National pension scheme (NPS) is a systematic savings plan if you are looking to secure your retirement days. It helps develop the habit of savings for your golden phase from a very young age. Moreover, the scheme also comes with various advantages making it a highly popular investment product amongst investors.
Check out the reasons you must consider investing your surplus investible in NPS scheme:
Acts as source of earning after retirement
Once you retire, your income stops but your monthly mandatory expenses continue. Not to forget, rising inflation has an adverse impact on your life. Thus, to keep up with the same lifestyle as before, you require a regular income. An NPS scheme offers that option. It provides up to 60% of your NPS corpus in the form of a lump sum while the remaining 40% is transferred to an insurance company that offers regular pension.
Flexibility with fund allocation
NPS provides great investment flexibility. Investment in NPS can be done based upon your convenience. Note that while there is no higher limit in NPS tier 1, the minimum limit is Rs 500. In case of NPS tier 2, the minimum limit is Rs 1,000. However, in case of tier 1, it is obligatory for you to invest a minimum of Rs 6,000 in a financial year while in case of tier 2, the obligatory amount is Rs 2,000. Thus, as it is not mandatory to invest a specific amount each month in this scheme, you can begin with a smaller investible and slowly increase it with growth in your annual income to gain the advantage of compounding. This comfort and flexibility in NPS best work for the self-employed individuals as they have an unstable cashflow.
Low risk investment
NPS holds comparatively less risk as compared to various market linked options. Being backed by the Indian government, the risk cap on equity ranges between 50 and 75 percent. On approaching the age of 50, risk exposure to equities falls by 2.5 percent each year. However, on reaching 60 years of age, the cap is fixed at 50 percent. Exposure to equity offers a higher earning opportunity with lower risk exposure.
NPS provides tax deduction over and above Section 80 C. The contributions made by you towards the national pension scheme are eligible for deduction of up to Rs 50,000 as per Section 80 CCD (1B). Note that it is above the exemption, which you get for investing Rs 1.50 lakh as per Section 80 C. Through this medium you can save a considerable tax amount every year.
How your retirement days will be depends upon how well you planned for it. Having a strong financial portfolio is the only way to be well prepared. Here is where investing in NPS can help you by providing you with a lump sum amount and periodic annuity on attaining your retirement age. So, why wait? Invest today to prepare yourself for golden days with a broad smile.