Thursday, November 17, 2022

NPS, National Pension Scheme - Detailed Analysis of the Scheme

 




Introduction:

Creating a retirement corpus is essential if you want to live a financial stress free life after you retire and when your income stops. That is why it is advised that you should contribute towards a retirement corpus when you are working so that by the time you retire you have sufficient funds at your disposal to meet the financial requirements of your golden years. 

There are various instruments available in the financial market which helps individuals create a retirement corpus. The National Pension Scheme, also called NPS in short, is one such scheme which is designed to create a retirement corpus for investors.

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What is National Pension Scheme?

The National Pension Scheme is a social security initiative by the Central Government. This pension programme is open to employees from the public, private and even the un-organised sectors except those from the armed forces.

The scheme encourages people to invest in a pension account at regular intervals during the course of their employment. After retirement, the subscribers can take out a certain percentage of the corpus. As an NPS account holder, you will receive the remaining amount as a monthly pension post your retirement.

Earlier, the NPS scheme covered only Central Government employees. Central Government employees joining on or after 01-01-2004 are mandatorily covered under the NPS. Now, however, the PFRDA has made it open to all Indian citizens on a voluntary basis.


Who are eligible for investing in NPS?

Interested investors would have to fulfil the below-mentioned eligibility parameters if they want to invest in the National Pension Scheme –

The investor should be an Indian citizen or NRI. In case of NRIs, though, if the citizenship of the investor changes after investment into the NPS scheme, the scheme would be closed.

The age of the investor should be between 18 years and 60 years.

A systematic investment like this can make a massive difference in your life post-retirement. In fact, salaried people who want to make the most of the 80C deductions can also consider this scheme.

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NPS Scheme Details and Features :

Liquidity and Flexibility via Two Different Account Types

The National Pension System allows individuals to make systematic investments via either of the following two accounts. Account opening with the National Pension System is followed by the generation of a unique Permanent Retirement Account Number or PRAN issued to each subscriber. Fund management, including contribution to this scheme, is done via PRAN.

Tier-I account

Tier-II account

Tier-I account functions as a pension account and withdrawals from it are subject to specific restrictions. An individual can open this account with a minimum deposit of Rs. 500.

As for Tier-II accounts, they are voluntary accounts providing liquidity of funds via investments and withdrawals. The minimum deposit one needs to make for a Tier II account is Rs. 250. However, investments in Tier-II accounts are allowed only when an active Tier I account in the subscriber’s name exists.

Thus, as per the National Pension System architecture, individuals can subscribe to the National Pensions Scheme with PFRDA-appointed intermediaries via the two accounts mentioned above. These intermediaries can include – 

Trustee banks
Custodians
CRA or Central Recordkeeping Agency
Trust
PoP or Points of Presence
Annuity Service Providers.
Flexibility of Investment via Two Different Options

Subscribers can opt for either of the following two investment options, thus providing the flexibility of choice.

It is available as a default option for subscribers as per the system. Fund investments under this option are managed automatically by an appointed fund manager as per an investor’s age profile.

Under this option, individuals are free to decide among available asset classes in which to invest their funds. Also, they can allocate different percentages of contributed funds to be invested in with a maximum cap of 50% for Asset Class E or Equities. Other Asset Classes include Class C, i.e., Corporate Debt Securities and Class G or Government Securities.

Alongside, subscribers also have an option to switch their investment options as well as change their fund manager. These options are, however, subject to certain constraints.


Here are some basic differences between Tier I and Tier II Accounts which would give a clearer picture of the two accounts –

Basis of difference

Tier I Account

Tier II Account

Investment into the account

Investment is compulsory

Investment is optional and depends on the investor

Withdrawal from the account

Withdrawals are restricted and are allowed for specific instances

Withdrawals are allowed freely without any restriction

Tax treatment

Investment into the account would be allowed as a deduction for up to INR 2 lakhs under Sections 80C and 80CCD combined

Investment up to INR 1.5 lakhs is allowed as tax-free investment only for Government employees

Minimum investment at a time

INR 500

INR 250

Minimum investment required in a year

INR 1000

No such requirement

Minimum investment required for opening the account

INR 500 would be required to be deposited when opening the account

INR 1000 would be required to be deposited to open the account


How to open an NPS account




The Pension Fund Regulatory and Development Authority (PFRDA) regulates the operations of the NPS, and they offer both an online as well as an offline means to open this account.

Offline Process

To open an NPS account offline or manually, you will have to find a PoP – Point of Presence, (it could be a bank too) registered with the PFRDA. Collect a subscriber form from your nearest PoP and submit it along with the KYC papers. Ignore if you are already KYC-compliant with that bank.

Once you make the initial investment (not less than Rs.500 or Rs.250 monthly or Rs. 1,000 annually), the PoP will send you a PRAN – Permanent Retirement Account Number.

This number and the password in your sealed welcome kit will help you operate your account. There is a one-time registration fee of Rs.125 for this process.

Online Process

It is now possible to open an NPS account in less than half an hour. Opening an account online (enps.nsdl.com) is easy, if you link your account to your PANAadhaar and mobile number.

You can validate the registration using the OTP sent to your mobile. This will generate a PRAN (Permanent Retirement Account Number), which you can use for NPS login.

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Though the scheme matures after the investor reaches 60 years of age, the investor can withdraw from the scheme fully or partially.

Let’s understand how these withdrawals work:

  • Full withdrawal from the scheme before maturity If the investor wants, he can exit from the scheme before attaining 60 years of age. In such cases, 20% of the corpus is allowed to be withdrawn in a lump sum. From the remaining 80%, the investor would have to receive annuity pay-outs.

Partial withdrawals The scheme allows partial withdrawals before maturity. These withdrawals have the following terms and conditions –

  • Up to 25% of the corpus can be withdrawn through partial withdrawals
  • Partial withdrawals are allowed from the third year of opening the NPS account
  • The withdrawal should be done only for meeting specific financial needs. These specific needs include paying for wedding related expenses, meeting a medical emergency, paying for children’s education, buying a home, etc.
  • Withdrawals can be made for up to three times during the investment period
  • Each subsequent withdrawal should have a gap of 5 years or more.

How to withdraw from the scheme?

Withdrawals can be done through the following steps –

  • The withdrawal form should be filled in and submitted to the POP with the relevant documents.
  • The POP would verify the documents and forward the withdrawal request to the Central Recordkeeping Agency (CRA) and NSDL.
  • The CRA would register the withdrawal request and issue an application form which should be filled for withdrawal.
  • Once the formalities are completed, the CRA processes the withdrawal application and the amount is paid.

Extending the investment period

The National Pension Scheme also allows investors to extend the maturity date. This is called deferment and this deferment is allowed for up to 10 years. This means that the investor can choose to extend the maturity age from 60 years to 70 years.


Conclusion :

Pension plans provide financial security and stability during old age when people don't have a regular source of income. Retirement plan ensures that people live with pride and without compromising on their standard of living during advancing years. Pension scheme gives an opportunity to invest and accumulate savings and get lump sum amount as regular income through annuity plan on retirement.

According to United Nations Population Division World's life expectancy is expected to reach 75 years by 2050 from present level of 65 years. The better health and sanitation conditions in India have increased the life span. As a result number of post-retirement years increases. Thus, rising cost of living, inflation and life expectancy make retirement planning essential part of today's life. To provide social security to more citizens the Government of India has started the National Pension System.

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Sunday, November 13, 2022

Best Renewable Energy Stocks to buy in 2022

 



Overview of the renewable sector in India

As per the India Brand Equity Foundation (IBEF), India stands fourth in renewable energy capacity and wind power globally. It ranks fifth in solar power capacity. In October 2021, the country maintained its third position on the EY Renewable Energy Country Attractive Index 2021.

Prime Minister Shri Narendra Modi mentioned in June 2021 that India’s renewable energy capacity grew by 250% from 2014 to 2021. Besides, the share of renewable energy itself increased from 21% in 2012 to 37% in 2021. As of April 2022, the installed renewable energy capacity stood at 158.12 GW, which is 39.43% of the overall installed power capacity.

Why has renewable energy been in focus?

Given the alarming rate of climate change and escalating environmental concerns, countries across the globe are gradually shifting from fossil fuels to renewable sources to meet their energy needs.

What are green energy stocks?

Green energy stocks are companies involved in developing alternative technologies to replace fossil fuels with renewable resources like wind, solar, and hydroelectric. Renewable energy also includes supplementary technologies that will be instrumental in green energy transformation.

Increasing environmental concerns, government support, and massive investments in the renewable energy sector in India are making it an attractive avenue for investors. Top conglomerates in the space are running at it in full swing, expanding assets and capacities to help achieve India’s 2030 target of reaching 500 GW installed capacity. In 2021-2022 alone, the industry saw a 125% y-o-y growth in investments. So it’s natural for you to be interested in riding the wave and locking in attractive returns given by the top renewable energy stocks in India.




Types of renewable energy stocks in India

1.    Clean energy stocks

Shares of any company related to renewable energy can be a clean energy stock. This includes alternative transportation technologies.

2.    Solar and wind energy stocks

As the name suggests, these are more focused and associated with solar and wind energy.

3.    Hydroelectricity stocks

These are companies that use flowing water to generate energy. Currently, hydroelectricity is one of the most popular resources used and is only expected to rise over time.


Why invest in renewable energy stocks in India?

While the industry has been developing slowly, given the rapid rate of climate change, faster development of the green energy sector is the need of the hour. Following are a few reasons why the prospects for the renewable energy sector look greener:

Green energy is the future and has a huge scope

The Central Electricity Authority has estimated that the country’s power requirement is likely to reach 817 GW in 2030, driven mostly by the transport and real estate sectors.

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Companies investing massively to aid renewable energy transformation

While the government is doing its part, companies have also been investing significant funds in the sector to accelerate progress and meet India’s target of reaching net zero emissions by 2070.

Big names like Reliance Industries, Adani Group, Tata Group, and JSW are making the most of this crisis cum opportunity. Together, they are looking to invest over Rs. 4 lakh cr. in the next 5-10 yrs in the green energy sector.

Reliance Industries aims to make India the most affordable destination for green energy globally within the decade. To enjoy swift success, it looks to mirror its telecom strategy in the green energy sector and plans to invest Rs. 75,000 cr. by 2024. Adani Group, on the other hand, wants to become the world’s largest renewable power generating company by 2030. To achieve this, they are considering an investment of over ₹1.5 lakh cr. in the sector over the next decade.

Tata Power is not far behind, having planned investment of ₹75,000 cr. in the next 5 yrs. Finally, JSW Energy Ltd plans to invest ₹75,000 cr. by March 2030 and aims to become carbon neutral by 2050.


The list of best Renewable energy Stocks to invest are given below :



















 Benefits of Investing in Energy Stocks

Energy is a key sector of the economy and will continue to see a rise in demand in the coming future, especially as India moves towards the goal of becoming a developed country. This increased demand will be met through both conventional and renewable sources of energy.

Additionally, by investing in energy stocks, investors can gain from capital growth and dividends. Many investors have earned handsome profits by investing in stocks like Reliance and Adani this year, which have returned spectacular results.

Finally, investing in energy sector stocks will help investors and traders to diversify their portfolios. They can also gain diversification benefits by investing within the energy sector as these stocks deal with various sub-sectors, such as power, solar energy, oil & gas etc.

Factors to Consider Before Investing in Energy Stocks

Investors need to bear in mind that while energy sector stocks have the potential to offer huge returns, they are also highly risky. This is because the energy markets are generally cyclical and highly volatile. The wild swings in the oil market currently are an example.

Another essential thing to be considered is the impact of government regulations. For instance, the levy of windfall taxes and higher duties on ATF fuels suddenly squeezed the margins of refining companies, thus reducing their profitability. 

Furthermore, energy companies are now being subjected to even more scrutiny over their carbon emissions. Global warming and environmental pollution are serious concerns. While many energy companies have been making efforts to reduce their carbon footprint and remodel their business, it will require a substantial amount of CAPEX. Not all companies may be able to afford it and thus may need to shut down.

Important things to remember:

1. Do Not Blindly Follow Hot Tips

No matter how credible the source is, never follow a stock marketing tip blindly without conducting thorough research personally. Always select the stocks after doing proper research and analysis on the performance as well as the companies. While some tips can work out to give you huge benefits, the wrong ones can push you down under the risk pretty quickly. 

2. Eliminate Loser Stocks from Portfolio 

There is absolutely no guarantee that a stock will rise after a great fall. Know that it is extremely important to be practical about what is possible and what's impossible in the stock market. So, upon realizing that a stock is performing poorly in your portfolio, accept your mistake and sell it immediately to prevent further losses. 

3. Don't Exceed Your Investment Budget Abruptly 

While it's true that long-term investments are way better than other forms of investment, you shouldn't exceed your investment budget in a haste. Instead, decide on a fixed amount and invest it across various good stocks. Rather than investing in only one stock, divide your budget evenly across multiple good-performing stocks and shares. 

 

 




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