Inside story of the National Stock Exchange’s amazing success, leading to hubris, regulatory capture and algo scam
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This means access to other articles (outside the subscription period) are not included.
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If some one enters around 48-50,it is only 10 years and with Tax benefit we get both for employers contribution-excluded from salary and hence tax free and 50 k from employee contribution,we can divide 33 % and get around 3 % saving per year till 60 years.Even if NPs with large cap and 50 % max return gives 10-11 % return, totally we get 14 % and it is worth it.since we cannot withdraw in between long term compounding also is taken care.Also at 50 + less exposure to equity and in large cap maybe a good strategy and it is designed in NPS.
The main problem is 40% annuity with only 6% return.we have to hope annuity return may increase in future or rules will change and trade off on returns for safety and secure returns post retirement.if someone has to enter NPS in their 30s and invest for 30 years,the tax benefit angle maybe negligible and tenure also is long and they can take a call.
NPS has an exclusive tax benefit (apart from the 1.5 Lakhs 80CCD 1B for 50,000.
If I don't save 50,000 in NPS, I will get only 35000 post tax.
So if I save this 50000, I get immediate 42.85 % returns (15000) from the taxable 35000 amount (after paying 30% tax on 50000) I would be effectively able to invest in any other product for future returns.
Apart from this exclusive 50000 (80CCD(1B) ), I also get upto10% basic pay contributed by employer as tax free component into NPS since it is not included in the taxable salary at all.
Whenever these exclusive tax benefits for NPS is stopped by the Govt, I will stop saving in NPS.
I am 34 now. I don't know and can't guess what will be the taxation when I turn 60 in 2044.
So I am not bothered about the 40% annuity / 20% tax free component at all since there is going to be a lot of changes in the country in next 26 years.
Also - I don't expect the 'journey of withdrawing NPS' will be that much bad in 2044 as in today.
Calculate this with 50000 of nps vs 35000 good equity contribution over next 25-35 years. Even if we assume better returns with equity by 2 percent as above, good equity investing will surpass nps, even after considering tax benefit .
The argument that it makes nps makes you save 42 percent at start is not logical, as we are looking what will happen even we invest that additional money into nps. Now suppose you smartly invest 50000 into nps and say that you will invest 15000 so saved in good equity. Even then returns will be less after 20-30 years of this combination, if you compare it with investing everything in well managed equity (even after taking out amount if tax saved).
Now all if this is assuming that well managed equity will give at least 1-2 percent better returns than nps equity options. This has been persistently seen though.