In a stark contrast to the developed countries of the western world, India still does not have a formal social security structure in place. Although employees of government / public sector undertakings are eligible for pension post retirement, the same benefits are not enjoyed by the vast majority of people working in the private & unorganised sectors, self-employed professionals, etc., who are required to fend for themselves once they quit working. Therefore, it is imperative that you start planning for your retirement at a relatively early age.
Once you stop working, your INCOME STOPS BUT EXPENSES CONTINUE. This makes for a compelling reason to secure your post-working years by investing in suitable products which would assist you to build a retirement corpus large enough to meet your needs as well as your expenses in your old age. This is where NPS comes into picture! Although, there are some mutual funds and insurance companies which offer pension plans or retirement plans, there is a strong case for NPS due to its inherent unique structure. Thus NPS is your trusted old age companion.
It is the cheapest market linked retirement plan among all other retirement products that are currently available in the Indian financial markets. NPS provides a platform for savings to create a retirement corpus through a three-tier investment structure as follows:-
- Equity (E),
- Corporate Bonds (C) &
- Govt. Securities (G)
Dual benefit of low cost and Power of compounding:- The account maintenance costs under NPS are the lowest as compared to similar pension products available in India. The retirement pension wealth accumulation grows over a period of time with a compounding effect and as the account maintenance charges are low, the benefit of accumulated pension wealth to the subscriber eventually becomes substantially large.
Tax Savings: - Opportunity of additional tax savings up to Rs. 50,000/-. This benefit is over and above the Sec 80C limit of Rs. 1,50,000/-. You cannot enjoy this additional tax benefit under any other retirement product such as EPF, PPF, etc.
Tax Exemptions: - The retirement corpus used for buying an annuity is completely exempt from tax.
Liquidity Constraints: - No withdrawal is allowed before the retirement age. This apparent lack of liquidity, which is inherent in the product, is actually a blessing in disguise as you stand to benefit from letting your corpus grow without dipping into it for varied needs – a retirement product in the true sense of the word.
Simple: – Opening an account with NPS provides a Permanent Retirement Account Number (PRAN), which is a unique number and it remains with you throughout your lifetime. The scheme is structured into two tiers:
• Tier-I account: This is the non-withdrawable permanent retirement account into which the accumulations are deposited and invested as per the option selected by you.
• Tier-II account: This is a voluntary withdrawable account which is allowed only when there is an active Tier I account in your name. The withdrawals are permitted from this account as per your needs when claimed.
Portability: - NPS provides seamless portability across jobs and across locations, unlike all current pension plans, including that of the EPFO. This essentially paves the way for hassle-free arrangement for individual subscribers like you.
Well-Regulated:- NPS is regulated by PFRDA, with transparent investment norms, regular monitoring and performance review of fund managers by NPS Trust. Your invested money is therefore in safe hands.
Flexibility: - NPS offers a range of investment options and choice of Pension Fund Manager (PFMs) for planning the growth of your investments in a reasonable manner and see your money grow. You can switch over from one investment option to another or from one fund manager to another subject to prevailing regulatory restrictions. The returns are totally market-related.