The National Pension System (NPS) is a low-cost, government-backed, flexible pension scheme that can be used by anyone to save for retirement goals. Whether you’re a central or state government employee, a professional in a private company, or a self-employed individual, NPS is accessible to everyone through its various models.
NPS offers an opportunity to create your own pension stream on retirement. This feature is particularly beneficial for individuals working in the private sector because, unlike government employees, they are not covered by any employer-sponsored pension schemes.
As the financial year (FY) 2025-26 begins, the first week of April is a good time to start your retirement saving journey with NPS. The following are five reasons that will help you decide.
1. Unlock the full benefit of compounding by starting your NPS journey
Even when it comes to returns in a year, if you begin investing in the first month of the financial year, you stand a chance to gain returns for the entire year.
You can start your NPS journey by investing as little as ₹1,000 or as much as you want. There is no upper limit. Also, there is no compulsion to invest a fixed amount every month in NPS. You can either invest a lump sum or a small amount every month, or whenever you want.
2. Opportunity to benefit from market correction
NPS fund managers generate returns in the long term by investing a fixed portion of your investment in equity shares. As the markets have corrected significantly in the last few months, you may accumulate higher returns from NPS this year by investing now. However, please note that this should not be the only reason for you to invest. Over the long term, your NPS corpus will go through multiple market cycles and generate returns if you stay invested.
3. Unlock additional tax benefits
If you plan to opt for the old regime in FY 2025-26, you may invest ₹50,000 and claim the additional deduction. Although this can be done till March 31, 2026, doing it early will help you avoid any hassle later on.
4. Fix debt-equity confusion in one go
Having a good mix of debt and equity assets in your investment portfolio is a must for any realistic retirement plan. But doing it by oneself in the open market can be difficult for many investors. NPS solves this issue in one go.
It provides the flexibility to decide the asset allocation strategy depending on one’s risk appetite under the active choice. For those who can’t decide on asset allocation, there is an auto choice with an option to choose from any of the four life cycle funds as follows:
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LC25: It invests 25% in equity and 75% in debt
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LC 50: It invests 50% in equity and 50% in debt
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LC 75: It invests 75% in equity and 25% in debt
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Balance life cycle fund: In this 50% equity allocation is maintained till age 45, and thereafter the equity portion is gradually decreased to reduce risks as one nears the retirement age.
In the active choice, you can set your portfolio by choosing from asset classes such as equity, corporate bond, and government securities. But the maximum that you can allocate to equity is 75%.
Further, you can revise your NPS asset allocation four times a year. With this, you can realign your portfolio with economic cycles for optimal returns.
5. Invest and forget; get benefits beyond taxes
Finance experts often suggest “invest and forget”, especially if you are saving for very long-term goals like retirement. With NPS, it is possible to do so. Since you are investing in this scheme for a very long term, you can invest now, in the first week of April itself, and forget for the rest of the year. However, do this only if you always invest a lump sum.
It will also serve you well if you invest some amount every month in NPS and occasionally tweak your asset allocation.
Additionally, you can defer your annuity and lump sum amount at the time of retirement and stay invested till 75 years of age. This feature can help those who start their investing journey late or those who want to stay invested for a longer duration. The scheme also allows withdrawing the lump sum on retirement through Systematic Lumpsum Withdrawal up to the age of 75.
Now you can also invest in NPS through Upstox.
Disclaimer: The above article is only for informational purposes and should not be considered investment advice from Upstox. Investments in NPS could be subject to market risks. Please consult with your financial advisor before investing.
