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NPS Benefits

Putting your money in NPS makes it 80C eligible investment and one cannot bring out the money

Please enlighten me on the New Pension System. I am 38 years old. So shouldn’t I invest in a good balanced fund rather than going for NPS?

One of the features of NPS is that whenever you put in money, it becomes an 80C eligible investment. One cannot bring out this money midway. There are six fund managers in NPS and all provide you with three or four types of plans. Apart from that there is also a facility of an auto plan which helps one to decide or choose a particular plan according to one’s age. The kind of age you are in, you would get a 50-50 per cent equity and debt plan. And as you age, then the equity allocation would decrease. There are one or two advantages of NPS in the present times. This is lesser costly fund.

There are a few negatives of NPS as well. One – You cannot bring out money from it which is an essential feature of pension. The second disadvantage is that if you invest a small amount like Rs 500, since there is a fixed cost and the variable cost is very less, for most of the investors, it would not be costly in the long run. But a small investors who puts in a small amount, it would be a costly affair as one has to bear the cost of opening a new account apart from incurring cost for each of its investment as it becomes proportionately more if compared to somebody who is putting in larger sum of money. If your monthly investment is more than Rs 2,000-2,500, then NPS would be less costly for that investor. If the investment is less than that, then one should go for a balanced fund.

Tax implication is yet another thing to look out for. Investing in NPS and getting out the money makes it taxable. You are just 38 now and it is very difficult to say anything about the tax regime when you retire. If you just consider the tax angle, investing in a balanced fund would be completely tax free for you. Withdrawing your money from NPS would be added in your income. If you withdraw your money after you retire, then you do not have any other income. But if one compares it to the present times, then if you invest in equity for over a year, it would be tax free while investing in NPS would not be.

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