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Should I invest extra money in NPS-Tier 2 or in an FD?

Dhirendra Kumar shares his view about when one should keep money in a bank FD

I am 44 years old and serving as a lieutenant colonel in the Indian Army. I have been investing Rs 50,000 in NPS Tier-I for the last three years. I also have about Rs 4 lakh in stocks and an SIP of Rs 28,000 in mutual funds. Is it advisable to invest some additional amount in NPS Tier-II rather than keeping it in a bank FD?
- Anand

It entirely depends on how far you are from retirement and what would be your pension amount. If you still have a couple of years left for retirement and have some money in fixed deposits, you must invest at least a part of it in equity.

You should start estimating what your pension would be and how much income would you actually need. I believe a significant part of your money would also be going towards the Army Group Insurance Linked Savings Scheme. Look at the accumulation there and take that into account as well.

So, I would say that you need careful planning. And keep it simple. If you can't do anything else, put the maximum possible investment amount in the NPS Tier-1 and NPS Tier-2 accounts. Further, have the maximum possible allocation to equity. You can allocate up to 75 per cent to equity in NPS. You should invest only in equity when you have time in hand. Think of moving to fixed income only when you move closer to retirement or any other goal.
Fixed deposit doesn't make sense except for the money that you are likely to need in the foreseeable near future, say for any expense that is two-five years away. Otherwise, for the long-term horizon, you should invest the rest of the money in equity. You can do that either through equity mutual funds or through the NPS account.