In July 2018, a survey conducted by YouGov, a global market survey firm and Mint, revealed that a significant chunk of young working millennials (aged 22-28 yrs) in India invested their money in risk-free financial instruments. They preferred fixed deposits, insurance, NPS and PPF over equity-based and market-linked instruments. Close to 29% millennials in the same age bracket made no investments at all. While 48% older millennials (aged 29-37) invested in equities, only 4% of younger millennials were doing so. 
It seems that the younger ones are not prepared to take risks when it comes to investments compared to the older generation. One of the reasons may be that they have seen more volatility and uncertainty in equity markets than the previous generation. However, experts believe that millennials’ preference of National Pension Scheme (NPS), PPF and similar products over equities is not without good reason. In fact, NPS investment is more relevant to millennials than other investment instruments when it comes to retirement planning. Let’s understand how.
What is the National Pension Scheme (NPS)?
The NPS is a government-operated, pension scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It is a retirement plan that allows you to invest in a pension scheme at regular intervals during the course of your employment. The NPS is ideal for private sector employees as it helps you build your retirement corpus; offers annual returns up to 10%; helps you save taxes under Section 80C; and secures regular pension for you post-retirement.
Why invest in the NPS now?
The government has made some positive changes in the National Pension Scheme which makes it more favourable for millennials. Some of the changes include:
- Employer’s contributions to NPS for central government employees have increased from 10% to 14%.
- Central govt. employees can get tax deductions up to Rs. 2 lakh. 1.5 lakh under Section 80C and an additional benefit of 50,000 under Section 80 CCD.
- Previously, only 40% of the NPS corpus was tax exempt. Now 60% of the pension fund is tax exempt on withdrawal. As 40% of the fund has to be invested in an annuity plan for providing pension, practically the entire corpus is tax exempt now.
If you are planning a NPS investment, consider buying an NPS scheme for your retirement with 100% transparency at Finserv MARKETS. You can enjoy a host of investment options and fund managers with online tracking of all your investment.
Why NPS is more relevant to millennials?
As millennials (22-35 years), you have a good opportunity to build a huge retirement corpus with NPS if you start now. In the new NPS reforms, the government has also increased the cap from 50% equity asset allocation to 75%. This allows fund managers to invest more of the NPS contribution on equities, giving investors the opportunity to add more value to their retirement fund with higher returns.
Benefits of NPS investment
Funds diversification: With NPS, you get the option to diversify your funds into four classes, namely: Equity, government bonds, fixed return investment and alternative investment funds. Since equity allocation is restricted to 75% of the contribution, you also don’t have to worry too much about volatility.
Low cost: National Pension Scheme has low operational costs compared to other class of instruments such as mutual funds, ULIPs, etc. Fund management charges are nominal at 0.01% and you are required a minimum contribution of just Rs. 1,000 every year.
Fund managed by professionals: Though fund management charges are very low, investors still receive the services of professionals Pension Fund Managers (PFMs) who are expert in getting the highest returns for your investment.
Better returns: NPS investment provides better returns compared to other traditional tax-saving instruments such as PPF and EPF. The pension plan provides annualised returns between 8-10%. If you are not satisfied with the returns, you can also change your fund manager.
Regular pension: NPS allows you to withdraw 60% of fund after you attain the age of 60 years without paying any taxes. The remaining 40% of the retirement fund is invested in an annuity plan so that you can get regular monthly pension post-retirement.
It is very easy to open an NPS account with Finserv MARKETS. You can do so in a few minutes. However, ensure that you are aware of the types of accounts you are opening. For example, a Tier I account is opened for tax savings purposes and withdrawals are restricted. But if you open a Tier II account, which is also known as an investment account, you can withdraw money from the account as and when you require it.
NPS account opening, operation and tracking is fast, easy and transparent at Finserv MARKETS. With online access, you can regularly keep track of the daily Net Asset Value (NAV), switch funds or change your investment schemes. You can have peace of mind in all issues related to your NPS account at Finserv MARKETS as it is registered by the PFRDA as a Point of Presence under the National Pension System.
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