NPS Retirement - An Efficient Engine for Capital Growth

When the number of subscribers increase in NPS (as of March 26th 2010 there were 7,84,868) to 10,00,000 the AMC reduces to Rs. 280/-, and each transaction cost goes down to Rs. 16/-. The recurring charge then becomes Rs. 408/- (as opposed to Rs. 590/-). This further kills the expense outgo! Thereby making NPS a very lean burn, extraordinarily efficient engine for capital growth.

STT is not applicable to the transactions done by NPS Equity Fund Managers (as per Finance Bill September 2010; this provision holds good until it is undone). This further enhances the return potential from NPS equity component, by 0.25%. In the longer run like 25 to 30 years (which is what people in our age group will hold NPS account), this adds to quite a considerable compounding.

NPS is a never-miss opportunity for retirement investors

Everyone should take maximum advantage from it. Compare its expense ratio with those of ULIPS: 30% to 50% in first year and then reducing perhaps to 3% (if not less).

Where do those numbers stand before this abysmal 0.53%, 0.37% and even lesser net cost of NPS? You, the investor must understand how these ULIPs and ULPPs are designed to fleece your pocket - especially when everything is available in black and white with no shades of gray in between.

The reason NPS is not as popular as ULIP or ULPP policies was that there is absolutely NO commission/brokerage/incentive to middle men. So nobody will sell it to you. It's you who needs to go, understand what NPS means to you and grab it for yourselves. Thanks ULIP schemes have been recalled from financial markets.

One Disadvantage of NPS - Tax

I would like to give you a biased opinion that is why I will not only explain advantage of NPS as I have done above, but I will also share some disadvantages of NPS.

New Pension Scheme for Indian citizens is the only instrument today in E - E - T regime. That means: contributions are exempted from tax, capital growth offered by it is also exempted. Well, tax will be applicable when the unit holder redeems it.

But then, when someone is in 65-70 sort of an age group, they would be enjoying a senior citizen status (enabling them for a wider tax slab), there will be no issues then, so isn’t NPS an efficient engine for capital growth over years and years. Let me know what you say? Have a happy investment in retirement.

Cheers