National Pension System: The National Pension System or NPS is an alternative retirement savings scheme that enables investors to secure their future financially. By making a small investment in this on a daily basis, you can ensure a substantial pension.
National Pension Scheme (NPS) is the most preferred investment option for building a retirement fund. This scheme is operated by the Pension Fund Regulatory and Development Board. That is, this scheme is a scheme directly related to the government. On one hand, by saving Rs 400 per day, you can get Rs 3 crore on retirement and a monthly pension of Rs 1 lakh under the scheme. Apart from this, along with exemption under 80C, income tax exemption of up to Rs 50,000 is also available under 80 CCD.
Beneficial for non government employees
It is often observed that salaried individuals (mostly non-government employees), who do not get pension from their employers, may face financial crunch if their retired life extends beyond 10-15 years. Because they mostly invest their hard earned money in Fixed Deposits to safeguard their retirement corpus. According to experts, they can accumulate a huge corpus for their retirement by investing their savings in a scheme like NPS.
Where can invest
In this scheme, your personal savings are converted into pension fund. Investments are made in government bonds, bills, corporate debentures and shares on behalf of PFRDA. Under this, the amount you invest, you get an increase year after year only on the return you get on it. To avoid financial crunch during your retirement, financial planners recommend investing in this for young professionals. By investing in NPS you will get a fixed monthly pension till you are alive and also get a lump sum amount at the time of retirement.
Understand NPS Scheme like this
As per NPS guidelines, it is necessary to buy an annuity with at least 40% of the net NPS maturity amount. On the other hand, if an investor wants to increase this limit, then he can also increase it. If an investor invests Rs 12,000 every month in his NPS account for 30 years with an equity-debt exposure in the ratio of 60:40 and buys an annuity of 40% from the net NPS maturity income, it would yield a 10% return on investment. Assuming that he will get a lump sum income of Rs 1,64,11,142 and a monthly pension of Rs 54,704.
Better investment in times of rising inflation
As inflation in India remains historically high, the interest income that retirees get from their fixed deposit investments is reducing with each passing year. They are being forced to withdraw from the principal to meet their expenses. To avoid such a situation, the National Pension System is such a beneficial tool, which can help in accumulating a huge corpus for retirement by investing a small amount every month.
60% tax-free withdrawal facility
According to tax and investment experts, a subscriber can withdraw a maximum of 60 per cent of his maturity amount from NPS as a tax-free lump sum and with the remaining amount he will have to buy an annuity from a life insurance company. In this, at the age of retirement, you have to spend at least 40% of the amount accumulated in the account to buy an annuity plan.
The NPS account holder gets income tax exemption of up to Rs 1.5 lakh under section 80C and an additional Rs 50,000 under section 80CCD. The entry age in NPS has been revised from 18-65 years to 18-70 years.
