Your happiness in the golden period of your life depends largely on your retirement corpus. Therefore, experts suggest building a large retirement nest egg to be financially secure during the latter years of life. One effective medium to save money for retirement is the National Pension Scheme (NPS). NPS is a government-sponsored pension cum investment scheme that aims to financially protect Indian citizens during retirement. NPS is a pure retirement plan that generates stable income and tax benefits after retirement.
Here are some reasons that justify the importance of a National Pension Scheme:
- Low-risk investment: NPS is a government-backed scheme and carries a low risk of default. Further, the equity exposure in this investment scheme is capped according to your age. Up to 50 years, you can invest up to 75% in equity. This equity exposure is reduced by 2.5% by the age of 60. This limited equity exposure reduces the risk of volatility while still providing high-earning opportunities.
- Flexibility:Like mutual funds online, NPS offers different investment options and pension funds, allowing you to grow your money according to your risk tolerance. You can also switch from one investment option to another or change your fund manager altogether anytime.
- Cost-effective: NPS is a cost-effective investment option because of the minimal account maintenance fees involved. You can contribute a minimal sum and get considerable returns because of the high compounding and low-cost feature of this investment scheme.
- Partially assured returns: Even though a portion of your NPS funds is invested in equity and its return is not guaranteed, there is an assurance of generating an overall return from the scheme. Returns from an NPS scheme are higher than other conservative investments like fixed deposits and Public Provident Fund (PPF) but lower than mutual funds
- Stable income source for retirement: If you begin saving for retirement during the early years, you can easily accumulate significant wealth for your non-working years with the help of NPS. Further, NPS allows you to get a fixed income from your account during your retirement phase.
- Ease of access: You can open your NPS account online after filing the necessary documentation. The account is also manageable online through the eNPS portal.
- Tax benefits:NPS contributions also qualify for tax exemptions. If you contribute to the Tier 1 NPS account, you can avail of tax savings up to Rs. 1.5 lakhs. Further, under Section 80CCD(1B), you can get an additional tax deduction of up to Rs. 50,000 for your NPS investments. Under Section 80CCD (2), if your employer contributes to your NPS scheme, then private-sector employees can get 10% of their salary (Basic + Dearness Allowance (DA)) as a tax deduction, and government employees can avail of a 14% tax exemption.
Conclusion
If you want a low-risk, government-backed investment option, you can consider investing in an NPS scheme. However, it is always advisable to create a diversified portfolio with different investment options like mutual funds online that can allow you to accumulate a large corpus in the long term. Mutual funds online allow you to invest according to your risk tolerance and through a medium (SIP or lump sum) of your convenience. Further, mutual funds offer high returns and tax exemptions.
Investing, monitoring, and managing your mutual funds online is easier than NPS through the Tata Capital Moneyfy App.
Choose your investments wisely for a secure future.
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