Why National Pension System (NPS) Is A Better Option For Retirement Savings
There are a few retirement systems available for retirement savings. They are Employees’ Provident Fund (EPF), Exempted Provident Fund (PF), Public Provident Funds PPF), Pension Plans and National Pension System (NPS). The National Pension System offers better opportunity to save for retirement at the lowest cost with minimum amount of investment. Though the NPS has many benefits, it has six unique advantages over other systems in India.
Choice of investments
Only NPS offers the choice of investment among the asset classes namely equity (E), Fixed income securities (C) and Government Securities (G). The subscriber to the NPS can choose any combination of asset classes to invest based upon their risk appetite. However, the allocation of equity is restricted up to 50% of the contribution. the contributions are allocated to the asset classes based on life cycle (based on age) If the investment choices are not made by the subscriber. The allocation of equity along with bonds not only earns higher real returns than bonds, but also has lower volatility compared to equity in medium and long-term. The blend portfolio which is made of both bonds and equity becomes consistent performer irrespective of performance of equity markets. The choice of investments by the subscriber is not available under both EPF and PPF.
Better Performance
Pension funds managed under NPS performed better than EPF and PPF. The following tables narrates the performance of various pension funds for the past five years ending March 2015. All the funds under NPS performed better than existing pension schemes under all categories of asset allocation. Even minimum returns generated by pension funds are better than EPF and PPF, while real returns of EPF and PPF are close to bank deposits with 0.54%. The real returns of 1.70% generated by NPS Govt. Securities is more than three times compared to real returns of bank deposits. In case of NPS equity and NPS corporate bonds, the best funds earned annualised real returns of 2.84% and 3.10% respectively for the past five years ending March 2015.
How to Invest
The following three steps are to be followed to subscribe to the NPS.
Those who want to join NPS must have a bank account and fulfils KYC norms
They can contact any one of the Point of Presence (POP) who will help all the formalities of joining the NPS
They have to select any one of the fund managers registered with PFRDA.
Clink to the FORMS for all the forms of NPS.
Inveseazy.com cover all the asset classes namely money market instruments, bonds, equity, bullion, commodities, real estate, savings instruments, foreign currencies and global asset classes in addition to mutual funds and pension funds.
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