Planning to invest in NPS? Top 5 reasons you should consider National Pension System


The National Pension System (NPS) has advanced over time, turning into extra user-friendly and adaptable to the wants of buyers. The Pension Fund Regulatory and Development Authority (PFRDA) has launched new options and simplified the method of opening an NPS account, permitting people to achieve this on-line inside minutes, offered they’ve the mandatory paperwork.Additionally, the Finance Ministry has carried out tax advantages on contributions, together with unique tax deductions for NPS investments and making 60% of the maturity corpus tax-free.
Consequently, the NPS is gaining momentum, with 8.73 lakh voluntary buyers becoming a member of the scheme in 2023-24, translating to a median of two,391 buyers per day or practically 100 each hour. Despite this progress, the NPS has solely captured 10% of the entire investing inhabitants in the nation, with simply 55 lakh voluntary buyers.
Investors who overlook the NPS could also be overlooking a invaluable funding alternative, states an ET evaluation by Babar Zaidi. Rahul Bhagat, CEO of DSP Pension Fund believes that the NPS presents every part that one appears to be like for in a retirement financial savings product. “It is a long-term funding with very low prices and a low threat profile.”
Here are five compelling reasons to consider investing in NPS:

NPS: Higher Returns Due To Low Charges

NPS has remarkably low fund management charges compared to mutual funds and insurance companies. “The NPS is the most cost effective product accessible in the Indian market,” says Bhagat. Investors pay a mere Rs 30-90 per lakh annually, which is on par with ETFs offered by mutual funds and significantly lower than the 2-2.5% charged by actively managed equity funds.
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Although a 2% annual fund management charge may seem insignificant, it accumulates to a substantial amount over time due to compounding. For instance, if you invest Rs 5,000 per month through an SIP in a mutual fund with a 2% annual charge, you will pay approximately Rs 19 lakh in fund management fees over 25 years. In contrast, investing the same amount in the NPS, assuming the maximum fund management charge of 0.09%, will cost you only Rs 1 lakh over the same period, assuming a compounded annual return of 9%.
The low charges of the NPS result in higher returns for investors.
Consequently, NPS equity funds have consistently outperformed large-cap mutual funds over the past decade, and even the flexi-cap category by a narrow margin. For investors who prefer not to lock their money in the NPS until the age of 60, the NPS Tier II option offers the flexibility of investing without tax benefits on contributions and no restrictions on withdrawals. You can invest today and withdraw the money the next day without any exit charges.

NPS Tax Benefits

The NPS Tier II investments do not qualify for any tax benefits, but the Tier I option comes with several tax advantages. NPS offers three ways to save on taxes.

  • Contributions to the scheme are eligible for deduction under Section 80C, subject to the overall limit of Rs 1.5 lakh.
  • Additionally, there is a separate deduction of up to Rs 50,000 under Section 80CCD(1b), which is exclusive to NPS and over and above the Section 80C deduction. Taxpayers in the 30% bracket can save up to Rs 15,600 by investing Rs 50,000 in the scheme, effectively reducing their net outflow to Rs 34,400 (or Rs 2,866 per month) after considering the tax savings.
  • The third tax-saving option through NPS has the potential to significantly reduce an individual’s tax liability. Under Section 80CCD(2), up to 10% of an employee’s basic salary contributed to NPS is tax-exempt. For instance, if an individual has a basic salary of Rs 50,000, their company can reduce a taxable emolument by Rs 5,000 and contribute that amount to the employee’s NPS account every month. The annual contribution of Rs 60,000 to NPS through this method can lower the employee’s tax by Rs 18,720. However, this NPS contribution should be a part of the individual’s emoluments and can only be facilitated by the employer. It is worth noting that the deduction under Section 80CCD(2) is available even under the new income tax regime.

NPS Multiple Choices

NPS investors now have the option to select from 11 different pension fund managers. Additionally, they have the flexibility to switch their pension fund manager annually. Till last year, an NPS investor could invest in schemes of only one pension fund manager. However, it’s important to note that the performance of these pension fund managers differs across the four available categories.
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Flexibility with NPS

NPS has introduced several changes to provide investors with more flexibility. One of the key changes is that investors can now modify their asset allocation up to four times annually. The most significant advantage is that “switching from one asset class to one other or altering your pension fund supervisor can have no tax implications.” In distinction, switching between mutual funds is taken into account a sale, and any beneficial properties are topic to taxation.
Moreover, the NPS has given buyers higher autonomy in figuring out their asset allocation. Previously, there was a 50% restrict on fairness investments, which many buyers discovered restrictive. However, this cover has now been elevated to 75%, catering to the wants of youthful buyers and people with the next threat tolerance.
Investors can proceed contributing to the NPS till the age of 70. Furthermore, they’ve the choice to postpone the withdrawal of the 60% tax-free portion of their corpus till they attain 75 years of age. This permits buyers to benefit from the NPS’s low-cost construction effectively into their retirement years whereas nonetheless being able to make withdrawals from their amassed funds.
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NPS Liquidity

NPS doesn’t essentially imply that your funds are inaccessible till you retire. Similar to the Provident Fund, the NPS permits withdrawals below sure circumstances, similar to medical emergencies, marriage or training of kids, and buying or establishing a home. However, there are some restrictions on these withdrawals.
To be eligible for withdrawals, you will need to have been an NPS subscriber for no less than three years. Additionally, you are solely permitted to make withdrawals thrice all through your complete period of your NPS account. One can withdraw up to 25% of the contribution in NPS at any time, excluding these made by one’s employer.

Nilesh Desai
Nilesh Desai
The Hindu Patrika is founded in 2016 by Mr. Nilesh Desai. This website is providing news and information mainly related to Hinduism. We appreciate if you send News, information or suggestion.


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