NPS Benefits: Everyone wants a comfortable and stress-free life after retirement. To achieve this, it’s essential to begin retirement planning seriously from a young age. Savings accounts or fixed deposits alone won’t suffice, as inflation erodes the value of your savings every year. In such a situation, the market-based NPS (National Pension System) can prove to be a reliable and long-term option. Not only can NPS create a substantial corpus over the long term, but it also offers numerous benefits. Let’s explore four key reasons that make it a must-have addition to your investment portfolio.
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Extra Tax Benefit
The biggest advantage of NPS is its tax benefits. We all know that tax deductions up to ₹1.5 lakh are available under Section 80C, which includes PPF, EPF, ELSS, and insurance.
Talking about the special features of NPS, it offers an additional tax deduction of ₹50,000 under Section 80CCD(1B), which is over and above the 80C limit of ₹1.5 lakh. This means you can save more tax through NPS.
Equity Benefits + Debt Security
Traditional schemes like PPF and FD offer secure returns, but they fail to beat inflation. NPS allows you to invest up to 75% of your investment in equities. In terms of its benefits, equities always deliver better returns than debt products over the long term. Over 15-20 years, the equity portion of NPS can generate average returns of 10-12% or more, while PPF is limited to 7-8%. This additional 3-4% return can grow your corpus into lakhs or crores over the long term.
The Lowest-Cost Pension Plan
Investing in mutual funds or ULIPs incurs a fund management charge of 1-2%. NPS fees are much lower. As for the benefits, lower costs mean higher returns directly in your hands. Over the long term, even this seemingly insignificant difference of 1-1.5% can make a difference of lakhs of rupees in your final fund.
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Regular Pension at Retirement
The primary objective of NPS is to provide a regular income after retirement. At age 60, you use a portion of your total accumulated funds to purchase an annuity, which provides you with a monthly pension. This way, you are not dependent on anyone in your retirement life and can enjoy the benefits of a regular pension.
NPS not only builds a good corpus over the long term, but also offers benefits like tax savings, equity benefits, low costs, and a guaranteed pension. This is why it should be seriously considered for retirement planning.