Opening an NPS account at an early stage brings numerous advantages to young adults aspiring to safeguard their financial well-being. Also, it builds a retirement strategy for a post-retirement life. Go through this blog to understand the different ways NPS investment can help you achieve your financial goals.
What is the National Pension Scheme?
The National Pension Scheme (NPS) is a government-backed pension scheme that was introduced in January 2004 to increase investment opportunities for salaried individuals. It provides individuals with the opportunity to make regular contributions to a pension account throughout their working years.
After retirement, you can take out a lump sum portion of the accumulated funds and use the remaining corpus to purchase an annuity. This ensures a steady and reliable income stream during their post-retirement period, making it an excellent investment option for securing your future.
What are the Different Benefits of Investing in NPS?
The following highlights the various ways in which investing in NPS is beneficial for investors to meet their goals:
1. Flexibility
Subscribing to the NPS is flexible. You have the freedom to select your preferred investment options. You can manage your accounts online from any location and keep them active even if you relocate to a different city or change jobs. Moreover, it also provides the option to adjust the amount of your contributions.
2. Returns
Investments of your savings in stocks might not promise definite returns. However, upon parking your funds in NPS, you can get stable returns, serving as the perfect investment option when you have a low-risk appetite.
This plan has been running for more than ten years and has provided annual returns of 9% to 12%. In NPS, you can also switch your fund manager if you're not satisfied with the returns on your investment.
3. Tax Benefits
When you invest in NPS online, you can avail a deduction of around Rs. 50,000 p.a. under Section 80CCD (1B) of the Income Tax Act considering you are a young professional.
Moreover, mid-career professionals can claim a deduction amount of up to Rs.1.5 lakh per annum along with Rs. 50,000 for contributing to the NPS.
4. Minimum Contribution
To open the NPS investment account you need to deposit Rs. 500 in your account. You can start investing in this scheme by just contributing Rs. 1000 every year.
5. Diversification
As the investments of NPS are divided between debt and equity it provides you the opportunity to earn stable market-linked returns.
6. Legacy Planning and Estate Planning
You can nominate an heir to take over your NPS account in future in case of unforeseen circumstances. In case there is a death of the original contributor of NPS, the dependant family members will receive 100% of the annuity plan selected by the NPS subscriber.
What are the Factors to Consider to Choose the Best NPS Fund Manager?
Selecting the right fund manager ensures that they plan your investments based on your financial goals. Consider these factors when choosing the best pension fund manager for your NPS investment:
1. Investment Objective
Pick a pension fund manager that matches your retirement goals since NPS is tailored for retirement planning.
2. Investment Horizon
Understand how long you will be investing to decide on the mix of fixed income and equity. Then, find a fund manager that suits your preferred asset class.
3. Risk Tolerance
Assess your comfort with risk to select the right asset allocation. Look for a fund manager that aligns with your risk-reward preferences.
4. Past Performance
Check how well the fund manager has performed in the past so that it can guide you to make informed decisions.
Conclusion
The flexibility offered by NPS investment, allowing for tailored contributions empowers you to align your pension savings with your unique financial objectives. By customising your NPS plan to suit your needs, you can make significant progress towards securing a financially stable retirement.
Protean has been appointed by the Pension Fund Regulatory and Development Authority (PFRDA), the regulatory body for NPS, as the Central Recordkeeping Agency (CRA) for National Pension System. Learn more about NPS by visiting this link.
