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The hidden gem

NPS is a great investment option that is overlooked by many

The hidden gemAnand Kumar

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The National Pension System makes me sad. Well, not the NPS itself, but how little it is being used. Of all the investment options available to the Indian saver, the NPS is the most underutilised. The contrast between how well-suited the NPS is for every saver and how little it is used is the largest among all investment classes.

The NPS should be the primary long-term investment of every saver. Once you are done with your emergency money, term insurance and health cover, it should be considered the first among the rest. Only when the possibilities of the NPS are exhausted, or for those needs that the NPS cannot fulfil, should you turn to mutual funds or equity. Yet, hardly anyone does this. If you ask a thousand mutual fund investors whether they use the NPS on a discretionary basis (meaning, not counting those who have the NPS at their workplace), you may find one or two who do.

All of us understand what the reason is. Investment products are not bought; they have to be sold. They are sold only if there's money in selling them. Not just any small amount of money but money that can compete with that earned out of selling competitive products. The low-cost and simple nature of the NPS, which makes it such a great way of saving, is exactly what makes it unremunerative for businesses and individuals to promote.

That's why Value Research has been so assiduously promoting the NPS right since the beginning: it's such a great product, but no one else is interested in publicising it. We cover the NPS in detail; we carry the NPS data just as thoroughly as we do mutual fund and stock data, and above all, the NPS is a first-class member of our groundbreaking 'My Investments' portfolio tracker. You can track and analyse your NPS holdings in 'My Investments' just as thoroughly as you can stocks, mutual funds and other asset types.

Originally, the NPS was not part of the subject area of Value Research. However, we have written about it and promoted it from when it was not even launched. We have always enthusiastically recommended it as one of the best possible options for retirement savings. To be clear, just as there is no money in selling the NPS, there is no money in promoting NPS and incorporating it into our website as we do. You don't need to subscribe to our paid products to learn about and track the NPS on our website. However, we feel that while our other products are our business, promoting the NPS is our dharma.

In any case, the NPS is effectively a special-purpose system of mutual funds that is regulated differently from normal mutual funds because the legalities surrounding them are different. However, from the 'mutuality' of the investments to professional management, they fit every other definition of mutual funds, and investors should treat them as such. In the beginning, the NPS had many problems, including taxation, the annuity obligation and much else. However, over the years, all those have been fixed, and one can justifiably say that there is no substantial shortcoming to the NPS any more. There is no special reason that everyone should not look at it.

I hope (and perhaps believe) that the NPS will attract an increasing number of individuals due to its advantageous returns, comparative security, and affordability. Over time, a growing proportion of people will choose to allocate their flexible savings towards the NPS. This shift suggests a growing trust and interest in the NPS as a reliable and beneficial platform for savings. I hope that our readers will take the NPS as seriously as they do all other investment types - just like we at Value Research do.

This editorial appeared in Mutual Fund Insight August 2023 issue. To read the cover story and other insightful analyses, columns and articles

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