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What is the News?
Pension Fund Regulatory and Development Authority(PFRDA) is preparing to launch “Minimum Assured Return Scheme (MARS)” which will provide savers and people from the salaried class an option for their investments.
Note: PFRDA currently operates the National Pension System(NPS).
What is the Minimum Assured Return Scheme(MARS)?
Aim: To have a separate scheme that can offer a guaranteed minimum rate of return to NPS subscribers, especially those who are risk averse (Currently, the NPS gives returns annually, based on prevailing market conditions).
What will be the returns offered under MARS Scheme?
The actual returns under the scheme will depend on the market conditions. Any shortfall will be made good by the sponsor, and the surplus will be credited to the subscribers’ accounts.
Two options are likely to be on offer:
– Under the fixed guarantee option, the guaranteed return is fixed along with the accumulation phase.
– Under the floating guarantee option, the guaranteed rate of return is not fixed along with the savings phase. The floating guarantee depends on the development of the 1-year interest rate until retirement.
Lock-in- Period: The Lock-in may be applicable under the scheme on each contribution and will be applied based on the period since that contribution has been made.
It may also consider multiple lock-in period options (or staggered guarantee periods) for flexibility. Withdrawals are also likely to be directly linked to the lock-in period.
The subscriber may also have the option to withdraw or to stay invested after the lock-in period. However, there won’t be any guarantee applied on the investment after lock-in.
Limit of Contribution: Minimum and maximum monetary limits on contributions may be prescribed. The attraction for investors will be the minimum guaranteed return.
Source: This post is based on the article “NPS to include assured returns; new products likely to come in August” published in Business Standard on 3rd March 2022.
