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Why Should You Invest in NPS?

Know the key benefits of an NPS (National Pension System) scheme here. Tax benefits, risk level, returns ratio and more to plan your retirement.

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Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

Sincere planning for retirement is always a good idea, but the question is - does everyone do it? After all, you should be the most comfortable and secure during the twilight years of your life. For those of you, who want to maintain the same standard of living during your retirement as you do now, it is advisable to get started as early as possible. That comfort you want for yourself and your loved ones post the employable period of your life will depend heavily on the retirement corpus fund you build over the years. If you go through the various investment plans available, you will find many schemes that look into post-retirement benefits. One such scheme is NPS or the National Pension Scheme.

What is a National Pension Scheme?

The National Pension Scheme is a government-owned investment plan that can be availed by private-sector employees, public sector employees, and unorganized sector employees. If you invest in this scheme, you will have to put in a certain amount (you can use a national pension scheme calculator for the same) of your income (minimum Rs.500/-) into the NPS at regular intervals. As you get closer to your retirement, you can withdraw a certain amount from the corpus, and the remaining amount will be provided to you as a regular pension. To help you further, here are some national pension scheme details and reasons why you should invest in the NPS.

Earning Source

Even though you stop earning post-retirement, your day to day and household expenses prevail. Apart from this, there are the added requirements of your family members that you need to look into, and inflation is a factor that you always need to consider. Therefore, to cater to all this and continue the lifestyle you have always maintained, you need a regular income that the NPS can provide in the form of a pension.

Low Risk

The risk scale for National Pension Scheme is lower considering it is a government-owned scheme - that in itself increases its reliability. For equities, the risk dwindles between 50-75 percent, and for citizens in their 50s, it is almost 75 percent. Eventually, as they reach their 60s, the risk drops by 2.5 percent. This kind of exposure with equity offers many high earning opportunities as well.

Fund Allocation Flexibility

As an investor in the NPS scheme, you have the flexibility to choose how your fund portfolio is going to be. This implies that you can allocate your income however you want into the four available assets and can shift them around later as per your convenience. People generally do that when they are dissatisfied with how the assets are performing.

Assured Returns

Your investment in the equities may not provide you with high returns but the good thing is that the returns on this scheme are considerably higher when compared to public or employee provident funds (PPFs, EPFs). Furthermore, the returns are guaranteed.

Tax Savings

Under Section 80CCD (1B) of the Income Tax Act of 1961, your contributions to the NPS are eligible for a deduction upto Rs. 50,000/- which is beyond the exemption of Rs. 1.5/- lakhs that you receive under Section 80C.

It is quite evident that you will face issues during your retirement days without a strong financial backup. Your comfort depends on how much and how well you have prepared for the golden period of your life. So, plan ahead of time and secure your future today!

In this policy, the investment risk in the investment portfolio is borne by the policyholder.

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- A Consumer Education Initiative series by Kotak Life