NATIONAL PENSION SCHEME

What is NATIONAL PENSION SCHEME: NPS?

The National Pension Scheme is a social security initiative by the Central Government.

This pension program is open to employees from the public, private and even the unorganized sectors with the exception of those from the armed forces.

NPS scheme holds immense value for anyone who works in the private sector and requires a regular pension after retirement.

Who Should Invest?

The NPS is a good scheme for anyone who wants to plan for their retirement early on and has a low-risk appetite.

A systematic investment like this can make a massive difference to your life post-retirement.

What are the Returns?

A portion of the NPS goes to equities this may not offer guaranteed returns.

However, it offers returns that are much higher than other traditional tax-saving investments like the PPF.

This scheme has been in effect for over a decade, and so far has delivered 8% to 10% annualized returns.

Example Calculation:

What are the Tax Benefits?

You can claim any additional self contribution (up to Rs 50,000) under section 80CCD (1B) as NPS tax benefit.

How is the Asset Allocation done?

LC75

Aggressive Life Cycle Fund: This Life cycle fund provides a cap of 75% of the total assets for Equity investment. The exposure in Equity Investments starts with 75% till 35 years of age and gradually reduces as per the age of the Subscriber.

LC50

Moderate Life Cycle Fund: This Life cycle fund provides a cap of 50% of the total assets for Equity investment. The exposure in Equity Investments starts with 50% till 35 years of age and gradually reduces as per the age of the Subscriber.

LC25 Conservative Life Cycle Fund: This Life cycle fund provides a cap of 25% of the total assets for Equity investment. The exposure in Equity Investments starts with 25% till 35 years of age and gradually reduces as per the age of the Subscriber.

What are the withdrawal rules after 60?

You cannot withdraw the entire corpus of the NPS scheme after your retirement.

You are compulsorily required to keep aside at least 40% of the corpus to receive a regular pension from a PFRDA-registered insurance firm.

The remaining 60% is tax-free now.

Option to change the fund manager!!

With NPS, you have the provision to change the pension scheme or the fund manager if you are not happy with their performance.

This option is available for both tier I and tier II accounts.

How to open an account?

PFRDA regulates the operations of the NPS, and they offer both an online as well as an offline means to open this account.

Conclusion: One of the better choices for balanced investment and importantly good returns after the age of sixty when we actually require money to lead a good life.


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