NPS: A True Source of Long-Term Wealth Creation

The present era is witnessing market volatility and inflation along with an uncertain job market scenario. With passing years, securing your finances for a better future is no longer an option but an absolute necessity. The increased cost of living, along with improved life expectancy, has also led to effective retirement planning as a top priority among the present generation. Working professionals are not only earning to live their present lives but also to ensure that they have relevant savings to secure their future needs, especially after their service period or during significant life events, such as funding their children’s education. As a result, investment has turned out to be a substantial aspect where people have been investing in EPF and PPF along with Mutual funds and NPS to ensure tax-efficient and long-term wealth creation.

The NPS, or National Pension System, has truly revolutionized saving opportunities for people with its unique design. It blends equity market participation with fixed-income stability, and is regulated by the government via PFRDA, and is highly cost-effective.

NPS is a great investment option if you incorporate it into a well-structured financial plan. Choosing the right NPS plan can be guided by a SEBI-registered investment Adviser, who plays a pivotal role in planning the NPS contributions effectively. They also provide valuable expertise in dividing the investment among different options based on ideal asset allocation, rebalancing, and tax efficiency.

Understanding National Pension Scheme (NPS)

NPS is a government scheme for voluntary retirement savings that enables individuals to save a substantial amount over a long period of time. This particular scheme is open to every Indian citizen in two different accounts: Tier I and Tier II. While the former is a mandatory account for retirement where withdrawals are limited, the latter is basically optional and offers more flexibility. With NPS, people have the freedom to decide how their finances are invested by letting them choose between equity, corporate bonds, and government securities.

Investors can opt for either the Auto Choice option, which is based on age, or the Active Choice option, where they decide their own mix. Professional Pension Fund Managers handle the contributions, while the Pension Fund Regulatory and Development Authority (FRDA) regulates the account. NPS offers market-linked returns, providing an additional benefit of tax deductions under Sections 80CCD(1) and 80CCD(1B), as well as partial tax-exempt withdrawals. Whether you are a first-time investor or a seasoned one, seeking guidance from a Registered Investment Advisor helps in making right-choices.

What is the Wealth Creation Potential of NPS?

Do you know the reason why NPS has gained such massive popularity among Indian citizens in recent times? The ability to grow wealth steadily through long-term and regular investing discipline is the fundamental reason why NPS has become a preferred investment option. With the active choice option allowing up to 75% in equity, NPS gives good growth potential over a span of 25 to 30 years. The compounding power is what sets it apart, enabling the investment to grow significantly over a longer time period. Second reason being, NPS has one of the lowest fund management fees in the market, making it a cost-effective option to take advantage of professional fund management.

Additionally, it offers tax benefits, and investors can claim deductions of up to 2 lakhs under sections 80CCD(1) and 80CCD(1B). Furthermore, a certain part of the maturity amount is tax-free at the time of retirement. Investors seeking to build a robust retirement plan are advised by a SEBI-registered investment adviser, as NPS is not merely for tax savings. It is also adopted for building a solid fund and securing a steady income in retirement.

Why does a SEBI-registered investment adviser recommend NPS?

NPS is often a pivotal and effective strategy for retirement planning, as recommended by most financial experts and advisors. But why? Check it out here.

Well-Disciplined Long-Term Investment

NPS enables you to save in systematic contributions over a longer time span, thereby instilling a sense of investment discipline within you. The investment advisors registered with SEBI also emphasize that long-term investments are more reliable for creating wealth.

Cost-Effective Wealth Accumulation

The fund management charges are extremely low, and NPS ensures that the maximum part of the investor’s amount is invested in the market, actively working.

Tax Benefits

Tax benefits are extremely essential and are one of the primary reasons why most investment advisors recommend them to their clients. NPS comes with multi-layered tax benefits under certain sections and also enables investors with strategic withdrawals.

Regulated and Transparent Structure

The PFRDA manages and monitors NPS to ensure that investors are protected and transparency is maintained throughout the entire process.

Final Thoughts

If you are seriously considering building a strong portfolio that will lead to long-term wealth creation, NPS is an option that you should consider.

Are you seeking a SEBI-registered Investment advisor ? Connect with us at Hubridge today!