Should you invest in NPS?

I am a 30-year-old IT professional and wish to plan my retirement. Is NPS a good investment option for me?

- Amit Shroff

It is good that you have started to plan for your retirement early. This would surely help you to create enough retirement corpus. coming to your query, yes, National Pension System (NPS) is a decent investment avenue and you can surely go ahead with this. Even while investing in NPS, take the maximum allowable allocation towards equity, that is, 75 per cent. This way you would be able to accumulate a good amount of corpus, which is one of the biggest benefits associated with investing in NPS. It is especially beneficial for individuals, who are are not disciplined enough with their investment. Since you cannot withdraw until you turn 60, it specifically allows you to create good wealth for you. Also, once you attain the age of 60, 40 per cent of the corpus needs to be put in annuity plan and the rest 60 per cent you would receive as a lump sum amount. Overall, it is a profitable deal for you. However, there is also the downside to this as well. If you are a disciplined investor, then, at this age, you can probably dedicate at least 80 to 90 per cent towards equity (depending on your risk appetite). This helps to accumulate enough retirement corpora by investing little. Although NPS comes with tax benefits, where you can claim an additional tax deduction of Rs. 50 thousand under section 80CCD, the annuity that you receive in your retirement phase is taxable as per your tax slab. Hence, in a nutshell, if you are a disciplined investor then you can just invest in NPS from the tax deduction perspective and have a proper retirement plan in place that would guide you regarding your investments. However, if you are not disciplined enough then NPS is a better option. If you are considering Public Provident Fund (PPF) as your investment for retirement purposes then consider NPS over PPF.