NPS, or National Pension System, is an excellent investment avenue to secure your financial future. Its tax benefits and unique features have gained prominence among savvy investors over the last few years. If you want to build a secure corpus for retirement, the following sections will explore how NPS can help achieve long-term financial goals.
Understanding NPS
The National Pension System is a long-term retirement savings plan initiated by the Indian government. It provides financial security for your post-retirement years and several other benefits. The Pension Fund Regulatory and Development Authority (PFRDA) is the governing body regulating and managing the NPS scheme. You can use an NPS calculator to calculate your returns and make an informed investment decision.
Key NPS Benefits
Let’s look at the key benefits of the NPS scheme:
- Tax Benefits: Tax benefits are the most common reasons to invest in the NPS. Salaried individuals can claim a tax deduction of up to 10% of their salary (Basic + DA) under Section 80CCD (2) of the Income Tax Act. Additionally, an additional deduction of up to 50,000 is also available under Section 80CCD (1B). This combined benefit of these deductions reduces your taxable income significantly.
- Flexibility: NPS offers various investment choices, including government securities, equities, and corporate bonds. That means you can customize your portfolio to suit your investment goals and risk appetite. The ‘Auto’ and ‘Active’ options allow professional portfolio management and active investment management, respectively. Moreover, you can withdraw a lump sum from your investment corpus before retirement for specific reasons and emergencies.
- Long-Term Corpus Building: NPS primarily aims to create an ample retirement corpus. By regular contributions over the years, your investments may grow substantially due to compounding power. The earlier you begin investing in the scheme, the more time your investments get to grow. This makes NPS an ideal choice to secure retirement.
- Transparency: NPS has a transparent and budget-friendly fee structure that does not consume a significant amount of your earnings. Fund managers offer competitive pricing, letting returns maximize. Moreover, the scheme provides transparent statements with regular updates, ensuring complete visibility into the performance.
- Annuity Options: Upon retirement, you can withdraw 60% of the NPS corpus as a lump sum (Tax-free) and invest 40% in a pension annuity (without 18% GST). You have multiple annuity options to choose from. You can select the most suitable one for your retirement needs. An annuity provides a regular income stream after retirement to ensure financial protection.
- Government Backing: As the NPS full form indicates, it is a government-backed scheme regulated by the PFRDA. The government body oversees pension fund management in India. Oversight by PFRDA ensures that the investments remain safe and secure. Moreover, the government has promoted several initiatives to increase investment ease and pension awareness.
Start Investing in NPS
Are you ready to start investing in NPS? Follow these steps to make an informed investment decision:
- Check Eligibility: The NPS scheme is open to both Indians and NRIs. Any Indian citizen or NRI between 18 and 65 years of age can start investing in the scheme according to their capacity, investment goals, and risk appetite.
- Choose a Fund Manager: Refer to the list of authorized PFMs (Pension Fund Managers) and select one that fulfills your investment goals and preferences.
- KYC Verification: Complete the KYC (Know Your Customer) verification process. Depending on the PFM’s policies, it involves providing identity proof and other necessary documents.
- NPS Calculator: Use an NPS calculator to know your NPS interest rate based on your investment amount and horizon. You can adjust the figures according to your investment goals, like monthly pension desired and lump sum withdrawal.
- Contributions: Contribute to the NPS account regularly according to your monthly budget and capacity. You can also choose the frequency of your contributions from monthly, quarterly, and annual.
- Monitor: Keeping track of the NPS investments and adjusting the portfolio as needed is essential as retirement approaches.
While you may find numerous investment options to build wealth for retirement, NPS stands out as a far better choice for a secure financial future. Its government security, tax benefits, and flexibility offer a holistic approach to investment planning. So, use a calculator NPS and start investing in the scheme to embark on a journey towards retirement with peace of mind.
