How investing in NPS will benefit you

A lack of retirement planning has serious implications. Shifting financial patterns and social norms makes reliance can lead to unsecured future. National Pension Scheme (NPS) aims to provide basic social security for people at the end of their working lives. The age limit to invest in NPS is 65. Investing in NPS has these benefits.

Range of investment choice: There are two types of accounts under NPS - Tier I and II. The Tier-I account is non-withdrawable until the age of 60 and partially withdrawable after a minimum of 10 years. In Tier-II account, withdrawals are voluntary. Under NPS, investors have a choice between eight different reputed fund management companies to manage retirement fund. Investors also have the discretion of deciding investment mix of their retirement fund. Under the active choice, the investor decides the percentage of equity, corporate debt and government securities. Auto choice entails asset allocation being based on the investor’s age.

Low cost: Funds invested under NPS attract an AUM fee of 0.01% as against 1% for equity mutual funds.

Tax benefits: Investors are eligible for tax benefits of up to ₹1.5 lakh under Section 80CCD (1) of the Income Tax Act and an additional benefit of ₹50,000 under Section 80 CCD(1B). However, this is only available for contributions to Tier-I accounts.

Portability: NPS provides a permanent retirement account number (Pran). The Pran number is assigned to an individual and is relocatable across any address in India.

The writer is head of research and ARQ, Angel Broking Pvt Ltd