Know How Charges Are Deducted From Retirement Corpus

If you are investing in National Pension System (NPS), then it is important to be aware of the charges levied on your NPS account and how these charges get deducted.

There are three charges applicable including account opening charges and financial or non-financial transaction charges and annual maintenance charges, according to NPS scheme rules. 

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The account opening charges are levied when you open an NPS account while transaction charges are applicable when a transaction (financial or non-financial) is done by you. For instance, at the time of making a contribution to your NPS account, it will attract financial transaction charges.

In a similar manner, non-financial transactions (such as changes in a bank account) will also attract charges to your NPS account. Apart from this, there are annual maintenance charges which are levied at the end of every quarter. It gets deducted in the form of units held in your NPS account, rather than in a monetary form, according to the Times of India report.

The calculation has been explained by Prasenjit Mukherjee, senior vice-president and head, CAMS CRA, in the report.

Consider an individual who opened an NPS account opting for an online Permanent Retirement Account Number (PRAN) with contributions in both tier-I and tier-II accounts.  The total charges payable in a quarter will come to Rs 48.68 (Rs 41.25 CRA charges plus applicable taxes).

The total Rs 41.25 CRA charge includes Rs 18 for registration (online welcome kit) Rs 7 for two transactions (Rs 3.50 per financial transaction to deposit money in tier-I and tier-II NPS accounts) and Rs 16.25 for AMC (i.e., the CAMS annual charge of Rs 65 divided by 4).

Remember these charges are deducted based on the proportion of units in the subscriber’s account and not according to the scheme preference opted by the subscriber.

For example, if your scheme preference is 50 per cent in equity, 25 per cent in corporate bonds and 25 per cent in government security where you hold 60 units of equity, 35 units of corporate bonds and 20 units of government securities. The amount to be deducted from equity has been calculated as Rs 25.39, from corporate bonds it is Rs 14.81 and from government security it is Rs 8.48. That brings the total to Rs 48.68.

(The amount to be deducted in equity has been derived by (60/115) X 48.68). Similarly, corporate bonds and government securities amount is derived.

Also, the report explained assuming that the closing NAV on the last working day of a quarter is Rs 20 per unit in equity, Rs 15 in corporate bonds and Rs 30 per unit in government bonds, then the units deducted in each of the schemes will be 1.2695 units (Rs 25.39/20) in equity, 0.9873 units (Rs 14.81/15) in corporate bonds and 0.2826 units (Rs 8.48/30) in government securities.

Mukherjee said POP charges (the first touchpoint for an NPS subscriber is called Point of Presence) except the persistency charge are payable upfront by the subscriber. They are not deducted from the NPS account in the form of units. However, persistency charges are deducted in a manner similar to that of CRA charges such as the unit deduction.