NPS: Know 4 reasons why you can choose National Pension System for retirement planning

Less Charge, More Return

National Pension System (NPS) charges much lower fees than other fund management services like mutual funds. Investors in MF have to pay up to a 2-2.5 per cent charge annually, which turns out to be a huge amount in the long run. Therefore, lower charges in NPS translate into comparatively higher returns.

Strong Tax Exemptions Available

NPS comes under the EEE category, which means tax exemption is available on the money invested, the interest received, and the amount received after maturity. NPS investment, i.e., investing in NPS, gives the benefit of deduction under Section 80C, the limit of which is up to Rs 1.50 lakh. Additional tax benefits under Section 80CCD (1B) allow for tax exemption on investments up to Rs 50,000, providing a total tax benefit of Rs 2 lakh.
 
Moreover, under Section 80CCD(2), employer contributions to an employee's NPS account result in tax exemption, with private company employees eligible for a 10 per cent discount and government employees for 14 per cent.

High Flexibility

One of NPS' notable advantages is its flexibility. Investors can adjust their asset allocation up to four times annually. Unlike mutual funds, where switching funds incur taxable gains, NPS allows for tax-free changes in asset classes or fund managers. Additionally, investors have autonomy in deciding the allocation of their funds, choosing between the stock market and safer options.

Enhanced Liquidity Due to Regulatory Changes

Investing in NPS doesn't entail a complete lock-in of funds until retirement. Similar to Provident Fund (PF), partial withdrawals are permitted for specific occasions or needs, provided the subscriber has held the NPS account for a minimum of three years. However, withdrawals are limited to three times throughout the subscriber's lifetime, with a maximum withdrawal limit of 25 per cent.