Why National Pension Scheme (NPS) is Good for Young Generation?

A very few of us understand the significance of term pension fund investment. The millennial generation believes that NPS is to be created when you have achieved a mid-life crisis. Contrary to this belief, retirement should be planned early, so that you have a regular stream of fixed income.

Retirement is a big challenge in India; hence to outlive it, an investor should invest in a portfolio of products that can not only satiate his household expenses but also has the power to beat the inflation and one among them is NPS.

Why Should You Invest in NPS

Investing in this scheme is mandatory for the government employees, but there is a certain section of people, especially the young generation who are not interested in investing in NPS. Thanks to its long-term tenure, complications, and lack of awareness, the people fear to invest in this scheme.

Tax Saving- Investment in NPS will help the young investors to claim a tax deduction of Rs 1.5 lakh under section 80C. Apart from that, they can claim an additional deduction of Rs 50,000 under section 80CCD. For an investor, who falls under the tax bracket of Rs 30%, this means additional tax savings of Rs 15,450.

Additional tax can be saved if the employer signs up along with employee for NPS and invests 10% of salary under the section 80CCCD. The scheme offers distinctive tax benefits and the investor should make efforts to save tax.

Tax- Friendly– The millennial investor complains that this scheme it is rigid, but over the years has become more tax-friendly. The investor can withdraw 60% of the corpus at the maturity and rest 40% he has to keep it as pension fund investment.

Cheap- Apart from offering tax benefits, NPS is a low- cost investment option. The fund management charges only 0.01% and the investor has to spend one flat fee on each transaction. It is the cheapest investment product by far now.

Different options for different investors– Another reason why financial planners suggest the young investors invest in the NPS scheme is because, the investors can select from three funds- aggressive, moderate, and conservative. In the aggressive portfolio, 75% investment is made in equities and moderate 50% is made in equities and for conservative investors only 25%. The portfolio is automatically re-balanced every year.

A Better option than PF– If we look closely into the returns of last year, it is seen NPS scheme offers better returns as compared to PF.

Best Schemes to Invest

Now that, if you are convinced that NPS could help you to get good returns, there are certain schemes that have churned out really well in the last 3 years LIC pension fund, Aditya Birla Sun Life Pension fund and HDFC pension fund.

The only catch is the investor should remain abreast about the market and should change the asset mix or portfolio to get the best returns.