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Has NPS become better than equity funds after the recent changes?

Dhirendra Kumar tells whether NPS is now a better option than equity funds after the change in its tax implications


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The tax implications in case of NPS have reduced. So does that make it a better option than equity mutual funds for retirement?
- Wadia

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NPS has improved. It works in a way that you keep accumulating your savings and when you retire at the age of 60, you get 60 per cent of the money and have to buy an annuity of the remaining 40 per cent. Earlier, this 60 per cent of money was partially taxable. But it is now completely tax-free. But the big difference between mutual funds and NPS is that you are a complete owner of your money in mutual funds which is not the case when you invest in NPS. Of all your accumulation, 40 per cent has to be mandatorily used to buy an annuity. Also, you don't have a complete say on the asset allocation or the way it is invested. Of course, NPS has one significant advantage that it is the lowest cost managed investment product in the country.

I would say that NPS has improved but it is like entrusting a good part of your lifetime accumulation to someone else for the purpose of deriving pension money. I visualuise that in the next 10-15 years, NPS will provide greater flexibility. It has already happened in the UK. Investors have all the choice. They can mount a withdrawal plan, they can take all the money out if they want, or they can buy annuity. Annuity is not a mandatory thing there. So, NPS has improved but is not all that great even now. But the way NPS is moving, I think it will have greater flexibility and will be superior in the coming years.

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