Know how to invest in National Pension Scheme Via SIP (Systematic Investment Mode) through D-Remit Facility?

NPS is a government-sponsored pension scheme. NPS allows subscribers to contribute regularly in a pension account during their working phase. On retirement, subscribers can withdraw a part of the corpus in lump sum and use the remaining corpus to buy an annuity to secure a regular income after retirement. A substantial corpus creation for one’s retirement phase is an essential aspect in financial planning.

PFRDA (Pension Fund Regulatory and Development Authority has launched Direct Remittance (D-Remit) facility for NPS Subscribers for Voluntary contribution in Tier I and Tier II Accounts

Now, NPS D-Remit subscribers can set up systematic investments through auto-debit or standing instructions at a regular periodic interval without any extra costs the periodic intervals could be-daily, monthly or quarterly. This is similar to the Systematic Investment Plan (SIP) applicable to mutual fund investors. New NPS facility makes investing in the scheme not only simpler and hassle-free and also helps the subscriber get same-day NAV for their investment.

To Activate D-Remit Facility, NPS Subscribers has to create Virtual ID linked to their permanent retirement account number (PRAN)

Steps to Activate D-Remit:

•Use the following link to generate "Virtual ID" for your NPS account. Unique virtual IDs have to be created for Tier 1 and Tier 2 accounts

https://cra-nsdl.com/CRAOnline/VirtualIdCreation.html

•Authenticate it by submitting the OTP sent on your registered mobile number

•Log-in to your net banking and add the "Virtual ID" as a beneficiary with the IFSC details of the Trustee Bank (UTIB0CCH274)

•Set periodic auto debit/standing instructions using net banking

•The funds received Up to 8:30 am on bank working day (other than Saturdays, Sundays and Holidays) by Trustee bank will be considered same day investment.

•There is no additional cost to NPS subscribers to avail of the D-Remit facility.

Note that for both Tier- 1 and Tier- 2 accounts, the minimum contribution through D-Remit should be Rs 500 mention "NPS contribution for D-Remit" in narration or remarks while transferring the funds.

Glimpse of How NPS has performed in the last 5 Years:

 

Why waiting to predict the market lows and highs, when you can save systematically in NPS! Start Investing! 

We have also published the following blogs related to NPS:

1) Say Yes to National Pension Scheme:

https://mentotax.blogspot.com/2019/04/say-yes-to-national-pension-scheme-nps.html

2) How to Open NPS Account Online?

https://mentotax.blogspot.com/2019/05/blog-post_5.html 

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Comparison of Physical Gold Vs Gold ETF Vs Sovereign Gold Bonds

 

Points	Physical Gold	Gold ETF	Sovereign Gold Bonds
What are they?	Physical Gold are usually purchased in the form of bars, jewels, and coins.	ETF is similar to a mutual fund, AMC hold the assets and charges a maintenance fee for the same. They can be bought and sold through stock exchanges.	SGB are government bonds that are held in the books of RBI and in Demat Form. Thus, making it free of any charge.
Regulator	Nil	SEBI	RBI
Purchase Mode	From Jewellers	From Stock Exchange	From Banks and Financial Institutions
Purity of Gold	Purity of Gold always remains a question	High	High
Investment Limit	No Cap	No Cap	Investment Up to 4 KG by Individuals, HUF and 20 Kg by Trust in a Financial Year
Income	Appreciation in Gold Price	Appreciation in Gold Price	2.5% Interest on Initial Investment and Appreciation in Gold Price
Returns	Lower than actual return on gold  * Capital Appreciation – Discount Sale	Lower than actual return on Gold  *Capital Appreciation – AMC Charges	Higher than actual return on gold  * Interest + Capital Appreciation
Safety	Risk on handling physical gold.	Highly Safe	Highly Safe
Short Term Capital Gain	Taxable as per Income Slab	Taxable as per Income Slab	Taxable as per Income Slab
Long Term Capital Gain	Long term capital gain tax applicable after 3 years at 20% With Indexation	Long term capital gain tax applicable after 3 years at 20% With Indexation	No Capital Gain Tax if held till maturity  *Interest Income is taxable as per slab
Collateral against Loan	Yes	No	Yes
Tradability / Exit Route	Conditional Sale	Tradable on Exchange	Tradable on Exchange and Redemption 5th year onwards with Government of India
Storage Cost	High	Nil	Nil

SGB Beats the Physical Gold and ETF by fair margin in terms of returns, safety and liquidity. Mentotax recommends to Stick to SGB for Portfolio diversification, Asset class diversification and high post tax return.

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Tax Implications on Sovereign Gold Bonds

Tax Implication On Sovereign Gold Bonds:

Sovereign Gold Bonds are issued by Reserve Bank on behalf of Government of India. SGB has fixed tenor of 8 years but has an option to exit prematurely after 5 years from the date of issuance. SGB is also traded at the Stock Exchange (NSE/BSE) so investors holding bonds in demat form can trade in secondary markets. 

SGB investors are paid 2.5% interest semi annually on the initial investment value. SGB returns are linked to the 999 Purity Gold, when gold price increases, Bond price also get increased. 

Taxation on Interest Payment:

Interest paid on Sovereign Gold Bonds are taxable as per Income Tax slab. Tax Deducted at Source (TDS) is not applicable on the interest payment. Interest amount is clubbed to the Income and taxed as per applicable tax slab. Bondholder has to comply with the income tax laws. 

Taxation on Redemption at Maturity:

Capital Gains arising on redemption of SGB at maturity are exempted/Tax-free for individual bondholders. Indexation benefit on capital gains are given to institutions like Trust, Associations etc

Taxation on Premature Redemption:

If SGB is sold via stock exchange with in 3 years from the date of issuance, It is classified as short-term capital gains, returns from SGB is added to the Income and taxed as per applicable tax slab. 

If SGB is sold via stock exchange after 3 years, It is classified as Long-term capital gains, returns are taxed at 10% without indexation or 20% with indexation benefit. 

Early encashment / Redemption of SGB after 5 years from the date of issue is allowed with RBI, However attracts Long term capital gain tax of 10% without indexation and 20% with indexation. 

Example: 

Vishnu Invests Rs50000 in Sovereign Gold Bonds and Sanju Invests Rs50000 in Gold ETF

Lets say after 8 years, Both the redeeming the investment at 1,20,000

Vishnu earns additional 2.5% interest for 8 years (Rs10000) and Saves capital gain tax of 10% on the redemption amount.

Sanju's investment doesn't fetch any interest payments, so loses Rs10000 . Capital Gains of Rs70000 is also taxed at 10% loses Rs7000 on returns.

Post Tax Compounded Annual Growth Rate (CAGR) is better on Vishnu investment in Sovereign Gold Bond compared to Sanju's investment in Gold ETF. 

SGB overtakes the Gold ETF and Physical Gold in returns. 

By looking at the Tax benefits and Interest payments, Mentotax recommends readers to invest in Sovereign Gold Bonds and hold till maturity for greater returns.

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Is this right time to invest in Sovereign Gold Bond - Series 7 of FY 20-21?

Government of India has announced the Seventh Series of Sovereign Gold Bonds for the Financial Year 2020 - 2021. SGB will be issued by Reserve Bank of India on behalf of GOI.

Sovereign Gold Bonds are open for subscription from 12^th October to 16^th October 2020 and will be issued on 20^th October 2020.

Sovereign Gold Bonds are issued in units of One Gram and Price is calculated by taking average close price of 999 purity gold of the last three trading days set by Indian Bullion and Jewelers Association.

SGB has the Fixed Tenure of 8 years and Interest of 2.5% is paid semi-annually to the investors on the Initial Investment Value.

SGB was introduced by GOI in 2015 to curb the import of physical gold and promote digital assets. Investors Preferred SGB over Physical Gold as an alternative due to added advantages. By looking at the tremendous welcome, SGB is issued every month by the RBI guaranteed by Government of India.

Performance of SGB Issued so far in FY 20 – 21: (09-10-2020)

Gold Prices has been in Uptrend since the begging of the year. Due to COVID 19 Pandemic, All the world markets has seen major draw down and its getting recovered slowly. Gold was seen as the safe bet by the investors during the global meltdown, Gold prices has climbed to All-time High. From the lows of 38500 in March 2020 to 56200 in August 2020.  Then Gold price was consolidated in the range 56K to 49K.

Now Gold Price has given a Triangle breakout on 09-10-2020 in daily time frame. Gold Price is expected to move up during the quarter. Gold has recovered almost 3.5% from the lows of 49K to almost 51K in 15 days.

It is the perfect time to invest in the Sovereign Gold Bonds. Mentotax recommends readers to invest in SGB for better returns and liquidity.

 Benefits of Sovereign Gold Bond:

·         Interest Pay-out of  2.5% on the initial Investment

·         Eliminates making charges and purity concerns

·         Zero risk of handling physical gold

·         No TDS applicable on interest payment

·         Guaranteed by Govt Of India, No Risk of Default

·         Diversification of Investment Portfolio

·         SGB can be Traded in Stock Exchanges

·         No Capital Gains on redemption if held till maturity

·         SGB returns are higher than physical gold, returns are linked to gold price

·         SGB can be used as collateral for loans

·         SGB is exempted from GST (Goods and Services Tax)

·         SGB can be held in Physical/Demat Form.

Sovereign Gold Bonds are must in the portfolio of every individuals, Gold is negatively correlated to equity. Gold in portfolio always helps us to reduce the draw down. Mentotax recommends to have minimum 10 -15% of Investment in gold for asset class diversification and It’s the perfect to accumulate gold via SGB.

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