As you plan for your golden years, the National Pension System (NPS) emerges as a compelling investment option. Launched by the government, the investment avenue is a well-structured retirement savings scheme that offers a range of benefits.
It is an attractive choice for those seeking financial security after retirement. Let us find out what makes it a good idea to invest in NPS.
Tax exemptions
The tax advantages that NPS offers are one of its most significant highlights. Section 80C and Section 80CCD(1B) of the Income Tax Act allow you to deduct your contributions to the NPS scheme.
Additionally, upon maturity, 60% of the accumulated amount can be withdrawn as tax-free returns. The remaining 40%, which has to be used to purchase an annuity, is also not taxed at the time of maturity. But the income earned from maturity is taxed. This ensures that your hard-earned money grows efficiently, maximising your retirement savings.
Professional fund management
The Pension Fund Regulatory and Development Authority (PFRDA) regulates NPS, ensuring that your investments are managed by authorised and reputable fund managers. These professionals are responsible for allocating your contributions across various asset classes, such as equity, debt and government securities. With their expertise, your retirement corpus is managed responsibly, aiming to generate inflation-beating returns over the long term.
Disciplined approach to savings
One of the key strengths of NPS is its disciplined approach to saving for retirement. It has restrictions on withdrawal, which ensure that your contributions remain focused on your retirement goals.
You cannot withdraw the funds until you reach the age of 60 years, except under specific circumstances such as critical illness or children's education expenses. This lock-in period promotes a long-term investment mindset and safeguards your retirement savings.
Annuity for regular income
Upon reaching retirement age, NPS provides you with the option of converting a portion of your accumulated corpus into a regular income stream through the purchase of an annuity. This annuity ensures you receive a steady flow of income during your retirement years, providing financial stability and peace of mind.
Flexibility and choice
NPS offers flexibility in terms of investment choices and contribution amounts. You can select from Active or Auto choices, allowing you to either manage your asset allocation or let it be automatically adjusted based on your age. You can start contributing with as little as ₹1,000 per year, making NPS accessible to individuals with varying income levels.
Conditions to keep in mind when investing in NPS
- The withdrawal restrictions may limit liquidity in emergencies, and the cap on equity exposure (currently 75%) could potentially limit higher returns.
- The compulsory rule to use at least 40% of the accumulated corpus to purchase an annuity purchase, upon maturity, may be seen as a lack of choice in utilising your retirement savings.
Also Read: How to invest in NPS (National Pension System)?
Conclusion
With its professional management, disciplined approach, tax benefits and potential for inflation-beating returns, NPS provides a solid foundation for a financially worry-free retirement.
However, it is crucial to assess your individual financial goals, risk tolerance and liquidity needs before committing to NPS.
To understand whether it is a good idea to invest in NPS via Axis Bank, carefully evaluate the pros and cons to make an informed decision that aligns with your long-term retirement planning objectives.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
