Is​‍​‌‍​‍‌​‍​‌‍​‍‌ NPS a Good Investment - Simple Guide

Retirement planning often is like trying to figure out a huge puzzle. Which investment will genuinely lead to making a nice future without giving you a headache? One name that you must have heard a lot of is NPS, meaning the National Pension System. But is NPS truly a good investment? We need to understand it in straightforward, ordinary language.

What Exactly Is NPS?

One could say that NPS is a kind of savings in reserve for the time when you will no longer work. You keep putting in money while you are working, and the government encourages you by investing the money in a balanced mix of stocks, bonds, and government securities. After retirement, you can receive a lump sum amount followed by a monthly pension to take care of your essential expenses. The reason why a lot of people feel safe is that NPS is a government-backed scheme.

Why People Like NPS

• Low Cost, High Value — One of the attractive features of NPS is that even though it is an investment option, it does not require you to pay heavy fees out of your returns. It is quite well known that it is among the lowest priced retirement plans of the market.
• Tax Benefits — If you invest in NPS, you will be allowed tax reliefs under the Sections 80C and 80CCD, which means more money is left in your wallet.
• Flexible Investment Choices — You can make the decision of whether more of your money will be in stocks or more conservative government bonds, depending on what level of risk you are comfortable with.
• Professional Management — Your money is not just lying there. It is being professionally managed with great care by experts, who are expected to make your retirement fund grow over time.
• Encourages Discipline — As you are not allowed to make withdrawals without restrictions before retirement, it forces you to keep saving regularly as you are not tempted to take out money from the fund.

What Might Make You Hesitate?

Lock-in Period — NPS is a product that aims at providing for the distant future. Most of your money will be in a locked state until you retire, so it is not advisable if you want to be able to have quick and easy access to your money.

Returns Depend on Markets — The return on your investment is not as stable as you may think because it partially depends on the stock market, unlike in fixed deposits. Nevertheless, over a prolonged period, this combination normally works out to give good returns.

Annuity Purchase — When you retire, there is a need to purchase an annuity from which you will get the monthly income. Intermittently, annuity yields might be low, however, it does assure financial safety.

Who Should Consider NPS?

In case you are the type of person who would appreciate a straightforward government-guaranteed plan to buoy up your retirement fund with tax benefits, NPS would be a good choice. It is particularly beneficial if you are in the early phase and want to save without the hassle of frequent buying and selling.

How Does It Compare?

NPS offers returns linked to the market that are higher than those of other instruments such as PPF or fixed deposits but with the added safety of bonds. Besides, it costs less than most private pension schemes. If you are unsure about the stock market, you can choose to put more money in government securities through NPS.

Conclusion 

Indeed, if your goal is to build a retirement fund that grows with the market in a low-cost, disciplined, and tax-efficient way, then NPS is the right choice. It is not designed to make you rich quickly and it is not very attractive, but what it does offer is a quiet mind and a steady increase in value over the years. The best way to use any good plan is to combine it with an early start and regular contributions.

Never forget that retirement planning is not about taking a quick win type of bet. It is more about building a stable base so that later on, you will be able to unwind and appreciate your golden years without having to concern yourself with money issues. NPS is actually among the easiest and safest ways to accomplish ​‍​‌‍​‍‌​‍​‌‍​‍‌that.