Thursday, November 22, 2018

6 Reasons to invest in National Pension Scheme for Retirement Savings

Retirement Planning is very important in the age of nuclear families and western culture. There was time when Indians never bothered about Retirement Planning or Insurance because they trust that their children particularly Son will take care of them both financially and emotionally, but with nuclear families its not possible anymore. Many elders are living alone nowadays and hence Retirement planning is essential for a relaxing and rewarding retired life.

There are many mutual funds and Insurance policies available which will claim to help you with retirement planning but I generally don't trust them.

Retirement is a long term goal and hence trust factor is very important and because of that I like Natioanl Pension Scheme. It's a goverment backed scheme but with private fund house investing your asset.

The National Pension System (NPS) has been the preferred choice for retirement planning, for more than 1.1 crore investors.

The high returns offered by NPS, along with its tax benefits, have garnered more than 1.55 Lakh crores through investments, hence if you are thinking about retirement planning I suggest you to open an NPS account and start your investment today.

One more good thing about NPS is that even NRIs can also invest in NPS.

6 Reasons to invest in National Pension Scheme for Retirement Savings

If you believe NPS is good but you are not 100% sure whether you can trust or why should you invest on NPS, here are some of the top reasons why you should consider NPS in your investment portfolio.

1. Choice of Fund Managers
There are 7 pension fund managers you can choose from, all are reputed and high perming pension funds e.g. HDFC Pension, ICICI Prudential Pension Funds, Kotak Pension Fund, Reliance Pension Fund, LIC PEnsion FUnd Ltd, and UTI Retirement Solutions.

2. Choice of Investments
NPS allows you to choose to actively invest in Equity, Corporate Bonds, Government Securities, and Alternative Investment Funds (Active Choice) or in Life Cycle Fund (Auto option) based on your risk Appetite. You can opt for either active option or auto option for your investment in NPS.

If you are young I suggest to choose little bit riskier items e.g. Equity for high returns but if you already in your 50s then its better to stuck with safe options e.g. Fixed deposit or Bonds.

3. Tax Benefits
Investment in NPS (Tier 1) helps you to save up to 2,00,000 Indian Ruppes of your income from being taxed. Also, similar to Public Provided Fund,  lump sum withdrawal on maturity is tax-exempt.

Here is the breadown of how much tax you can save by investing in National Pension Scheme:

Section 80C -  Deduction  towards  various  contribution  or  payments like Life  insurance  Premium,  annuity,  PF,  subscription  to  equity shares  or  debentures,  NSC,  ULIP,  Fixed  Deposits,  Mutual Funds, Housing Loan Repayment etc - 1.5 lakh

Section 80CCD(1B)  - Contribution by any individual to NPS (Tier 1 account) - 50,000 INR

You can see here to learn more about additional tax saving using NPS.

4. Higher Returns
NPS has the potential for generating high returns by investing in different asset classes, which is not possible if you stick with just Fixed depsoit, especially in the era of low interst rates. Currently most of the fixed deposit is just giving 6.5% interest which is lower than average inflation rate.

5. SIP or Lump Sum Investment
NPS allows you to invest both a lump sum amount of small amounts via SIP. There are so many benefits of investing through SIP, espeically if don't have lump sum amount:
  • SIP can be started with the amount as low as Rs. 500 for NPS
  • It inculcates disciplined saving & investment habit which helps in wealth creation over a long term.
  • Investment can be started with a small amount and hence you can start early.  An  investor starting early can earn much more than one starting late even with a higher  amount.
  • Due to regular investments, the average cost of investment is maintained at the lower level.

Initial minimum investment at the time of opening NPS account is  Rs. 500 and Rs. 1000 for Tier 1 and Tier 2  accounts   respectively

Btw, SIP registration is possible after successful on line NPS registration i.e. after 1 2 working days post online NPS registration

6. Cost Effective
The admin charges are lower than any other mutual funds or Pension funds changes, which is big advantages when it comes to generating higher returns. Normally Mutual funds charges upto 2% of your corpus as admin fee, which is way too high.

Here is  a summary of NPS charges:

6 Reasons to invest in National Pension Scheme for Retirement Savings

In  addition,  the  NPS  Trust  fees/charges  @0.01%  per  annum   will  be  loaded  onto  the  Net
Asset Value (NAV) on daily basis  and the  accrued  charges will be  collected by NPS Trust at
the end of each quarter.

That's all about why you should invest in Natioanl Pension System for Retirement Planning. As I said, everybody should now be planning for retirment as you don't want to be a burden on your children and want to remain financially independent throught your life. A good retirement planning is a key of relaxed retirement life.

Antoher good thing about NPS is that even NRIs can open NPS account, so if you are styaing outside India, you can still invest in National Pension System.

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