Maximize Your NPS Returns: Tax Benefits, Flexibility & Retirement Tips | ft. Sriram Iyer of Hdfc

Summary

Highlights

• NPS allows for unlimited investment, and tax benefits can be availed up to specified limits! 💰
• NPS Divas is celebrated on October 1st to increase awareness about retirement planning! 🎂
• NPS is gaining popularity among corporates with a significant increase in the number of subscribers. 📈
• Understand the 40-60 principle in NPS, impacting the tax-free corpus available to you! 📊
• The discussion showcased NPS flexibility and low-cost management compared to other investment products! 🏦

Key Takeaways

• Discover the unlimited investment potential and tax benefits of NPS! 🎉
• Learn about the flexibility and complex dynamics of NPS, making retirement planning a breeze! 🔄
• Understand how starting early with NPS can lead to significant retirement savings thanks to the power of compounding! 💪
• Uncover the role of corporates in promoting NPS and how employees can benefit from it. 🏢
• Find out about the recent updates in NPS like increased corporate contributions and miner saving schemes. 🔍

Overview

Chapters

• 00:00 - 06:00: Introduction to NPS and Tax Benefits The chapter explains the uniqueness of the National Pension System (NPS) in terms of investment flexibility and tax benefits. Although there is a limit to tax benefits from initial investments, profits from these investments are tax-free. This is attributed to its nature as a market-linked product. Upon reaching retirement or superannuation, the corpus accumulated, regardless of the tax status of the invested money, remains tax-free.
• 06:00 - 12:00: NPS Growth and Adoption The chapter discusses the NPS (National Pension System) with a focus on its growth and adoption. Key points include the tax-free nature of 60% of the corpus and the requirement to purchase an annuity with the remaining 40%. The conversation also previews upcoming developments related to NPS and features insights from a HDFC Pension representative.
• 12:00 - 18:00: Taxation and Benefits Overview The chapter, "Taxation and Benefits Overview," discusses the significance of incorporating taxation and benefits into one's financial planning. It mentions that a guest, who was previously on the show in June, has returned to provide insights. The context includes an acknowledgment of the show's timing, with references to events occurring at the end of September and early October. The conversation hints at an upcoming event, NPS divers. The host expresses appreciation for the guest's participation and the continued value of the show.
• 18:00 - 24:00: NPS for Minors and Compounding Benefits The chapter begins with praise for the work done by PESA and highlights the significance of the International Day of Older Persons, celebrated on October 1st. This day was established by the United Nations in 1990. In 2021, the Pension Fund Regulatory and Development Authority (PFRDA) decided to align with this initiative.
• 24:00 - 30:00: Lock-in Bonus and Market Timing The chapter titled 'Lock-in Bonus and Market Timing' discusses celebrating October 1st as NPS day. It highlights the importance of the National Pension System (NPS) as a vital financial product aimed at helping individuals build a retirement corpus. This, in turn, provides a dignified post-retirement life with a reliable financial foundation. The chapter emphasizes that NPS often gets overshadowed by other financial products, making the celebration an effort to spotlight its benefits and significance in personal financial planning.
• 30:00 - 36:00: Retirement Planning for the Youth The chapter titled 'Retirement Planning for the Youth' emphasizes the increasing need for awareness and education about retirement products. It highlights the significant growth in the elderly population, noting that globally, the number of people over the age of 65 has tripled since 1980. The chapter also references India's burgeoning elderly population in the context of global trends, underlining the importance of preparing the younger generation for future financial security as the demographic landscape shifts.
• 36:00 - 42:00: Corporate Adoption and Awareness The chapter titled 'Corporate Adoption and Awareness' addresses the demographic shift in India, where more than 7% of the population is currently over 65 years old. This percentage is expected to double in the next 25 years, leading to a dramatic increase in the elderly population to about 250-260 million. The chapter emphasizes the need for early planning to support and accommodate this significant demographic change.
• 42:00 - 54:00: Cost, Returns, and Flexibility of NPS The chapter discusses the current state and recent developments of the National Pension System (NPS), with a focus on increasing numbers and participation, including new players in the system since the last meeting in June of the previous year. It also touches upon the upcoming challenges related to senior citizens.
• 54:00 - 61:00: Tier 1 and Tier 2 Accounts Explained The chapter discusses the evolution of pension fund management in the industry. Initially, in 2004, there were three public sector pension fund managers handling money for government employees. Between 2009 and 2011, private sector players entered the field, with four obtaining licenses. These have continued as pension fund managers alongside four additional entities that joined in the last two years. As of now, the industry comprises 11 pension fund managers.
• 61:00 - 66:00: Book Recommendations This chapter discusses the changes in the adoption and awareness of the National Pension System (NPS). The number of subscribers has increased significantly by 25-27% over the past year. The chapter highlights the involvement of fund managers, with three being public sector undertakings and eight from the private sector.

Maximize Your NPS Returns: Tax Benefits, Flexibility & Retirement Tips | ft. Sriram Iyer of Hdfc Transcription

• 00:00 - 00:30 if you look at NPS this is the only product which actually allows you unlimited investment in the vehicle of course tax benefit is available to a certain limit beyond that you don't get a tax tax advantage at the time of investment however your approvals are obviously taxfree because it's a market link product majority amount irrespective of whether the money that you contributed was tax paid or tax you know I mean where you pay tax or it do tax free the Corpus that you generate at the end of the period at the time of super anation or when you get out is
• 00:30 - 01:00 entirely taxfree right so the 40 60 principle still applies you have to buy an anity with 40% of the Corpus but the reality is that 60% of the Corpus is available to you tax free no capital gains tax folks welcome to Bessa I'm your anang Gupta b50 on Twitter and on today's episode I'm talking about NPS the national pension system with our returning guest shamay CE HDFC pension just before NPS div which is tomorrow we're talking about what's new npers and
• 01:00 - 01:30 how it can be part of your financial planning and how to make it work right for you all of that on PESA sham you were here with us back in June last year so welcome back to PESA PESA thank you so much for doing this for our listeners NPS div it's I think this will be going out on 30th September and I think NPS is on NPS divers is on 1st October o what is this about tell us firstly thank you very much Anan for having over I think it's PESA vesa is continues to be one of my most favorite shows thank you and I you know try to never miss a show of
• 01:30 - 02:00 PESA so great great work you guys have been doing so you know compliments to you as far as NPS Divas is concerned little bit of background um so this uh you know 1 of October is known as the International Day of Wonder persons a lot of people may not be fully aware of this but in 1990 uh United Nations you know declared this as October 1st as the day of International Day of older persons and in 2021 pfrda um you know chose to therefore
• 02:00 - 02:30 celebrate 1 of October as NPS div because NPS as you know is a product that helps you know individuals create a retirement Corpus which in turn will help you lead a life of uh dignity post retirement with the Corpus and that's really the background broadly you know the the reason why it's done is one is of course to shine the light on a product such as NPS which otherwise you know somewhere in the D of all the financial products that are there it does tend to sort of get lost and therefore this is attempt by the
• 02:30 - 03:00 government by the regulator and by the industry to sort of you know bring more awareness around this product and I think the the metrics around and if you look at the numbers around older persons just since we're talking about you know this particular topic you know globally there were around 26 odd CR 260 odd million people who were above the age of 65 in let's say 1980 right that number is tripled in the last 40 odd years and 45 odd years India by the way we have have while you know we are now the most
• 03:00 - 03:30 populous nation in the world more than 7% of our population is about the age of 65 right and this will double in the next 25 years which means that India's population of people about the age of 65 will be upwards of 25 26 crores in the next 25 years which is going to be a very large number that we'll need to sort of start thinking about and help you know you know those individuals to start planning right from now and therefore I think you know this is
• 03:30 - 04:00 really really topical so I mean everybody likes to talk about the demographic divent part of the entire story but the senior citizen part is going to hit us absolutely quite soon what has been happening at The NPS since the last time we spoke in June last year I think numbers are also increasing so how are things at NPS as a uh scheme overall top down and what's been happening at HDFC pension yeah so I think uh two things have happened right uh one is of course the number of players have gone up last time when we met I think there were two more players
• 04:00 - 04:30 that had got added so if you look at the way the industry is evolved right in the beginning in 2004 there were three PSU pension fund managers that started managing money for government employees and then in 9 10 11 is when a bunch of uh new let's say private sector players took up licenses four of them continued to hold those licenses till you know and we of course those four continue to you be pension fund managers as of now four more entities got added in the last two years right so you now have the industry there for now consists of 11 pension
• 04:30 - 05:00 fund managers three of them are public sector undertakings and the remaining eight are from the private sector so that's one big change in terms of adoption of NPS there has been I would like to think a c change in terms of awareness levels and there for adoption so if you look at the overall numbers um the actual number of subscribers since the time that we spoke last around a year plus back uh has grown by around 25 27% both on the retail or the all citizens model as it
• 05:00 - 05:30 is called and on the corporate model as well on the corporate model we now have close to 21 lakh subscribers in the retail model we now have 37 odd lakh subscribers making it a total of around 58 59 lakh subscribers in all which is Visa we of 46 47 lakh subscribers that we you know 42 43 lakh subscribers when we met last so that's one big change that happened in terms of more awareness more adoption in terms of the you know the fact that the new tax regime is what affords you the uh you know the
• 05:30 - 06:00 corporate NPS tax benefit under atcc D2 which we spoke about last time briefly um because of the fact that there is a much higher adoption of the new tax regime a much larger number of corporate employees are now noticing corporate NPS as an option for them because that's the only other option that's available to them to save tax in the new tax regime right so therefore the number of corporates that have adopted has also gone up quite significantly in fact you know a year back that number was around 12,000
• 06:00 - 06:30 corporates that signed up for corporate NPS where their employees could opt for corporate NPS and deductions and therefore contribution that number is now upwards of 17,000 corporates so it's gone up by almost 5,000 so the number of corporates have gone up we just started offering NPS to their employees subscriber numbers as I said has gone up clearly AUM of course has gone up because you know the markets have been very kind right last one year one and a half years the markets have been on a roll and therefore as we speak the non-government space is in the region of 2.6 lakh of AUM right so that's the size
• 06:30 - 07:00 and scale in terms of if you also look at the performance of funds in the uh in The NPS which is the equity corporate bond and government uh security the three E1 C1 G1 as it is called E2 C2 G2 all three of them have done quite well in fact it comp Compares very favorably with actively managed Universe of funds on the on the mutual fund side as well so returns between 35 and 40% on the equity side between you know 8 and a half and 10 and a half% on the corporate
• 07:00 - 07:30 bonds and the government security side so in terms of even the performance uh of funds uh you know things have been pretty good at HDFC pension I think we've been you know we've seen you know very very strong growth in fact we crossed the 20 lakh subscriber Mark a couple of months back and I'm very very happy to sort of share with your listeners that we have crossed the one lakh CR Mark oh nice on asset CER management as well so that's a huge milestone for us in fact we were in May 2023 is when we crossed the 50,000 CR
• 07:30 - 08:00 Mark and we now within a matter of less than 18 months we've now doubled our Assets in management to close to a lakh CR now some of it is flow some of it is Mark to Market yes a large part of it is actually flows as well of course the mark to Market impact has been very very favorable but we've seen fairly robust Flows In fact this year year to date our flows Visa last year is up by almost 45% nice right so it's a fairly strong uh growth in inflows that we've seen as well happy to be contributing to that as being one of that number for quite sometime yeah more power to you thank
• 08:00 - 08:30 you so much um taxation can you just give us an overview as to what exactly is the situation now because there's always so much that's happening and this budget to I don't know there was a lot of changes that happened in a span of you know maybe a couple of sentences like a lot of stuff changed on the capital gain side now we've got old regime and we've got new regime there is obviously a transition happening from old to new could you just help our listeners understand that as far as as The NPS is concerned what are the tax
• 08:30 - 09:00 benefits existing on date okay and as they apply to maybe old maybe new I just know of the 50,000 rupe benefit that's there but let's kind of just explain this and maybe black and white in in a very simple way sure so let's first talk about the old tax regime under the old tax regime you continue to benefit from all the deductions that were available you know earlier as well before the introduction of the new tax regime so under the deductions that are available to an individual there is one and a half
• 09:00 - 09:30 lakhs under the ATC umbrella right now A lot of people are not aware of the fact that this ATC umbrella of one and a half lakhs can also be used for NPS investment so that's one and a half lakhs that's available to anybody using the old tax regime the 50,000 rupee benefit that is available under at CCD 1B as it is called is another incremental 50,000 Rupees so 1.5 lakhs plus 50,000 that's a 2 lakh rupee deduction is available to an individual every filing tax filing individual under
• 09:30 - 10:00 the old tax regime is available to every single individual salaried or self-employed it does not matter that's an important distinction so if you're someone who's like me a freelancer or a gig economy worker or whatever you can still contribute that much and still get that benefit from the old tax regime and that gets knocked off from your gross taxable income straight absolutely correct absolutely corre so that's as far as the old tax regime is concerned now and this is now let's look at the
• 10:00 - 10:30 corporate salaried employee so to say right and let's look at what is the treatment for a corporate salaried employee under the old tax regime and the new tax regime under the old tax regime the corporate salaried employee continues to get a benefit of 10% of their basic can be contributed towards NPS under an overall limit of 7 and a half lakhs which captures employer contribution to Provident fund NPS contribution by the employer and super
• 10:30 - 11:00 enovation contribution in most cases now in India given the fact that super anation is really not you know not a very popular vehicle for you know for retirement Corpus creation very few companies have super inovation as a as a product available in fact a number of psus have also migrated from Super enovation to NPS so essentially between the employer contribution to the you know uh on the on the EPF side which is 12% of the basic and 10% of the basic which is NPS you under an overall cap of
• 11:00 - 11:30 7 and a half lakhs you can claim deduction or you can essentially contribute to NPS and to that extent your taxable salary comes down and this is an employer contribution however it it is a part of your essentially your overall salary and you choose to car out a certain amount and you say okay please contribute this on my behalf to NPS and therefore the employer contributes it and the employer can contribute up to 10% of the basic which I think is a significant benefit which again we spoke
• 11:30 - 12:00 about last time you know and awareness around this is is the only change was that at one point of time two three years ago long ago yes and I've done an an episode of that also on on NPS there was no limit there was no limit so people you know at least those in the high earning bracket in corporate for them it was like AB you know they could make ha while the sunsh abely it was actually worked well for them but that door was closed they put a limit of 7 and half laks on that please go on sure right under the new tax regime what got announced by The Honorable Finance Minister this time was that that the
• 12:00 - 12:30 contribution that the employer could make was increased from 10% to 14% under the new tax regime so if you are a corporate salaried employees employee under the you know choosing the old tax regime you are still eligible for the 10% but if you choose the new tax regime which means that none of the other deductions are available to you but 14% of your basic you can still set aide out of your CTC and the employer can contribute and therefore you can you know gain gain a tax whatever I mean you
• 12:30 - 13:00 basically save taxes on the 14% contribution that happens there so this is as far as the contribution is concerned the other thing that I want to you know highlight is that more often than not the E out of the Triple E benefit exempt exempt exempt what gets spoken about is essentially the investment the tax benefit at the investment stage if you look at NPS this is the only product which actually allows you unlimited investment in the vehicle of course tax benefit is avilable C limit beyond that you don't
• 13:00 - 13:30 get a tax tax advantage at the time of investment however your approvals are obviously taxfree because a market link product and majority amount irrespective of whether the money that you contributed was tax paid or tax you know I mean where you had pay taxed or it was tax free the Corpus that you generate at the end of the period at the time of super annuation or when you get out is entirely taxfree okay right so the 40 60 principle still applies you have to buy an annuity with 40% of the Corpus but
• 13:30 - 14:00 the reality is that 60% of the Corpus is available to you taxfree no capital gains tax and as we all know even in a you know act you know Equity mutual funds capital gains tax have gone up so therefore the differential is even more attractive at this point of time not only is the cost of management LW which we will talk about which we will talk about but the you know the tax dispensation on NPS is extremely attractive in all three stages at the stage of initiation up to of course certain limits Within These two two section that we spoke about approval and
• 14:00 - 14:30 then at the time of super annuation and there's no product like this on the market right now see if you look at public Provident fund which is a favored vehicle for most Indians and which rightly so because it offers you one and a half lakh and of course gives you the you can only invest up to one and a half L lack in individuals individuals name you can't invest beyond that right so there is you want to invest more you can't you can't right this is the only product which offers you unlimited amount of investment and also if you invest in tier two which by the way doesn't have any entry exit load you can actually move that money from tier 2 to
• 14:30 - 15:00 tier one and enjoy the tax benefit on that at the time of maturity as well right so it's a it's a very powerful and we're just hoping that the government doesn't cap this or whatever we never know what happen because this is something that has been spoken about you know extensively for a while and yeah I mean one never knows but you know unlikely that it will it makes a big difference that come on you someone who's worked for 25 30 years who's really taking apart or rather setting aside 15% of his salary on which another 15% comes in from the from from the
• 15:00 - 15:30 employer over a 30-year period that adds up to a lot and even 60% of a lot is still a lot absolutely right okay are we done with the tax break part pretty much I think the only other thing that I would like to talk about is The NPS for miners or it's referred to as The NPS velia scheme as the government uh you know has named it as The NPS velia scheme this is a this is again a product that has been introduced recently um and uh It Off you the opportunity to start
• 15:30 - 16:00 saving for retirement at child birth right now this might sound a little counterintuitive as to why would you start saving at the at the child at you know at at a very young age for retirement but just look at the numbers right I mean if you just start saving at the rate of 50,000 Rupees per anom in the child's name let's say till the age of 18 right even at very conservative returns you could potentially end up accumulating around 25 26 lakh rupes right now you be that that essentially
• 16:00 - 16:30 becomes the starting point for the individual when they attain majority right now when the individual a child grows into an adult and starts contributing to that and starts off with the 25 lakh 26 lakh kind of a corpus the end goal that you can get to can be 9 crores versus one and a half crores if you started at the age of of 25 so therefore the power of compounding that we keep talking about all the time with when you actually break it down into
• 16:30 - 17:00 numbers it can actually have a 6 to 7x impact yeah 0o years 25 years that's correct you start at Zero versus start at 25 the Corpus that you can you know get at the time of super enovation can be dramatic so I think it puts the you know individual on a very solid footing right at the initiation and I think that is an important element and of course all parents would like to do something right I mean most of the child products get sold on the emotional pitch and I think there is a very compelling case for individuals to start saving the
• 17:00 - 17:30 child's name and then put them on a good footing as they get onto a you know salary job or you know start earning so I like the way that you put this in an interview recently um where I read that you you said that if you factor in the tax savings on day one yeah okay the contribution to The NPS Visa Vis as in compared to an investment in a mutual fund okay which is what it's usually compared with not sure that it's entirely accurate Apple store or whatever of course but you said that that so NPS contribution was to say an sip into a m mutual fund after tax gets
• 17:30 - 18:00 you 42.8% more units on day one if you do it in The NPS please explain so Anam I think you know some of these some of these stories and narratives we build to provoke individuals and you know grab their attention right and this was one such attempt you're Frank enough to say that yeah yeah and that's that's and and and we are not being dishonest we are being absolutely and I'll explain the math behind it right it's very straightforward and the reason why this
• 18:00 - 18:30 came up in our you know in the in the in our process of thinking was that whenever we would you know make pitches to individuals in corporates or individuals as well they would say but you know I have this sip running so I already have my you know regular investment going through in the markets right the market participation I'm anyway getting the advantage of Market participation and we said you know how do we how does the how do the two compare right so if you putting in 10,000 rupe aside every month pre- tax right post tax essentially if you're on 30,000 tax bracket what is getting invested is 7,000 rupees in the equity
• 18:30 - 19:00 sip so to say right while in the case of NPS if you have chosen to let's say invest this 10,000 rupees in NPS either under the corporate NPS plan which is available under the new and the old tax regime or even in the old tax regime as a as as an individual investor you're actually investing the entire 10,000 rupees because you're saving that you know tax of 2000 you know 3,000 rupees right so therefore in the npsk GT you have units equivalent to 10,000 rupees and here here you have units equivalent
• 19:00 - 19:30 to 7,000 rupees so 7,000 10,000 3,000 rupee differential on a 7,000 rupee Corpus is 42.8% and that's essentially the number that's that's essentially the translation of this number now what happens is that when we make the statement and we actually say this to our our subscribers saying that listen are you interested in this now right the the moment you use numbers such as this there is this curiosity to know more that's pretty much what we intending intending to do here right get people's grabit people are say let's let tell me
• 19:30 - 20:00 more about this right so that's really their intent fantastic I hope that people listening and have that Curiosity when they heard that part about this okay last question before we go into our break uh sham I want to get this out of the way okay because even I am I find this I don't know how to call it weird right so all this Gan in mutual funds about power of compounding and long-term and time in the market is more important than timing in the market but when it comes to NPS but when it comes to lock in QA why is
• 20:00 - 20:30 there lock in I want liquidity why do you want me to be stuck why do why you uh taking up a 40% of we'll get to the 40% later but let's talk about this lockin exit barriers I don't want to use a phrase like negative perception I just feel that somewhere people don't get this time part right I mean they get it very nicely in mutual funds right when you flash stuff like this mutual fund over the last 25 years has given
• 20:30 - 21:00 whatever 12% 18% return and if you had stayed throughout you know all this would have happened and you throw in some fancy words like investor behavior and all that okay saying that this is the difference between investor returns and fund returns too much of but the same doesn't apply for NPS let's just kind of you know just let let's just get done with that and move on please tell me interesting so this is clearly an area of reservation or a rner or what whatever you call it there is this
• 21:00 - 21:30 perception that NPS if I can use that term right A lot of people think once I get into NPS money is stuck and my which has always been and I've always pushed pushed back on this saying lock in a right and for all the right reasons that you mentioned earlier invested return investment return and so on and so forth right so we also did one another exercise and we said in 2009 June 2009 is when the all citizens model opened up right which means that individuals could start The non- cooporate NPS the you know one that's available for all citizens
• 21:30 - 22:00 started in 2009 right okay we said had there been an option for individuals to exit from NPS and if you let's say started investing at the rate of let's say 50,000 Rupees a year 4,167 rupees per month since the time that NPS started 15 years in the last 15 years 2009 to 2024 it's a good time frame it's a good time frame long enough time frame it should ideally we would want it to be 25 30 years but 15 years is what the product has been we are actually and we are actually using real data it's not
• 22:00 - 22:30 some back testing with some you know simulated data it's real data so we said what happens if you look at two types of investors two types of let's say variants a variant where there was an opportunity for you to exist NPS and a variant which is the which is the the product where you don't have an opportunity to exit of course there are some exits available but that's a very limited exit window that is available let's say for a moment that there is both of these options available right and you started in the year 2009 there were and we looked at the number of
• 22:30 - 23:00 times the market corrected by more than 15% right and there were three instances where this happened 2011 2015 and 2020 right when the Nifty corrected by more than 15% and the reason why we said 152% is because we said when there's a 3 4 5% correction people normally don't get spooked right the moment the correction is more than 10% is when people start saying there seems to be something wrong let me stay on the sidelines I will get back when there is a clear Direction in the market this is typically what you hear people say so we said okay let's
• 23:00 - 23:30 simulate this behavior on actual numbers and see what happens right you'll be shocked to see and I like to and there's a term that we came up with this for for this we said what is the lockin bonus that NPS offers you right which means that if you had an exit option and if you had got out of NPS at every time the market corrected significantly at 10% you got out and you would get in back once there is a firm clear Direction that okay it's come back to its previous
• 23:30 - 24:00 level and it's gone above that level and after that I will get in pure Market timing pure Market timing if you let's say you do did that the difference is actually 100% wow right which means that an NPS with an exit option would have got you to close to 18 lakhs in this you know 15E period The NPS which is the real return on NPS for somebody who's invested 50,000 Rupees every year for the last 15 years would be at 37 lakhs okay right that is the beauty or that is the lockin bonus that NPS offers you and
• 24:00 - 24:30 I'd like to call it the lockin bonus right it's a you know it's just a term that we came up with and we said let's because you know you have to give these real life examples to people otherwise we can keep talking about investor return investment return till the cows come home people are not able to relate to it and I can tell you there are people who has started their journey in 20091 saying right let's start this there's some investment that's happening they are actually quite you know I mean when they look at the returns in the product they actually look at it and say wow 10e return compounded upwards of 14%
• 24:30 - 25:00 perom you know pretty good deal right so that is essentially the you know the power of lockin as I would like to call it or the bonus of lockin that you would make you call it a lockin bonus I call it the the benefit of doing nothing versus the cost of doing something absolutely right cost of doing something is like market Fall I I get T and I remove my mutual fund yeah here I can't do anything and then boom 100% by the way yeah oh you call it 100% 50% the you look at it but yeah you could have doubled the 18 lakhs versus 37 lakhs
• 25:00 - 25:30 folks on that very surprising note we're going to talk about retirement planning and my favorite part the three benefits of NPS cost returns and flexibility sheam this entire retirement planning thing has got this attention of being like a midlife thing or you don't have to do it as a 25y old although you've given some very very strong examples of someone who literally starts an NPS when his kid is born or before he was born and getting that entire first 18 to 20 years of um investment but for the Youth you know
• 25:30 - 26:00 the largest demographic in the country yeah they should be doing retirement planning what's your message to them I mean are they really doing retirement planning are they even thinking about it setting up sips and going chasing performance and I don't know if retirement planning is there in the head but any message to them not really anupam I think the the reality is that at that age and when you and I were at that age I don't think we really we would have bothered about retirement planning right if somebody had come and told us about planning you would have said you know what are you smoking right
• 26:00 - 26:30 and we would have possibly just rubbished that idea so I think the the important thing is to so this whole power of compounding starting early staying invested all of these things are important right but if you're not able to communicate all of these points in a manner which is which resonates with them it's going to fall on deaf years I'll give you an example of uh you know what we did with a bunch of it companies recently and we actually experimented with this in one of the it companies is based out of Chennai and they said
• 26:30 - 27:00 listen we're going to do this induction for a batch of around 500 new employees all of them are freshly minted engineering graduates 25 types right all of them are 24 25 types all of them would be at a salary package of starting salary of maybe six and a half seven 7even and a half lakhs typical you know it company you know Recruitment and stuff right and we said you know how do we get these guys to you know at least have a conversation on this topic so we did two things right one we had actually spent a lot of time to put together a 2 and a half minute video around what it
• 27:00 - 27:30 means to start at that age right what is it that you will lose by delaying this journey by every single day that you delay this journey you're going to lose 3,95 rupees we just came up with the calculation and of course it's a calculation that can be validated right so when we made this video it is of course animated video but the tone and tenor and the language of that video was very very you know appeal in to that 25y old individual right that's number one
• 27:30 - 28:00 the second thing that we said was that we said let's not use the word retirement right while NPS is the product that is meant for creating a retirement Corpus you don't need to really talk about retirement to that individual because that person is not interested in that topic right how do you get them to look at this product from the perspective of one starting because starting taking the first step is the important thing right I mean even you're able to start the journey even if you contribute 500 bucks that's enough right I mean you at least made the start
• 28:00 - 28:30 and you will eventually you know uh you know hopefully you know start contributing more regularly the second thing that we did was that we said for a 25-year-old what can resonate with this individual we said can we create a theme of my first Crow nice right okay so at what age can I have my first Crow and we created a calculator and we said let's play onto this calculator in front of this crowd right and this is a batch of 100 100 you know uh new joines were coming on board we put up the calculator and there was a
• 28:30 - 29:00 huge amount of excitement saying you know how can I get to that of course you can use different products to get to that but we were showcasing to them the power of a product such as this which will not allow you to act on emotions which will not allow you to get out which will which will you know cumulate your money at a fairly low cost and we also demonstrated what the performance has been and we actually showed statements of St of individuals who had started the journey at the age of 25 and where they are at the age of so I think Show and Tell is far more
• 29:00 - 29:30 powerful than actually just keep saying that you know you should do this this is good for you you know power of compounding start early stay invested all of these things I think are done to death you'll have to change the narrative and I think that narrative change is what really helped us sort of res I mean help helped us in you know this resonating with a with with a bunch of youngsters and I think you know corporates have also smartened up to this whole whole game and you know in fact we've been having conversations with corporates and they said listen can we create customiz communication for different age cohorts somebody who at
• 29:30 - 30:00 the age of 25 you communicate differently from somebody who's at the age of 40 right because the messaging has to be very very different go go have changed at 40 they a lot more serious they're really looking at it and saying you know I need to do this right so you know I think that is really what has to change so I think it's more than whether the individual is interested or not how do we as an industry change the narrative so that we able to grab their attention yeah corporates what's happening there I mean is the sign up as um as you expected slow fast how do you
• 30:00 - 30:30 plan to get more corporates on your side let's say there someone who's listening on the show not signed up as yet for NPS what's your message to them you know how how do we get more from them or are they just very complacent and content ke saying I'm already putting in Provident on why you increasing the burden on me what's your message to them so I think uh two parts to this question number one if you look at the total number of corporates that I've signed on I mentioned this earlier as well that number is actually moving at a fairly rapid there are around 330 to 350 new
• 30:30 - 31:00 corporates that sign up for corporate NPS every single month in the industry as a whole right so in terms of what it was let's say a year and a half back that number was 200 it's become around 330 340 corporates signing up every month so therefore the number of corporates that have now started signing up for NPS has certainly gone up because of all the visibility and you know all the work that you know somebody like you has been done in terms of show Shing the light on on NPS as a product uh there is a lot more awareness so corporates have therefore started looking at this product as an add-on to their overall
• 31:00 - 31:30 flexi component Kitty and give this options to give this give this an option to uh to their employees right what has also happened anupam is that we've realized that that's just the first step right getting the corporate to sign up for corporate NPS is actually the simplest thing to do because from the corporate perspective other than the fact that they need to contribute out of the individual salary and send a contribution file and send the money to the e op the point of presence other
• 31:30 - 32:00 than that there is no heavy lifting that they need to do right because it is a product once the contribution happens into the individuals accounts the money account into individuals you know NPS account the money belongs to the individual right and all the decisions on the account is taken by the individual right therefore to that extent it is administratively a very very very simple process from a corporate perspective and therefore corporates have seen the benefit of this and there is also given the fact you know given the higher awareness around around the product amongst individuals in at large there is a demand that is
• 32:00 - 32:30 happening from the individual saying you know why don't we have corporate NPS and that's also pushing a number of corporates to say okay why don't we sign up with a with with a point of presence and offer this as a as an option to our employees I think the bigger challenge is the fact that even after the corporate has signed up uh you know to corporate NPS there is a lot of heavy lifting that needs to happen by the point of presence which is let's say HDFC pension is a point of presence and a pension fund manager we about the fact that we are 1 lakh CR pension fund manager but we are also the largest
• 32:30 - 33:00 corporate NPS point of presence we work with close to 3,000 corporates okay and we work with these 3,000 corporates in helping them on board their employees onto the corporate NPS you know ecosystem right now that's where a lot of what we spoke about earlier in terms of differentiated communication communication through different modes making sure that you're talking the right language not really beating the same you know you know singing the same tune over and over again how do you keep
• 33:00 - 33:30 thinking differently thinking aresh you know getting creative about communicating to to to corporates uh to to employees and corporates and I think some of the corporates have really taken the lead on this right and they've really worked with us and there are people in the company who take ownership we sign an implementation plan with them and that implementation plan then gets executed and you know we measure the penetration and Adoption of NPS at regular intervals right so there's a lot of work that corporates can do there's a lot of work that the industry must do right somebody like us we have tried to
• 33:30 - 34:00 do a number of things which are you know we think are Innovative new it's found acceptance amongst corporates and we are hoping that you know this you know we able to continue to sort of drive this at the same Pace that we've seen over the last last last couple of years yeah so if you're an employee you know if you've got a full-time job you're listening into this you're earning a salary maybe it's a good time for you to reach out to your boss talk to him and figure out why if NPS is not there why is it not there talk to them and if you're the boss you're listening to this well you know the the good Folks at HDFC
• 34:00 - 34:30 pension are there for you to have a conversation with them sham we are at the end of the episode I wanted to bring everything together sure okay and let's like you know let's talk about um we so we got tax out of the way I always feel that when I'm choosing a very very long-term product for investment I don't think tax should even be a factor just leave it you know tax will come and go things will keep on happening if it's there it's there if it's not there it's not there the product needs to stand on its own but there are three pillars I would say that at least to me as someone
• 34:30 - 35:00 who's been contributing to NPS each and every year um costs returns flexibility we'll get to flexibility people listening to this would wonder like why flexibility lock in flexibility but flexibility is there right let's do all these three aspects you know to the extent possible right so let's start with cost okay and this is like one of my favorites every time I get my statement right the NPA statement I I could I can make out like in front of me how do these guys even manage VI
• 35:00 - 35:30 let's start with costs so as you know anupam you you've been in this product long enough you've been a huge advocate of this product thanks to you for that I think the you know it's a huge factor that doesn't get spoken about often enough yeah I think the reality is that you know in NPS the fully loaded cost even after you take into account the contribution processing fee which is a minor amount or you know like let's say an account opening fee which is again a very minor amount 200 to 400 bucks at
• 35:30 - 36:00 the time of account opening and of course the fund management charge which tends to be the largest portion of any you know in any any kind of a fund management business the fund management charge in case of NPS is between 3 PES to 93% to 9% on a sliding scale basis by which I mean up to 10,000 crores the asset man the P pension fund manager is allowed to charge 9 PES and then it drops to 6 PES up to 50,000 crores and then after 50,000 crores it drops to 5 PES and Beyond 150,000 crores it drops to 3 PES
• 36:00 - 36:30 right that is the only amount that the fund manager can actually charge the fund right so to that extent it's a very compelling proposition from a cost perspective even if I add the all the other costs the overall cost of on a per anom basis for somebody who stays in this product for let's say 20 years is less than 20 basis points okay right now this is an order of magnitude different from let's say a comparable actively managed product you know this is not to
• 36:30 - 37:00 say that you know this is versus that or this is better than that that's not the intent at all but I'm just comparing the cost dynamics of two actively managed products here we're talking about a minimum of a percentage of advantage for similar you know let's say 75 25 asset allocation between equity and debt the order of magnitude of difference is almost 1% now we all know that over a longterm time frame exactly the way compounding works in your favor if you pay a higher cost it can go against you and therefore the difference between a
• 37:00 - 37:30 product which is 1% cheaper and a product you know and a product which is let's say 1% higher the terminal value of a product which is cheaper by a percentage can be almost 30% to 35% higher right so that's the you know that's an advantage that NPS offers by Design right and this is as you know a large number of uh NPS investors are government employees as well and the government is also committed to making sure that there is a
• 37:30 - 38:00 higher adoption of a product such as this and therefore the costs have been deliberately kept low for pension fund managers it is a matter of scale right and for companies like ours HDFC pension the HDFC group we look at these products and these opportunities and these businesses multi-decadal opportunities and therefore to us this works very well and we believe that uh you know this helps us drive adoption much much bigger so so from a cost perspective I think yeah the writing is on the wall returns
• 38:00 - 38:30 how is NPS different from competition So when you say competition yeah I mean yeah assuming there is competition but yeah whatever it's so from a from so you act you compare it with let's say other actively managed funds right so that's really in some sense Loosely put that's the competition now the exact um you know characteristics of the product may not be exactly the same but from a fund management perspective if you were to just look at the fund management part of this uh you know it's comparable to let's say
• 38:30 - 39:00 mutual funds as an asset class or or ulips also for that matter right because there is active fund management that is happening you know NPS has actually delivered fairly you know attractive returns if you look at it since Inception right since Inception in 2009 if you were to look at let's say the uh last 10e returns right last 10 year Returns on Equity is in the region of 14% perom uh in corporate bonds is the region of uh you know 8 and a half 9% perom and in in government securities it's delivered a 10% 10 and a half% kind
• 39:00 - 39:30 of a return obviously here this is the return that is realized by an investor who has stayed invested in this product for the last 10 years because of the fact that you don't have a exit option right so from a performance perspective I think it is you know quite you know Compares quite favorably with actively managed Universe out there the other thing that I would like to point out you know you know as a part of this is that this is the only product which actually offers off you an auto rebalancing option as time progresses maybe we can
• 39:30 - 40:00 cover this as a part of the flexibility piece will but uh you know it's a it's a unique feature that this product offers right now there are some products on the actively managed Equity mutual fund side as well but you know the size scale is very very small this is actually an integral part of the you know the construct of the product and I think that in itself make sure that as time progresses as you get as one age you know gets closer to Super annuation risk management is automatically done with the product under the active under the auto auto auto Choice scheme as it is
• 40:00 - 40:30 called flexibility okay we spoke about returns now this flexibility part let's just understand the product at a factual level okay um I know that I chose the auto part I don't to get into all this Jam of you know figuring out at this is my age and this is my whole thing about you know Financial products is that we as people should not be thinking every day about this yeah absolutely and if I'm getting that option if I don't have that option of course it's a different discussion but if you as a pension manager are giving me that option that
• 40:30 - 41:00 listen I'll take care of it in a very simple way that M makes sense to me that's right for my requirements that's right let's go into it this flexibility part so there are four or five aspects around exibility that I would like to talk about right so number one is there is a minimum of 500 to th000 rupees that you need to invest so you can actually start with as low as th000 rupees right of course there is a account opening fee and all of that if you add all of that maybe it's around, 1500 1400 rupees right but you can start very small right so you don't need to really have a 20
• 41:00 - 41:30 lakh rupe Kitty for you to make a beginning in this and of course that's true for you know other you know products like mutual funds as well the entire journey is digital so therefore you start small you can start at any point of time and if you have a ckyc number on an Adar link to your mobile number I think the journey you know takes less than less than 5 minutes and you're up and running right you have what is called as a permanent retirement account number right P yeah pan right now the flexibilities that the product offers while at an individual investor level you can't exit there are of course
• 41:30 - 42:00 small Windows available I don't want to go there very small windows that are available just to provide for some some Flex some liquidity but otherwise you can't get out of the product by Design which I which we discussed earlier is a good thing right because of the the lockin bonus that we spoke about earlier right now but within the product there is tremendous flexibility and the reason why I say this is because you as an individual can actually do three things right number one of course you you have chosen the auto Choice option which I think is a great thing to do because the
• 42:00 - 42:30 product automatically adjusts allocation to equity with every passing year on your birthday the allocation Equity comes down I know the birthday part sorry I didn't know the birth it happens on the birthday right every birthday of yours the allocation will come down right now that's something that the product offers so therefore that's one you know so therefore you have the flexibility of actively managing it under the active choice where you can decide what is the allocation that you want in equity corporate bonds and government securities depending upon your perception of or depend on view on what the market is you know where the
• 42:30 - 43:00 market is right you know my view is that for for individuals who have a fairly long time Horizon and who have a long way to go to sort of retirement you could essentially just go the 75% allocation to equity in active choice and stay invested and you know remain invested till the time that you think you need to reduce your Equity allocation but Auto choice is a fantastic option that's available right so active and auto choice is one type of flexibility the second flexibility that's available within the fund is that you can actually choose to change your
• 43:00 - 43:30 asset allocation under Auto between active choice and auto choice and within active choice you can move between equity corporate bond and government securities four times a year you can actually change asset allocation between these asset classes at zero cost zero tax zero zero cost zero tax is Z cost zero tax right the other thing that you could do is that if you say Okay I want to move my pension fund manager from A to B oh you could do that once a year zero cost okay I didn't know that but okay third thing is that if you like a for Equity B
• 43:30 - 44:00 pension fund manager for corporate bonds and see pension fund manag for government securities you can actually have three pension fund managers managing different asset classes for you okay right I had no idea about that that is the level of flexibility that NPS offers So to that extent I think it is an exceptionally flexible product other than the fact that it auto rebalances that we spoke about and we also spoke about the fact that this is the only product actually allows you unlimited investment right and you will still be
• 44:00 - 44:30 eligible for the second and the third e or the Triple E you may not be eligible for the you know investment because beyond the beyond the threshold but the second or the 30 you're still still eligible for right so I think all of these you know features in the in the in The NPS product and of course the one that got introduced after we met the last time is the systematic lumpsum withdrawal option where the 60% of the Corpus that you could otherwise take out on super annuation 40% is what you used to buy an annuity the remaining 60% you
• 44:30 - 45:00 could take away lumpsum right I mean you are expected to take away lumpsum now you can actually choose to go the systematic lumsum withdrawal route which by which I mean that you could let that 60% remain there in the fund it could continue to grow you could change the asset allocation at the time of withdrawal as well and you could say that okay every month I want this much amount of money to come out of my NPS account right and it can keep coming to you and the remaining Corpus can continue to grow andove your pension over and above your pension that you start getting that's another flexibility
• 45:00 - 45:30 that's another flexibility that got introduced yeah okay last and final question sham because we are done we pretty much done with the episode just can you just get this tire to thing you know a little bit just just explain it a little bit more easily to our to our audience because somewhere I feel that there's a gap out there for people to understand you know you have Tire one tire two so Tire one okay I understand it is compulsory it's a core NPS what is tired to I mean a it's not even mandatory I can peacefully you know it doesn't affect my taxing whether I do or
• 45:30 - 46:00 do not do it doesn't matter but T to has got a lot of benefits yes but people let's say that they ignore T to for whatever reason you just explain the benefits out there first I think it's liquid yes do it for us in very simple terms tier two the only difference between tier one and tier two is that one the tax advantage that you are eligible for under tier one don't come to you in tier two which is the the E and the the Triple E out of the Triple E
• 46:00 - 46:30 the second e obviously is available because you know here there is no tax on investment on acral also in in tier two you don't get an advantage at the time of investment the one that is available in tier one and at the time of you know super enovation in fact in tier two there is no concept of super anation tier 2 is nothing but a simple lowcost actively managed investment vehicle that anybody who has a tier one can exercise and you can you can use that vehicle to either EI as a as a parking vehicle where you can just leave monies there as
• 46:30 - 47:00 and when you want to or you could actually use it to create a corpus build a corpus actually the there is no allocation asset allocation limitation as well in tier two so you can actually go 100% on equity in tier 2 so you basically put in tax paid money in tier two right let's say you you start parallely saving in tier two as well you need a tier one to be able to invest in tier two so that's the first thing that you need to know so you need to have a tier one if you have a tier one you're eligible to invest in tier two under tier two you're eligible for this the construct of the product is exactly the
• 47:00 - 47:30 same the costs are exactly the same the asset allocation is exactly I mean the underlying is pretty much the same typically in tier one and tier two there is very little difference if you look at every pension fund manager the underlying is exactly the same under Equity corporate bonds and government securities right and you could actually go 100% Equity there right and what you could do is you could parall build both of these and closer to Super animation you can move the entire Corpus that you accumulated in tier 2 into the tier one account without paying any taxes and then from the from the tier one account super annuate out of that and take 60%
• 47:30 - 48:00 the remaining 40% you annuitize right so in simple terms tier two is a lowcost flexible actively managed fund with no entry or exit barriers very simp totally liquid yes totally just takes away the whole lock in thing absolutely you crib about money then you can please take your tier to out but like you said that the real uh the real trick is to move the tier two into tier one when you are retiring and then get that that much more sham we are done I like my last
• 48:00 - 48:30 question to you because last time around you had given us like this whole range of you give podcast you gave books Let's talk about it what are you reading these days any recommendations or even if you're listening to anything please let us know about that as well so yeah interesting I think the the the volume of reading has come down a little bit over the last one year but you know there's some interesting books that I uh you know picked up in the last year or so uh the first is my all-time favorite personal finance author Morgan howel he came up with uh you know same as ever
• 48:30 - 49:00 and he's coming up with another book I think in the next year or so I think he's going to be releasing another book but same as ever was as good as psychology of money so I think brilliantly written Lucid two three page you can pick up any page and start reading and it'll still make sense to you uh so you know he continues to remain one of my most favorite authors and of course he also runs a podcast now 10 15 minutes every every week not every week I think he's he's not as I mean he last podcast he said I'm not sure whether be able to do it every week every month but I'm going to try and do it as as frequently as I can uh so he
• 49:00 - 49:30 continues to remain you know so same as I was fantastic the second book which I it's actually a to and this is a this is a book that I picked up in all with a lot of enthusiasm I'm just onethird through that book uh it's a thousand plus page book uh book which is on it's actually titled India's accelerating India's development Kik M right Kik M has done a number of podcasts and you know he's come on number of shows again a brilliantly written book and I was fascinated with the amount of insights
• 49:30 - 50:00 that was able to pick up but I'm just just just say I mean close to 40% through I mean I have to sort of do the remaining 60% it but it reads like a you know you know Fiction it's very very very well written and a lot of you know evidence he's presenting you know practice as well as academic evidence and it's just fascinating the third book which uh again I I picked it up last year was this book and health and nutrition is something that that really something that I that I'm interested in you know to read as much as possible and Peter atas outlive is was another book
• 50:00 - 50:30 which I thought was truly outstanding nice I mean I recommend it to a bunch of my friends and I actually gifted it to a number of them because it really is is is is is very very well written and you know both nutrition as well as you know exercise and what are the things that you need to look at beautifully written I think all three books uh wonderful form a part of my favorites alltime favorites fantastic and on that note of excellent recommendations of books that is a wrap on this episode of PESA my guest shayer my returning guest shayer CEO HDFC pension sh as always a pleasure to have you on our show thank you so
• 50:30 - 51:00 much for doing us for our listeners entirely my pleasure thank you so much thank you I v m