NPS – More than a pension scheme

By | February 25, 2017

NPS is one of the excellent pension scheme available in the market especially for those in higher income tax bracket. While the biggest dragger is the lock in period, it is evolving over time.


The advantages of NPS come from its safety. The pension fund industry is highly regulated. The fund management costs are less. you can find more from the NSDL website .

With the addition of more CRAs (Karvy) there is even more chance of lesser costs.

The system has evolved to increase the ease of subscribers and also the all entities involved. You can complete your joining and complete your first investment with your adhaar  authentication by less than 20 min sitting at your desk. You can use enps link

In general lock in is treated as bad for an investment. However, the higher lock in will help the fund manager to plan better and generate higher returns. This is one of the paradox.

The day you invest in the National Pension System, your investment value is jumped by 33% for those in 30% Income tax bracket. If you are a salaried employee, this scheme has more for you. The Illustration below can be an example. The focus is only on the voluntary contribution part rather than compulsory part.

Scenario 1
  1. All avenues under 80C is exhausted. In general condition, your mandatory contributions to EPF, Children education fees etc are enough to meet the stipulated 150,000.
  2. You can use upto 50,000 Under section 80CCD(1B) to increase your tax savings. If you invest 50000 in NPS, your investment value is 50000. However, your effective investment is less than 33500 (50000-15000(tax saved)-1500 (surcharge saved)).
  3. if you are in 20% tax bracket, your effective investment would be about 38000 (similar to above)

Generally, the returns on the schemes is minimum of 12% CAGR. But these calculations are based on your actual investment (50000). If this is translated to calculations on effective investment, this will be more than 35% pa.

No other investment gives this sort of safe returns. NPS is one investment definitely worth considering. It not only helps secure future, but also generates great returns.