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Is Atal Pension Yojna (APY) - a Good Investment?

Updated on June 12, 2020
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Many investors are in doubt regarding Atal Pension Yojna (APY). You must know it is worth it or not.

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The Famous Pension Plan

Atal Pension Yojna or APY is a retirement scheme mainly created for the lower middle class or poor people working in India’s vast unorganized sector where there is retirement benefits. However, anyone can subscribe to it. Now the question is it is a good deal or not.

25 years old Gourav Sharma works in a private company but his salary is not that much. His salary account is in a big government bank. The manager there requested him to invest in Atal Pension Yojna. Now he is not sure it is worth it or not.

If you are in such dilemma like Gourav, this article is here to help. APY is explained in detail here and I hope it will help you to form your decision. You need to spend some time to learn before forming your decision.

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Atal Pension Yojna (APY) Benefits

APY is a pension scheme where the subscriber has to contribute her/his own pension fund. It will deliver a pension amount of Rs 1000/2000/3000/4000 or 5000 as according to your choice and monthly contributions after attaining the age of 60.

The pension amount will be given for life. Even after death the subscriber’s spouse will get the same amount. After the death of the spouse the total pension amount will be handed over to the nominee.

The monthly contribution amount is calculated according to your targeted pension amount and current age. It can be as low as Rs 42. The highest monthly contribution amount is Rs 1318 for 5000 pension benefits starting at the age of 39. You can also pay the premium quarterly or half-yearly.

The contribution chart is given below. To help you to understand I am giving you the example of Gourav Sharma. Our guy is 25 years old and if he opted for the Rs 5000 pension then according to this table his premium will be Rs 376 monthly or Rs 1121 quarterly or 2219 half yearly. The nominee selected by him will get Rs 8.5 lakh after the demise of him and his wife.

APY Contribution Chart

Pension Amount
 
Rs. 1000
 
 
Rs.2000
 
 
Rs.3000
 
 
Rs.4000
 
 
Rs.5000
 
 
Return to Nominee
 
Rs. 1.7 Lakh
 
 
Rs. 3.4 Lakh
 
 
Rs. 5.1 Lakh
 
 
Rs. 6.8 Lakh
 
 
Rs. 8.5 Lakh
 
 
 
 
Contributions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Age at Entry
Vesting period
Monthly
Quarterly
Half Yearly
Monthly
Quarterly
Half Yearly
Monthly
Quarterly
Half Yearly
Monthly
Quarterly
Half Yearly
Monthly
Quarterly
Half Yearly
18
42
42
125
248
84
250
496
126
376
744
168
501
991
210
626
1239
19
41
46
137
271
92
274
543
138
411
814
183
545
1080
228
679
1346
20
40
50
149
295
100
298
590
150
447
885
198
590
1169
248
739
1464
21
39
54
161
319
108
322
637
162
483
956
215
641
1269
269
802
1588
22
38
59
176
348
117
349
690
177
527
1046
234
697
1381
292
870
1723
23
37
64
191
378
127
378
749
192
572
1133
254
757
1499
318
948
1877
24
36
70
209
413
139
414
820
208
620
1228
277
826
1635
346
1031
2042
25
35
76
226
449
151
450
891
226
674
1334
301
897
1776
376
1121
2219
26
34
82
244
484
164
489
968
246
733
1452
327
975
1930
409
1219
2414
27
33
90
268
531
178
530
1050
268
799
1582
356
1061
2101
446
1329
2632
28
32
97
289
572
194
578
1145
292
870
1723
388
1156
2290
485
1445
2862
29
31
106
316
626
212
632
1251
318
948
1877
423
1261
2496
529
1577
3122
30
30
116
346
685
231
688
1363
347
1034
2048
462
1377
2727
577
1720
3405
31
29
126
376
744
252
751
1487
379
1129
2237
504
1502
2974
630
1878
3718
32
28
138
411
814
276
823
1629
414
1234
2443
551
1642
3252
689
2053
4066
33
27
151
450
891
302
900
1782
453
1350
2673
602
1794
3553
752
2241
4438
34
26
165
492
974
330
983
1948
495
1475
2921
659
1964
3889
824
2456
4863
35
25
181
539
1068
362
1079
2136
543
1618
3205
722
2152
4261
902
2688
5323
36
24
198
590
1169
396
1180
2337
594
1770
3506
792
2360
4674
990
2950
5843
37
23
218
650
1287
436
1299
2573
654
1949
3860
870
2593
5134
1087
3239
6415
38
22
240
715
1416
480
1430
2833
720
2146
4249
957
2852
5648
1196
3564
7058
39
21
264
787
1558
528
1574
3116
792
2360
4674
1054
3141
6220
1318
3928
7778

Which APY Premium Option is Better – Monthly, Quarterly or Half Yearly?

The premium contribution amount for Atal Pension Yojna can be paid monthly, quarterly or half yearly. Let us see an example. Let us see the case of some 35 years old opted for Rs 5000 pension benefits. His contributions will be like that monthly: 902, quarterly: 2688 and half yearly: 5323. So annually he will have to pay Rs 10824 for monthly contributions, 10752 for quarterly and 10646 for half yearly. So, with the quarterly payment option he will save Rs 72 and the half yearly option will save Rs 178 per year. The actual savings will be a bit more if we calculate the interest earned from that amount. The total savings in (60-35) = 25 years will be Rs 1800 for quarterly and Rs 4450 for the half yearly option. So, it seems that the quarterly and half yearly premium option is better than the monthly.

Is Atal Pension Yojna a good retirement plan?
Is Atal Pension Yojna a good retirement plan? | Source

Will APY Pension Increase in the Future?

According to the GOI there is a chance of increase of APY pension amount in the future. This pension fund is managed by PFRDA (Pension Fund Regulatory and Development Authority), a central government organization. According to their report the total subscriber of APY was 2.11 crore till the end of March, 2020 with a total net asset of Rs 10526 crore. Now, if the return from the fund is better than the projected amount, the subscribers will get the extra amounts and so the pension amount could be more. If the returns are lower the government will give subsidy to provide the guaranteed pension. However, there is no guarantee of more pension amount in the future.

Is Atal Pension Yojna A Bad Investment ?

The problem with APY is that the projected pension amount is too low. Yes, if you consider the inflation Rs 5000 or 4000 will become a negligible amount. Let us forget about Rs 1000!

Let us again bring Gourav Sharma into the discussion. He is 25 years old now and so his age of retirement at 60 is still 35 years away. So, if he opts for a Rs 5000 pension now, what will be its actual value when he will be 60? Assuming 7% inflation it will be Rs 394 or Rs 573 with 6%. If in the long run our inflation rate is kept to as low as 4% then it could be Rs 1198.

Now, such a meager pension amount could be helpful to a poor person but not so much for a middle class family.

APY Explained

Return of Investment

The ROI of APY is actually very good. It has sovereign guarantee. i.e. the government of India is the guarantor here. So, it is a super safe investment.

Let us calculate the rate of return or CAGR of APY. Gourav Sharma aged 25 year has opted for Rs 5000 pension with a monthly contribution of Rs 376. It will generate a retirement corpus of 8.5 lakh for the nominee in 35 years. So, the CAGR is 7.9%.

It is a EEE category investment. That means the contributions, profit gained and the withdrawal is totally free from income tax. So, it could be calculated as profit if you are a tax payer.

We can compare APY with NPS (National Pension Scheme). However, with NPS there is no guaranteed return. It will solely depend on the performance of the funds which is market dependent. So, in case of bad performance of our economy your returns will be much lower.

Eligibility of APY

You need to meet the following criteria:

You should -

1) Be a citizen of India.

2) Have age between 18 to 40 years.

3) Have a savings account in a bank or post office in India.

4) Have an Aadhar number linked with your account.

5) Possess a valid mobile number.

6) Be willing to contribute for at least 20 years in the scheme.

How to Close An Atal Pension Yojna Account

It is very much possible that despite being a contributor you may not like the scheme now. You may be now in dire financial conditions and want some cash to remain afloat. In that case, you can always close the APY account and get back the money you have contributed along with some gains. The total amount will be money contributed by you plus the interest earned minus the fees and charges.

To close it you need to apply in the prescribed form to the bank or post office where the account is held. It can be done any time before the age of 60. The amount refunded will be sent to your account. However, you will not get it too quickly. A wait period of 30 to 60 days should be expected.

Atal Pension Yojna can be closed anytime.

Fees ,Charges and Penalty

After premature voluntary closure of APY you will get back your money with interest after deducting some fees and charges. Those fees and charges are 1)APY account opening charges, 2) account maintenance charges, and 3) account closing charges.

There is penalty if you are late in paying the APY contribution timely. It was a complex slab based system earlier. Now, it is simplified. You will have to pay Rs 1 per each delayed month per Rs 100 premium amount for the default as penalty charges.

What If Someone Stops the APY Contribution?

One may wonder what will happen if someone has stopped the premium payment of Atal Pension Yojna without applying for the account closure. No doubt, some APY accounts will meet this fate.

In such cases, the account will not be deactivated automatically. However, the account maintenance charges and fees will be deducted continuously from it. It will go on until the APY balance becomes zero. This will be the end of it.

How to Know the Status of Your APY Account?

You can check the status of your APY account from the website: npslite-nsdl.com. There you will have two options – one with the PRAN number and another without PRAN. You can search with the PRAN number along with the associated bank account number to get all the details. Without it you need to provide your date of birth, account number and name to fetch the data. In both cases you should select the appropriate view option.

What Do You Think?

Do you think APY is a good investment option?

See results

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2020 Raj Singh

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