The National Pension System (NPS) is an approach to long-term savings that is voluntary and intended to help Indian citizens methodically save for retirement. Investing in the NPS may be an important part of your retirement planning approach since it provides diversification through asset allocation, inflation-beating potential, contribution flexibility and professional fund management.
Here are 4 things to remember while planning NPS for retirement planning
1. Two categories which come under NPS
NPS is divided into two categories: Tier-I and Tier-II. The primary and compulsory account is Tier-I. It is mainly intended for retirement funds. The voluntary savings account referred to as the Tier-II account provides greater flexibility with regard to withdrawals than the Tier-I. You can only open this optional account if you currently have an active Tier-I account.
2. NPS comes with various tax benefits
The Income Tax Act’s Section 80 CCD (1) permits a deduction of up to ₹1.5 lakhs. Furthermore, an additional ₹50,000 deduction for NPS investments under section 80 CCD (1B) of the Income Tax Act.
3. Asset allocation
NPS lets you select between equity, corporate bonds and government securities. Your risk tolerance, age, and financial goals should all be considered when deciding how to allocate between these asset classes. Your asset allocation should be reviewed and adjusted regularly to reflect changing conditions.
4. Professional fund management
The NPS is managed by professional fund managers appointed by the Pension Fund Regulatory and Development Authority (PFRDA). When it comes to investing, their knowledge may be quite helpful, especially for those who lack the time or resources to actively manage their retirement portfolio.