Insights

Is it worth it to invest in NPS?

May 29, 2021 . Manas muraleedharan

To answer this question, it is necessary to understand that not many in our country are aware of the concept of Retirement planning. A good majority are dependent on their children and savings in their old age. But the necessity of a backup plan is something that cannot be emphasised enough. A fixed income in the form of a pension is one of the most affordable and simplest steps one can take.

What if we said that this way to secure a pension is totally light on your pocket? We’re sure there are a lot who smiled at the previous line. This effortlessly effective retirement plan we speak about is NPS – National Pension System

Apart from providing a retirement income, NPS gives you several reasons to fall in love with it. 

NPS Benefits

Tax Saver

You can claim a tax deduction of up to Rs. 1.5 lakhs under Section 80CCD(1), subject to a maximum limit of up to 10% of your salary. This Rs. 1.5 lakhs is subject to the overall limit of your tax deductions under Section 80C and 80CCC (ELSS, insurance premium, PF, home loan, tuition fees, etc.) An additional tax deduction of up to Rs. 50,000 can be claimed exclusively for NPS investments, under Section 80CCD(1b). This is not subject to any salary-linked limits. Withdrawals made are completely tax-free.

Professional Management

Your investments are professionally managed by PFRDA approved Pension Funds Managers. As of today, there are 7 Pension Fund Managers – Aditya Birla Sun Life Pension Management Ltd., HDFC Pension Management Company Ltd., ICICI Prudential Pension Fund Management Company Ltd., Kotak Mahindra Pension Fund Ltd., LIC Pension Fund, SBI Pension Funds Pvt. Ltd. and UTI Retirement Solutions Ltd. You can choose any one of the Pension Fund Managers to manage your investments. You can also change your Fund Manager once every year.

Diversification

Your contributions will be invested in a diversified mix of four schemes – Equity, Corporate Bonds, Government Securities and Alternate Funds. You can decide on your own asset allocation under the ‘Active’ choice or let your Fund Manager do it under the ‘Auto’ choice.

Low Costs

NPS is the least expensive retirement solution in the country. The minimum transaction amount is Rs. 500 and the minimum annual contribution is Rs. 1000. The one-time account opening fee is Rs. 200. The transaction charges are as low as 0.25% of your contribution (subject to a minimum of Rs. 20 and a maximum of Rs. 25,000). The fund management charges are as low as 0.01% p.a. (fund management charges and account maintenance charges to be deducted from the investments) making it a low-cost alternative to other investment products.

Lock-in with Partial Withdrawal

NPS is designed with a lock-in to prevent you from eating into your retirement fund to meet less-critical expenses. The lock-in till 60 years of age ensures that you have an adequate retirement corpus in place.

However, you can make a partial withdrawal of up to 25% of your contributions, after completing 3 years, for specific life events/emergencies. You can withdraw in a maximum of three instances – the aggregate amount shouldn’t exceed 25% of your contributions.

Early Exit

You can make a premature exit from NPS after completing 10 years. You can withdraw up to 20% of the corpus and use the remaining 80% to purchase an annuity plan.

Hope this article helped you with your retirement planning. Should you have any doubts about NPS or any other investment product, please feel free to contact our support team at 044 – 61104100 or at contact@fundsindia.com.

Happy Retirement Planning!

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