National pension scheme or NPS is a retirement linked investment instrument that offers periodic annuity and lump sum corpus on attaining the age of retirement. NPS is one of the preferred pension planning schemes available to salaried and self-employed professionals. Any individual aged between 18 and 70 can invest in this scheme.
Here are a few major National Pension Scheme benefits:
· Serves as a source of earning post retirement
Post retirement, though your income source stops, your regular mandatory expenses continue. Moreover, if inflation is factored in, expenses become higher as compared to the current lifestyle expenses. NPS allows you to continue with your monthly expenses by providing a monthly pension.
On reaching the age of retirement, your NPS matures. Up to 60 percent of your NPS corpus is transferred to your account while the rest 40 percent is transferred to the insurance company, which offers you a regular pension.
· Low risk investment scheme
As NPS is backed by the government, on equities, the risk cap ranges from 50 to 75 %. Once you reach 50 years of age, the exposure to equity reduces by 2.5 % every year from this age. However, from the age of 60 and above, the cap is set at 50 %. Stability provided in risk return protects you as and when you reach closer to retirement. Thus, in comparison to fixed income investments, earning potential in NPS is higher due to the inclusion of equities.
· Financial help to the dependent post demise
While formation of adequate retirement corpus may provide you mental peace, you still may ponder how your dependents or family members would cope-up with daily expenses after your death. Moreover, your demise does not mean the end of your responsibility concerning your spouse.
NPS gives you the provision to choose a plan that will continue to pay regular pension even after your demise to your spouse. The plan will continue until the death of the dependent.
· Flexibility and comfort
The instrument comes with the benefit of investment flexibility. Based on your convenience, you can invest in NPS any amount. Tier 1 NPS account has no upper cap, minimum limit is Rs 500 and in case of tier 2 NPS account, the minimum limit is Rs 1,000 when opening the account. However, it is mandatory for you to invest a minimum amount of Rs 6,000 in case of tier 1 while in case of tier 2, the amount is Rs 2,000 in a financial year. Thus, because it is not compulsory to invest a particular amount every month in NPS, you can start with a little investible amount and with growth in your income; you can invest a higher amount to avail the benefit of compounding. This flexibility and comfort in NPS work best for the self-employed because of their unstable cashflow.
· NPS tax benefit beyond Section 80 C
The scheme offers NPS tax benefit of beyond Section 80 C. Your contribution towards this instrument also provides up to Rs 50,000 tax deduction according to Section 80 CCD (1B), which makes you eligible for an overall deduction of up to Rs 2 lakh.
Features like NPS tax benefit, flexibility in investment and risk reduction strategy makes NPS a prudent retirement instrument. To make the most of the national pension scheme benefits, you only need to invest a particular amount and with an increase in your income enhance your investible amount in this scheme. Following this trick would help you form an inflation beating retirement corpus.