Milestone - PFRDA - NPS

The Pension Fund Regulatory Development Authority (PFRDA) tweeted on May 26th 2021, that they reached a milestone of Rs.6 lakh crores of Asset under Management.  The best part is the last Rs.1 lakh crore happened in just 7 months (Press Release)

                            Source : PFRDA Tweet 27.5.2021

With asset under management crossing Rs.6 lakh crores and subscribers touching 4.28 crores, PFRDA is on a roll.  

What triggered this upward movement?

• Fairly good returns on equity investments.  Equity schemes have given around 13% to 15% returns for the past 5 years, some scheme names have been given for quick reference  

• Fairly good returns on debt (Government bonds) investments.  Debt schemes have given around 9% to 11% returns for the past 5 years, some scheme names have been given for quick reference  

• Fairly good returns on Corporate bons investments.  Corporate bond schemes have given around 9% returns for the past 5 years, some scheme names have been given for quick reference 

• On an average a conservative investor can earn a 11% returns which can never be imagined under EPF or PPF

• Another advantage of NPS is its low cost structure.  Annual cost fees in NPS is currently capped @ 0.1% which is far lower than mutual fund schemes

• The most attractive part of NPS  is tax benefits under 80CCD(1) - 10% of salary subject to a maximum of Rs.150,000, 80CCD(2) - 10% of salary with no monetary limit  & 80CCD (1B) - Rs.50,000

Major drawbacks of NPS

• Liquidity - investments are locked till the investor attains age of 60.  Yes there is a partial withdrawal option of 25% of own contribution but this will be a small portion

• At time of withdrawal if corpus is more than Rs.5 lakhs then 60% of the corpus can be withdrawn and balance 40% should be compulsorily invested in an annuity.  Income from this annuity is taxable

Conclusion

NPS is a good investment vehicle for the long term which gives superior returns and tax savings.  Cost of maintaining NPS being low also brings in more attractiveness to this scheme.  Though there are draw backs on liquidity and tax on annuity, NPS is a superior scheme for investment which I recommend.