The only deferred annuity option available for the general public is the new pension scheme (NPS) that allows you to invest regularly for your retirement. It was started in May 2009.

This scheme is akin to a balanced fund that allows you to invest up to 50 per cent of your investment in equity, with the rest parked in corporate and government debt instruments in a proportion of your liking.

You can choose from as many as six pension fund managers — ICICI Prudential, IDFC, Kotak Mahindra, Reliance, SBI and UTI. A minimum contribution of Rs 6,000 is required in a year. There is no upper ceiling on investments.

There are three schemes: E - equity instruments, C - corporate fixed-income products and G - government securities. The NAVs are declared for each option separately.

You can choose the proportion of allocation of your monthly instalments in these three categories.

There is also an auto option where allocation in equity is reduced from 50 per cent when you are 35 to 10 per cent when you turn 55.

But the equity investments can be made only in index funds tracking the Sensex or the Nifty. This can limit returns vis-à-vis active picking of stocks.

The E option has delivered 6.5-9 per cent returns compounded annually among the pension fund managers, the C option 9.5-10.8 per cent while the G option delivered 6-11 per cent. The equity portion's returns have lagged benchmarks by as much as 6-7 percentage points and have been disappointing.

Among the fund houses, ICICI Prudential seems to be the best option on an overall portfolio (E, C and G) returns basis.

Charges

There is an account opening charge of Rs 50. Apart from this, the annual maintenance charges are Rs 225 currently, which is deducted on a quarterly basis (Rs 56.25) by cancellation of units. The charge per transaction is Rs 5.

The entry load for any instalment is just 0.25 per cent. Another Rs 100 is to be paid for initial subscriber registration to the PoP (point of presence).

To put all this in perspective, if you contribute Rs 1,000 per month, your annual charges could work out to 3.8 per cent in the first year and just 2.3 per cent from the second year onwards.

If your monthly instalments increase substantially, the charges would be much lower.

Tax

Your instalments are allowed as deductions under section 80 C. After the contributing phase is over, you can withdraw up to 60 per cent of the accumulated corpus as a lump sum, after you turn 60.

But the caveat is, at present, this lump sum is taxable under the present dispensation.

But, under the proposed Direct Taxes Code, the lump sum would be tax-free. For the balance 40 per cent, you are required to buy an annuity.

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