National Pension Scheme is basically a retirement plan which is run by Govt of india which gives you return almost same as any good quality debt plus equity mutual fund scheme. Means a CAGR of around 11% to 12%.
But incase of NPS the whole maturity value is tax free and withdrawal is allowed only when you reach 60 years of age. On maturity there is no option for full withdrawal as 40% of the maturity value is used to buy an annuity plan that shall give you a monthly income for the rest of life & rest 60% is allowed to be withdrawal. Means it gives 60% of matured value in lump sump and rest 40% as monthly pension after attaining 60 year age.
Who should avoid NPS?
1) Those salaried person’s whose taxable income after all deductions is below 5 lacs rupees.These catagory employees should avoid NPS as they don’t have any tax liability and in NPS fund is locked till you attain 60 years age.
2) All salaried employees who dose not fall in 30% tax bracket and are well invested in mutual fund they should also avoid NPS as good mutual fund scheme gives almost 12 to 13% yearly return and are not locked for any specified years.
Who should avail NPS?
1) For those who falls under 30% tax bracket and have exhausted full Rs 150000 under 80c tax benifit that includes child turion fees,lic,etc. These catagory people must go for NPS under section 80 CCD(1b) as they have to deposit Rs50000/- for which they will get an additional tax saving benifit of Rs15000. Means the effective purchase price of the NPS will be Rs 35000. Further NPS is managed by 7 different fund managers and the person will have option to choose among these and according to the age of employee funds are allocated to equity,debt and government securities.