NPS is the best retirement planning tool, here's why
The National Pension Scheme (NPS) is a great retirement savings option for individuals who want to save for their retirement in a systematic and disciplined manner. Any citizen of India between 18 to 70 years of age, irrespective of income level can invest in NPS and reap the benefits post-retirement. Here are some reasons why you should choose NPS for your retirement plan.
What is the National Pension Scheme?
The National Pension Scheme (NPS) is a retirement savings scheme introduced by the Indian Government in 2004. It is a voluntary, defined contribution retirement savings scheme designed to provide income security to individuals during their retirement years.
You get tax benefits
One of the key benefits of the NPS is that it offers tax benefits. Investments made to the scheme are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. The scheme offers an additional tax deduction of up to Rs. 50,000 under Section 80CCD(1B). Interestingly, this is over and above the exemption that you can claim under Section 80C.
It is flexible and customizable
The NPS offers a lot of flexibility to investors. Individuals can choose their investment options, asset allocation, and fund managers as per their risk appetite and financial goals. It allows you to choose assets from equity, corporate debt, government bonds, and alternative investment funds. These funds can be re-customized at any point in time if you are not satisfied with the performance.
Gives you guaranteed returns
Even though a portion of the amount invested in NPS goes into equities, which may or may not offer assured returns, the overall return from NPS is guaranteed. Moreover, NPS offers slightly higher returns than the traditional instruments of investment such as the Public Provident Fund scheme (PPF) offered by the government, or Fixed Deposits (FD) offered by your bank.
Offers low-cost investment option
The NPS is a low-cost investment option as the fund management charges are capped at 0.01% of the assets under management. It is also a wonderful option for you if you are looking for a low-cost investment with great return potential. The higher compounding aspect of these plans turns little contributions into large rewards by the time you reach your retirement age.
Provides you with a mark of safety
The NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) of India, which is a government body. The PFRDA ensures that the fund managers adhere to strict investment guidelines, thereby ensuring the safety of investors' money. With transparent investment norms, regular monitoring, and performance review of fund managers, there is no other investment option other than NPS that offers such safety.
Provides regular income upon retirement
The NPS provides investors with a regular income stream during their retirement years. At the time of retirement, investors can choose to withdraw up to 60% of their accumulated corpus as a lump sum, while the remaining 40% must be used to purchase an annuity that provides a regular income. So, you can maintain the same lifestyle as before.
