Saurav Basu, Head, Wealth Management, Tata Capital
Salaried people can go for a combination of NPS and EPF
NPS is a retirement-specific vehicle wherein 60% of the amount received on maturity is % tax-free and 40% has to be mandatorily deployed in an annuity product. One can reap advantages like immediate tax benefits and higher return potential with low expense ratio and make use of the auto-choice option to select life-cycle funds (as per individual’s age and risk appetite). An investor can also select his preferred pension fund manager for annuity investments. In Voluntary Pension Fund (VPF), one may not get additional ₹50,000 tax deduction, but the amount received on maturity from a VPF along with the interest accumulated is fully tax-free.
If the goal is to get an additional immediate tax benefit and accumulate a higher corpus solely for retirement, NPS plus Employees’ Provident Fund (EPF) for a salaried person is a good option. A person who is looking to invest for retirement and has already exhausted the additional limit in NPS can consider mutual funds or solution-oriented retirement mutual fund schemes.
Varun Girilal, Co-founder and executive director, Mitraz Investment Advisors
Long lock-in, compulsory annuity are big negatives
I would not recommend NPS for investors below the age of 45 years. Those above 45 years could consider NPS only if they are fine with locking in their capital for 15 years and have more than ample liquidity outside this product. Investing for more than the ₹50,000 additional benefit (under Section 80CCD (1B)) would result in a large amount of capital getting locked in, which is not recommended.
The fact that your funds are locked in till the age of 60 and that you have to compulsorily allocate 40% to an annuity plan, income from which will be fully taxable at the marginal tax slab rate, is a big negative. We often get pushed into tax-saving investments with long lock-ins without thinking about the long-term implications.
Limited options and investment strategies are other downsides. Many people today aim to achieve financial independence and retire by 45, and often look to withdraw some of their savings to invest into business ventures. NPS will rob you of this flexibility and the option to allocate it to more efficient products.
Joseph Thomas, Head of research, Emkay Wealth Management
NPS gives equity benefit but ELSS better in that space
Tax planning investment is something that should be initiated at the beginning of the year. NPS is a well-regulated scheme, and it offers the flexibility on the frequency of payments into the NPS account—from monthly to quarterly to half-yearly.
NPS’s benefit of equity exposure in addition to fixed income helps the corpus to grow relatively faster in the run-up to retirement. Also, the corpus is managed by professional fund managers.
NPS qualifies for the normal tax-saving space available under Section 80C of ₹1.5 lakh, and an additional ₹50,000 under Section 80CCD (1B), which is exclusively for NPS. It is one of the worthwhile options for investors to build a retirement corpus.
Whether or not one should restrict himself to investing ₹50,000 depends on personal choice. If a person is looking for a higher retirement corpus, then he may look at a more contribution in the last 10 years of his service. However, investing in equity-linked savings scheme also makes a lot of sense as they may give more efficient returns.
Rahul Jain, Head, Edelweiss Personal Wealth Advisory
It can help people under 40 years build large corpus
An individual between 25 and 40 years may consider investing more than ₹50,000 in NPS as it will ultimately help in building a significant retirement corpus. Retirement is a long-term goal, which people often procrastinate.
It’s crucial to consider your risk appetite and flexibility in terms of asset allocation, lock-in period and periodic withdrawals. The distinct advantages of NPS are its choice of investment and tax benefits it offers. Also, the charges in this product are on the lower side as compared to other instruments.
With the age of pre-defined pension benefit all but over, it’s essential to generate income in the form of pension when you retire. As per estimates, by 2050, 20% of the Indian population will be above 60 years of age, with 61.7% of the elderly population without any income security. Depending on your needs and post-retirement expenses, you can invest accordingly. So, start retirement planning as early as possible to grow your money and gain from the power of compounding