Having a secular cash flow at all times is what every individual investors looks for, especially after retirement. With this in mind, National Pension Scheme (NPS) which is a defined contribution scheme, was started for government employees in 2004 and was extended to all in 2009.
NPS accumulates savings into a subscriber’s personal retirement accounts (PRA) while he is working. On retirement, 60% of the accumulated corpus is paid out as lump sum to the subscriber. The rest is used to pay pension for the rest of his life. In Tier I structure, the asset allocation is determined on the basis of age of the subscriber and is divided into equity, corporate bonds and government securities. As the subscriber ages, allocation in equity gradually comes down to 10%. This strategy helps in managing volatility in the portfolio as the age progresses and investor approaches retirement.
