Pros and Cons of NPS

The National Pension System (NPS) is a relatively new tax-saving investment. The NPS was launched by the government to allow every Indian citizen to get a pension during retirement, especially those who are not salaried employees, self-employed professionals or those working in the unorganized sector. So, should you invest in NPS? Understand the pros and cons first.

Pros of National Pension System

  • Additional tax-saving of Rs 50,000 above the 80C limit
  • Higher equity component than other options, except ELSS
  • Flexibility to choose your own asset allocation between equity and debt
  • Option to change pension fund managers
  • Complete capital protection
  • Open to Indian citizens and NRIs
  • No maximum limit of invest

Cons of National Pension System

  • Proceeds upon maturity will be taxed
  • High documentation required at the time of opening
  • No guaranteed interest rate of returns
  • Minimum contribution of Rs 6,000 annually to keep account active
  • Complexity in choosing pension fund manager and starting account

The purpose of the NPS is not only tax-saving every financial year, but getting a pension during retirement as well. Upon maturity, you have to use 40% of the accumulated savings to buy annuity from an insurance company. This annuity will give you a regular pension. The NPS can be an excellent retirement-oriented product but it needs some changes in its design to be accepted over other long-term products like PPF. Make sure you understand it in detail before you invest in it.

Read about the other tax-saving options you have on cleartax.in.

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