National Pension Scheme (NPS) advantage or not?

[ananths]

Hi friends,

This time in budget announcement it was mentioned that an extra 50k will be exempted from tax if invested in NPS.

Anyone has any info on this NPS account? Banks are not marketing it much because they don't seem to be getting much income from it.

Just wondering is it worth investing in it or stick to MF's for creating wealth in long term.

If you have any knowledge on this please share your views. :thumb:

 

[amitrandive]

Hi friends,

This time in budget announcement it was mentioned that an extra 50k will be exempted from tax if invested in NPS.

Anyone has any info on this NPS account? Banks are not marketing it much because they don't seem to be getting much income from it.

Just wondering is it worth investing in it or stick to MF's for creating wealth in long term.

If you have any knowledge on this please share your views. :thumb:

http://www.business-standard.com/ar...ut-the-new-pension-system-113070900129_1.html
http://www.gconnect.in/nps-2/nps-features/new-pension-scheme-frequently-asked-questions.html

 

[TracerBullet]

Hi friends,

This time in budget announcement it was mentioned that an extra 50k will be exempted from tax if invested in NPS.

Anyone has any info on this NPS account? Banks are not marketing it much because they don't seem to be getting much income from it.

Just wondering is it worth investing in it or stick to MF's for creating wealth in long term.

If you have any knowledge on this please share your views. :thumb:

Expenses seem to be very low. But From the article
"Taxability - The contributions get tax benefit under Section 80C. However, at the time of withdrawal, the lump sum would be taxable as per the individual’s tax slab. It is a case of EET (exempt on contributions made, exempt on accumulation, taxed on maturity) unlike EPF, PPF which are EEE (exempt, exempt, exempt)."
This is a major negative vs Mutual Funds Debt or equity, stupid rules ...

Also, equity investment is only in index funds. Indices in india are not well defined and always lag behind decent Mutual Funds consistently.
I think ELSS is probably better option and if its only for tax saving, you can recycle same money every 3 years.

 

[niftyexceltrader]

Hi friends,

This time in budget announcement it was mentioned that an extra 50k will be exempted from tax if invested in NPS.

Anyone has any info on this NPS account? Banks are not marketing it much because they don't seem to be getting much income from it.

Just wondering is it worth investing in it or stick to MF's for creating wealth in long term.

If you have any knowledge on this please share your views. :thumb:

If I have to invest in NPS (before this budget), it will be a big no for me. There is not much clarity about NPS and many ifs and buts. And I do not know if there is any radical change done in NPS in this budget, to make it investors friendly.
The best option, IMO, for we traders is ELSS, as it is a 3 years (the least locked in investment) and an E E E investment.

 

[ananths]

If I have to invest in NPS (before this budget), it will be a big no for me. There is not much clarity about NPS and many ifs and buts. And I do not know if there is any radical change done in NPS in this budget, to make it investors friendly.
The best option, IMO, for we traders is ELSS, as it is a 3 years (the least locked in investment) and an E E E investment.

I think we are missing one extra benefit from NPS. There is an additional tax saving in NPS starting from 2015.

Tax savings: The extra deduction of Rs. 50,000 on NPS can help those in the highest tax bracket of 30 per cent save an additional Rs. 16,000 in taxes. Those in 20 per cent tax bracket can save over Rs. 10,000 while those in 10 per cent can save over Rs. 5,000.

So even if you are 10% tax payer you will save extra 5k and if the fund returns a min 8%..then total return from the fund is 18% per year!!..which looks very good. Let me know if my understanding is incorrect.

More details are here :- http://profit.ndtv.com/budget/nps-to-give-extra-tax-deduction-of-rs-50-000-10-things-to-know-744518

 

[TracerBullet]

I think we are missing one extra benefit from NPS. There is an additional tax saving in NPS starting from 2015.

Tax savings: The extra deduction of Rs. 50,000 on NPS can help those in the highest tax bracket of 30 per cent save an additional Rs. 16,000 in taxes. Those in 20 per cent tax bracket can save over Rs. 10,000 while those in 10 per cent can save over Rs. 5,000.

So even if you are 10% tax payer you will save extra 5k and if the fund returns a min 8%..then total return from the fund is 18% per year!!..which looks very good. Let me know if my understanding is incorrect.

More details are here :- http://profit.ndtv.com/budget/nps-to-give-extra-tax-deduction-of-rs-50-000-10-things-to-know-744518

Ok, i didnt notice that. I thought they only increased the limit from 1L to 1.5L to bring it on same level as ELSS etc. But in addition to that you can also put 50k more over and above 1.5L. So you can do 1.5L in ELSS and and extra 50k in NPS

Its still complicated because
1) It will be taxed on redemption, General LT Equity is not taxed atleast for now.
2) You are locked until 60 years. Max you can take out is 1/5th accumulated. Even after its unlocked atleast 40% must be with "annuities offered by insurance companies". I have no idea what they will provide.
3) NPS invests in Index Funds. If our Index composition remains similar, Over many decades they might be massively outperformed by diversified mutual funds even after accounting for reduced expenses.
4) 50% will be put in debt. Thats rather high if you are young


On the other hand if you are in 33% bracket, you can save 16.5k right now and invest it in diversified mutual funds
I still cant make out if its a good deal overall, especially because our indices underperform. If it was usa, it would be much better.

EPS vs PF seems no brainer for long term though. If you have to put some anyway then EPS should be better.

So even if you are 10% tax payer you will save extra 5k and if the fund returns a min 8%..then total return from the fund is 18% per year!!..which looks very good. Let me know if my understanding is incorrect.

No, ofc not. 10 % saved is only for first year. After that the 10% will only have a small compounding effect. Returns will probably be more than 8% over long term but good diversified MF will be even better ...

 

[niftyexceltrader]

I think we are missing one extra benefit from NPS. There is an additional tax saving in NPS starting from 2015.

Tax savings: The extra deduction of Rs. 50,000 on NPS can help those in the highest tax bracket of 30 per cent save an additional Rs. 16,000 in taxes. Those in 20 per cent tax bracket can save over Rs. 10,000 while those in 10 per cent can save over Rs. 5,000.

So even if you are 10% tax payer you will save extra 5k and if the fund returns a min 8%..then total return from the fund is 18% per year!!..which looks very good. Let me know if my understanding is incorrect.

More details are here :- http://profit.ndtv.com/budget/nps-to-give-extra-tax-deduction-of-rs-50-000-10-things-to-know-744518

Thanks for clarification.
But IMO, they have made this investment more complicated, with more ifs and buts. Such schemes should be easily understandable.
BTW, tax exemption should not be the only criteria, for an investment, unless there are other major benefits.

 

[Prataap_2013]

Its still complicated because
1) It will be taxed on redemption, General LT Equity is not taxed atleast for now.
2) You are locked until 60 years. Max you can take out is 1/5th accumulated. Even after its unlocked atleast 40% must be with "annuities offered by insurance companies". I have no idea what they will provide.

This is why PPF is better on all counts as a security for old age.

 

[TracerBullet]

This is why PPF is better on all counts as a security for old age.

NPS is much better, especially if you use Equity option and hold it for few decades. Then it should be no brainer over PPF. Even debt might do better than PPF if they invest in corporate bonds too.

Anyway, This has more details on NPS

 

[ananths]

Times of India article

http://timesofindia.indiatimes.com/business/india-business/Tax-benefits-higher-returns-make-NPS-hot-property-now/articleshow/46500857.cms