National Pension Scheme (NPS)
Finance
Exhausted all your tax saving options under Section 80C, and looking for more avenues?
The National Pension Scheme (NPS) can help.
What is NPS?
NPS is a voluntary retirement scheme through which one can create a retirement corpus or their ‘old-age pension’.
Managed by Pension Fund Regulatory and Development Authority (PFRDA), the scheme is available for investment to all Indian citizens (whether resident or non-resident) between 18 and 65 years of age. At present, the Assets Under Management (AUM) of the scheme is over INR 6 lakh crores (~USD 85 billion).
How do one’s contributions get invested?
NPS investments are market-linked, with major asset classes being:
Equity markets
Corporate debt
Government debt
Alternative investments
One can choose ‘automatic’ asset allocation (which in layman’s terms means going aggressive if young and conservative if old), or choose their preferred allocation manually. Contributors can choose out of 7 fund management companies - SBI, UTI, LIC, Kotak, HDFC, ICICI and Birla Sun Life.
This can be thought of as a managed fund with a very low expense ratio - as low as 0.01%.
How does it help with tax?
Like many other tax-saving instruments, investment in NPS can be claimed as an exemption under Section 80C.
Furthermore, under section 80CCD(1B), an investment amount to the tune of INR 50,000 can be additionally claimed. In a nutshell, this INR 50,000 is over and above the regular exemption of INR 1,50,000 under Section 80C.
Moreover, 10% of one’s Basic Salary + Dearness Allowance (DA) paid by employers towards NPS of their employees is exempt under 80CCD(2), with no monetary limit.
Tax benefits at withdrawal as well!
The instrument offers exemption not only on investment but also during withdrawal.
On attaining the age of 60, the contributor can withdraw 60% of the corpus tax-free. For the remaining 40%, they can buy an annuity that will provide them with regular pension income. This annuity is, however, taxable. Nonetheless, there are several types of annuity options available to choose from, per the preference of the contributor.
Two account types
NPS offers two account types:
Tier I - Offers a retirement account with loads of tax benefits, but one cannot withdraw their contributions till the age of 60 (except under special circumstances).
Tier II - Offers a retirement account with no restrictions, and one can redeem it anytime they want to. However, owning a Tier-1 account is mandatory while applying for a Tier-2 account.
How can one invest?
Almost all major banks offer NPS accounts. One can also open an e-NPS account on the NPS website with their e-Aadhar and PAN.
At the time of registration, a mandatory minimum contribution requirement of INR 500 has been set under the Tier I account, and of INR 1,000 in Tier II.
Subsequent contributions, as well as frequency, can vary, but an annual contribution of minimum INR 1,000 under Tier I, and of INR 250 under Tier II is mandatory.
Limitations to withdrawal
Complete withdrawal from the scheme is only possible after the minimum age of 60 years. The 60-40% ratio is to be kept in mind.
Premature withdrawal is allowable only after completion of 10 years of investment. Moreover, the contributor has to utilize at least 80% of the accumulated pension corpus to purchase an annuity that can provide a regular monthly pension income, and only the remaining 20% can be withdrawn as a lump sum.
Airtel vs. Jio - In a quest to make affordable smartphones
Business
Missed timelines
The much-anticipated 4G smartphone - JioPhone Next, originally slated for a release on September 10, 2021, will now have a deferred launch in the first week of November.
This is the third time that Reliance has pushed back the launch date of what could be the cheapest smartphone ever made!
Why the delay?
The world economy is reeling from an unprecedented semiconductor shortage, with the demand for chips outstripping their supply.
Driven by this demand-supply mismatch, prices of semiconductors are skyrocketing.
With the intent to retain its numero uno position in the telecom space, Reliance is in the pursuit of manufacturing the cheapest smartphone ever made.
However, due to raw material shortages and the subsequent cost-inefficiencies, Reliance is unable to shore up its inventory levels.
Airtel leveraging the opportunity
On September 13, 2021, 3-days after Jio announced the delay in launch, reports emerged that Bharati Airtel will also be launching its own version of affordable smartphones by November.
The latter plans to tie up with handset manufacturers to produce low-priced, co-branded smartphones.
To this effect - Lava, HMD Global, and Karbon have also submitted proposals with hardware specifications to Airtel for a probable partnership.
Why the trouble?
Given this context, the question that begs to be answered:
Why are Jio and Airtel, the first and the second largest telecom operators in India respectively, competing to make a cheap smartphone?
Why is ‘Jio’ making a smartphone?
Jio's growth has slowed down drastically in the last year - it has the highest percentage of inactive subscribers and the lowest average revenue per user (ARPU).
Using JioPhone Next as its ladder for growth, the company plans to rein in this downward spiral, and acquire 2G subscribers from its rivals. In the long run, Jio's monetization strategy rests on its digital retail business - the suite of Apps it has developed and launched, especially JioMart.
However, for users to access these apps, smartphones and the internet are basic necessities. With this context, enters JioPhone Next - ‘an affordable smartphone with a 4G network that comes preloaded with all of Jio's apps.’ Jio essentially intends to cross-sell its revenue-generating retail apps to its smartphone users.
Why is ‘Airtel’ making a smartphone?
For Bharti Airtel, making a low-priced 4G smartphone is a matter of survival!
Eventually, when JioPhone Next is launched at a heavily subsidized price, a bloodbath would unleash - the price-conscious 2G subscribers from non-Jio operators would jump to Jio services.
In this context, Airtel would be one with most to lose because the company boasts of having the largest 2G subscriber base. Therefore, it becomes a necessity for Airtel to act fast and retain its users before it gets too late!
What’s next?
With the imminent slow death of VI, a presumable duopoly in the Indian telecom space is on the cards. Both Airtel and Jio will leave no stone unturned to grow their respective market share. In this context, a cheap smartphone is their strongest weapon.
It is ironic though that despite a war chest of cash, Jio's growth is now stemmed by a minuscule millimetre length silicon chip!
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