What is NDCPS (New Defined Contributory Pension Scheme)?

               As per Government rules, any employee appointed after 01-04-2005 will be included in New Defined Contributory Pension Scheme (NDCPS). In this scheme, an employee has to open an account via his /her department.

Related Post: How to open an account of NDCPS (New Defined Contributory Pension Scheme)?

Who can open an account of NDCPS (New Defined Contributory Pension Scheme)?

           Any employee who fulfills requirements given below can open an account of NDCPS (New Defined Contributory Pension Scheme).

                  

•     He / she must attain age of 18 years.
•     He / she must be a government employee ( central government / state government /       Central or State government  Autonomous Body)
•      He / she must not be in contract period or in fixed payment scheme.

               After opening an account, an employee has to contribute 10% amount of his / her basic salary plus DA (Dearness Allowance) amount. (Not more and not less; if he / she wants to contribute more, read this post) Respective employer government shall credit the same number of amount into an employee’s account as an employer contribution. Thus, an employee shall get the doubled amount credited than he actually contributed.

               As per the notification of Pension Fund Regulatory and Development Authority (PFRDA), this contribution will be invested in seven Pension Fund Managers (PFMs):

                   1.     SBI Pension Funds Pvt. Limited

                   2.     LIC Pension Fund Limited

                   3.     UTI Retirement Solutions Limited.

                   4.     ICICI Prudential Pension Funds Management Company Limited

                   5.     Kotak Mahindra Pension Fund Limited

                   6.     Reliance Capital Pension Fund Limited

                   7.     HDFC Pension Management Company Limited

Please Note that an employee of government sector can only apply for the above first three Pension Fund Managers (PFMs). Non government sector employee can choose among all seven Pension Fund Managers (PFMs).

                      At the time of opening the account, a government sector employee have to select either ACTIVE choice or AUTO choice for the proportional amount to be credited in above seven Pension Fund Managers (PFMs). Which option is better? Well, both options are good. Read further for more details.

(Must read) If you want to know about asset classes? Go at last section of this post

                1.     Active choice:

In this option, an employee has to state that how much percentage of amounts he / she wants to allot to each Pension Fund Manager (PFM). Total contribution among above seven Pension Fund Managers (PFMs) must be 100%. This option requires some knowledge. So choose this option wisely. An employee can invest his investment in the proportion given below under this option:

Asset Class	Percentage (%)
Asset Class E	Not more than 50%
Asset Class C	*
Asset Class G	*
Total	100%

    * Note: The total proportion of both Asset class C and G should be (100- Asset class E percentage) %

(Must read) If you want to know about asset classes? Go at last section of this post

          2.     Auto choice:

        Under this type of investment choice, the proportion of funds invested among three Pension Fund Managers (PFMs) will be determined by a pre-defined portfolio. At the entry stage (age of 18 years), the auto choice option will invest your investment in the ratio given below:

           

Asset Class	Percentage (%)
Asset Class E	50%
Asset Class C	30%
Asset Class G	20%
Total	100%

These ratios of investment will remain fixed for all contributions until the employee reaches the age of 36. From age of 36 years onwards, the weight in E and C asset class will decrease every year and the weight in G class will increase every till it reaches the ratio given below at age of 55:

           

Asset Class	Percentage (%)
Asset Class E	10%
Asset Class C	10%
Asset Class G	80%
Total	100%

                 If an employee has chosen “Auto choice option” for allocation of Pension Fund Managers (PFMs), then after the age of 36 years following matrix shall apply.

Age	Asset Class E	Asset Class C	Asset Class G
Up to 35 years	50%	30%	20%
36 years	48%	29%	23%
37 years	46%	28%	26%
38 years	44%	27%	29%
39 years	42%	26%	32%
40 years	40%	25%	35%
41 years	38%	24%	38%
42 years	36%	23%	41%
43 years	34%	22%	44%
44 years	32%	21%	47%
45 years	30%	20%	50%
46 years	28%	19%	53%
47 years	26%	18%	56%
48 years	24%	17%	59%
49 years	22%	16%	62%
50 years	20%	15%	65%
51 years	18%	14%	68%
52 years	16%	13%	71%
53 years	14%	12%	74%
54 years	12%	11%	77%
55 years	10%	10%	80%

What are asset class (i.e. E, C and G)?

               Your investment in NDCPS is invested in three different types of Asset classes as listed below. The total percentage of them must be 100%. It is very important that you choose them wisely. As each asset class has its own Possibility of Return of Investment and Risk. Especially asset class E should be selected wisely because the fund allotted to it goes into share market.  So government has restricted fund allocation to asset class E to not more than 50%.

Name Asset Class	Possibility of Return of Investment	Risk of Investment	Investment Purpose
Asset Class E	High	High	Investment in predominantly equity market instrument. (Invested in share market)
Asset Class C	Medium	Low	Investment in fixed income instruments other than Government Securities (Invested in Non government company / institution for fixed income)
Asset Class G	Low	Very Low	Investment in Government Securities.

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