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Should one invest in National Pension System (NPS)?

Dhirendra Kumar talks about NPS as an investment avenue for retirement


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My son is 30 and earns Rs 18 lakh per annum. Should he invest in NPS for his retirement?
- Pramila Srivastav

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NPS is a reasonable investment avenue. Having said that, it has its own share of both advantages and disadvantages. An advantage is that after starting your investment in NPS, you cannot withdraw it until you are 60. Although some people consider it as a disadvantage, in my opinion, it is one of the biggest advantages of investing in NPS, especially if you are a person who is not disciplined enough about investing for retirement. Then, another advantage is that 40 per cent of your money will necessarily be converted into an annuity when you retire. You can withdraw only 60 per cent of the corpus as a lump sum. However, things may change over the next 30 years.

However, the maximum equity allocation in NPS can be only 75 per cent, which otherwise can be 100 per cent if you choose to invest all your savings in equity funds. If your son happens to be a disciplined person and he is going to make sure that he won't be a conspicuous consumer of the accumulation, then an all-equity vehicle for a 30-year-old is a great way to carry on.

I would say if you are looking at it as a tax-saving avenue for your son to save the first Rs 1.5 lakh, then just close your eyes and regularly invest in an Equity-linked Savings Scheme (ELSS). You may choose NPS to park another Rs 50,000, as it remains an attractive avenue for the additional tax-break available under Section 80CCD(1B).

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