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Is it advisable to use an NPS Tier-II account to generate regular income for a retiree?

Dhirendra Kumar explains how a retiree should invest in NPS to derive regular income

If I invest in an NPS Tier-2 account and withdraw from it quarterly and expect a return of 11 per cent from it, should I go ahead with this plan as bank interest rates are too low and my income is also not taxable? Is there any tax liability if I follow this plan?
- R. M. Mathur

If your income is not taxable, you can invest the money at your convenience. So from that point of view, NPS is a valid option for you. But you should consider only those investment options based on the asset allocation you would want to have. Choosing the right one from the three investment options available in NPS is your responsibility. It depends on your decision on how much you would want to allocate to fixed income - within that, how much would you allocate to funds holding government bonds, and how much would you assign to funds investing in corporate bonds.

You are expecting returns that are more than the fixed income returns. Also, even if you have an income of up to Rs 6.5 lakhs and invest Rs 1.5 lakhs in tax saving instruments, it provides the convenience of not paying tax on your remaining income of Rs 5 lakhs during your retirement.

However, for your investment plan of investing in NPS, I suggest, don't allocate more than 20-30 per cent in equity. Also, your plan to withdraw the money should be from the remaining fixed income allocation. This is to ensure that you don't withdraw from the principal amount invested in equity which continues to stay invested. If you cannot do this with NPS, the same strategy can be adopted through similar mutual funds but with a higher expense.

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