National Pension System or NPS is launched by the government of India to help citizens financially secure their life by getting a regular income after their retirement. NPS is a long-term investment instrument, yet it is very much popular amongst investors. Let us see what are the features of NPS which make it so popular among people who are serious about their retirement planning.

Well Regulated

NPS is regulated by PFRDA (Pension Fund Regulatory and Development Authority). It’s an organisation under the Government of India which gives it a high degree of legitimacy. The fund invested in NPS is almost free from the risk of default. The long-proven record of the PFRDA makes it highly trustworthy among investors.

Voluntary Investment Option

NPS is voluntary. Anybody can opt for it. All you have to do is to open an account in the bank and start investing in the NPS.

Tax Benefits

NPS provides attractive tax benefits to its investors. You can get the tax deduction benefit on up to Rs 50,000 of your investment u/s 80CCD which is over and above the Rs 1.5 lakh deduction that you get u/s 80C of the Income Tax Act. If you fall in the highest tax bracket, you can easily save Rs 15,000 towards income tax, by investing Rs 50,000 in NPS.

Easy Portability

NPS account provides you with a number known as PRAN (Permanent retirement account number). This number remains the same even after you change your employer or shift to another city.

Flexibility

NPS provides immense flexibility which makes it more attractive than many other retirement schemes. You can select your investment mix and the fund manager. Thus, it provides you with options to invest based on your risk appetite and investment horizon.

If you are in your 20s or 30s, you may want to choose an investment mix with a higher allocation to equities than those investing in NPS in their 40s and 50s. As retirement days get closer, you naturally get more concerned about preserving the capital than taking high risks. In such cases, an investment mix with a higher proportion of debt is more suitable. Debts can be in the form of Government securities or high-grade corporate bonds.

You get the flexibility to switch the investment allocation 4 times during a financial year and you can change the fund manager once every financial year. You can start an investment in NPS with as low as Rs 500 in the tier-I account and with Rs 1000 in the tier-II account. There is no upper limit for investment in the NPS.

Low Expense Ratio

The fund charges of NPS are comparatively lower than mutual funds. A frequent complaint from investors of mutual funds is about the expense ratio or the fund management fee. The expense ratio in NPS ranges around 0.1 per cent. In the case of mutual funds, the charges can vary anywhere between 0.50 per cent to 2 per cent depending on factors such as type of fund and asset mix, etc.

NPS comes with a lock-in till the age of 60 years and allows a withdrawal of up to 60 per cent of the corpus on maturity, while 40 per cent has to be reinvested in the annuity. NPS offers a great choice for people looking to inculcate investment discipline for achieving their retirement goals.

The author is an independent financial journalist