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Are we missing out by not investing in NPS Tier-2?

Dhirendra Kumar says why NPS Tier-2 might be a better alternative to debt funds

Transcript: Are we missing out by not investing in NPS Tier-2?
- Rajat, Delhi

I read on valueresearchonline.com that you are missing out if you do not use the NPS Tier-2 account. The gains from NPS Tier-2 is added to your income whereas the gains in a debt fund are given the benefit of indexation. Is it advisable to invest in NPS Tier-2 instead of debt funds?

Yes. The benefit of indexation is only available when you hold a debt fund for three years. For a holding period of less than three years, the gains are added to your income and taxed according to your slab. For your short term needs, NPS Tier-2 has lower costs and better returns. However, if you are investing for more than 3 years, you have to pay tax after indexation which turns out to be quite low.

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