Should you invest in NPS or Not?

The National Pension System (NPS), launched by the Pension Fund Regulatory & Development Authority (PFRDA), is one of the best retirement planning scheme in India. An individual must consider investing in NPS by looking below at some points we have mentioned:

What is NPS?

How to Apply for National Pension Scheme Online?

The NPS is a well-regulated, transparent and flexible scheme. NPS scheme, offering complete flexibility, has prudent investing norms for fund managers, and their performance and portfolios are continously monitored by the NPS Trust under the overall supervision of the PFRDA. Under the National Pension System scheme, the percentage of the corpus that goes into equity, corporate bonds and government securities is decided by the investor. A 50% cap on exposure to equity is there.

The NPS charges fund management fees of 0.0102% for the government employees and there's a ceiling of 0.25% for the private sector. And this fees is the lowest in the world. NPS returns are also quite attractive. The total cost of the NPS, including the fund management fee, do not exceed 0.5% per year, making it the cheapest financial product in India.

NPS offers a 'lifecycle fund' which is one of the most important features of NPS. Lifecycle fund is for those people who are not financially aware. It is also the default option for someone who has not indicated his desired allocation. Under this option in NPS scheme, the investor's age decides the equity exposure. The 50% allocation to equity is reduced every year by 2% after the investor turns 35, till it comes down to 10%. This means opt for a higher-risk , higher-return portfolio earlier and upon near retirement , the investor enjoys a more stable, low-risk portfolio.

This automatic cycle of the allocation is a unique feature of the NPS. You can compare it with what other companies are offering as no other pension plan or mutual fund offers this type of facility to investors. NPS scheme also offers a few funds as per a person's age, but they are one-size-fits-all solutions, and thus cannot be customised to an individual's age.

National Pension Scheme features tax benefit under the newly added Section 80 CCD(2). If an employer contributes 10% of the salary (basic salary plus dearness allowance) to the NPS account of the employee, this amount gets tax exemption benefit, under this section. This is over and above the already given Rs 1 lakh tax deduction under Section 80C.