NPS has grown in popularity in recent years due to the high returns generated under the program. However, experts believe that returns shouldn’t be the only reason to invest in NPS

Unlike mutual funds, NPS doesn’t give investors much flexibility in terms of investment and repayment

The stock market, which is at its peak, has benefited significantly the stock system, Scheme E of the National Pension System (NPS). The government pension system has performed excellently, with stock systems generating double-digit returns of up to 60 percent over the past year. On the Tier 1 account of NPS, the LIC Pension Fund achieved the highest returns with 59.56 percent, followed by the ICICI Pru Pension Fund (59.47 percent) and UTI Retirement Solutions with a 58.91 percent return. A Tier 1 NPS account is the basic retirement account that is required if you want to take advantage of NPS benefits. The returns on NPS stock programs are consistent with the benchmark returns. Equity programs in the NPS Tier II account, this is the add-on account that offers the flexibility to invest in and withdraw from various programs available in NPS with no exit burden. The NPS Tier I account is blocked until you are 60 unless you renew, but there is no blocking period on the Tier II account.

NPS has grown in popularity in recent years due to the high returns generated under the program. However, experts believe that returns shouldn’t be the only reason to invest in NPS. Unlike mutual funds, NPS doesn’t give investors much flexibility in terms of investment and repayment.

“With NPS, you are not allowed to repay your entire investment before it has reached at least 10 years or 60 years. Additionally, the maximum equity exposure in NPS is capped at 75 percent of your total money invested in NPS, ”says Prateek Mehta, Co-Founder and CBO, Scripbox. This means that you must also have an exposure to fixed income securities. This limits the long-term growth potential for investors with an aggressive risk profile and a long investment horizon.

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According to Mehta, one of the core goals of any retirement-specific portfolio is to stay one step ahead of inflation. “For long periods of 10-15-20 years, equity investments work best to achieve this goal,” he adds.

However, NPS is a good investment option for conservative investors. NPS also has certain exclusive tax benefits. It is intended to give you a higher tax deduction of up to Rs 2 lakh under Sec 80C compared to Rs 1.5 lakh for ELSS schemes offered by mutual funds. Another advantage is that you can withdraw a maximum of 60 percent of your total corpus as a lump sum tax-free when due.

Therefore, those looking to maximize tax benefits can invest an additional Rs 50,000 in NPS after wiping out Rs 1.50 lakh in other suitable investment and spending options under Section 80C.

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Not the best retirement provision

There is no single system that is best, but an effective inflation-protected portfolio that can be used in a changing investment environment. Such a portfolio will have adequate exposure to stocks in order to overcome inflation and fixed income securities and provide stability according to an individual’s risk profile and needs.

Retirement planning is first and foremost a lifelong process. Before you start building your nest egg, you need to calculate how much you would need after retirement. You will also need to periodically reassess this as your lifestyle evolves over time.

“One rule of thumb is to build a retirement nest with 25-30 times the annual expenses at retirement age. The idea is that you build a kitten big enough to make an income at least equal to yours If you have liabilities or other large planned outgoings, add that on top of that, “Mehta says.

Once you’ve set that financial goal, it’s time to start thinking about asset allocation – and this may depend on your age and stage in life. For example, if you’re between 35 and 45, Mehta explains, you can invest 60 percent of your savings in equity funds and 40 percent in bond funds. Getting exposure to stocks is essential for retirement planning in most cases as it will help you beat inflation in the long run. We believe inflation is your number one concern when saving for retirement provision.

Your asset allocation should ideally change as you near retirement so that you limit the impact of market volatility on your retirement portfolio.

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