Know All The Benefits Of National Pension Scheme (NPS)

Save & Invest

Investing your money is the best way to enhance your financial security and increase your worth. If you invest your money in the right scheme, it gets multiplied over time and ends up being a big corpus. With so many investment schemes on the market, it can be difficult to select the best one. However, with the correct know-how and the right strategy, you can find the best investment scheme that suits your needs. 

The National Pension System is one of many lucrative investment options that offer reasonable returns with lower risks. The Government of India came up with this initiative to provide social and financial security for the retired working class. 

Well, today’s article is all about the National Pension System, its benefits, the kind of returns it provides, and the reasons why it is or isn’t a good option for you to invest in it. 

NPS: meaning and significance

PFRDA, or the Public Fund Regulatory and Development Authority, came up with the National Pension System to increase the social security of the retired class of the country. This pension programme enables you to invest your money in it at regular intervals, which builds up into a corpus after your retirement. 

This scheme not only addresses the employees of the government sector but also addresses the workers in the unorganised and private sectors. After your retirement, this scheme will provide you with a salary in the form of a pension throughout your life. 

Besides this, the government of India introduced different tax-saving protocols under the National Pension System to encourage more and more people to invest in it. The NPS returns are quite satisfactory as well, which is why you should give it a try. 

What are some of the striking benefits of investing in the National Pension System? 

There are several benefits to investing in the National Pension System, and some of the most significant are:

  1. Decent rate of interest:

The rate of interest obtained by investing in the National Pension System is around 9% per year to 12% per annum. In comparison to other investment schemes like the Public Provident Fund (PPF) and Employee Provident Fund (EPF), which provide 7.1% and 8.1% per annum, respectively. 

  1. Low-risk factors:

Investing under the National Pension System is considered a low-risk investment option, as the percentage of cap equity is about 50%. This, therefore, balances out the risk-to-return equation. In the coming future, PFRDA claims to reconsider the cap on equity percentage and increase it to 75%.

  1. Tax Benefits:

Under Section 80(c) of the Income Tax Act of 1961, the contribution you make through your salary and Dearness Allowance is subject to a 10% deduction. In addition to that, the National Pension System provides dual tax benefits as well:

  1. Investments up to an amount of 1.5 lakh rupees can be used to avail of tax benefits under Section 80(c) of the Income Tax Act, 1961.
  1. An additional exemption of 50 thousand rupees is also applicable to voluntary contributions under the same provision. 
  1. Flexibility:

If you are uncomfortable or dissatisfied with the current scheme, you can apply for another scheme that meets your needs. Also, you have the option to change your fund manager if your current one doesn’t cooperate. 

  1. Economical:

Even if you do not save much money after your monthly expenses, you still have the freedom to invest in an NPS account. The National Pension System encourages all types of investments and allows a minimum contribution of Rs. 500. For a whole financial year, the minimum contribution under the NPS scheme has to be at least 1000 rupees. 

What are the downsides of investing your money in the National Pensions System? 

Unfortunately, there are some downsides to investing in the National Pension System:

  1. Low equity exposure:

The equity exposure of the National Pension Scheme is low, which happens to be a big disadvantage. If you have reached the age of 50, you will now be able to reduce your equity exposure by 2.5% per year. By the time you reach the age of 60, your equity exposure will have fallen to 50%. 

  1. Limited Withdrawals:

You can only withdraw 25% of the corpus you have built under the National Pension System, provided that you have covered 3 years of investment. Also, you are only allowed up to three withdrawals throughout the investment period, which is generally within a time gap of 5 years. 

  1. Account opening restrictions:

There are account opening restrictions that restrict you to opening only one NPS account throughout your lifetime. This is also a big disadvantage for investors who prefer multiple-account investment schemes. 

Summing it up:

Investing in NPS is a good idea for you if you are a salaried individual who is planning for early retirement and a long-term investment scheme. But, if you are someone who prefers a short-term investment option and higher returns, then investing in the National Pension System might not be a good option for you. So, whether or not to invest in NPS boils down to an individual’s level and personal requirements. 

In case you like reading articles and write-ups related to different investment schemes like NPS, PPF, mutual funds, stock market investment, etc., you should visit Piramal Finance.