Should You Invest in NPS?

Save & Invest

Investment has become a buzzword in recent years, and everyone is trying to save and invest likewise. Speaking of different investment schemes, there are many in the market. But, the real question is which one to prefer and how to know whether a particular scheme suits your interests. Most times this dilemma is unsolved, and to find a perfect answer to it, keep reading this article. 

The Government of India came up with an initiative to help the retired people of different working sectors—the National Pension Scheme (NPS). In this article, we will brainstorm everything about NPS investment, the benefits of investing in NPS, the returns, and why to invest in it. 

What is the National Pension Scheme? 

For the social security of the retired class of the country, the Public Fund Regulatory and Development Authority (PFRDA) launched the National Pension Scheme. This pension program not only addresses the employees of the government sector but also the employees of the private and unorganized sectors. This scheme encourages the working class group to invest regularly at intervals to build up a corpus in the near future. 

After your retirement, you can take out a certain percentage of this amount, and since this is a pension scheme, you will receive a regular pension under this scheme. So, over the years, the NPS investment helps you build up a certain amount and, in the end, gives you returns. 

What are some of the benefits of investing in NPS on a regular basis? 

  • Decent returns:

In comparison to other investment schemes like PPF (Public Provident Fund), NPS investment gives you higher returns. This interest rate, which this scheme provides on a yearly basis, is between 8% and 10%. 

  • Low level of risk:

Because a portion of NPS investment goes to equity, which may or may not provide promising returns, the equity cap is around 50%. The risk-return equation of the interest is therefore balanced in the NPS investment. PFRDA also aims to increase the cap percentage to 75% in the near future. 

  • Tax benefits:

Under the provisions of 80CCD, your own contribution is subject to a tax deduction of about 10%. According to the Income Tax Act, a tax deduction is allowed within the amount of 1.5 lakhs under section 80C. You can also ask for the same for an additional 50 thousand which also comes under Section 80C. 

  • The choice to change the scheme:

In case you are not satisfied with your current scheme, you can switch to another scheme according to your preference. You can also change your fund manager if you feel that your current one is not up to the job. 

  • Premature withdrawal:

If you have completed three years of NPS investment in your account under the NPS scheme, you are allowed to withdraw 25% of the total amount you have collected. You can only withdraw three times during your tenure, with a five-year break in between.

  • Highly economical:

Even if your monthly savings are not too high, you can still invest a little money every month. This feature is a benefit for those who have smaller monthly savings but want to invest anyway. 

  • Highly flexible:

The investment pattern in NPS investment is highly reliable and flexible because of the different options it provides. It also provides you with tailoring options to change your fund managers, existing schemes, investing patterns, etc. 

Why should you invest in an NPS scheme? 

Well, you should consider NPS investment as a good virtue because of many reasons. 

First, if you are planning for a better quality of life after retirement, you must invest in the NPS program. To make your life better after retirement with a steady flow of money, you should invest in it. 

Second, if you consider having a regular income in the form of a pension after your retirement. Having an income after your 60s is a boon to many people. So, if you are a salaried individual and you want a regular income after your retirement, then you should start investing in it from now on. 

Third, if you plan an early retirement, then an NPS investment could be a nice move. Suppose you have 20 or more years to retire and you want an early retirement to engage yourself in other activities. You should definitely open an NPS account and start investing in it. This will help you build a huge corpus over time and give you a smooth post-retirement life. 

Wrapping it up

For a period of 5 to 10 years, the rate of return on NPS investment for both tier 1 and tier 2 ranges between 9% and 11%. So, all in all, it is a good initiative by the government to provide social safety and security to the retired class. Individuals planning a smooth life after their retirement with a steady income must invest under the National Pension Scheme. 

If you have come this far, it means you love to gather information regarding investment and financing. If yes, you should visit Piramal Finance to learn more about different investment schemes like PPF, mutual funds, stock market investment, etc.