National Pension Scheme (NPS)

raksrules

Elite
Recently In my organization, they conducted a web meet to explain about National Pension Scheme (NPS). They explained about Tier 1 and Tier 2 and where tax benefit is there. In first instance, the savings look great with the compounded interest and per month contribution doesn't look big too. All appears great and worth going on.
But then I further googled and also checked /r/Indiainvestment on reddit and seems NPS is not as good as it seems for few of the reasons like...
  • Only 60% corpus can be taken and that too only when one retires (Age 60 approx). Rest 40% goes into Annuity which is mandatory.
  • Even under new regime, Tax benefits beyond 80C can be availed. But there is no guarantee that the tax benefit may be there in future.
  • There is no way to just exit the scheme anytime and best option is to take 20% out before one retires. Basically, money is locked.
  • The companies which manage the NPS are all private.

So anyone here who is currently putting money in NPS. What prompted you to do this? Do you see any benefit as you see it as guaranteed return versus mutual funds and such?
Any other comments you may have related to NPS for or against the scheme.
 


 
The general rule of thumb I follow is do not invest in any govt schemes. Your money always goes into LIC and SBI. LIC will be used to buy all sick govt companies stocks or govt friendly companies. SBI will be used to bail out other NPA banks. Basically it is our money that is used by the govts to help their friends.
 
A more balanced view -


I use it purely as an instrument to build the retirement corpus but its not the only one.
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The general rule of thumb I follow is do not invest in any govt schemes. Your money always goes into LIC and SBI. LIC will be used to buy all sick govt companies stocks or govt friendly companies. SBI will be used to bail out other NPA banks. Basically it is our money that is used by the govts to help their friends.
Where do you invest for retirement ?
 
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The general rule of thumb I follow is do not invest in any govt schemes. Your money always goes into LIC and SBI. LIC will be used to buy all sick govt companies stocks or govt friendly companies. SBI will be used to bail out other NPA banks. Basically it is our money that is used by the govts to help their friends.

There is option to select your fund manager. SBI and LIC are there along with several pvt fund managers (hdfc, kotak, uti, icici, etc). You can choose whom you trust or based on historic returns each fund manager has delivered.

I'm investing 50k yearly in this scheme from 2016 for Tier 1 only. They operate like any other mutual fund however as mentioned in OP there are several restrictions. One thing which is not mentioned is that expense ratio of these funds are really low compared to other mutual funds, and is negotiated by govt.

The reason which prompted me to invest in NPS is additional 50k saving option. If you are in upper income bracket (30% slab), you save close 15k in taxes alone each year. This when combined with return of tier 1 schemes, it will be very high. Like mentioned, it is not guaranteed that it will continue forever. If it is not continued, I will re-think about this and invest just 1K each year to keep it active.

As far as the restrictions go, it is restrictive but still money saved is money earned. When it comes to retirement planning you will have to invest in several different instruments to fulfill your needs. No single instrument can fulfill it by itself and 50k investment/year saving even with lock is no big deal for me. If it is not for you also, I suggest you give it a thought. You should have combination of long term and short term savings to effectively plan for contingencies. This includes different type insurances as well (health, life and critical illness, disability are must IMO)

And by the way, what's written on internet or your fund advisors tell you, If you can trust them its good but way I see it, not much money is to be made for them, if they recommend you this scheme. Even for fund managers they would be better off if they sell their other mutual funds as expense ratio is higher on those. Just something to think about.
 
There is option to select your fund manager. SBI and LIC are there along with several pvt fund managers (hdfc, kotak, uti, icici, etc). You can choose whom you trust or based on historic returns each fund manager has delivered.
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And by the way, what's written on internet or your fund advisors tell you, If you can trust them its good but way I see it, not much money is to be made for them, if they recommend you this scheme. Even for fund managers they would be better off if they sell their other mutual funds as expense ratio is higher on those. Just something to think about.

Yes this is what I keep thinking. Are you getting 10% of your Basic deducted through your employer? I come in the 30% bracket and in my org too, they only suggested NPS for people in this bracket. I am conflicted whether I should start putting money in this or not.

In one of my company's document, this is written...

Contribution by Employee directly
Contribution by Employee through Company
Contribution of up to Rs.50,000 is eligible for tax
deduction #u/s80CCD (1B)
Note: The contribution made is as per individual’s
discretion and is not facilitated by <my company name> in any
manner.
Contribution of up to 10% of Basic Salary (with capping of *7.5 Lacs is eligible for tax deduction u/s 80CCD (2)
Both the tax benefits are
mutually exclusive and can be availed of the same time
*Includes Employer contribution made towards EPF & NPS
# Can be availed only under old tax regime
 
Yes this is what I keep thinking. Are you getting 10% of your Basic deducted through your employer? I come in the 30% bracket and in my org too, they only suggested NPS for people in this bracket. I am conflicted whether I should start putting money in this or not.
I'm not sure about that part. I opened my account via nsdl website without any involvement of my employer and I make the contributions directly there only. The only thing where my employer is involved is when they collect tax docs at end of year. I give to them the contribution receipt , so they can deduct 2L savings (1.5L 80c + 50k 80ccd2) from my income for tax calcs.
 
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