NPS: PROS AND CONS

Let’s look upon the advantages and d-advantages of NPS scheme:

ADVANTAGES:

1. 
   

   Enables retirement planning: The basic objective of NPS is to provide pension opportunity to every individual Indian. NPS enables you to save particularly for retirement. It helps you save regularly, invest regularly and say invested for a longer duration.

   
   


2. 
   

   Diversification: Your MPs contribution gets invested into the stock market, corporate debt and government securities. So for people who have never invested into the stock market directly or through mutual funds or for people who have not even invested into ELSS, NPS serves as an instrument to diversify the retirement investment.

   
   


3. 
   

   Transparent: NPS is transparent as you know how much of your money is getting invested into the stock market and corporate debt or government securities as you are the one who decide this proportion. MPs are accessible as you can open an NPS account through PSU banks, many private banks and through post offices. It’s tax efficient.

   
   


4. 
   

   Low fund management charge: Low fund management charge of 0.1% makes NPS the cheapest one. The other charges are also very less.

   
   

DIS-ADVANTAGES:

1. 
   

   Partial withdrawal of coupons on maturity: 

   
   

40% - without taxes

20% - pay taxes according to tax slab

40% - compulsory to buy annuity

2. 
   

   Compulsory buying annuity, annuities give low returns:

   
   

Annuity gives returns currently of about 6 to 7 % which are very low. So there might be situations where in the retiree wants to invest into some other M&A like senior citizen. Saving scheme mutual funds etc but NPS does not allow investment of this 40% corpus into some other venue.

3. 
   

   Returns from annuity are taxed according to you tax slab on the other hand there are certain other investment options like mutual funds wherein the returns are tax-free after a certain duration.

   
   


4. 
   

   Only up to 50% can be invested into equity:

   
   

Up to 75% - equity – aggressive

Up to 25% - equity – conservative

5. 
   

   Passive fund management:

   
   

Stocks- make up the index NPS.

As we know NPS is an evolving scheme so it might get a Tripoli status in the future or maybe the coppers that you get on retirement would be indexed and then taxed. Time will tell whether it would become more advantageous or disadvantageous.