National Pension Scheme (NPS) is a well known pension scheme, but many of us do not want to invest into this as it has some setbacks. There are benefits too. So, is it ok to invest in NPS, what are the negetive points in the scheme? Let’s find out the answer.
Advantage and disadvantages of NPS
There are many arguments against NPS. One of these is that it has several withdrawal restrictions. It requires purchasing an annuity after retirement, and the resulting pension is taxable. Furthermore, NPS returns are generally lower than those of equity mutual funds. There’s some truth to this. NPS isn’t a completely perfect product. But calling it “useless” based solely on these flaws is an understatement. Those who view investments solely in terms of returns overlook the true purpose of NPS —retirement security. The biggest advantage of NPS is that it helps investors maintain long-term investment discipline. If you are salaried, your salary automatically contributes to NPS. This means there’s no fear of skipped investments and no need to change decisions due to market fluctuations.
NPS funds are invested in equities, corporate bonds, and government securities in a fixed proportion. This automatically diversifies your portfolio and balances risk. Sometimes, these “simple and boring” investments prove to be the most reliable. The biggest problem with NPS is its lock-in period. You can withdraw funds before the age of 60 only under certain circumstances. This means that if you need money for a major emergency, you could face difficulties. Retirement investing isn’t just about maximizing returns.
The real goal should be to establish a system that allows you to invest consistently and seamlessly. Often, people switch back and forth between mutual funds, direct equity, and small-cap schemes, resulting in neither optimal returns nor long-term sustainability of the strategy.
Should you invest?
NPS helps investors avoid this mistake. It keeps investors on track, eliminating the need for frequent decision-making. This discipline helps build a strong retirement corpus over the long term. Furthermore, the tax benefits under Sections 80C and 80CCD(1B) make it even more attractive. If you’re between 25 and 40 years old and looking for a stable and secure retirement option, NPS could be a good choice. NPS is an investment that focuses on providing “sustainable returns.”
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