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Investing in National Pension Scheme in India: Some Myths and Facts Financial security is something each of us aspires at every stage in life, and not working anymore does not necessarily imply that one stops earning altogether. With investment schemes now taking care of senior citizens’ financial needs, one can begin to invest wisely during one’s youth to reap the benefits of financial stability post retirement. The National Pension Scheme in India is one such retirement-oriented investment scheme launched by the Government. While a lot has been said and written about this noble initiative, there are still some clarifications that need to be made about certain aspects pertaining to the scheme. So, here are some myths and facts around NPS that one needs to be aware about before and while investing in the same: Myth #1: One cannot invest more than Rs. 1.5 lakh in NPS per year. Fact: While the minimum investment amounts in NPS tiers I and II are Rs. 500 and Rs. 1,000 respectively, there is no upper limit in the amount that may be invested each year in NPS. The only thumb-rule here is that exemptions from tax deductions are applicable for investment amounts up to 1.5 lakh. However, one can also avail of an additional tax-benefit of Rs. 50,000 under section 80CCD.


Myth #2: Only those with fixed salaries can invest in NPS. Fact: While salaried individuals often choose to invest in NPS by means of a Systematic Investment Plan, one can also opt for investing a lump-sum amount in case s/he does not wish to incur frequent expenditures on the investment. As a result, National Pension Scheme in India is a favourable investment scheme for persons engaged in service as well as businessmen, self-employed persons and so on. Myth #3: NPS investment is best-suited to the middleincome group Fact: Simply put, National Pension Scheme is suitable to all Indian citizens from 18-70 years of age. As mentioned earlier, there is no upper limit to investing in NPS, which makes it favourable for high net worth individuals as well as persons belonging to the middle income group, whose earnings constitute fixed salary amounts. On the other hand, the minimum investment amount for NPS tier I is merely Rs. 500, which also makes it suitable for student interns and persons below poverty line. One may easily open an NPS account online or complete the formalities at the nearest post-office.


Myth #4: In NPS investments, one needs to invest fixed amounts at every interval. Fact: The best part about NPS is that one need not invest a certain stipulated amount of money at each interval. Starting from Rs. 500, an investor can invest any amount of money in each financial year. Moreover, one may also choose to vary his/her mode of investment each year: for example, one may invest a lump-sum amount on one year and then choose to invest at regular intervals by means of SIP the next year and so on. This helps the investor vary the amount and method of investment based on financial needs at a given point in time. Such flexibility is typically not available in most other mutual funds investment schemes and other investment plans. Myth #5: NPS investment does not entail any risks. Fact: No investment is without its own set of risks, and the same holds good for NPS. The bond investments in NPS can involve credit risks based on the credit ratings of the company. To alleviate such risks, it’s a good idea to study the credit ratings of the company offering the bond security and invest in the ones with higher credit ratings. In addition, debt instruments also entail interest risks, resulting from fluctuations in the interest rates applicable to the specific bond fund. While such fluctuations do not affect the investor once the investment attains maturity, the long lock-in period in NPS investments can prove to be a drawback for investors.


Thus, it always pays to study fund house performances and seek investment advice from a reliable share broker before you open NPS account online or offline. Conclusion Launched in 2004 with an initial aim to provide financial aid to government employees, NPS has broadened its horizons to cater to all Indian citizens as well as NRI investors. Coordinating with the right fund houses and stock brokers and investing in a disciplined manner with a long-term objective can yield significant post-retirement returns to investors. Click here to know more about our investment services pertaining to NPS!

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Investing in National Pension Scheme in India - Some Myths and Facts  

Here are some myths and facts around NPS that one needs to be aware about before and while investing in the same.

Investing in National Pension Scheme in India - Some Myths and Facts  

Here are some myths and facts around NPS that one needs to be aware about before and while investing in the same.

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