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 What they don't realize is that once they invest, the money cannot be withdrawn before the age of 60 (there is a provision for emergency withdrawals but only for special circumstances).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 Whereas, the entire EPF amount can be withdrawn if you are unemployed for more than two months.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 At the time of withdrawal, only 40% of the NPS corpus can be withdrawn tax free.Another 20% of the corpus, when withdrawn, will be taxable at the marginal tax rate applicable to the investor.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

L&T Growth

Invest in Mutual Funds Online Download Mutual Fund Application Forms   L&T Growth Fund (LTGF) is open-ended diversified equity fund that invests predominantly in large caps. LTGF follows the growth style of investing and has been in existence for over 10 years now.   Type of scheme Open-ended Category Diversified equity Sub-category Large Cap Style Growth Launch date September 17, 2001 Risk-Return proposition High risk-Average return   Investment Objective and Proposition The fund's primary investment objective is "generate long term capital appreciation income through investments in equity and equity related instruments; the secondary objective is to generate some current income and distribute dividend. However, there is no assurance that the investment objective of the scheme will be achieved." Following large cap ...
Read more

Debt Mutual Fund Dividends are Taxable

DDT is deducted when a non-equity fund declares dividends. Equity and balanced fund dividends are tax-free The AMC is correct to deduct the dividend distribution tax (DDT) as it is mandated by tax laws. DDT in mutual funds is deducted every time a non-equity fund declares dividends. Equity fund and balanced fund dividends are tax-free . It is possible that you have invested in a non-equity fund for the first time or have received the dividend under a non-equity fund for the first time. That is why this is the first occasion when you have come across DDT.   The rate at which non-equity schemes deduct DDT has also gone up after the July 2014 budget. This is due to a change in calculation methodology. Earlier, if the fund has to declare a dividend of R 100, it used to make a provision for R 128.3, paying R 28.3 to the taxman and distributing the balance to the investor. This allowed the investor to bear less tax since the effective tax rate was 22.07 per ce...
Read more

Nomination in Investment

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   Nomination in investment   As an investor, you spend most of your precious time in deciding on your investments, their tenure, and the returns that your invested money will fetch practically. Do you know who gets your investment money when you are "no more"? I am sure most of you must have come across the 'nominations' column, while filling any of your financial application form, be it that for a Mutual Fund, or a Demat Account, or simply a Bank Account. More often, people have a tendency to leave the nomination field blank, or fill the same uncertainly, without even understanding the big importance of this little detail. Here, let us try to put forth the significance of a nomination into our financial lives. What is nomination? A person to wh...
Read more

Mutual Fund Exit Load Changes

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 Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...
Read more

Gold ETFs - Tracking Error

Invest in Mutual Funds Online Download Mutual Fund Application Forms At present, there are 13 gold ETFs and three gold funds of funds OVER the past few years, gold-backed exchange traded funds ( ETFs ) have emerged as preferred investment tools for people who want to take advantage of the price rise in the metal without the hassles of physically buying it and preserving it. Since 2007, when the first gold ETF-benchmark BeES was launched in the country, there has been a steady increase in the investments going into this paper gold. In the past four years, several fund houses launched their gold ETFs and some of them have even launched gold fund of funds, which invest in gold ETFs. At present, there are 13 gold ETFs and three gold fund of funds. Though all these funds have gold as the underlying asset and they closely track the price movement in the commodity, the net asset value (NAV) of a gold ETF does not exactly reflect the value of the physical gold and the return...
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