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What is National Pension system (NPS)

  • NPS (National Pension System) is a defined contribution based pension system launched by Government of India with the following objectives:
  • It is based on a unique Permanent Retirement Account Number (PRAN) which is allotted to each subscriber upon joining NPS. The Government of India in exercise of their executive powers adopted 'National Pension System' (NPS) based on defined contributions in respect of all new entrants to central government services, except the armed forces, with effect from 1st January 2004. Most of the state governments have since notified a similar pension system for their new entrants. NPS accumulates savings into subscribers PRA while he is working and use the accumulations at retirement to procure a pension for the rest of his life.

Salient Features

NPS offers wide range of benefits to individuals, making it a unique investment opportunity.
Some of the salient features of NPS are:

    The NPS account (PRAN) remains the same irrespective of change of employment or geography

    On joining NPS, each subscriber gets a login ID and password of NSDL system for accessing NPS details online

    It offers subscribers choice of service providers, funds, investment options, pension fund managers, annuity service providers freedom to switch and annuity plans managers

    NPS is regulated by PFRDA, with transparent investment norms and regular monitoring and performance review of fund managers by NPS Trust

    SMC offers you a choice of funds, fund managers and investment options in National Pension system

    Investment Portfolio under each asset class can be viewed on respective pension fund manager’s website

    Through CRA / PFRDA website, call center, email or postal mail

    With 0.01% as fund management charge, NPS is one of the world’s least cost investment options

Tax Benefits under NPS

  • Individual subscriber (salaried as well as self employed) can avail of the tax benefits as mentioned below:

    Eligible for tax deduction of up to 10% of salary (Basic + Dearness Allowance) under section 80CCD (1) of Income Tax Act, 1961 within Rs. 1.5lac limit under section 80CCE.
    Eligible for tax deduction of up to 10% of gross income under section 80CCD (1) of Income Tax Act, 1961 with in Rs. 1.5Lac limit under section 80CCE.
    As per the Finance Bill 2015, additional investment of Rs. 50,000/- will be eligible for tax deduction under section 80CCD (1B) of Income Tax Act, 1961. This benefit will be effective AY 2016 – 17.

types of account

  • The NPS system offers 2 types of account:

    Tier I account
    It is also known as pension account. Withdrawal from this account is restricted till the subscriber attains the age 60 years. Minimum yearly contribution requirement in this account is Rs. 1,000.
    Tier II account
    It is a normal investment account. Withdrawal from this account can be done as per the need of the subscriber. Minimum yearly contribution requirement in this account is Rs. 250, however on 31st March of each year, total value of units in this account should be equal to or more than Rs. 2,000.
    An active Tier I account is mandatory for opening Tier II account. Tier II account can be opened along with Tier I account or at any time after Tier I account opening.

asset allocation options

  • NPS gives subscribers the option to invest according to their choice and risk appetite among three funds. Three asset allocation options under NPS are:

    1. Equity ( Asset Class E )
    2. Corporate Bonds ( Asset Class C )
    3. Government Securities ( Asset Class G )

    Subscriber can switch the asset allocation once in a financial year.


  • Depending on the expertise on taking call on right asset mix, subscribers have 2 investment options under NPS

    Active Choice Under this option, subscriber can select the asset allocation among equity, corporate bonds and government securities as per his / her choice.

    AUTO Choice Under this option, fraction of funds invested across three asset classes is determined by a pre – defined portfolio which will be based on the age of the subscriber. This is also known as life cycle fund option.
    Investment pattern under auto choice is as per the below table:

    • • Re-alignment of portfolio is system driven and is executed on date of birth of the subscribers
    • • Subscriber can switch the Investment option once in a financial year

Withdrawal from Tier I NPS account

Amount from Tier I account can be withdrawn only on exit from NPS. Exit from NPS can
be done at any point of time. The payout would be made to subscriber as per the below chart:

  • Withdrawal before the age 60 years

    • • Up to 20% of corpus can be withdrawn in lump sum
    • • Minimum 80% of the corpus needs to be invested in annuity
  • Withdrawal on attaining the age 60 years

    • Up to 60% of corpus can be withdrawn in lump sum
    • Minimum 40% of the corpus needs to be invested in annuity


    • What is the National Pension System(NPS)?
    • +
    The NPS is a new contributory pension system launched by Government of India with effect from 1st January 2004. NPS regulated by Pension Fund Regulatory and Development Authority (PFRDA), was first introduced for government employees and then in 2009 end for all citizens of India. Under the NPS, you can regularly invest your money into your pension account and have an option of taking a part of the corpus as lump sum amount and the balance in form of fixed monthly income. Use this NPS calculator to understand all the benefits of NPS at a glance.
    • Who can subscribe for NPS?
    • +
    A citizen of India, whether resident or non-resident, subject to the following conditions: You should be between 18-60 years of age as on the date of submission of this application to the POP / POP-SP.
    You should comply with the Know Your Customer (KYC) norms as detailed in the Subscriber Registration Form. The Subscriber Registration Form attached with this offer document should be duly filled-in by the applicant and all terms and conditions mentioned therein should be duly complied with. All the documents required for KYC compliance need to be mandatorily submitted.
    • Who cannot join NPS?
    • +
    The following applicants cannot join:
    • 1. Undercharged insolvent: Individuals who are not granted an 'order of discharge' by a court
    • 2. Individuals of unsound mind: An individual is said to be of unsound mind for the purposes of making a contract if, at the time when he makes it, he is incapable of understanding it and of forming a rational judgment regarding its effect upon his/her self-interest
    • 3. Pre-existing account holders under NPS
    • If I have invested in any other Provident Fund, can I still invest in NPS?
    • +
    Yes. Investment in NPS is independent of your contribution to any Provident Fund.
    • What are the benefits of joining the NPS?
    • +
    • It is voluntary - NPS is open to every Indian citizen. You can choose the amount you want to set aside and save every year. Extending old age security coverage & income to all citizens
    • It is flexible - You can choose your own investment option and Pension Fund Manager and see your money grow
    • It is portable - You can operate your account from anywhere in the country, even if you change your city, job or your Pension Fund Manager
    • It is regulated - NPS is regulated by PFRDA, with transparent investment norms and regular monitoring and performance review of Fund Managers by NPS Trust
    • Reasonable market based returns - over the long term
    • Tax benefits - Contribution towards NPS exempted under Section 80C
    • Low cost investment - Cost effective mode of planning for one's retirement
    • What are the tax benefits of NPS?
    • +
    Employer contributing to the NPS on behalf of an employee will get deduction from his income
    (i.e. employer's income) an amount equivalent to the amount contributed or 10% of basic salary plus DA of the employee, whichever is less (Section 36 (1)(iv a) of the Income Tax Act 1961)

    (In simple terms - Corporate can help their employees to lessen tax burden by saving in NPS up to 10% of their basics salary. This investment is another avenue over & above those of Section 80C investments to secure their retirement well in advance).

    Additional contribution by individual employee is eligible for deduction from Income under Section 80CCD of the Income Tax Act 1961. However, investments under Section 80C plus the premium on pension products on Section 80CCC should not exceed Rs. 1Lac per assessment year to claim for the deduction.
    • Is there any maximum age limit for making further contribution to NPS Tier-I account?
    • +
    Yes. You can make contribution in your NPS account anytime between the 18 to 60 years of age. After attaining 60 years of age, you will not be permitted to make further contributions to the NPS account.
    • How can a subscriber get registered for NPS?
    • +
    Any Individual who wants to get registered as a subscriber and wants to open a Permanent Retirement Account (PRA) (Tier-I) in NPS would submit the duly filled form (Composite application form for subscriber registration) with other supporting KYC documents to a POP.
    • Where do I get the registration forms?
    • +
    Application form for registration for NPS can be downloaded from the POP's website. You need to forward the duly filled Subscriber Registration Form, photograph, 1st contribution cheque & self-attested KYC documents to POP.
    • How much does a subscriber need to contribute for Tier-I ?
    • +
    You are required to make your first contribution at the time of applying for registration with the POP-SP. You are required to make contributions subject to the following conditions:

    Minimum amount per contribution - Rs. 500,
    Minimum contribution per year - Rs. . 6,000,
    Minimum number of contributions - 01 per year
    Over and above the mandated limit of a minimum of 1 contribution, you may decide on the frequency of the contributions across the year as per your convenience. PFRDA will impose penalties on intermediaries in case of delay beyond this period.
    • Is there any upper limit of investment?
    • +
    No, there is no upper limit on investment in NPS.
    • What are the POP charges at time of subscription & subsequent contribution?
    • +
    Subscriber needs to pay the service charges to POP for subscribing to NPS system.
    • An Initial subscriber registration charge of Rs. 100 and an ad valorem transaction charge of 0.25% of the initial contribution amount from subscriber subject to a minimum of Rs. 20 and a maximum of Rs. 25,000.
    • Any subsequent transaction involving contribution - 0.25% of the amount subscribed by the NPS subscriber, subject to minimum of Rs. 20 and a maximum of Rs. 25,000.
    • Any other transaction not involving a contribution from subscriber - Rs. 20.
    • Change in subscriber details.
    • Change of investment system / Fund Manager.
    • Processing of withdrawal request.
    • Processing of request for subscriber shifting.
    • Issuance of printed account statement.
    • Any other subscriber services as may be prescribed by PFRDA.
    • How much time is required for registration?
    • +
    After the registration forms are submitted to a POP, the same is forwarded to CRA - Facilitation Centers (CRA-FC). PRAN is generated and the PRAN Card is printed and dispatched within 20 days from the date of receipt of duly filled registration form at the CRA - Facilitation Centre.
    • When would my contribution be debited from my account?
    • +
    The 1st contribution cheque would be debited post PRAN generation.
    • How do I come to know about the PRAN?
    • +
    Once the PRAN is generated, an email alert as well as a SMS alert will be sent to the registered email ID and mobile number of the subscriber. For security reason, only the last four digits are mentioned in the alert. Subscribers can know the PRAN on receipt of the PRAN Kit or they can also approach POP for the PRAN.
    • What is PRAN and PRAN Kit?
    • +
    On successful registration, a PRAN (Permanent Retirement Account Number) will be allotted to the subscriber. A PRAN Kit containing PRAN Card, subscriber details (referred as Subscriber Master List) and an information booklet is sent to the subscriber's registered address. The T-PIN and I-PIN are sent separately to the registered address.

    The PRAN Card is a document with PRAN, subscriber's name, father's name, photograph and signature / thumb impression. This card proves the completeness of information in the CRA system. A copy of the card is required for Tier-II activation and also for subsequent contribution in Tier-II account. The Subscriber Master List shows all the information as provided by the subscriber in his/her application and accordingly captured in CRA system. A subscriber may verify the correctness of the information submitted for registration by looking at the Subscriber Master List.
    • Whom to contact for non-receipt of PRAN Card?
    • +
    PRAN Card is dispatched to the registered address within 20 days from the day of receipt of duly filled registration form at the NSDL CRA office.
    • Can a CRA-FC reject the subscriber application forms?
    • +
    POP-SP will perform verification checks, such as whether name is mentioned, photograph is attached, signature is present, other mandatory fields (other supporting documents for KYC norms prescribed by PFRDA) are properly filled, system preference details are mentioned as required, first time contribution amount etc. before accepting the form. In case the application form is not filled with all the required details, CRA-FC will not accept the registration form. CRA-FC will intimate subscriber's POP-SP regarding rejection of forms.
    • How can I exit from NPS before the age of 60?
    • +
    In case of exit before 60 years, a subscriber is required to invest at least 80% of the pension wealth to purchase a life annuity from an Annuity Service Provider (an IRDA regulated Life Insurance Company appointed by PFRDA). Remaining 20% of the pension wealth may be withdrawn as a lump sum.
    • What investment choice / system preference does the subscriber have?
    • +
    The NPS offers you two approaches to invest your money:
    Active choice - Individual Funds (Asset Class E, Asset Class C, and Asset Class G)
    Auto Choice - Life cycle Fund
    • What is Active choice option?
    • +
    You will have the option to actively decide as to how your NPS pension wealth is to be invested in the following three options:

    Asset Class E - Investments in predominantly equity market instruments.
    Asset Class C - Investments in fixed income instruments other than Government securities.
    Asset Class G - Investments in Government securities.
    You can choose to invest your entire pension wealth in C or G Asset Classes and up to a maximum of 50% in equity (Asset Class E). You can also distribute your pension wealth across E, C and G Asset Classes, subject to such conditions as may be prescribed by PFRDA.In case you decide to actively exercise your choice about investment options, you shall be required to indicate your choice of Pension Fund Manager (PFM) from among the seven Pension Fund Managers (PFMs) appointed by PFRDA. In case you do not indicate any choice of PFMs, your form shall not be accepted by the POP-SP.
    While exercising an Active Choice, remember that your investment allocation is one of the most important factors affecting the growth of your pension wealth. If you prefer this "hands-on" approach, keep the following points in mind:
    Consider both risk and return. The E Asset Class has higher potential returns than the G Asset Class, but it also carries the risk of investment losses. Investing entirely in the G Asset Class may not give you high returns but is a safer option.
    You can reduce your overall risk by diversifying your investment. The three individual asset classes offer a broad range of investment options; it is good not to put "all your eggs in one basket." The amount of risk you can sustain depends upon your investment time horizon. The more time you have before you need to withdraw from your account, the more is the risk you can take (This is because early losses can be offset by later gains).
    Periodically review your investment choices. Check the distribution of your account balance among the funds to make sure that the mix you chose is still appropriate for your situation. If not, rebalance your account to get the allocation you want.
    • What is Auto Choice - Life cycle Fund?
    • +
    NPS offers an easy option for those participants who do not have the required knowledge to manage their NPS investments. In case you are unable / unwilling to exercise any choice as regards asset allocation, your funds will be invested in accordance with the Auto Choice option. You will, however, be required to indicate your choice of PFM. In case you do not do so, your form shall not be accepted by the POP-SP. In this option, the investments will be made in a life cycle fund. Here, a pre-defined portfolio will determine the fraction of funds invested across three asset classes. At the lowest age of entry (18 years), the Auto Choice will entail investment of 50% of pension wealth in "E" Class, 30% in "C" Class and 20% in "G" Class. These ratios of investment will remain fixed for all contributions until the participant reaches the age of 36. From age 36 onwards, the weight in "E" and "C" Asset Class will decrease annually and the weight in "G" Class will increase annually till it reaches 10% in "E", 10% in "C" and 80% in "G" Class at age. Like the Active Choice, you must choose one PFM under the Auto Choice.
    * In case of Auto Choice, reallocation among the asset classes shall take place on the date of birth of the subscriber. Net Asset Value (NAV) will be released on a regular basis so that you may be able to take informed decisions.
    • Can I select both investment choices when investing in NPS?
    • +
    No. You have to select either Active Choice or Auto Choice as your option when making investments under NPS.
    • How do I select the Pension Fund Manager for my NPS savings?
    • +
    You are required to specify your Pension Fund Manager (PFM) at the time of applying for NPS registration. You will be required to indicate your preferred PFM out of the 7 PFM identified by PFRDA.
    • Which is the Pension Fund Manager available for NPS?
    • +
    NPS allows you to choose from any one of the following seven entities to manage your Pension Fund currently: -
    • HDFC Pension Management Company Ltd.
    • LIC Pension Fund Ltd.
    • ICICI Prudential Pension Funds Management Company Ltd.
    • Kotak Mahindra Pension Fund Ltd.
    • Reliance Capital Pension Fund Ltd.
    • SBI Pension Funds Private Ltd.
    • UTI Retirement Solutions Ltd.

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