On a personal front I
can be held guilty of taking a flip flop stand on the issue of NPS.
Initially I was a little skeptical about it or rather very skeptical. Then with the change in taxation rules about 2 years ago I had changed my stand and advised people to open it. However the return over the past one and a half year does not really justify using NPS as investment mode and following are my reasons for it.
1. We have to compare NPS with other avenues on not only The returns but also the tax efficiency part of it.
On this count it does not hold very strongly against the pure debt funds.
In good times the pure debt funds of various maturity have given far better returns despite the NPS expenses being on the lower side.
2. NPS allows us to invest a maximum of 50% in the equity sector and the remaining can be juggled between the private corporate bonds or the government securities. By virtue of this it can't really be compared with any mutual fund and hence most of the equity based balanced funds landed performing much better then the NPS schemes.
3. Now even after increasing the expenses tenfold this still seem to be a lot less because of which probably the fund managers are not greatly interested.
This can also be the reason of the poor performance.
4. Tier 1 is the compulsory option for starting NPS and in this your contribution remains locked till the age of 60. At which stage you have to put in 40% to buy annuity which means pension . Then at least of the remaining 60% ; 40% is tax free but 20% is taxed. This disadvantage will always remain with the NPS since all the pensions in India are taxable.
5. However now with the introduction of capital gains on equity is there is a case of comparing NPS with the mutual funds but in my opinion the outright locking of money in NPS takes away a large advantage for us ,the seafarers.
6. Tier 2 which is actually similar to tier 1 except there is no tax benefit and there is also no lockin for the funds- is not available to NRI. If this was available then possibly it could have been of some advantage against the mutual funds considering the low expenses.
7. Considering the fact that rules may keep changing for NPS and sometime they may come may become better for us, it is advisable that you open NPS account and maintain it by putting the minimum subscription because in the younger days there is no point in putting the money in inefficient avenues.
On the other hand if your spouse is working or even otherwise it is good to open her account and keep depositing whatever little you think is necessary because she will have the advantage of investing in both the tiers.
However my point of view is, not to invest too much in NPS in the initial years and watch for any favourable change of rules.
In comparison for your wife and yourself if you are not an NRI you must open the PPF as it has more then quantifiable benefits which you will realise later on.
Initially I was a little skeptical about it or rather very skeptical. Then with the change in taxation rules about 2 years ago I had changed my stand and advised people to open it. However the return over the past one and a half year does not really justify using NPS as investment mode and following are my reasons for it.
1. We have to compare NPS with other avenues on not only The returns but also the tax efficiency part of it.
On this count it does not hold very strongly against the pure debt funds.
In good times the pure debt funds of various maturity have given far better returns despite the NPS expenses being on the lower side.
2. NPS allows us to invest a maximum of 50% in the equity sector and the remaining can be juggled between the private corporate bonds or the government securities. By virtue of this it can't really be compared with any mutual fund and hence most of the equity based balanced funds landed performing much better then the NPS schemes.
3. Now even after increasing the expenses tenfold this still seem to be a lot less because of which probably the fund managers are not greatly interested.
This can also be the reason of the poor performance.
4. Tier 1 is the compulsory option for starting NPS and in this your contribution remains locked till the age of 60. At which stage you have to put in 40% to buy annuity which means pension . Then at least of the remaining 60% ; 40% is tax free but 20% is taxed. This disadvantage will always remain with the NPS since all the pensions in India are taxable.
5. However now with the introduction of capital gains on equity is there is a case of comparing NPS with the mutual funds but in my opinion the outright locking of money in NPS takes away a large advantage for us ,the seafarers.
6. Tier 2 which is actually similar to tier 1 except there is no tax benefit and there is also no lockin for the funds- is not available to NRI. If this was available then possibly it could have been of some advantage against the mutual funds considering the low expenses.
7. Considering the fact that rules may keep changing for NPS and sometime they may come may become better for us, it is advisable that you open NPS account and maintain it by putting the minimum subscription because in the younger days there is no point in putting the money in inefficient avenues.
On the other hand if your spouse is working or even otherwise it is good to open her account and keep depositing whatever little you think is necessary because she will have the advantage of investing in both the tiers.
However my point of view is, not to invest too much in NPS in the initial years and watch for any favourable change of rules.
In comparison for your wife and yourself if you are not an NRI you must open the PPF as it has more then quantifiable benefits which you will realise later on.
Posts
