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NPS investment: 6 commons myths around National Pension System unraveled by expert

NPS investment: The National Pension System (NPS) is not only a secure way to plan for retirement, but it also offers several opportunities to make money through careful planning, smart asset allocation, and tax benefits. It is a preferred source of retirement planning because by managing NPS account effectively and maximizing its benefits, one can secure a financially comfortable retirement while potentially growing their wealth. However, while existing investors reap benefits from NPS, there’s also no shortage of myths around the scheme that scare potential investors away from it. 

Talking about it, Kurian Jose, Chief Executive Officer at Tata Pension Management, shares some common myths about the NPS, and the actual reality around the misinformation:

NPS Investment myth 1: “I am too young to think about retirement”

He says no age is too early to think about retirement. “The earlier you start, the more time your investments have to compound and thereby increase your chances of enjoying a confident retired life. Saving Rs 1 crore in 30 years is easier than saving Rs 1 crore in 10 years,” Jose explains.

NPS Investment myth 2: “My children will take care of me”

The Chief Executive Officer at Tata Pension Management shares that the belief that one’s children will take care of them is a very common one. And clarifies that while several children do take care of their aging parents, it’s essential to recognize that one cannot depend solely on their children for retirement needs. He adds, “A growing number of nuclear families and children that work abroad or in another city means that you have to plan for your retirement without depending on your children.”

NPS Investment myth 3: “PPF is the best option for retirement”

That Public Provident Fund (PPF) is one of the options available for retirement planning is well-known. However, Jose says, “NPS is also advantageous as it provides higher tax benefits upto Rs 9.50 lakh if Section 80 CCD(1) is combined with Section 80 CCD(1B) and Section 80 CCD (2). Also, NPS provides the potential to earn market linked returns over the long term.”

NPS Investment myth 4: “NPS is only for government employees”

As per Jose, this is one of the most common misconceptions. “While NPS was initially designed for government employees, it was later opened to all Indian citizens, including those in the private sector and self-employed individuals,” he states, adding that anyone between 18 and 70 years of age can invest in NPS.

NPS Investment myth 5: “NPS provides guaranteed returns” 

Another misconception is that NPS does not offer guaranteed returns. Instead, Jose clarifies, “It is market-linked, which means the returns are dependent on the performance of the underlying investments chosen by the investor. This can include equity, corporate bonds, and government securities, so returns can vary over time. However over the long term, NPS schemes have provided competitive returns.”

NPS Investment myth 6: “You can’t withdraw your money until retirement”

While NPS is designed for retirement savings, he says there are provisions for partial withdrawals before retirement. And sums up saying that one can make partial withdrawals for specific purposes like education, buying a house, or a medical emergency, subject to certain conditions.

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