The National Pension System (NPS) is a popular investment choice for individuals looking to secure their retirement with a structured savings plan. With tax benefits, long-term growth potential, and flexible contribution options, it appeals to those seeking a disciplined approach to retirement planning. However, like any investment, NPS comes with its own set of pros and cons, making it important to assess whether it aligns with your financial goals and risk tolerance.
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†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
The National Pension Scheme (NPS) is a voluntary retirement savings scheme in India. It is designed to provide financial security for individuals after retirement. Under the NPS, individuals can contribute a portion of their income to a pension fund, which is then invested in various asset classes like equities, bonds, and government securities. The accumulated corpus can be used to purchase an annuity plan or withdrawn as a lump sum upon retirement. The NPS is a flexible scheme that allows individuals to choose their investment options and contribution levels. It is also eligible for various tax benefits, making it an attractive retirement savings option for many people in India.
The National Pension Scheme (NPS) works on a defined contribution basis, meaning the amount you receive upon retirement depends on your contributions and the performance of your investments. Here’s how it works:
Contributions: You contribute regularly to your NPS account. This can be through your employer, or you can contribute individually.
Investment: Your contributions are invested in various asset classes like equities, government bonds, and corporate bonds. The investment is managed by professional fund managers.
Growth: Over time, your investments grow based on the performance of the market.
Retirement: When you retire, you can withdraw a portion of your accumulated funds as a lump sum. The maximum amount you can withdraw as a lump sum is 60% of your accumulated corpus. The remaining 40% must be used to purchase an annuity, which provides you with a regular income post-retirement.
People also calculate: NPS Pension Calculator
Below are the reasons why NPS can be a good investment option:
Deductions: You can claim tax deductions on your contributions to the NPS under Section 80C of the Income Tax Act. This means you can reduce your taxable income by up to ₹1.5 lakh per year.
Partial Withdrawal: Partial withdrawals for specific purposes like buying a house or higher education are also tax-exempt, providing you with some financial flexibility during your working years.
Up to ₹2.5 lakh: You can claim a tax deduction of up to ₹2.5 lakh for your self-contributions to the NPS under Section 80CCD(1B). This means you can reduce your taxable income by this amount.
Tax laws and regulations can change frequently, and it is crucial to seek expert guidance to ensure compliance with the latest rules.
Investment Options: NPS offers a variety of investment options, allowing you to choose based on your risk tolerance and financial goals. You can invest in equity funds, government bonds, corporate bonds, or a combination of these.
Contribution Flexibility: You can contribute regularly, occasionally, or make lump-sum contributions. This gives you the freedom to adjust your contributions based on your income and financial situation.
Security: Being government-backed, NPS provides a sense of security and stability. You can be confident that your retirement savings are safe and protected.
Regulation: The scheme is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), ensuring transparency and accountability. This means you can trust that your funds are being managed professionally and ethically.
Job Changes: NPS accounts are portable, allowing you to continue contributing even if you change jobs. This means you don't have to worry about losing your retirement savings if you switch careers or companies.
Easy Transfers: Transferring your NPS account is a simple process. You can easily move your account from one fund manager to another or from one employer to another.
Annuity: Upon retirement, you can use a portion of your accumulated funds to purchase an annuity, providing you with a regular income stream. This ensures that you have a steady source of income to meet your living expenses in retirement.
Lump Sum: You can also withdraw a portion of your funds as a lump sum. This gives you the flexibility to use your retirement savings as you see fit.
Minimal Charges: NPS typically has lower charges compared to other retirement plans, helping you maximize your savings. This means more of your money goes towards your retirement goals, rather than being eaten up by fees.
Multiple Asset Classes: NPS allows you to invest in a mix of asset classes, including equities, government bonds, and corporate bonds.
This helps to reduce risk and protect your savings from market fluctuations.
The National Pension Scheme (NPS) is a great investment option for individuals aiming to secure their financial future. With its tax benefits, flexibility, government backing, and growth potential, NPS can be a valuable tool in building a substantial retirement corpus.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
*All savings are provided by the insurer as per the IRDAI approved insurance
plan.
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
+Returns Since Inception of LIC Growth Fund
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.
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