National Pension Scheme: Awareness regarding retirement planning is increasing in India, but statistics show that a large population is still out of its scope. National Pension System (NPS) is one of the most prominent retirement schemes in the country, which currently has about 2.1 crore subscribers and its Asset Under Management (AUM) has crossed Rs 16 lakh crore. However, considering the huge population of India, this number is less than 2 percent. To bridge this gap and make the scheme more beneficial for the common people, the Pension Fund Regulatory and Development Authority (PFRDA) has made some major changes in the rules, which directly impact your pocket and future.
Cheapest in the market, yet second to none in returns
Investors often ask that nps Why only? The biggest answer to this is its very low cost. NPS is considered to be the most affordable retirement plan in the country. Its annual expense ratio for Tier-1 equity options is just around 10 basis points, which is negligible compared to any other financial instrument. You can start investing in it with an annual contribution of just Rs 1,000.
Not only cheap, its track record in terms of returns has also been excellent. If we look at the data, 10 asset managers present in Tier-1 equity have given annual returns ranging from 12.5 to 16.5 percent in the last three years. At the same time, if seen from the long term perspective i.e. 10 years, this return has been between 12.5 to 14.5 percent, which can be considered excellent in terms of wealth creation.
Where did NPS lag behind mutual funds?
Despite these features, the growth of NPS has been sluggish. The main reason for this was liquidity i.e. strict conditions for withdrawing money. Investors often compare mutual funds with mutual funds, where it is easy to withdraw money and the facility of Systematic Withdrawal Plan (SWP) is available. The biggest hurdle in NPS was that on maturity, 40 percent of the total deposit amount had to be compulsorily used to buy annuity (pension plan).
The problem is also that 60 percent of the lump sum amount withdrawn is tax-free, but tax has to be paid on the regular pension received from annuity. This was the reason why people were hesitant in locking their hard-earned money, but now the regulator has taken concrete steps towards addressing these concerns.
Big changes in rules, now it is easy to withdraw money
Recent changes have changed the picture of NPS. Now investors are no longer forced to wait till the age of 60 to withdraw money. According to the new rules, the subscriber can exit the scheme even after 15 years of investment. This relief is even bigger for small investors. If the total amount deposited in your NPS fund is up to Rs 8 lakh, then you can withdraw the entire amount without buying any annuity. Earlier this limit was only Rs 2 lakh.
Additionally, if your corpus is more than Rs 12 lakh, you can now withdraw 80 per cent of the money in lump sum and only 20 per cent will have to be invested in annuity. Earlier only 60 percent withdrawal was allowed. This change can prove to be a game-changer for those who want a large amount of money in their hands after retirement.
Investment age increased, compounding will give double benefit
Taking another far-sighted decision, PFRD has increased the maximum age limit for investing in NPS from 75 years to 85 years. This simply means that you have got an additional 10 years to compound your money (earn interest on interest). The basic mantra of retirement planning is that the more time money gets to grow, the higher the returns. It is mandatory to invest for at least 15 years in NPS, which ensures that your money can withstand the ups and downs of the market and create a huge corpus over the long term.
Read this also- Modi Govts NPS Boost: Big change in NPS, benefit of lump sum withdrawal up to 80% to private employees
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