Skip to main content

NPS - Do not send your money to life imprisonment

   Start SIPs Online 



Despite the tax advantage, investing in the NPS is akin to putting your money behind bars for life.

If the headline sounds like clickbait, let me tell you how the National Pension Scheme (NPS) can trap your hard earned money. I see a lot of investors across age groups and income levels falling for the tax saving bait of the NPS. The tax savings offered by the scheme seem so attractive that these individuals are willing to ignore all other aspects of the scheme.

Many investors have been drawn to the NPS by the additional `50,000 deduction offered under Section 80CCD(1b). What they don't realize is that once they invest, the money cannot be withdrawn before the age of 60 (there is a provision for emergency withdrawals but only for special circumstances). This may be fine for government employees and those who want to continue working till the age of 60. Whereas, the entire EPF amount can be withdrawn if you are unemployed for more than two months.


Besides, the very long lock-in, there is also a compulsory contribution clause. Once you open an NPS account, you have to contribute a minimum amount every year. While investors may feel happy that they are putting away something for retirement and saving 20-30% tax on that amount, keep in mind that NPS only defers the tax. You have to pay the tax later, at the time of withdrawal.


In fact, taxation is a key negative of the NPS. At the time of withdrawal, only 40% of the NPS corpus can be withdrawn tax free.Another 20% of the corpus, when withdrawn, will be taxable at the marginal tax rate applicable to the investor. The remaining 40% has to compulsorily be invested in an annuity to earn a monthly pension. The most insidious part of this is that this annuity is fully taxable and does not get any benefit of indexation or long-term capital gains.


This is like 60% of your money getting bail while 40% stays behind bars. Imagine a person being freed from prison after 20-25 years, but 40% of his body remains imprisoned. Grotesque as it might sound, the body is gradually released with every passing annuity payment.


There are other reasons too why annuities do not inspire confidence among the investing community. A buyer signs up for a product with a constant rate of interest, irrespective of what the inflation rate will be. He also has no control over the investment portfolio. NPS forces the individual to pour at least 40% of his corpus into the annuity blackhole. Further, he has to opt for an annuity only with one of its enrolled service providers.


Readers will note that NPS returns are not assured but market linked. If you have to pay tax and still carry the risk of marketlinked returns, why not do it at your own convenience, with more flexibility and choice?


Invest Rs 1,50,000 and Save Tax up to Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds. Save Tax Get Rich

For further information contact SaveTaxGetRich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

OR

Call us on 94 8300 8300


Popular posts from this blog

How much to invest in gold ?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India) Let your motivation dictate the share of the yellow metal in your portfolio Enough has been said and written about gold as an investment option. The latest argument is that the craze for gold among Indian households is endangering our country's balance of payments. The policymakers are busy trying to find ways of discouraging investment in gold, but if households keep the common good in mind, they would be paying the market price for gas cylinders as they do for, say, their mobile phone bills. After all, private decisions are driven by private motives. So, how should a household look at gold from its own perspective? Gold is primarily acquired for its merit as a store of value. Even if the worst crisis hits a family, the gold that it holds could be put to use anywhere in th...
Read more

SBI Small Cap Fund

SBI Small Cap Fund scheme seeks to provide investors with opportunities for long-term growth in capital along with the liquidity of an open-ended scheme by investing predominantly in a well diversified basket of equity stocks of small cap companies. SBI Small Cap Fund has widened its margin of outperformance relative to its category and benchmark in the last one year, earning itself a five-star rating. The fund shows a hefty 18 percentage-point outperformance relative to its peers in the last one year, 5 percentage points over three years and 4 percentage points over five years. Needless to say, it has also outpaced its benchmark to deliver convincing five-year annualised returns of 37 per cent. A believer in the credo that a small market cap does not reflect business quality, the fund looks for five attributes in the stocks it buys: competitive advantage, return on capital, growth, management and valuation. SBI Small Cap Fund is among the few in this space to remain at quite a man...
Read more

Reliance Health Total

  Reliance Life Insurance has launched Reliance Health Total, a non-linked, non-participating and non-variable health insurance plan . It provides a fixed benefit cover for hospitalisation, critical illnesses and surgeries. The customer can also make a claim for over-the-counter health-related expenses. This is a regular-pay, five-year plan that can be renewed till the age of 99. The plan comes with two options: customers can choose a higher medical reimbursement benefit or a higher sum insured. Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara Robeco Equity Tax Saver 8. IDFC Tax Advantage (ELSS) Fund 9. Axis Tax Saver Fund 10. BNP Paribas Long Term Equity Fund You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds Invest in Tax Saver Mutual Funds Online - I...
Read more

Save Tax With Mutual Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300       Mutual funds are ideal as long term investment avenues for retail investors. To encourage investments in this avenue, the Government of India offers investors a spate of tax benefits thus ensuring maximum benefit from mutual funds held beyond a year. Sample some of the key benefits and refer to the table for a detailed list of tax rates for different types of schemes ·        Avail deductions under Sec 80C of the Income Tax Act by investing up to a maximum of Rs. 1 lakh in designated Equity Linked Savings Schemes (ELSS). Such investments have a compulsory lock in period of 3 years. ·        First time retail investors in equity with a gross total income of up to Rs. 12 lakh can invest up to Rs. 50,000 in specific MF schemes un...
Read more

How to manage Volatility in Debt Mutual Funds

Best Debt Funds Online   The debt mutual fund space is creating a lot of confusion among investors, especially the new ones. After a series of cuts in bank deposit rates and small savings, many new investors have started investing in debt mutual fund schemes. However, the complexity of the space is challenging most investors. Top mutual fund managers believe that these investors would fare well if they stick to an asset allocation plan in debt. The best strategy to avoid volatility in the debt space at this point is having an asset allocation Many investors are familiar with the concept of asset allocation. However, most of them do not associate it with debt investments. So, is there a formula? There should be three baskets in which you put your debt investments : short/ultra-short term funds, credit opportunities funds and bond funds . But, at this time, when the interest rates are not headed anywhere, it is good to stay away from long-term bond funds ...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now