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National Pension System (NPS): The Best Place To Invest For Retirement

Are you thinking to invest a part of your monthly income for your retirement? If yes, then you must also be struggling to get the answer of the question that comes from most of the people i.e “Where to invest for retirement planning?”. If you keep an eye on the financial market and like taking risk then you will find ‘n’ number of investment options available in the market, if not then you should choose an investment scheme which will handle your money with care to ensure safety and good returns.

Choice of investment scheme is important for the retirement planning as you will invest in this scheme for your entire work life with the hope of a good post retirement life. So taking into consideration the several criteria’s that are required to be in the investment scheme that saves for the investors retirement. NPS (National Pension System) comes out to be the best investment scheme to invest for the purpose of retirement as it fulfills all the required criteria’s.

Lets have a look, How we concluded NPS as one of the best investment options for retirement planning:-

Backed By Government Of India: NPS, a pension scheme introduced by the central government of India allows Indian citizens between the age of 18 to 55 years to invest there fund periodically to build there retirement corpus.

Follows Global Best Practices: The NPS system incorporates some of the global best practices in the pension sector which makes it an effective investment product for retirement.

Lower Charges: The different charges applicable on NPS scheme like Fund management fee, account opening fee, administration & handling charges are quite lower than other investment schemes available in the market. Whereas the charges levied by other schemes like Mutual funds & pension plans from insurance companies are quite higher than NPS. Lower charges on NPS scheme makes it the cheapest financial product in India.

NPS Scheme

Flexible: NPS invest in 3 different investment categories i.e E (equity), C (corporate bond fund) and G (government securities fund) and offers flexibility to the investor to choose which percentage of the corpus to invest in each category. With the only restriction on equity related products, being the high risk category NPS allows maximum 50% investment in equity related products. As the policy of high risk high return works in financial market, investor can choose to invest funds as per his risk tolerance.

Investment Support: In case investor is not knowledgeable enough to decide his own portfolio then he can choose the default investment option i.e ‘lifecycle fund’. If you choose to invest in default option fund managers will design your portfolio depending on your age and your risk tolerance.

Safety: Being a pension scheme, the safety of funds is a major concern under NPS. As there is a equity exposure in NPS so to reduce risk as age of the investor increase the allocation in equity starts reducing by 2% every year after the investor turns 35 till it come down to 10%. It is a special feature of this scheme which works for the safety of each investor invested in this scheme.

Higher Returns: NPS gives investors an option to invest in both equity & debt related products, this help investors to earn higher to match the inflation. Other pension schemes like EPF invests only in debt related products which makes its returns lower than NPS.

Tax Benefit: Under section 80CCD(2) of the income tax act 1961, if an employer contributes 10% of the employee salary i.e basic + Dearness allowance to the NPS account of the employee, then employee will be eligible to get tax exemption of upto Rs 1 lakh on his contribution. This tax exemption will be additional i.e over and above Rs 1 lakh deduction under section 80C. This will reduce the tax liability of the employee.

ALSO READ: National Pension Scheme: Invest To Avail Additional Tax Benefit Above Rs 1 Lakh Limit

Professional Fund Managers – NPS has professional fund managers to manage the corpus of the investors and operate as per PFRDA guidelines. In NPS an investor has the option of choosing fund manager. NPS currently has six fund managers i.e. ICICI Prudential Pension Fund, IDFC Pension Fund, Kotak Mahindra Pension Fund, Reliance Capital Pension Fund, SBI Pension Fund, and UTI Retirement Solutions. Investor can change his choice by switching between fund managers.


After all the discussion we can conclude NPS is a transparent & flexible investment product which can offer desirable returns in long run. Investor can start investing in this scheme with the age of 18 years to build a strong corpus till he reaches the age of retirement. In the initial years of investment one can keep higher risk portfolio by keeping higher risk i.e 50% exposure in equity as it will offer higher returns. With time reduce risk exposure & move to more stable & fixed return, low risk portfolio.

As the charges levied on this investment is quite lower than other investment schemes so the bigger part of the amount you put will get invested in the market and will returns for you.

NPS is regulated & supervised under Pension Fund Regulatory and Development Authority (PFRDA). The fund managers works under laid norms and the performance of the portfolios are monitored by the NPS trust on regular intervals.

As of now NPS is EET (Exempt-Exempt-Taxable) financial instrument which means the investment & earnings on NPS is tax free but the withdrawal from NPS will be taxable as per income tax slab. But it is been proposed to make NPS EEE (Exempt-Exempt-Exempt) financial instrument in DTC which is proposed to come into effect soon in India.

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