Should you Invest in NPS? 5 Things to Keep in Mind
The NationalPension System has emerged as a popular investment scheme in recent times. It is regulated by the PFRDA and aims at saving for the subscriber’s retirement. It is a market-linked investment system that helps in accumulating one’s savings towards their retirement. Once you haveopens an NPS account you have to keep saving throughout the accumulation phase and then start receiving pensions from the annuity phase. The NPS scheme is a suitable investment option for everyone who wants to accumulate their retirement funds in one place and then get a fixed pension during their retirement years.
However, before choosing an NPS scheme there are a few important features about the same which a subscriber should be aware of. Its features may not suit all the investors but a certain group of it. NPS schemes offer a long-term investment plan and exiting from the scheme later on due to the incompatibility with your financial plans,may prove to be detrimental in the long run. There are certain very defining features which one must consider before choosing NPS as a part of their investments.
1. The Lock-in period is long
The lock-period in an NPS schemes of longer duration as they are focused on the accumulation of funds for the retirement of the subscriber. This period mainly varies for around 25 to 30 years. It is not suitable for investors who have short-term investment objectives as the NPS scheme focuses on creating a corpus for the post-retirement need of the subscriber.
An early exit from the scheme is allowed before maturity but that will not serve the purpose well and rather waste your time and money. It is important to know the objectives and the structure of the NationalPension System. There are other Senior Citizen Savings Scheme schemes that give even higher rates than FD or saving accounts.
2. Not suitable for someone who wants to invest 100 percent in inequities.
The NPS scheme does not offer to invest a complete 100 percent in saving the equities. Just like mutual funds they too have fund options to choose from. However, in theNPSscheme, there is an upper limit cap to it when we deal with allocating funds to equities. Such upper caps can be helpful in the long term as NPS are mass-market investment products. Thus, if you are aware of your risk profile and investment needs then you may make a much better and informed decision about choosing or not choosing the same or consider the other Senior Citizen Savings Scheme if the ultimate focus of the investment is on retirement.
3. Expecting lump sum on maturity
This is one of the most important and unique features of the NPS scheme that should be considered before choosing it as an option. If you are investing to withdraw the entire amount on its maturity then you must reconsider this investment option. You will be allowed to withdraw a maximum of 60% of the corpus while there, gaining 40% will have to transfer to a life insurance company to provide a regular pension to you. This defines its character as that of a retirement-focused investment scheme, under normal circumstances one cannot withdraw one hundred percent of the corpus as there is mandatory provision to get a pension in the NPS schemes.
4. Not looking for a lifetime fixed pension
If you are not looking for a lifetime fixed pension plan then you should not go for this investment scheme. Based on the interest rate that would be relevant in the retirement years the subscribers annuity provider will provide a fixed pension amount. If one wants to use their saving as per their wish and not in this structured format then one must not opt for these schemes.
5. Do not wish to take tax benefits
NPS scheme offers several tax benefits. However, if you have already adopted the new tax regime (under section 80CCD 2 is allowed)then the tax benefits of NPS schemes will not benefit you any further.
In summary, it can be said that other senior citizen savings scheme can also be considered while weighing out the options for investing money focused on the retirement of the investor. National Payment System is also a safe and structured way of investing but it should only be considered if the needs and requirements of your financial places are aligned with this system.