According to Jose, NPS is amongst the most cost-efficient investment options available in India and probably the world, with very low fund management charges.
Starting your first job can be exciting as well as a bit intimidating, but it’s also the perfect time to start building smart money habits. While there are several savings schemes and investment options, the National Pension System (NPS) is one of the most effective ways to do so. NPS is a market-linked voluntary contribution scheme that helps you save for your retirement. It helps you save for retirement while reducing your tax burden at the same time.
Here’s why every young professional should consider it:
1. Long-Term Wealth Creation through Market Exposure
Unlike traditional tax-saving instruments that may offer fixed returns, investment into NPS allows you to capital market participation across equity, corporate debt, and government securities and alternative investment funds. According to Kurian Jose, CEO, Tata Pension Management, young professionals, with their longer investment horizons, may like to allocate a higher percentage to equities to benefit from the power of compounding.
“Over time, even modest monthly contributions can accumulate into a substantial retirement corpus. These contributions may be shored up once your ability to contribute higher goes up. What is more important is the time spent invested in the capital markets to benefit from the power of compounding,” he added.
2. Low Costs and Professional Management
According to Jose, NPS is amongst the most cost-efficient investment options available in India and probably the world, with very low fund management charges. That means more of your money gets invested, thus leading to better investment returns.
3. Security at Retirement
Upon retirement, up to 60 per cent of the retirement corpus can be withdrawn tax-free, while a minimum of 40 per cent must be used to purchase an annuity, ensuring a steady income stream during retirement. This structure balances liquidity and security while minimising tax impact. The 60 per cent withdrawable corpus may be withdrawn either as a lump sum or systematically (monthly, quarterly, annually), thus creating two cash flows – one through annuity and another through the systematic cash flow.
4. Tax Benefits Under Section 80C and Beyond
Investment in NPS offers tax benefits to all subscribers choosing to file under the old and new tax regimes. “Under the old tax regime, you can claim deductions under Section 80C, Section 80CCD(1B), and Section 80 CCD (2) of the Income Tax Act. This means you save on taxes today while steadily building your retirement fund for the future. Even if you’ve opted for the new tax regime, you can still enjoy tax benefits under Section 80 CCD (2), through investment in corporate NPS,” Jose said.
5. Regulated by PFRDA
National Pension System is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) (which was created under an Act of Parliament) and overseen by the National Pension System (NPS) Trust.
