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New Pension Scheme: Choose plan to suit risk profile

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New Pension Scheme: Choose plan to suit risk profile

Under the New Pension Scheme (NPS), investors save money which is put into the capital market. The sum which you will get after retirement will be dependent on the performance of the capital market. You can make monthly or weekly contributions to the NPS. But for every contribution, your transaction cost will increase.

Prior to NPS, there was the Defined Benefit Plan -one would get certain pension fixed for life. The postretirement proceeds were fixed and if there is a shortfall in this corpus, the government would make good.

NPS is a Defined Contribution Plan where the returns will not be fixed. You will only get what you have contributed and returns that the fund manager generates on it. All new entrants to the central government services (other than armed forces) after January 1, 2004, will compulsorily join this scheme. All citizens, including NRIs, aged 18 to 60 can voluntary join the scheme. The exit age is 60 years.

A minimum contribution of Rs 6,000 is compulsory per year. The minimum amount per contribution is Rs 500 and a minimum of four contributions in a year for each subscriber account is required.

Under the NPS, each subscriber is allotted a unique 16-digit Permanent Retirement Account Number (PRAN). This number is portable. The records of transactions are maintained by the Central Record Keeping Agency (CRKA). The subscriber has the option to invest with seven pension fund managers (PFMs). He also has the option to choose any one or more PFMs to manage his contribution. These PFMs will have three kind of funds categorised as 'E' for equity funds, 'G' for funds investing in government securities and 'C' for fixed income securities other than government securities.

There are two types of accounts:

Tier I account where you cannot withdraw

The Tier I account is the basic NPS account that is non-withdrawable till retirement or death of the subscriber. In this account, the total corpus at retirement age is split, where a minimum of 40 percent of the final corpus has to be compulsorily used to buy an annuity while the subscriber is free to withdraw the remaining 60 percent as a lump sum or in instalments.

Tier II account where you can withdraw

The Tier II account is available to only to those who are existing subscribers of the Tier I account. The money contributed into this account can be freely withdrawn as and when the subscriber wishes to except for a minimum balance that needs to be maintained at the end of each financial year.


The NPS levies an investment charge of .00009 percent of the assets under management. Initial charges of account opening is around Rs 470. From the second year onward the charges are Rs 350 per annum. Also, a charge of Rs 10 is applicable for each transaction. One can make monthly or weekly contributions. But for every contribution, your transaction cost will increase.

Fund managers

These are managed by fund managers. Currently, seven fund houses appointed by the government are available under the NPS.

These are:
LIC Pension Fund Limited SBI Pension Funds Pvt Limited UTI Retirement Solutions Limited IDFC Pension Fund Management Company Limited ICICI Prudential Pension Funds Management Company Limited Kotak Mahindra Pension Fund Limited Reliance Capital Pension Fund Limited


There are three schemes available under the NPS.

Fund C

In case you invest in this fund, all the money will be invested in fixed income instruments such as corporate bonds and government securities. One should consider investing in this fund if the risk appetite is medium as corporate bonds are not that risky.

Fund E

In case one invests in this fund, a portion of not more than 50 percent of the invested money will be put in equity. You should choose this retirement plan only if your risk appetite is high, as up to 50 percent of your money will be linked to the performance of equity.

Fund G

In this case, all your money will be invested in government securities. Hence, this is suited for risk-averse investors. One can choose to invest in any of these funds. You may also invest in a mix of these funds. If you do not choose between these funds, your contributions will be invested in a fund with 15 percent in equity, 45 percent in corporate bonds and 40 percent in government bonds. With increase in age, after 35 years, the government bond exposure will increase with a maximum limit of 80 percent and 10 percent each in equity and corporate bonds.

Fixed income pension plan

The government has proposed to extend the 'fixed income pension plan' to workers in the unorganised sector. The monthly contributions one makes will be invested as per NPS guidelines. The State funds for the savings scheme will be added to this. If any gap exists between the sum guaranteed and sum generated from the two steps, the central government will provide the required funds.

The new plan will be started off initially in Haryana, Karnataka and Andhra Pradesh. This amendment is meant only for workers in the unorganised sector. Central and State government employees will continue to get pension through NPS.

Tax benefit

Presently, NPS does not offer any tax exemptions unlike other retirement plans. It falls under the category of exempt-exempt-tax (EET) system which means that maturity benefits you receive after retirement will be taxable. However, with the Direct Tax Code coming in NPS will be tax exempted on withdrawal too.

Source: Economic Times

How to calculate the amount of Encashment of Leave Salary...

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How to calculate the amount of Encashment of Leave Salary

Here we have taken for reference the Office Order issued by Ministry of Labour & Employment, Labour Bureau dated on 23.09.2010.

In this order the department calculate the encashment of leave salary for 300 days earned leave for an employee, who retired on 31.08.2010. [As per the Rule 39(2) C.C.S. (Leave) Rules, 1972 - DOPT Office Memorandum No.14028-7-97-Estt(L) dated 7th October, 1997]

The Calculation of leave salary is as under :-
Earned leave standing at the credit on the date of retirement = 300 days
Grade Pay
DA @ 45% as on 1.7.2010

Calculation for 300 days
30581 X 300 / 30

Total Leave Salary admissible = Rs.3,05,810
(Rupees Three Lakh five thousand eight hundred ten only)

40% of salary of Central government employees based on performance, Dr. Trivedi

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40% of salary of Central government employees based on performance, Dr. Trivedi

Central Government has introduced accountability across the board with setting up performance targets and top level officers agreeing that upto 40 per cent of their salaries will be placed with in two months, dependent upon level of performance for which self-evaluation process has been evolved, Dr. Prajapati Trivedi, Secretary, Performance Management Division, Cabinet Secretariat revealed here today.

Stating that the system change in the central government would enable measurable response to public grievance by government officials, Dr. Trivedi declared.

Inaugurating ASSOCHAM organized 2nd CFOs Roundtable Conference 2010 here today, Dr Trivedi also indicated that all 62 government ministries and departments on board have signed the tool called Results Framework Document (RFD) which will set targets for each ministry and will finally be the basis for yearly evaluation. “Results will be our bottom-line just like profits are the bottom-line of the private sector” he pointed out.

The formula of assessing the government employees as proposed by performance management division under the cabinet secretariat, has ruled out “not me syndrome and passing the buck”. The Secretaries in turn will have to set performance levels for the officers below them and evaluation would be from bottom to top. “once we fix the performance deficit, other things will follow” Dr. Trivedi said elaborating on the causes of performance deficit. He told the audience that had leading private sector CFOs that “private sector will look up to us”.

The Cabinet Secretariat also said that the first round of assessment, initially for three months from January to March 2010, there is a strong possibility that a large number of government employees would receive an extra pay once the new formula is adopted.

He also mentioned that the government is extending the performance monitoring and evaluation system to 62 departments from the current fiscal. According to our system, a department sets a target, fixes the weightages of each target, and if it succeeds meeting all its targets, gets a score of 100.

He also highlighted that many countries such as Canada, New Zealand, Australia, Netherlands, Denmark, UK, US and Finland have moved away from the traditional government administrative model to a management model under which officers act like corporate managers as they get greater operational freedom, but are held accountable for results. In fact, New Zealand is considered to be the leader of the pack where performance of government agencies are weighed in by setting targets and adopting regular evaluations. “In New Zealand the Governor of the central bank has his salary linked to inflation level being low and as a result for the last 18 years that country had a low inflation level,” he disclosed.

The various ministries and departments are preparing their Result Framework Documents (RFD) which is to be submitted to this division and the performance of the ministries will be monitored based on these documents only. First, the ministries are themselves setting their targets and secondly they have huge manpower ranging from senior bureaucrats to employees under central secretariat scheme (CSS).

The government has already established a performance management division within the cabinet secretariat headed by a professional.

So, the performance of central ministries is under close watch. By introducing performance-linked payouts, the Indian government is finally going the corporate way which may force central government employees to deliver their best.

Speaking on the occasion, Mr. Y M Deosthalee, CFO, Larsen & Turbo ltd. said that to improve the competition by reducing the cost, competitive analysis in a qualitative manner and by communication.

Mr. S C Agarwal, CMD, SMC also said that compliance with all the stakeholders in the Indian capital markets have to meet the highest standards of corporate governance, not only in letter of law but in the spirit of the law as well.

He further said that the multiple modes of fund raising present in the Market today present another set of challenge s to the CFO of today’s corporations. The importance of having continuous updates about the latest trends in the various instruments of primary market such as IPO’s, FPOs, QIPs, ADRs, GDRs, FCCBs etc cannot be ignored. Many of the company’s that choose to ignore thses instruments of fund raising will only be giving up their chances of entering the next orbit of growth.

Among others who spoke on the occasion comprised Mr. Subbu Subramaniam N, Chairman, VCAI, Ms. Kalpana Jain, Co-Chairperson VCAI and Mr. Sandeep Dhupia, Excutive Director, KPMG


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