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5 Reasons why Investment in NPS is a Must

Introduction

Since your expenses are being taken care of with your income, you may not bother now. But what after retirement, in your non-working years? Have you made any adequate provisions for a hurdle-less income supply to have a relaxed and reliable retirement? If you haven’t already, the time is now. This article will highlight the importance of one of the most popular retirement investment instruments – NPS.

National Pension Scheme

National Pension Scheme (NPS) involves you regularly saving through your working years till you retire so that you can enjoy a much larger corpus on the maturity of the scheme and a regular pension income post-retirement. You can invest in this full-proof Government-backed scheme as a citizen (resident or non-resident) if you are between 18-65 years old. Click here, to understand the features of NPS in detail.

Why Invest in NPS?

There are abundant benefits of NPS that brim to the surface when you compare it with other financial retirement products like PPF, Fixed Deposits, etc. Here are some reasons to help you understand why an investment in NPS is a great idea.

Dependable Pension Income

An investment is effective if it delivers the return you expect. In the case of NPS, regular post-retirement earnings are a stated objective. NPS investments deliver fully in this criteria. Almost 60% of the returns on maturity (when you reach the ears) are credited as a lump sum benefit. The remaining corpus (40%) is a component that is mandatorily directed towards annuity purchases. There is a list of Annuity Service Providers in NPS who provide regular pension income in this scheme post-retirement. Your pension income will support not only you but also your family/spouse. You can opt for an option in NPS where even after your death, your spouse continues receiving your pension till they live.

Low-Risk Investment

The funds you invest in NPS are spread across multiple asset classes - Equity, Government Bonds and Securities, Corporate Debt, and Alternative Investment Funds. While equity may be volatile, the rest of them are relatively safer and offer assured returns. Irrespective of the asset allotment strategy you choose, the overall structure of an NPS investment is to grow your wealth from the start of your investment tenure and conserve your accumulated corpus towards retirement. More so, since NPS is shadowed by the trusted and professionally-managed Pension Fund Regulatory and Development Authority (PFRDA), there is an additional sense of financial security.

Customization and Control

One of the attractive features of NPS is that you can choose the asset allotment strategy based on your risk appetite and your financial goals. When you customize and choose the allotment yourself in individual funds, you are making an Active choice. However, there are caps on the upper limit for allocation in each asset category to minimize risks. If you feel your know-how about these multiple asset classes is not enough to make an accurate and profitable decision about the asset allotment, you can go with the Auto choice. This choice gives you 3 Lifecycle Fund options per your investment approach – Aggressive, Moderate, and Conservative. You also have a choice to change your fund manager in NPS if you feel your money is not growing well.

Additional Read: Overview of Active & Auto Investment Choices

Taxation Benefits on Contribution and Maturity

It is one of the most sought out benefits in NPS investments. Your contributions and all of your earnings are exempt from taxes here. Section 80C is popular for tax-saving instruments among investors. NPS is listed in it. You can claim a deduction against an NPS investment till Rs. 1.5 lakhs under this section. Additionally, section 80CCD (1B) allows you to claim a deduction of Rs 50 thousand against an investment here. There is a special deduction clause for salaried employees also under section 80CCD (2). It allows you to claim a maximum deduction of 10% of salary if you are employed in the private sector and 14% of salary if you’re a government employee. On maturity, the lump sum and the regular pension that you receive are also exempt from taxes.

Additional Read: NPS Investments Tax Benefits

Flexible Low-Cost Investment

NPS is a flexible investment instrument where you can modify the amount you want to contribute as and when needed as it is a voluntary retirement scheme. You need to pay a minimum contribution of Rs. 1000 annually. You can increase the amount going forward if your pocket permits. Also, you don’t have to adhere to any fixed date of a payment during the year or fixed amount here, it can be as per your convenience. In terms of associated fixed and variable charges such as transaction fees, registration costs, etc., NPS investments have the least cost component in comparison to other investment products globally.

Conclusion

Undoubtedly, the benefits that an NPS investment offers are hard to ignore, especially since there aren’t many other investment options with advantages of this calibre. You can easily start investing in NPS online through banks, financial institutions, and registered brokers such as ICICI Direct following the basic registration process. Remember, you can squeeze out the maximum advantage from this scheme through the power of compounding. So, start early!

Additional Read: 7 things you need to know about NPS

Disclaimer – ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100.  PFRDA registration numbers:  POP no -05092018. We are distributors of National Pension Scheme. Please note, National Pension Scheme related services are not Exchange traded products and I-Sec is just acting as distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing.

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