July 5, 2013 5:40 am
In work in private company as supervisor. My company has recently started NPS with ICICI bank. Please suggest if its beneficial to invest in this scheme for better future benefits.
Before choosing an investment option we need to understand it and see if it suits us in terms of liquidity, risk,tax.
Coming to NPS or National Pension Scheme is an investment option for retirement. options for building a retirement kitty are as follows:
Pure debt instruments such as the PPF, NSC and tax-saving FDs . They offer an assured return of around 8% in the long term.
Mutual Fund Pension Plans
Insurance Pension Plans
National Pension Scheme
Let me highlight the disadvantages of NPS
No guarantee on returns: The NPS is not a defined benefit plan. It is a defined contribution plan. The returns are market linked and there is no guarantee on returns. You have choice of investing 100% funds in Government securities wherein returns are more or less assured.
Restriction on equity exposure: The exposure to equity investment is restricted at 50%
Liquidity: There are restrictions on premature withdrawal from Tier I account making the scheme very rigid. There is an option to prematurely withdraw 20% of amount but it leads to closure of account. Even on maturity, only 60% of fund can be withdrawn and the rest is to be compulsorily used to buy an annuity
Tax on maturity proceeds : NPS currently comes under the EET (exempt, exempt, tax) regime. Current laws state that the funds will be taxed at withdrawal.Returns from annuity insurance plan obtained after retirement will also be taxed
You can read about NPS at Manoj’s link or our article Understanding National Pension Scheme – NPS
You can compare various retirement options at Saving For Retirement : Pension Plans,NPS,EPF,PPF
Do you think you should go for NPS?
You can claim the additional tax benefit upto 1 Lacks other that 80c using NPS but if you change the company and the new company doesn’t have NPS then you will be not able to claim the tax benefits from NPS but you can continue the NPS account.
At maturity (60 years of age), 40% of the corpus in the NPS account has to be invested in an annuity and the rest can be withdrawn till the age of 70.
For detailed info please read the below blog:-
NPS is national pension scheme , a scheme by govt to make sure each indian saves for his pension . However I suggest you get out of it right now , because its very unclear and not a very evolved product right now .
Read this to find more – https://www.jagoinvestor.com/2009/05/nps-new-pension-scheme-detailed.html
I suggest you also go through the comments section on this article and read others views on this subject !
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