Unlocking the Benefits of NPS: Your Guide to the Government-Approved Pension Scheme

10 Reasons for Choosing NPS as an Instrument for a Portfolio

1. NPS works like a mutual fund and offers you the most economical instrument to invest in a mutual fund. Generally, a mutual fund charges approximately 1% towards expenses, but NPS charges only 0.3% towards expenses. This gives you a benefit of over 0.7% on a recurring basis. If you have a long-term horizon, then it increases your total corpus.
2. Fund Management: It is goal-based management. It is dynamic because debt exposure keeps increasing post age 50, giving security to your fund.
3. Tax Rebate under Section 80 CCD (1B): Saving under section 80 C is limited to Rs 150,000, but you can increase it to Rs 2 lakh by investing in NPS. This means you save an additional Rs 15,000 from taxes if you are in the 30% tax bracket.
4. Tax Rebate for employees under section 80 CCD (2): You can save further on tax if your employer contributes 10% of your salary towards NPS. Your employer needs to contribute as part of CTC, and the full contribution is not added to your income. (Government employers can contribute up to 14%)
5. Tax-Free Maturity – Unlike mutual funds, NPS gives you tax-free maturity. In mutual funds, capital gain up to Rs 1 lakh is tax-free, and other capital gain is taxed at a rate of 10%. In NPS, you are allowed to withdraw 60% of proceeds, and all 60% is tax-free under section 10 (12 A). Moreover, 40% of proceeds are used to buy annuity, and this 40% is also tax-free.
6. Liquidity in an emergency: After 3 years, you are allowed to withdraw 25% of your own investment for family goals and emergencies.
7. Long-Term commitment: As NPS is used for long-term retirement purposes, hence you do not use it for any other purpose. Market returns are maximum with time in the market.
8. Flexibility: You can do systematic as well as lump sum investment as per your own requirement. Moreover, you have two types of accounts i.e. Tier 1 and Tier 2. Tier 2 accounts are allowed only to Tier 1 account holders and can be used like any other mutual fund account.
9. Easy access: Like a unique PAN number, you have a unique PRAN number in NPS. This PRAN number is a must to open an NPS account.
10. Regulation PFRDA: NPS is regulated by a government body called PFRDA, hence have all government security towards your account safety.

So go ahead and open your NPS account today. Best wishes from Insurance Samadhan.