NPS plan: 5 reasons to opt for this pension plan for a better return with a minimum of risk

Speaking on why NPS is gaining popularity among investors, Ajit Kumar, Chief Strategy Officer at KFintech said, “One of the reasons NPS is gaining popularity is its very simple and flexible. The fact that the NPS is a voluntary contribution system gives anyone who wants to get involved the opportunity to do so.”

On recent moves by the Indian government that could make the NPS scheme more lucrative, Jitendra Solanki, a SEBI-registered tax and investment expert, said, “Recently, the Indian government raised the limit on FDI in equity funds. pension from 49% to 74%. He also accepted PFRDA’s proposal to allow pension funds to also invest in IPOs. These initiatives will help NPS account holders in the long run.”

On the reasons that can encourage investors to opt for this pension plan for a better return with a minimum of risk, Ajit Kumar of KFintech listed the following 5 points:

1]Freedom of investment: You can contribute once at any time of the year, or you can contribute monthly. The minimum contribution required per year for Level 1 and Level 2 accounts is ₹500 and ₹1000 respectively. You can also change the amounts of your investments, provided they are greater than the prescribed minimum amounts.

2]Element of Trust: NPS also has the advantage that you can only have one NPS account, which means that even if you end up changing jobs or moving to a new city, your NPS account goes with you. Being a government-backed program, there is an element of trust associated with NPS, which makes it all the more appealing. Under the supervision and regulation of the PFRDA, the entire setup is highly transparent and allows you to continuously monitor and review the performance of your investment. NPS also plans to launch a new product in the next 6-8 months, which could help settle the assured returns debate.

3]Freedom to choose your fund manager: After you start investing, you can also choose where your money is invested and who manages it. If you are not satisfied with the fund manager, you can change it once a year. If you’re not happy with the way things are going and the returns you’re seeing aren’t what you expected, you can change your investment option twice a year. Young people are generally willing to take on more risk, to seek higher returns on their investment, and the willingness to make risky investments decreases with age. For people who don’t mind the higher risks, NPS allows you to invest up to 75% of your corpus in stocks. For people on the other end of the scale, who want their returns risk-free, there is the option of investing their entire corpus in government securities.

4]Tax benefit: Investing in NPS can provide you with tax benefits of up to ₹2 lakh under various sections. It is true, however, that the monthly pension you earn from your annuity is taxable, but similar issues exist with other pension plans as well. For example, with EPF, once you receive your final settlement, you will have to invest it elsewhere and the returns on these will also be taxable.

5]Promise of monthly income after retirement: After you retire, you can withdraw up to 60% of your total corpus as a lump sum, with the remaining 40% used for an annuity plan, as mentioned earlier. The lump sum withdrawn after retirement is also tax exempt. Although NPS does not guarantee any percentage return on your investment, it does guarantee that there will be a repo at some future time. Since all of this is made possible through your own contributions to the NPS, it avoids an undue financial burden on the government, which does not have to contribute.

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