As all your monthly mandatory expenses are managed through your income during your working days, you might not bother. However, what will happen once you retire? If you have not accumulated an adequate post retirement corpus, now is the time. Highlighted here is one of the highly acclaimed retirement instruments – NPS (National Pension System).
National Pension System (NPS)
NPS encourages regular investments of your surplus funds through your working days until you retire. Such regular investments allow you to avail a higher retirement fund corpus in lumpsum on maturity of NPS along with regular pension post retirement.
Why opt for NPS?
NPS is a retirement pension plan that has an upper hand when compared with other financial instruments like fixed deposit, public provident fund (PPF), etc. Mentioned here are reasons to opt for NPS:
- Dependable retirement pension income
An investment instrument is effective only if it generates the return as expected. In the case of NPS, regular post retirement earnings are the major objective. NPS delivers completely in this criterion. Up to 60 percent of the returns on maturity are credited as lump sum benefits. Rest of the corpus i.e., 40 percent, is the component that is directed mandatorily as annuity purchases.
- Low risk investment
Funds invested in NPS are spread throughout various multiple asset classes namely securities, equity, government bonds and other alternative investment instruments. While equity might be volatile, remaining investments are relatively safer and provide an assured return. Regardless of the asset allocation strategy you select, the overall NPS investment structure is to grow your money from the beginning of your tenure and conserve accumulated corpus towards retirement. Moreover, as NPS is backed by the professionally managed and trusted PFRDA (Pension Fund Regulatory & Development Authority), there is always a sense of financial safety.
- Control and customisation
One of the major attractive features of NPS is you can select the asset allocation strategy depending upon your financial goals and risk appetite. Selection and customisation of allotments on your own is known as active choice. But note that there is a cap on the upper limit for fund allocation in every asset category to lower risks. If you think you are not competent to make profitable or accurate decisions about asset allotment, you may choose auto choice. The choice comes with three lifecycle fund options based upon your investment approach – namely conservative, moderate, and aggressive.
- Taxation benefits on maturity and contribution
Your contributions and earnings are exempt from taxes in case of NPS. Falling under Section 80 C, you can claim a tax deduction of up to Rs. 1.50 lakh as per this section. Moreover, according to Section 80 CCD (1B), you can claim additional tax deduction of Rs. 50,000, which is over and above the deduction allowed under Section 80 C.
Undoubtedly, NPS benefits must not be ignored, particularly when there are not many investment instruments with benefits of this caliber. You can simply begin with your NPS investment online via banks or registered brokers. Note that you can squeeze the most out of it through the compounding effect. So, begin now. Check out the online retirement benefit calculator to know the monthly contribution you require to make towards NPS to accumulate a targeted post retirement corpus.