3679This is how low salary people should avail credit card benefits!

Building the retirement fund requires consistent and disciplined investment with a long term approach. You also need to account for inflation so that you do not fall short of funds in your sunset years.

If you also want to start saving for retirement but wondering where to start, then, National Pension System (NPS) is one of the right ways to start your journey.

Here’s a lowdown on what NPS offers:

What is NPS?

NPS is a low cost retirement savings account. It gives you two investment options : Active and Auto choice. In active choice you can save regularly through different asset classes which are Equity (E), Corporate debt (C) and Government Bonds (G). You also have the flexibility to choose the ratio of funds to be invested among E, C & G.  You can also choose among the different pension fund managers, which are allowed to manage the NPS funds. Pension fund manager fees in NPS is currently capped at 0.01%.

In auto choice there is a Lifecycle Fund. You have to choose your Pension Fund Manager and your money get invested as per the Life cycle fund matrix on the basis of your age. At each birthdate, these proportions are adjusted with your age as mentioned in the life-cycle matrix.

NPS also offers you two account types- Tier I and Tier II. While investment in Tier I account is compulsory Tier II is optional and allows withdrawals.

Limitations

Given that NPS is a retirement based scheme it does not allow complete withdrawal even at the age of 60. You can withdraw only up to 60% of the amount  and the rest 40% has to be used to buy an annuity. In case of early exit you have to compulsory buy annuity up to 80% of your money. 

Tax Benefits

NPS has a tax advantage over others retirement schemes such as EPF and PPF as you can claim an extra tax deduction of Rs 50,000 if you invest in NPS. This deduction is exclusive for NPS and is over and above Rs 1.5 lakh deduction that you can claim under section 80C. 

Corporate NPS

For the employee’s contribution, investment up to 10% of salary (Basic + Dearness Allowance) is deductible u/s 80CCD (1) of Income Tax Act, 1961, subject to 1.5 lakhs limit of section 80C. 

In addition, you can claim tax benefit under section 80CCD (2) on employer’s contribution upto 10% salary (Basic + DA) over & above both the sections 80C & 80CCD(1). 

With low cost and tax saving structure, you can start investing in NPS now for the comfortable life in sunset years.