap on the charges to be paid to the ARAs by the POPs/PFMs. The PFRDA
can use PFM-wise / POP-wise ARA data generated by the CRA and compare the same with
ARA disbursements reported in the PFM/POP annual statement of accounts. A malpractice
detected in this regard shall be construed as contravention of the license conditions and may
lead to cancellation of the PFM/POP registration as well as the ARA certification.

In this entire process of accumulations and withdrawals, a sound regulatory

framework would give individuals an umbrella of safety with respect to problems of risk
management and prevention of fraud. The PFRDA will regulate the charges, entry and exit,
quality and provision of service of POPs, ARAs, CRA and PFMs during the accumulation
phase of this pension system. The PFRDA shall also approve periodic investments on account
of CRA system upgrades. The process of delivery of pensions to members by annuity
providers will be regulated by the IRDA. However, if a member chooses to not withdraw his
savings as a lump sum and decides to instead phase out his withdrawals from his PRA, he will
continue to interact with the POPs, CRA and PFMs and will thus remain the responsibility of
the PFRDA as well.
• The Interim arr angement for new central government employees: -

The New Pension Scheme became operative from 1.1.2004. The scheme is applicable
to all new entrants to Central Government including central government civil ministries, non-
civil ministries and departments and armed forces (civil) which are paid a pension from the
Consolidated Fund of India.

The DEA is setting up the institutional framework for the New Pension Scheme which
is expected to be in place in a few months. Meanwhile, the CGA and the CPAO are jointly
managing the 'Interim Arrangement' of collecting contributions, issuance of unique account
numbers, administration and recordkeeping for persons who join central government service
on or after 01 January 2004.

In the interim arrangement, only contributions into Tier-I accounts (@ 10% of Basic +
DA), are recovered from the salary bills of new government employees every month. The
Government matches this with an identical contribution into the employee's Tier-I account.
Deductions and contributions to Tier-I accounts begin only from the 2 month after
the government employee joins service. No deductions from salary or contributions by
Government are effected for the month of joining service.

No deductions are made towards GPF contribution from these new government
employees as the GPF scheme is not applicable to them.

Voluntary contributions to Tier-II (withdrawable) accounts are not permitted during

under this interim arrangement.

The Central Pension Accounting Office (CPAO) is functioning as the 'Interim CRA'
for the new pension scheme and is responsible for central recordkeeping and reconciliation of
pension contributions by new central government employees.

The Pay & Account Offices (P&AOs) under the CGA are partly performing the role of
the CRA (of allotting unique account numbers) and partly that of POPs – they are responsible
for monitoring salary deductions and reporting of contributions to the CPAO.

The CGA has developed software which captures information on new employees and
their contributions. The CGA has delivered training to most P&AOs on this software and on
handling the accounting and information processes of the New Pension Scheme. The P&AOs
have also instructed the relevant DDOs to provide information on new employees.
The Departments of Railways and Posts have decided to issue unique account
numbers to their new employees.

(a) Allotment of Permanent Pension Account Number (PPAN)

The CGA has developed and distributed a new form3 for new employees to all
P&AOs. The DDOs have been requested by their relevant P&AO to provide information on
new employees in the prescribed format.

On joining service, the concerned DDO instructs a new government employee to fill
up the form prescribed by the CGA and provide particulars such as his name, designation,
scale of pay, date of birth, nominee(s) for the New Pension Scheme, relationship to the
nominee etc. Consolidated information for all those who have joined service in the month
(says January) is to be submitted by the concerned DDO in the prescribed format to his
P&AO by 7 of the following month (February).

On receipt of the above form from the DDO, the P&AO allots a unique 16 digit
Permanent Pension Account Number (PPAN) to the new employee. The first four digits of the
PPAN indicate the calendar year of joining the scheme, the next digit indicates whether it is a
Civil Ministry or a Non-civil Ministry, the next six digits represent the P&AO's code and the
last five digits indicate the running serial number of the individual government servant in a
particular calendar year. Each P&AO maintains an Index Register for the purpose of
allotment of PPAN to new government employees.

The P&AO returns a copy of the statement indicating the PPAN number allotted to
each new employee by the 10 of the same month. The DDO intimates the account number to
the individuals concerned and also notes the same in the Pay Bill Register.

The particulars of all new government employees (including the details provided by
them in the prescribed format and their respective PPAN) received from various DDOs across
the country are consolidated by the relevant P&AOs and forwarded to the Principal Accounts
Office by the 12 of every month.

The Principal Accounts Office in turn consolidates this information and forwards the
same to the CPAO by the 15 of the month. The CPAO feeds this information in its database.
(b) Deductions towards the N ew Pension Scheme and its accounting

An office memorandum regarding interim accounting procedures for these deductions

was issued by the CGA on 24 February 2004. All principal CCAs/CAs were requested to
instruct the P&AOs and the DDOs of their ministries / departments for compliance.

The DDOs/CDDOs prepare separate Pay Bill in respect of Government servants

joining service on or after 1.1.2004. The CDDOs then prepare pay bills but do not make any
payment to the new employees. All such bills for new employees are sent by them to the
respective P&AOs on or before 20 of the month to which the bills relate for pre-check and

Along with the salary bill for the government servants who join the service on or after
1.1.2004, the DDO/CDDO also prepares a separate bill for the matching contributions to be
paid by the government and credited to the PPAN.

On receipt of the salary bills of the new employees, the P&AOs exercise usual checks
and pass the bill and make the payments to the DDOs.

The P&AO consolidates the information on new employees received from various
DDOs and forwards the same in a floppy to the respective Principal Accounts Office by the
12 of the month following the month to which the credit pertains. The Principal Accounts
Office consolidates the information and sends the same in electronic form to the CPAO by

CPAO on receipt of this information from all Principal Account Officers (including
from the non-civil ministries) updates the database and generates exception reports on missing
credits, mismatches etc. which are sent back to the P&AOs concerned through the Principal
Account Officers for further action.

(c) Transfers and promotions

Whenever any government servant is transferred from one office to another either
within the same accounting circles or to another accounting circle, balances are not
transferred to another accounts office. However, the DDO indicates the unique account
number and the month up to which the employee's contribution and the matching
government's contribution have been transferred to the Pension Fund in the Last Pay
Certificate of the individual.
The CGA is drafting rules regarding treatment of contributions in the event of a
transfer or promotion of an employee covered by this scheme. In principle, if the basic pay of
an employee covered by the scheme changes in the middle of the month, the change in the
contribution amount to the PPAN will be effected only from the subsequent month. The CGA
will shortly finalise the rules regarding responsibility for effecting the deduction and transfer
to the PPAN – i.e. whether the earlier or new DDO will be responsible for this transaction.

(d) Withd rawals

No withdrawal of any amount is allowed during the interim arrangement. Provisions

regarding terminal payments in the event of untimely death of an employee or in the event of
his leaving the government service during the interim period are yet to be notified.

(e) Reconciliation

At the end of each financial year the CPAO will prepare an annual account statement
for each employee showing the opening balance, details of monthly deductions and
government's matching contributions, interest earned if any, and the closing balance. The
CPAO will send these statements to Principal Account Officers for onward transmission to
the DDOs through the P&AOs.

After the close of each financial year CPAO will have to report the details of the
balances (P&AO-wise) to each Principal Accounts Offices, who will forward the information
to each P&AO for the purpose of reconciliation. The P&AO will reconcile the figures of
contributions posted in the ledger account of the individuals as per their ledger with figures as
per the books of the CPAO.

After the New Pension System is in place the CPAO shall hand over the member
identification information, salaries, deduction and accumulation to the new CRA. The P&AOs
shall send the member information and contribution details to the CRA after verification.


The (Old Age Social and Income Security) OASIS report species the need for a set of
choices that are faced by an individual to invest their pension contributions into

There are three main questions that need to be answered for what are the asset choices
to an NPS contributor:

1. What are the assets permitted for NPS funds investment?

2. What are the limits on how much of the funds can be invested into each of the assets?

3. What is the “default" investment of an NPS contributor – i.e., if the contributor does not
explicitly make a choice, then what assets, and how much of each, does his contribution
invest in?

What ass et s?

The sets of assets to be considered for investment of NPS funds were segregated based
on their risk -return characteristics:

• Asset class E: High return, High risk" - Equity market instruments.

• Asset class G: Low return, Low risk" fixed income instruments. The best example of this is
central government bonds.
• Asset class C: Medium return for credit risk" bearing fixed income instruments. Examples of
these are bonds issued by firms.

The alternative considered was to have three choices that would each be a mix of “E",
“G", “C". This was the choice that was presented in the original OASIS report:

• “Conservative": large investment in “G", small investment in “C".

• “Moderate": medium investment in “G", small investment in “C", around 30% in “E".
• “Growth": around 50% in “E", the remainder in “G" and “C".

The EG recommends basic asset classes – “E", “G" and ”C" - as the customer choices
The advantages of having these basic asset class choices are several:

• Ease of understand ing for the contribu tor.

It is easier for the contributor to understand what “E", “G", “C" are compared to
“Conservative", ”Moderate", and “Growth".

Better support for full range of risk preferences amongst participants.

For some individuals, the `Conservative' asset management of Project OASIS would
be too risky, and they might want 100% of their money in government bonds. For some
individuals, full equity exposure is desired, and the `Growth' style of Project OASIS is
inadequately exposed to the best long-term returns. If “E", “G" and “C" are the investment
choices given to individuals, all individuals can achieve the best portfolio based on their own
risk preferences.
Ease of performance evaluation and comparison of PFMs, for the contributor, and for

PFMs have much more standardised performance benchmarks with “E", “G" and “C".
The “alternative" investment choices give far more control to the PFM on the exact portfolio
they manage. This makes it less standardised and therefore more difficult to compare directly.

Easier for manag eme nt at the CRA

This is not a very material concern - the technology at the CRA can be developed to
deal with both sets of choices. This makes the “cost" at the CRA a non-issue. However, the
cost of systems development at the CRA will be lower in both (a) monetary terms as well as
(b) in time to operationalise and implement when dealing with the simpler categories of “E",
“G", “C" compared with the “Conservative", “Moderate", “Growth" investment choices.

Recomme ndation

The simpler structure of the “E", “G", “C" investment choices is easier to understand,
provides clear choices to the contributors and lowers the cost to the contributor, the regulator
as well as the CRA. Thus, we recommend that the investment choices offered in NPS be the
“E", “C", “G" asset classes.

Asset class “E"

Equity investments are a natural for pension funds which have a long-horizon of
investment. Financial literature on the returns from equity highlights two aspects of equity

1. Investments in equity earn the “equity premium".

2. Equity premium is ensured only over “long horizons of investments".

Diversified equity portfolios earn a premium over the risk-free interest rate, which is
the return earned investing in a short-dated government bond. This premium is called the
“equity premium" of a country and is a positive for all countries. The magnitude of the equity
premium differs from country to country.

However, unlike the risk-free interest rate, the equity premium cannot be guaranteed
to an investment with a short horizon. The equity premium is measured as the average returns
that accrues to equity investment. On a short investment horizon, equity indexes often
underperform government bonds. However, over long horizons, the equity premium (annually
compounded) dominates over the daily fluctuations of returns, and the return from equity
investment dominates over returns from a fixed deposit at a bank. An earlier study (Thomas,
1999) shows that returns from stock market investments in India dominate over the risk-free
rates if the equity investment horizon is eight years or longer

This accrual of equity premium over long horizons of investments makes equity a
natural choice for pension fund investment. However, it is prudent to limit the set of equity
instruments, at the initial phases of the NPS.

What is the set of equity instruments through which NPS can access the equity premium?

All financial investments give returns which are commensurate with the level of risk
in the instruments. However, not all kinds of risk earn the returns - the amount of equity
premium returns are earned for holding systemic risk. Thus, the equity investments made by
NPS funds must be diversified portfolios.

What should the diversified portfolio be?

The generic diversified portfolio for any country is taken as the “market index" for
that country. These have the advantage of:

• First, being a diversified portfolio containing mostly systemic risk.

• Second, being a portfolio that is constantly updated with shares of companies that have either
o -Recently done a big equity issuance, or
o -Whose market cap has caught up or exceeded at least some of the stocks already
in an index.
• Third, the market index is a tradeable portfolio. The last reason addresses an important
principle of the discussion on fund investment for the NPS: that the “cost" of NPS
investments must be low. Investment costs have multiple dimensions: in addition to the costs
paid to the financial market intermediaries and institutions (which tend to be a fixed cost), the
largest and most variable component of cost of fund management is that of market impact cost
when a trade is executed.
• For any given asset, the higher the liquidity of the asset, the lower the cost of investing in the
asset. The liquidity of assets is measured by the impact cost of buying or selling the asset.
Market indexes tend to have low impact costs by virtue of the way that assets are selected for
inclusion in the index based on high liquidity.
Lastly, if pension funds are invested into equities covered under an index, the
performance of the funds can be measured by the \tracking error" of the fund. As discussed at
the start of Section 3.1.1, it is difficult to establish whether an investment strategy has
delivered the returns that it has promised because expected equity returns are obtained over
long time horizons. Thus, it is difficult to capture the performance of fund managers based on
measures like returns over a six-month or a one-year horizon -they should ideally be
compared using returns measured over multi-year horizons.

This makes performance measurement and benchmarking of fund managers extremely

difficult. Two indirect measures of fund performance are (a) costs of fund management and
(b) tracking error in the case of index funds.

Both these are pertinent to performance of returns. Higher the costs of fund
management, the lower the net returns to the investors. If the only fund management strategy
is managing index funds, then the costs of fund management become a direct measure of
performance of the fund manager - even on a short term horizon like a year.

The tracking error of the index fund gives a measure of how different the returns on the fund
have been vis-a-vis the index that it is supposed to be tracking. It is measured as the volatility
of the difference between the fund NAV changes and the index changes. This can be
measured with daily data for any interval of time six-months, one year, etc.

Most importantly, if the Nifty index is chosen as the \E" investment vehicle, then a
“benchmark" for what the tracking error of the PFMs ought to be can be observed from the
existing Indian Nifty index fund industry! This will set a low-water mark level below which
the tracking error of PFMs should not go. PFRDA can consider stipulating that a PFM that
violates this low-water mark on tracking error performance i.e., tracking error is consistently
higher than this benchmark level) on more than three or four six-monthly valuations must be
replaced by a new PFM. If the AUM with the lowest performing PFM is less than Rs.5000
crore, then the AUM can be distributed among the existing PFMs.

In India, there are several market indexes, depending upon the coverage of the market,
or the sectors. The most widely known are the NSE's Nifty and the BSE's Sensex. Another
index widely used in research as a broad-coverage index is the CMIE Cospi index. The
Sensex is a portfolio of 30 stocks, while the Nifty has 50. The Sensex is a subset of Nifty - all
except one of the 30 stocks of the Sensex are in the Nifty. The impact cost to make Rs.50 lakh
of purchase/sale of Nifty is 15 basis points (as of November 2008). The average impact cost
across the year was around 10 basis points. The risk-return characteristics of a set of indexes
are in Table 1.

Daily Returns Daily S.D. Sharpe's Ratio

(in %) (in %) (Returns/ S.D.)
Nifty 0.028 1.697 1.65
Sensex 0.018 1.703 1.06
Junior Nifty 0.047 1.998 2.35
Cospi 0.042 1.685 2.53

Table 1: Risk-return performance of some standard equity indexes, Jul 1996-Dec2008

Here, the pertinent summary measure capturing both the returns and risk of the
portfolio is the Sharpe's Ratio of the portfolio. The higher the Sharpe's ratio, the more
attractive the portfolio is for investment purposes. The reasoning being that for a given unit of
risk, the portfolio offers a higher return. The best investment is the Cospi portfolio. This
contains approximately 2400 stocks at any point in time. However, since the portfolio is
adjusted every day, it is not a readily implementable one. The next best portfolio by Sharpe's
ratio is the Nifty Junior index, which contains the list of 50 most liquid stocks after the stocks
in Nifty. However, if we had to choose between the two more popularly followed indexes, the
Sharpe's ratio of Nifty is higher than that of the Sensex.

Recomme ndation

Given the need for prudence and simplicity in the initial stages of NPS, we argue that
equity participation be done through a standardised portfolio across all PFMs, implemented
through an index fund only. More narrowly, we recommend that it be the Nifty index fund.

This should be done only at the first stage of the NPS implementation. It can be
expanded to include a wider set of alternative index funds after the first five years of the NPS
to allow more choices to the fund managers to deliver better returns. As regulatory experience
with NPS increases and regulatory capacity expands, NPS equity funds may even include
active management of equity portfolios. Moreover, this should include more sophisticated
products such as derivative portfolios, hedge funds, and international investment as the
capacity of both the contributor and the regulator expand to accommodate these.

Asset class “G"

On the other extreme of risk preferences is the asset class of lowest risk. The most
natural candidates for lowest risk assets are bonds issued by the Central Government - called
GOI bonds. These bonds have no default risk, and offer enormous depth for investments by
pension funds. For instance, GOI bonds had a market capitalisation of around Rs.11 trillion in

However, in addition to low “market risk", all “low risk" pension assets also ought to
have low “liquidity" risk – i.e., any low risk asset must allow for easy movement in and out of
cash. From this perspective, GOI bonds are not the most liquid assets in India, especially
across all low risk securities. Liquidity of these bonds in the secondary market tends to be
high for a period of six to eight months around the time of issue. After GOI bonds go past the
age of six months in the secondary market, they are not well traded. They are more likely to
be held till maturity when they are redeemed.

In order to accommodate the liquidity aspect of the low risk level asset class, two
other sets of “low market risk" securities are included in this asset class:

1. Liquid funds of mutual fund companies

Liquid funds are short-term fixed-income products. Pension funds can

purchase such funds offered by mutual funds other than the PFMs, as long as the fund
management companies satisfy the following criteria of:

• Having Asset Management Companies regulated by SEBI, with

• Average total assets under management (AUM) for the most recent six- month period
of Rs.5000 crores, at least.

When a PFM buys a liquid fund from a mutual fund, the fees and expenses charged by
the liquid fund must be paid out of the fees and expenses of the PFM. They cannot be
charged to the customer of NPS.

Alternatively, the PFM can directly invest into all the assets that are
permitted for investment into liquid funds by SEBI. If this channel is used, the fees and
expenses of the liquid fund do not become an issue.

2. Fixed deposits (FD) of banks.

PFMs can hold funds in FDs of certain specified banks. These banks must satisfy the following

• Net worth of at least Rs.500 crores and a track record of profitability in the last
three years.
• Capital adequacy ratio which is not less than 9% in the last three years.
• Net NPA of under 5% as a percentage of net advances in the last year.
• Be a participant in the RTGS system.
• The price-to-book ratio of the bank must exceed 1.25.

One of the biggest risks of a large fraction of investment into these assets is that the
accumulated funds will not cover inflation risk. This is a problem that all fixed income
instruments are vulnerable to. From that point of view, it would appear optimal to have a
bias towards holding liquid funds as the larger proportion of investment into this
asset class. As of the first phase of NPS implementation, we do not recommend any
specific limits on how much of the NPS funds can be invested here. However, we
recommend that the concentration of funds invested in any one FD or LF should not
exceed 5% of the total funds invested in Asset Class “G" instruments.

Recomme ndation

We recommend the following securities be permitted under Asset Class “G" investments:

• All Central Government securities.

• Liquid funds of mutual fund companies funds, where the AMCs satisfy the following criteria:
o AMCs are SEBI regulated, with
o Average total assets under management (AUM) for the most recent six-month
period of, at least, Rs.5000 crores.
• All assets that are permitted for investment into liquid funds by SEBI. If this channel is used, the fees

and expenses of the liquid fund do not become an issue.

• Fixed deposits (FD) of certain specified banks, where the banks must satisfy the following
o Net worth of at least Rs.500 crores and a track record of profitability in the last
three years.
o Capital adequacy ratio which is not less than 9% in the last three years.
o Net NPA of under 5% as a percentage of net advances in the last year.
o Be a participant in the RTGS system.
o The price-to-book ratio of the bank must exceed 1.25.
• In addition, NPS funds invested by any PFM in a liquid fund or FD of a bank should be under
10% of the total “G" funds held by the PFM.
• Lastly, the total NPS funds invested in any single Asset Management Company (AMC) ought
to be under 5% of the total AUM of the AMC.

Asset class “C"

This last asset class contains bonds issued by any entity other than the Central
Government. Here, the issuers can be state governments, municipal bodies, state government
PSU/PSE like electricity boards, and private corporations. Unlike with equity, these are fixed
income instruments with fixed maturities. The risk of these assets is limited to the default risk
of the issuer and is, therefore, more restricted compared to the risk of equity.

However, the risk of default varies widely across issuers. In the early phase of NPS, it
would be prudent to consider some restrictions on issuers whose bonds could be part of Asset
Class “C".

Traditionally, investment restrictions have been put in place based on the credit rating
of the bond issued. However, while we do consider that there is value in a bond that has a
credit rating compared to a bond that does not have a credit rating, the EG does not consider it
either necessary nor sufficient to include a minimum credit rating for a bond that NPS funds
can be invested into.

There are several reasons for this:

1. Domestic and international events observed over the last decade of financial market activity
have given pause to selection criteria based solely on credit ratings. The two main
observations are:

• Credit ratings take a long time to adjust to information present in the market about the credit
worthiness of any given bond. Some of the more stark examples of this are that of the credit
ratings of WorldCom and Enron. The credit ratings on their bonds adjusted downward far
later than the stock prices of their shares.
• More recent events have shown that credit rating agencies are vulnerable to agency conflicts
between the rater and the rated.

The recent crisis of the problems that have arisen in the financial institutions that have
led to the global financial crisis is another case in point.

In isolation, such events are not damaging - it is not possible for any financial measure
to be perfect predictors of credit quality. However, a sole/primary dependence on credit
ratings alone has been shown to be awed as a strategy in setting investment criteria primarily
because of the manner in which it skews the incentive of the PFM.

2. One of the key lessons from the financial sector crisis of the last several years is that if
there is strong prudential risk monitoring and management rules, fund managers tend to obey
them blindly at the cost of developing their own internal risk management systems.

Every fund manager has internal prudential investment norms that are set and
approved by the board of the AMC. These become the risk-return tradeoffs which become the
cornerstone of investment decisions made by the PFMs.

Instead, the EG consider a more broad-based set of selection criteria for credit linked
investments. These selection criteria are biased towards liquidity of the instruments and the
availability of frequent information updates about the issuer based on which the PFMs can
have a more relevant assessment of the credit quality of the bond issuer.

We observe that there is a far larger amount of information that is available about the
earnings and performance of bond issuers that also have shares listed and traded on public
exchanges. For such issuers, which today include a good representation of public sector
enterprises and public sector undertakings (PSE/PSU), fund managers will have access to
standardised and audited information. On the other hand, fund managers will not have access
to similar kinds of information for those entities which are not listed companies. This set
includes issuers such as state governments, municipalities, as well as most of the
infrastructure projects that are available for investment today and, likely in the near future as

We recommend that for entities that issue bonds which have better disclosure of
balance sheet and performance data, the selection criteria for NPS PFMs to invest in their
bonds can be broader based than only credit ratings.

In this, we follow in the footsteps of the credit risk measurement practices that are
increasingly gaining credibility all across the world. When prices are available from liquid
secondary market trading, credit measures based on this price becomes an indicator of
changes in credit quality of the issuer. Such measures lead changes in the traditional credit
rating by a wide margin. Thus, fund managers that depend upon price-based measures can
adjust for changes in credit quality of the issuer much earlier than fund managers that depend
only upon the traditional credit ratings.
The evidence has led to credit ratings models having adopted price based measures to
update the credit quality of issuers in their ratings models. As mentioned earlier, the
advantage of the stock-price based credit measure is that it is a more real-time measure of the
credit worthiness of a bond than the credit rating itself.

The caveat to using the credit measure based on stock prices is that the price based
information depends upon the liquidity of the stock of the issuer: the more liquid the share,
the better the price information as an early and credible indicator of credit quality of the
issuer. However, within this caveat, we recognise that prices and the information in listed
entities is a valuable source of input for valuation of securities by the PFM. We therefore,
recommend that the selection criteria for listed and non-listed entities be differentiated, with a
lower emphasis on the credit rating where better information is available.

Recomme ndation

With the above considerations in mind, we recommend the following as the non-
central government entities, whose bonds can be permitted into the Asset Category “C" for
NPS investment:

• All state government bonds that are explicitly guaranteed by the state government.
• All state government bonds that are rated by a credit rating agency.

There is no restriction on an “acceptable minimum" credit quality - the choice of

investment is left upto the PFM to decide.

• All credit rated bonds/securities of

1. “Public Financial Institutions" as specified under Section 4(A) of the Companies

Act, and

2. “Public sector companies" as defined in Section 2(36-A) of the Income Tax Act, 1961; the
principal whereof and interest whereon is fully and unconditionally guaranteed by the Central

• All municipal bodies/infrastructure funds bonds that are rated by a credit rating agency

There is no restriction on an “acceptable minimum" credit quality in the case of

municipal bonds as well - here too, the investment choice is left to the prudence of the PFM.

Bonds are permitted for NPS investment of all firms (including PSU/PSE) that have shares
listed on a stock exchange with nation-wide terminals, and:
1. Have a market capitalisation of over Rs.5000 crore (as on 31 March),
2. Which have been traded for at least three years,
3. Whose shares have an average trading frequency of at least 95% for a period of the last one
year on the exchange?
4. Whose top management as well as the board of directors of the company has no
legal/regulatory charges against them.

The stock-market based filters for selection of corporate bonds for NPS “C" asset
investment also implies that the stock market indicators can be used for valuation of the “C"
assets. This will be an improvement in the current valuation framework that is based on
credit-rating downgrade since the stock market price can be a more real-time measure of
credit quality compared to the credit rating.

• In addition, exposure to any single bond of an entity should not exceed more than 5% of the
total funds invested by the PFM in Asset Class “C".
• The total exposure to bonds by any single entity should not exceed more than 10% of the total
funds invested by the PFM in Asset Class “C".
• Lastly, the total credit exposure of all the NPS funds invested in the debt of any permitted
entity should be limited to a concentration of less than 5% of the total debt of that company.
About The Organization
3.1 History

India's economy is mainly based on Agriculture. However, in the recent years the
cultivable land, water resources are also drastically exhausting day by day. To keep pace with the
increased food and clothing requirements of ever growing population, the best alternative is to
increase the productivity per unit area and make the agriculture sustainable through adequate
supply of quality seeds of hybrids having high yield potential, excellent quality, tolerance to biotic
and abiotic stresses.
The company started with the mission on need based Research and Development,
so as to uplift the rural farmers who are mainly dependent on agriculture. In view of this, supply of
quality seeds and bio products such as bio-fertilizers, bio-pesticides bio-soil enrichers and bio-
organic plant vitalizers well in time at affordable prices is imperative.

3.2 Evolution

Nirmal Seeds Pvt.Ltd. (NSPL) was established in 1988 by the agripreneurs, Dist. Jalgaon in
Maharashtra state, of India. The company started with need based R&D in the field of seed
technology for farming community. Maximizing the yield for sustainability of Agriculture is
major focus of the company. The NSPL is an ISO 9001-2000 accredited. The Bio-tech Lab is
approved by the Department of Scientific and Industrial Research, Govt of India. Company is
dealing with vast range of seeds mainly for subtropical region including major field crops and
Vegetables. Company is engaged in manufacturing of Bio inputs such as Growth vitalizers,
Organic manures, Bio Fertilizers and Bio Pesticides. NSPL is having National and International
Research tie ups. Developmental work of transgenic commercial crops by NSPL is also well
recognized in Indian subcontinent.


4.1 Formulation of Hypothesis: -

As we have an insight into the N.P.S. scheme and this scheme is the new vehicle for
retirement planning. I have done this research to find out what is the response by the investors
to this new financial product, its pros and cons and I also tried to study where the investor
rank this product with comparison to the other products like EPF, PPF, Mutual Funds Pension
Scheme, Insurance Schemes providing pension options and many more.

Ho: - The Investor will like to invest in the New Pension Scheme

H1: - The Investor will not like to invest in the New Pension Scheme

For this proving this hypothesis I have used the collected data from the following
sources primary as well as secondary.

4.2 Sources of Da ta: -

a) Primary Data: -

Primary data is collected from various classes of the society I have taken the sample of
45 persons working in various fields first of all I have given the presentation regarding the
NPS to those who don’t know what exactly it is and then I have asked their opinion on the

b) Secondary Data Sources: -

• Offer Document Provided By PFRDA

• Website of the PFRDA and FINMIN
• Magazines like Outlook Money and Business World
c) Data Collection method:-

• Questionnaire
• Unstructured Personal Interview
• Unstructured Telephone Interview
• Unstructured E-Mail Interview
d) Research Instrument:-
Research instrument is Questionnaire which contains 12 Questions.

e) Sampling Plan:

Sample size : - 45 persons.

Research Territory : - Individuals from various places like Jalgaon,

Pachora and Mumbai.

4.3 Composition of sa mpl e: -

1) Age Details: -

From the sample of around 45 persons the age distribution was as follow.

Age No of Samples
35-40 6
40-45 11
45-50 12
50-55 16
Total 45
From the above discussion we can say that the sample which I have choosenis very much
heterogeneous and would resemble the population very well.
It is most common instrument whether administered in person by phone or online
questionnaires are very flexible. The form of each question is also important. Closed end
question include all the possible answers and subjects matters choices among them.

I have used closed-end questions, which provide answers that are easier to interpret
and tabulate. I have taken care in the wording and ordering of questions. I have used simple,
direct, unbiased wording questions, which are arranged in a logical order. I have asked
personal questions at last so that respondent does not become defensive.

I have also used a few open ended questions where investor can state the information
is relevant or not used for / against India.

Questionn aire of the Investor: -

I have made questionnaire consisting twelve questions to get Investor’s view about
New Pension Scheme. I have tried to ask the questions like their income, views about the
Pension Scheme, and their suggestion towards making the scheme more successful.

I have first of all made the people aware about the product which I am going to survey
i.e. NPS by the way of giving presentation or by giving them the summery of the rules and
regulations of that scheme and then I have filled the questionnaire based on their views
regarding the scheme.


1) What would be your choice for retirement benefits?

a) PPF b) Mutual Fund

c) Insurance d) Other (Specify)
As NPS is the retirement benefit scheme it has to face the tough competition from the
other products like EPF, PPF, ULIPS and Mutual Funds. This question was asked to see what
the people think about the NPS among the sample we have chosen we have seen the following

Among the 12 people choosing “Others”, around 50% have preferred maintaining
their retirement corpus by themselves either by investing in the Fixed Deposits or by trading
in equities on their own.

2) What do you think NPS will get good response from Public?

a) Yes b) No c) Can’t Say

In the initial period of launching, NPS was unable to get a flashing start the response
of public was not so enthusiastic so this question was asked to determine whether this product
will get good response thereafter or it would not be a great success.

The answers of people once again proved that NPS will not be the preferred choice for
most of the people from the 45 people, about 49% people said NPS will not get the good
response while 38% people were still optimistic and other 13% preferred not to comment on
the question.

3) Can NPS be replacing the old pension schemes like PF and PPF or not?

a) Yes b) No c) Can’t Say

As previous question has already answered that the NPS will not get good response
from the people this question has further strengthen the fact while more than 70 % people said
that NPS will not be replacing the PPF it can be the one of the options for investment but it
cannot replace the age old investment vehicles like EPF and PPF.

4) Which feature you like the most in the New Pension Scheme?
a) Facility of PRAN(Permanent Retirement Account Number)
b) Exposure to Equities and other Product
c) Facility to design your portfolio according your need
d) Freedom to select & change your fund manager
e) Others (Specify)
In this question we have tried to cover the strengths of the NPS scheme which can
attract the investor to invest his corpus into the scheme. There are many facilities which are
unique in case of NPS. PFRDA can exploit these features to attract the attention of the
investor among these features the most appealing one is the facility of PRAN i.e. Permanent
Retirement Account Number, around 35% of the people had opted for the same.

The second most attractive feature is the facility to choose and change your fund
manager as per the requirement for which over 30% people are voted.

5) How would you rate the New Pension Scheme as compared to other investment avenues?

a) Costlier b) Moderate

c) Cheap d) Very Cheap

Though the NPS scheme has lag behind in the response from the people the NPS one
of its very important feature that the cheap fund management cost it holds an edge over the
other investment avenues in terms of cost.

This question was asked to cheque whether this is known to investor and how much
cost efficient the scheme is and while studying this I have came to know that people are aware
that the NPS is cheapest product in terms of fund management cost.

6) What will be the best Age for getting into the NPS?

a) Below 30 b) 30 to 35

c) 35 to 40 d) Above 40

As per PFRDA any person who is 18 years old can invest in NPS but the people are
not keen in investing in the scheme as early as this because of the unawareness about the
requirement needs and planning. From the answers of the above question I found that the
people are looking to get into the scheme after 40’s.

But according to the people who know about the product and have good knowledge
about the retirement planning has suggested that the early entrée will benefit to the max.

7) PFRDA is asking to park 80% of Fund value in Annuity Plans in case of early exit from the
scheme what do you think about this limit?

a) Too much b) Moderate c) Can’t Say

From the answers of above question I came to a conclusion that people find it
inconvenient because of the above said clause into the scheme so people are not willing to
block their corpus into the scheme upto 60 years of their age.

The people were expecting some relaxation in the withdrawal and other provisions of
the scheme probably the limit can be reduced to 50% of the investor’s fund.

8) Which will be the biggest risk you think about investing in NPS?

a) Market Risk b) Liquidity Risk

c) Low Returns d) Others (Specify)

We all have seen that the NPS has not got so good response so I have tried to find out
what are the reasons behind this and I have came to know that the major issue was taxation, as
we know that the amount received in the hands of the investment at the time of maturity is
taxable that why people are uncomfortable with the scheme. Market risk and liquidity are also
some of the major issues whereas people are not worried about the Low returns.

Some people has also said that the lock in period and the withdrawal policies also
responsible for the failure of the product.

9) Do you think Fund Managers will give same efforts as they would have been taken for MF
scheme because of low operating Cost?

a) They will take b) They Will not

Many persons have said that due to the low fund management cost Fund Managers
will not take proper efforts for investing the money in the market but the other group has said
that they will do their work properly because there will be a monitory system.

10) Do you think PFRDA will succeed in getting the Tax Benefit on the Maturity Amount?

a) Yes b) No c) Can’t Say

11) If NO; then one should invest in NPS or Not?

a) Yes b) No c) Can’t Say

Both the question asked above revolve around the EET (Exempt-Exempt-Taxed)
status of the scheme and from the answers of the questions I came to know that people will
definitely invest in NPS if NPS gets the EEE (Exempt-Exempt-Exempt) status.
Currently investment in EPF, PPF and Mutual Fund enjoy EEE status so it important
to give EEE status to NPS also if it has to make impact.

12) Suggestions:-

I have asked people for some suggestions which can make the fund more successful
there were various view but I have sorted out some of them are as follows.

i) The first and foremost important suggestion was giving the EEE status to the NPS.

ii) Reducing the amt to be kept into annuity after maturity and in case of early withdrawal
from the funds.

iii) Allow opening the accounts in the name of a minor child as in case of PPF.

iv) Changing the Fund Manager four time in a year

v) Don’t make the buying of annuity from the maturity corpus as voluntary give option to
investors to get full amount in cash.

vi) Government should ensure fixed rate of return as a guaranty if the fund’s performance
was not upto the mark.

5.2 Frequent ly Asked Que stions (FAQs): -

While communicating with the persons at the time of the research work I found that
people do not understand the NPS scheme even if they had gone through the offer document
and various articles on the scheme. Many of the persons I have visited had some doubts which
have come to me for solution. I have faced many questions from different people following
are some of the Frequently Asked Question.

Who can join the New Pension Scheme?

Any Indian citizen between 18 and 55 years at present, only tier-I of the scheme,
involving a contribution to a non-withdraw able account, is open. Subsequently tier-II
accounts, which permit voluntary savings that can be withdrawn at any point of time, can be
opened. But to be eligible to open a tier-II account, you need a tier-I account.

How do I enroll?

You will need to visit a point of presence (PoP), fill up the prescribed form with the
required documents. Once you are registered, the Central Recordkeeping Agency (CRA) will
send you a Permanent Retirement Account Number (PRAN), along with telephone and
internet passwords.

How much can I invest?

There is no investment ceiling. But the minimum investment limit has been fixed at Rs
500 a month or Rs 6,000 annually. Subscribers are required to contribute at least once a
quarter but there is no ceiling on how many times you invest during the year.

What is the penalty for failure to make the minimum payment?

You will have to bear a penalty of Rs 100 per year of default and will need to pay it
with the minimum amount to reactivate the account. Also, dormant accounts will be closed
when the account value falls to zero.

Are my investments guaranteed?

No. There is no guarantee since NPS is a defined contribution scheme and the benefits
depend on the amount contributed and the investment growth up to the time of exit.

How should I select my investment option?

You can choose the investment mix between equity or E (high risk but high returns),
mainly fixed income instruments or C (that come with medium risk and returns) and pure
fixed investment products or G (which offer low returns but have very low risks associated
with them). Equity investment is capped at 50 per cent.

At present, the equity investment consists of index funds that replicate the Sensex or
Nifty portfolio. The C segment includes liquid funds, corporate debt instruments, fixed
deposits and public sector, municipal and infrastructure bonds. The pure fixed investment
instruments include state and central government securities.

There is a trade-off between risk and returns, with a younger investor placed better to
take risks. If you are unable to decide the investment mix, the default option will kick in.

What is the default option?

The default option, called auto choice lifecycle fund, will see the investment mix
change according to the age of the subscriber. At the lowest entry age of 18 years, auto choice
entails an investment of 50 per cent in E, 30 per cent in C and 20 per cent in G.

The ratios will remain unchanged till the subscriber turns 36, when the ratio of
investment in E and C will decrease annually, while the proportion of G rises.
By the time the subscriber is 55 years, G will account for 80 per cent of the corpus,
while the share of E and C will fall to 10 per cent each.

Who will decide the fund manager?

At the moment, the Pension Fund Regulatory and Development Authority (PFRDA)
has selected six fund managers — State Bank of India, UTI, ICICI Prudential, Kotak
Mahindra, IDFC and Reliance — on the basis of a bidding and technical evaluation process.
You have to select one fund manager at the time of deciding your investment option; later,
PFRDA may allow subscribers to choose more than one fund manager.

Can I change my investment mix and the fund manager?

You can shift from one fund manager to another from May 2010.

What happens if I relocate to another city?

The PRAN remains the same and you can access a toll-free number (1-800-222080).
The details of your PRAN and the statement of transactions will be available on the CRA
website (

How can I exit the scheme?

The normal retirement age has been fixed at 60 years. At 60, you will be required to
use at least 40 per cent of your accumulated savings to buy a life annuity from an insurance
company. A phased withdrawal is also allowed but the lump sum benefit has to be availed of
before you turn 70 years.

For those looking to exit before turning 60, there is an option to withdraw 20 per cent
of the accumulated savings but buy an annuity with the remaining 80 per cent.

If the subscriber dies before he or she turns 60, the nominee can receive the entire
pension corpus. Alternatively, a subscriber can exit if the account value falls to zero or if the
citizenship status changes. The age of exit will be reviewed by PFRDA from time to time.
There will also be the option to select an annuity that will pay a survivor pension to your

Are there tax benefits for NPS?

At present, the investment is covered under section 80CCD of the Income Tax Act and
a tax will be levied if you withdraw the money. You can avoid paying tax by transferring the
entire corpus to the annuity service provider. PFRDA has, however, approached the
government to treat investment in NPS on a par with instruments like Employees Provident
Fund and Public Provident Fund, for which no tax is levied at the investment, accumulation or
withdrawal stage.

5.3 SWOT Analysis: -

1) Strengths: -

i) Security of Funds due to Government Intervention

ii) More returns due to exposure to the capital market

iii) Diversified choice of products to invest and fund managers

iv) Facility of PRAN which will solve the problem accruing while changing of job

v) Low fund management cost

vi) Option to change the fund manager as per our requirement

vii) Transparency in the operation due to the Central Record Keeping Agency

2) Weaknesses: -

i) Taxability of Maturity amount

ii) Very long lock in period

iii) Very harsh rules in case of early withdrawal

3) Opportunities: -

i) Getting the EEE status will help a lot

ii) Emerging markets and recovering Indian economy

iii) Access to government securities and support

iv) Government can think of assuring the returns on the fund

v) Cost of operation will come down as scheme gets good investment

4) Threats: -

i) Exposure to the capital market will lead to damage if market collapses

ii) Fund manager may not take proper due and diligence
This chapter will discuss about the conclusions drawn from the above research and
how these conclusions are drawn from the above discussion.

The chapter will also through a light on the limitation of the research work and also
the scope for the future studies.

6.1 Discussion on the Answer of Hypothesis: -

I have started the research work with a Hypothesis that the investors will like to invest
in the NPS for proving this hypothesis I have done the sample survey of around 45 persons
from many fields. I have prepared a questionnaire for these persons where they can give their

I have also briefed the sample about the product before they fill the questionnaire so
people can give correct and more rational answers. I have analyzed the data collected from
this sample and I have drawn following conclusions from the answers of each question.

1) People are more keen towards investing into the PPF than any other product

2) Majority of people have an opinion that NPS will not get very good response from
the public

3) I have got the very firm response that NPS could not be replacing the age old
pension schemes like PPF, Insurance and Mutual Funds.

4) Many people had said they like NPS because of PRAN facility this facility gives
investors more freedom while shifting from one job to another.

5) People think that NPS is cheaper than the other Products

6) People think that NPS is having the much strict rules in terms of early withdrawal
which will not in favor of the investors.

7) People have also suggested that EET status of NPS is the biggest hurdle in the
success of the scheme.

So we can say from the above discussion that people are not very keen to make space
for NPS in their portfolio. Not only the investors but the investment advisors are also not in
favor of the NPS scheme they have said they will suggest their client to invest in PPF and
Insurance than NPS.


1) The sample size of 45 might not represent the perception of whole population, as the
sample size is too small.
2) The opinion expressed by the respondents may be biased.
3) The attitude of the research might be biased.
4) One of the most influencing and most critical limitations is that I am not trained for the
research study and this is my first study. I tried hard to come at conclusion, but there is
lack of expertise.
5) Another limitation is that there is lack of time. If I give more time then studies will be
more effective.
There are some limitations of this study. But in spite of their limitation I worked with
the enthusiasm. And I tried to give the best results to the research of this report.

6.3 Scope for Furt he r Research: -

The NPS is the financial product which is fully regulated by the Government through
PFRDA so this product will change its dimension as time goes. There is a possibility that the
NPS will get the EEE status. And as I have noticed from the question number 10 and 11 that
people may be more inclined towards NPS if the lump sum amount received at maturity will
be tax free so there is scope for following research works.

1) Will people invest in NPS after it got the EEE status?

2) What changes can be made to make this product more appealing? Etc.

3) Analysis of NPS as compared to PPF and Insurance

So I think there is very wide scope for the research work apart from the above said
points also.
6.4 Bibliography: -

Print Media: -

1) Articles in Economic Times and Business Standards

2) N.P.S. Special edition by Outlook Money 9 April 2009

3) Offer Document of N.P.S Scheme by PFRDA

Internet: -

1) Website of Provident Fund Regulatory and Development Authority (PFRDA)

2) Website of Finance Ministry

3) Website of Employee Provided Fund

4) Website of Outlook Money

5) Website of Department of Economic Affairs



1) What would be your choice for retirement benefits?

a) PPF b) Mutual Fund
c) Insurance d) Other (Specify)
2) What do you think NPS will get good response from Public?
a) Yes b) No c) Can’t Say
3) Can NPS be replacing the old pension schemes like PF and PPF or not?
a) Yes b) No c) Can’t Say
4) Which feature you like the most in the New Pension Scheme?
a) Facility of PRAN(Permanent Retirement Account Number)
b) Exposure to Equities and other Product
c) Facility to design your portfolio according your need
d) Freedom to select & change your fund manager
5) How would you rate the New Pension Scheme as compared to other investment
a) Costlier b) Moderate
c) Cheap d) Very Cheap
6) What will be the best Age for getting into the NPS?
a) Below 30 b) 30 to 35
c) 35 to 40 d) Above 40
7) PFRDA is asking to park 80% of Fund value in Annuity Plans in case of early exit
from the scheme what do you think about this limit?
a) Too much b) Moderate c) Can’t Say
8) Which will be the biggest risk you think about investing in NPS?
a) Market Risk b) Liquidity Risk
c) Low Returns d) All of Above

9) Do you think Fund Managers will give same efforts as they would have been taken for
the MF scheme because of low operating Cost?
a) They will take b) They Will not
10) Do you think PFRDA will succeed in getting the Tax Benefit on the Maturity
a) Yes b) No c) Can’t Say
11) If NO; then one should invest in NPS or Not?
a) Yes b) No c) Can’t Say
12) Any Suggestions to make NPS more fruitful?


i) An overview of New Pension Scheme

- Outlook Money ; 9 April 2009
ii) New Pension Scheme is born, but refused to grow
- Business Standards ; 9 August 2009