Retirement Planning: Want to invest in NPS? Know this limitation as well

Retirement planning means preparing today for your future life so that you continue to meet all your goals and dreams based on the passing income post-retirement, Pankaj Mathpal, Founder and CEO at Optima Money Managers tells Zee Business News Anchor Swati Raina. 

One of the most popular avenues for investments for retirement is the National Pension System (NPS). However, people willing to invest in this scheme must also know its limitations, Mathpal said. 

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Here are the cons of NPS that Mathpal mentioned:-

- Upon maturity after 60 years, only 60 per cent of the amount is available for withdrawal in lump-sum amount.

- Annuity companies will provide the remaining 40 per cent of the NPS funds. In that case, if the company pays less return, nothing can be done by the investor. 

- Since the scheme is market-linked, it may adversely suffer from market fluctuations. So, there is a risk involved in this.

- His suggestion is that investors should also consider Mutual Funds or instruments where one gets better returns or SWP (Systematic Withdrawal Plans). Investors will have a higher control, he further said. 

What is NPS?

National Pension System (NPS) is a voluntary retirement savings scheme laid out to allow the subscribers to make defined contributions towards planned savings, thereby securing the future in the form of a Pension. It is an attempt toward a sustainable solution to the problem of providing adequate retirement income to every citizen of India.

​At the time of normal exit from NPS, the subscribers may use the accumulated pension wealth under the scheme to purchase a life annuity from a PFRDA empanelled life insurance company, apart from withdrawing a part of the accumulated pension wealth as a lump sum if they choose so. Pension Fund Regulatory and Development Authority (PFRDA) is the nodal agency for the implementation and monitoring of NPS.

Benefits of NPS Account

i) Low Cost:- NPS is considered to be the world’s lowest-cost pension scheme. Administrative charges and fund management fees are also the lowest.​

ii) Simple:- All applicant has to do is to open an account with any one of the POPs being run through all Head Posts Offices across India and get a Permanent Retirement Account Number(PRAN)

iii) Flexible:- Applicants get to pick their own investment option and Pension Fund or select the Auto choice to get better returns.

​iv) Portable:- Applicants can operate accounts from anywhere in the country and they can make contributions through any of the POP-SPs regardless of the POP-SP branch with which they are registered, even if they change their city, job etc. and they can also make contributions through eNPS. The account can be shifted to any other sector like Government Sector, Corporate Model in case the subscriber gets employment.

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