Should you Invest in NPS? Find out with this calculator
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- Опубліковано 16 вер 2024
- National Pension System is an investment tool that helps you save taxes in the short term and saves for retirement in the long term. A lot of people are often confused about whether they should invest in NPS or not.
NPS vs DIY Calculator: docs.google.co...
PPT used in video: drive.google.c...
With this video, I hope to clarify the confusion.
We begin the video with understanding what NPS is all about. We talk about the tax savings available, lock-in of money, and compulsory annuity purchase.
Then we compare it with DIY (Do-It-Yourself) strategy of investing to try and figure out what works best. You can jump to the chapters directly to understand it better.
0:01 Introduction
0:44 Tax saving in NPS
3:52 Equity allocation in NPS
7:13 Lock-in in NPS
8:30 Annuity in NPS
14:37 NPS vs DIY
18:45 Assumptions for NPS vs DIY
19:50 Results based on Equity Outperformance
21:10 Results based on Equity Exposure
22:20 When to do DIY
23:22 NPS Vs DIY Calculator
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This is one of the most practical video i have seen on NPS. I will be happy to collaborate with you on your future videos
Ok
Your calculator solidfies my belief to continue with NPS. Thanks for sharing, this is unique perspective to put liquidity and outperformance penalty. It makes decision grounded in numbers. I prefer nps as a psychological backup which I am forced to not touch.
Thanks again, you are giving tools for informed decision than generic suggestions.
Glad you liked it.
Many people undermine the mistakes one does with liquidity....I am 33 and investing in ppf from 10yrs and NPS from 6 yrs....Frankly I dont even check them and the corpus accumulated is decent....But with Equity gains in 2021-22, I bought bigger car and foreign vacations - some of which I could have planned a bit conservatively.....With better healthcare and higher life expectancy, I would never ever exit NPS and PPF - Annuity is ok
Loved the explanation. With your calculator, I get double returns in NPS than mfs for my case. And I completely agree with that
You missed out to consider tax benefits for 30% tax category folks. If you consider that, you will find very high returns.. However, its only best to invest in NPS within the ambit of tax benefits amount only. I have taken employer route(10% of basic) + 50k self (annual limit for tax purpose ). I am saving 30% tax on the invested amount. Moreover, returns XIRR is 15% in aggressive choice mode.
I like NPS. As a corporate employee, I have the option of active choice where I can keep 75% of my corpus in equity until 60.
If you do DIY and do rebalancing between equity and debt, you have to pay STT, STCG and LTCG.
In NPS rebalancing is tax free. No STT, No LTCG, No STCG. This saving of tax every year turn out to be huge booster at the age of 60.
Moreover, If you find that equity market if too hot with very high PE and very high PB, you can make equity portion as 0% until market cools down and guess what there is no tax in bringing down equity from 75% to 0% and again to 75%.
NPS is the most underrated product in India.
Thanks for the video.
Thanks.
Mutual fund portfolio rebalancing without paying any taxes can be done by modifying your SIP flows into each of the funds. I have been doing this for a few years now. NPS is a very good product but the free portfolio rebalancing can never be a single sole reason for ignoring mutual funds.
@@Husbn62063Portfolio rebalancing can be done in mutual fund without tax implications?
Please explain in detail. Would be glad to know regarding the same.
"Revalancing between debt and equity by modifying SIP amount" can be done only for a small corpus. It is not possible to do that for a higher corpus.
While in NPS, you can move crores of rupee among equity and debt schemes within 24 hours at 0 tax.
Agree, this is not the single reason to invest in NPS but it is one of the reasons.
Thanks for explaining it so well.
Glad it was helpful!
I am an investor in NPS from last 12 years and it has given me XIRR of 14%
What is your allocation percentage in equity?
Wow, great to hear...
I'm imagining the compounding
The main issue with NPS in my case is I want to retire at 50 at the latest and NPS is locked till 60 and alongside the 40% annuity compulsion. It is sadly outrageous to think I will invest in something for 30 years with a lockin and then expected to not have access to it.
Everyone calls NPS a low-cost option, but I'm not sure in what sense. In mutual funds, we only pay 0.001% STT, with no other charges. The expense ratio is already factored into the daily NAV, so the XIRR reflects the return after expenses. However, in NPS, units are deducted from our account as fees, so simply comparing XIRR with mutual funds is not sufficient.
Very informative
Thanks for this video. This video made me think about the topic. NPS pushes you to limit your equity exposure to 75%. In DIY if we consider 100% exposure, and even if we earn 1% extra margin DIY will win. Without even a liquidity penalty for NPS. This means that investing in MFs that have returned higher than 12% returns over the years would be a much better option. Higher return without annuity and lock-in period. Am I right to say that there is no point in investing in NPS?
NPS is a great tool, which forces you stay for long term and also give you exposure to equity with tax benefits. Its a no brainer for me, with such a low fees.
Thanks for the video explainer. Could you share what happens in NPS if I quit the job before 60, and/or my employer doesn't contribute to NPS until 60. In that case with an 80% annuity. Would the premature withdrawal kick in, or I can still continue the NPS till 60 and then get the regular 60% annuity plus 40% withdrawal?
In addition what if I die prior to 60, will the funds be transferred to the Nominee without taxation and annuity? Also how complicated is the process to access the NPS after the subscriber's death ?
Part 1 - Continue till 60 and get the regular 60/40.
Part 2 - Yes.
Part 3 - No idea.
Please frame questions properly in future and number them. It is hard to understand and respond.
NPS gives an option to invest in Alternative Instruments under Active choice. That is missing in the video
Not enough data available for that.
@@desifirepodcast But it should have mentioned as a fact, atleast since it is provisioned.
Imagine you are investing 1 lakh every year (50K self and 50K employer) starting at the age of 25. By the time you reach 40, you stop working, and by 47, your account has grown to around 1.5 - 2 crore rupees. Now, what would you do if you have a medical condition? How much can you withdraw? You would only be able to withdraw around just 2 lakh rupees, leaving you to struggle for medicine despite having an NPS balance of 2 crores. This is the most frustrating part of NPS-the 25% partial withdrawal rule-that I truly dislike.All will assume that they will get 25% of total balance in case of emeregency but that is not the case and it is 25% of what you actully put as self without any interest.
If a person lack financial discipline or not experienced enough to handle market crashes, then NPS is the best option. In all other scenarios, NPS is a poor investment choice.
But Ravi sir, I guess you forgot to account for the tax benefit on the investment corpus itself that one will get under 80 CCD(2). And this exemption is available both for new and Old tax regime. For example. for someone with a Per month Basic on 1,50,000 , this would be 10% Employer contribution(maximum allowed) =Rs 15,000 and annually coming to Rs 1,80,000. Under the highest tax slab which someone with a basic of 150k per moth would definitely be, this would mean a tax saving of 31.2% i.e Rs 56160 per year for next many many years ( as the upper limit on the amount that can be saved under this scheme is 7.5 Lakhs)
With this tax saving every year, DIY would fail under all permutations and combinations (Had studied this long back from you sir during my CAT prep) :D
While you talked about it inthe begining of the video, I dont see it in the sheet per se.
It is there in the sheet. Thats why I have mentioned "tax bracket" in the sheet. That's the reason NPS is winning in most cases.
Isnt it 10% of the Basic component of the salary, so depending on your salary structure that may not be big as well
Basic + DA
How can I check on my own the equity exposure of my existing NPS plan? Is there a website using which I can alter my NPS plan ?
Here www.npstrust.org.in/subscribers-login
Which is the best NPS fund house amoung all ?
Hdfc and icici performed well
Your PIP keeps blocking 15% of your presentation. So better to put it small or move the pip to top right
Will do that next time.
The fact NPS doesn't give one the flexibility and forces one to buy annuity is a deal breaker. GOI should make it to atleast 50 as very few Private sector/Corporate employees would continue working until they turn 60. To make it better Exit at least after age 50 should be allowed with the same 40% annuity clause (ideally, the annuity clause should also be removed, which looks like unrealistic dream ~ Currently if you exit at 50 you need to buy 80% Annuity which is crazy). Hence have to stay away reluctantly.
Hope you know that you don’t need to exit at 50 if you lose your job.
Also, I would suggest that you calculate and take a call. Apply a penalty for that annuity. There are multiple cases when NPS makes sense even after annuity.
Moore Larry Williams Karen Martinez John
Sir army person apni marzi se nps mein invest kar sakta hai kya
What is liquidity penalty?
The mental penalty that you want to charge because your money is locked.
When you show a ppt, please ensure that your video doesn't block a part of it.
Yes. Made a mistake. Have added a link to the PPT in the description.
Very informative video Handa sir as usual. Is there any way to contact you via mail or telegram regarding more information about NPS. Regards.
My mail id is ravihanda at gmail. However, I would recommend that you google stuff before asking me. I am sure you would find the necessary info
@@desifirepodcast Thank you so much for your prompt reply sir. And yes I will not ask any question whose answer is available/ easily available on Google or the website itself. Thank you.
No matter what you do.. in long run you cannot generate more than 10% in NPS. It is a useless scheme when you can generate way more returns without lock-in in equities.
Remember, the return is Tax Free. LS-75 in the initial years is a good strategy. Please study NPS more in detail.
@@JishnuChatterjee only 60% amount that we can withdraw as lumpsum at the age of 60 is tax free. Remaining 40% will be taxed.
Question of returns is secondary. The discipline of building corpus for retirement is the main objective of NPS.
Without restrictions of withdrawals most probably majority of investors will withdraw funds on unnecessary things which will reduce retirement corpus.
@@CAPARTH89 Yes, people who lack financial discipline should invest in NPS, PPF schemes. I am a disciplined seasoned investor with 8+ years of experience in equity so I stay away from it.
You are wrong. Nothing will be taxed.
From 40%, you are supposed to buy annuity.
Did you even watch the video before commenting? Even your first comment doesn't make sense.