What Is NPS? What are the Advantages Of Investing In NPS?

Pension Fund Regulatory and Development Authority (PFRDA) regulates and manages the National Pension Scheme in India. It is a defined and voluntary retirement savings scheme. NPS gives investors Tier I and Tier II investing options. The NPS Scheme is a Government of India initiative to offer post-retirement support for the citizens of India from both unorganised and organised sectors. The NPS investment offers its subscribers myriad benefits.

Some benefits of NPS have been listed below for your convenience.

Low-Risk Investment

When investing in NPS, your funds are spread across asset classes such as Government Securities and Bonds, Alternative Investment, Corporate Debt, and Equity. While we all know that equity is a volatile asset class, the rest of the asset classes are comparatively safer and offer assured returns. Despite the asset allocation strategy an investor chooses, the overall NPS Investment structure facilitates the growth of wealth from the beginning of the investment tenure and conserves enough corpus accumulation for retirement over time.

Guaranteed Returns

An investment is an effective investment if it delivers the expected rate of returns. The stated objective of NPS is regular post-retirement earnings. NPS investment delivers that diligently. About 60 percent of your returns and funds on maturity are credited to your linked account as a lumpsum benefit. The rest of the 40 percent of your corpus is compulsorily redirected towards annuity purchases. An Annuity Service Provider shells out regular pension income to you post-retirement. If you want, you can opt for an option in the NPS scheme, where even after your demise, your spouse will continue to receive your pension till they live.

Even though a major chunk of your NPS funds is invested in volatile equities that do not offer assured returns, the overall NPS Scheme structure facilitates assured returns. Also, the returns that NPS investment offers are comparatively higher than other investments such as FDs and PPFs.

Options to Customise and Control Investment

One of the significant advantages of NPS is that you can select the asset allocation strategy on the basis of your financial goals and risk assessment. While you get to customise the asset allotment and make an Active Choice, there are still upper limit caps of allocation for each asset category to reduce risk.

As an investor, you can also opt for the Auto Choice if you feel that selecting the Active Choice may not be your most profitable and accurate asset allocation decision. Just so you know- Auto Choice offers you 3 lifecycle fund options according to the investment approach. They are Conservative, Moderate, and Aggressive.

As an investor, you can closely monitor and control the growth of your NPS funds. NPS Investment allows you to change your NPS fund manager if you feel your money is not growing as per your expectation and the prevailing market trends.

Automated Risk Reduction with Age

NPS has an in-built risk reduction strategy to shield your retirement corpus from market volatility as you get closer to your retirement. With the Auto Choice of asset allocation, you get the option of reducing risk automatically as you get older. The Auto Choice lets you decide your beginning debt-equity mix based on your risk appetite. Once you cross the age of 35, a section of your investments is shifted from stocks to FD-like financial instruments. This is why your equity exposure minimizes when you are nearer to your retirement age, and your corpus is invested in safer instruments.

Tax Benefits Beyond 80C

National Pension Scheme offers you tax benefits over and beyond 80C of the Income Tax Act. Under 80CCD (1B), you can claim tax deductions with respect to your NPS Investment of up to Rs. 50,000. This over and beyond the deduction, you can claim under 80C for investing Rs.1,50,000. This means you can save about Rs. 15,600 in additional tax each year. However, you must know that tax benefits associated with NPS can only be claimed if against the Tier I account of NPS Investment.

The tax benefits for investors of NPS also go beyond 80C and 80CCD (1B). As an NPS investor, you are not required to pay any tax at the time of NPS maturity, nor on your amount invested, returns, or maturity amount. This is because National Pension Scheme falls under the Exempt Exempt Exempt (EEE) category of taxation. An investor gets three exemptions: “No tax on the amount invested, no tax on returns generated, and no tax on the maturity amount.”

Undoubtedly, the advantages of NPS offers are very hard to ignore, especially because there are not many investment options in India with advantages of this calibre. Following the basic registration process, you can easily start investing in NPS online through banks, financial institutions, and registered brokers such as Eureka. The earlier you start, the more you can leverage the power of compounding. Contact Us Today?for further assistance.