knight
TF Legend
I believe you mean the ~32% income tax that we don't pay while putting in NPS..
It's factored in as NPS contribution is considered 50K while MF contribution is considered 34K
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Is NPS worth the Hype?
- Thread starter knight
- Start date
It's factored in as NPS contribution is considered 50K while MF contribution is considered 34K
NPS is very good for dynamic allocation with low ER
People withdraw from MF once they see some gains or if market falls , constantly change MF if it under performs for 2 month
Since NPS locks you out till 60 you wont have the itch to withdraw
Always Time in the market > Timing the market
People withdraw from MF once they see some gains or if market falls , constantly change MF if it under performs for 2 month
Since NPS locks you out till 60 you wont have the itch to withdraw
Always Time in the market > Timing the market
Yeah the discipline factor is quite important too. It might even cause NPS to outperform MFs.
Another thing is if you factor in inflation(assuming 8.1%), 28L after 30yrs would be like 2.5L today which is not a huge deviation for someone in 30% tax bracket. Although yes the annuity of 19k would be pretty useless as well.
Another thing is if you factor in inflation(assuming 8.1%), 28L after 30yrs would be like 2.5L today which is not a huge deviation for someone in 30% tax bracket. Although yes the annuity of 19k would be pretty useless as well.
Yeah, it feels bad that we don't even have control over our money. Eventually, I am gonna reduce these and increase my control.
knight
TF Legend
In reality, we never really get full control over our money until we actually have it in our hands.
There are always scams happening even in fund houses, banks, and other institutions.
Diversification just helps us ensure that we won't get ducked by a few failing institutions.
Even I'm planning to reduce my NPS contribution and try to make better use of that money.
I didn't opt for voluntary PF. Only contributing enough to match employer contribution.
knight
TF Legend
I think the long post was causing some confusion.
So I've added 2 questions at the top for better context.
But does the 'Income Tax Saving' really help in the long run?
Does Investing more in NPS (as a result of tax saving) actually translate to a bigger Retirement Corpus or better returns?
The discussion/calculation is about whether the 80CCD tax saving actually benefits you? Or does NPS just locks away your money till 60 and still gives you less returns than what you'd have gotten on your money after paying income tax.
For the tax benefit, it does make sense.
But if you're smart enough and can make the average returns + tax savings + extra returns, you can invest in other better assets.
(Do note that this can get risky and unsuitable for most investors as they don't have the knowledge, time or resources)
But if you're smart enough and can make the average returns + tax savings + extra returns, you can invest in other better assets.
(Do note that this can get risky and unsuitable for most investors as they don't have the knowledge, time or resources)
Rejection of final EPF claims sees surge in 5 years, up from 13% to 34%
EPFO rejections: Out of the three PF claim categories – final settlement, transfer and withdrawal – the rejection rate has sharply increased for the final settlement of PF claims over the last five years.
indianexpress.com
scary stuff man
1) Cheaper than MFs on costs
2) Upfront tax benefits need to be incorporated into calculator especially if you are on corporate NPS +50k option which is significantly high for 30% tax slab folks
3) Options to go upto 75-80% equity for aggressive investment - so compare mf type accordingly
4) Specific instrument for Annuity - thats the whole point of Pension
5) Most important is that you can change your strategy of allocation between equity / bonds debt easily.. in an MF you cannot.. You have ro change your fund with exit/ entry loads
6) The best of best MF managers are also managing the NPS funds
7) Returns annual will be assumed similar to MFs but with costs + upfront tax kicking in.. NPS will yield more compunded
it will be more for sure if you take tax benefits inro account. Simply put with numbers - If you earned 1 L and tax at 30% - You got 70k in hand which you put into MFs. Alternatively if Company put 1 L directly into NPS you saved 30k tax.. Thats a 30 % more investment into NPS.. No extra returns on MF can catch up with that..Just that tax benefits have limits.. and NPS needs lot of discipline.. while mfs are flexible but more expensive on costs
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Thanks for doing it. Huge difference if you just change 2 factors.
On equity returns, 30 years is a long timeframe and basing it on the recent equity markets returns may not be reasonable. 1) Japanese markets were at the same level for last 30 yrs. 2) it will be difficult to manage equity mf. I don’t remember any of the mf that were highly rated 15 years back delivering good returns in the last 2-3 years. Survivorship bias etc kicks in. Safe bet will be to invest in nifty but as you said returns will be lower for that.
vpf @8.2% (tax free) is good as it can be widrawn after 5 years also
Narayana526
TF Buzz
Am putting my money in NPS for the last 3+years for different reasons
1.10% direct cut from pre-tax salary( Am into 30% Tax bracket)
2. putting an additional 50K PA for tax saving
3. To get decent debt allocation from a PF standpoint ( There is always a debate on EQMF + EPF combination) - I have stopped investing in FDs and NCDs and I treat NPS as a pure aggressive hybrid debt investment given that NPS EQ has stringent rules on where to invest (https://www.etmoney.com/learn/nps/new-rules-for-nps-fund-managers-how-will-they-impact-your-returns) - - Not expecting more than 8-10% at NPS PF level
If I put money in NPS for 15 years - (I started investing in NPS in 2021 at the age on 31)
=fv(0.1/12,180,14000,0,0) --> which gives you around 58L --> ( so am in 46) --> Assuming am stopping working in corporate here and not contributing any penny towards NPS
Keep this money for another 14 years to attain 60YR at an assumption of getting 7%pa for this period ( =fv(0.07/12,168,0,-5800000,0) ) Which comes -- > 1.54cr
40% of this 60L - we might get 35-45K Per month as an annuity --> at 5% Inflation it is equivalent to 9K as of now ( =pv(0.05/12,348,,40000,0) )
invest 94L in different debt and EQ to get a 6-7% return at the PF level.
PS: if you are above 40years, please avoid NPS given the lockin and other pre-mature exit conditions
And i have taken very very conservative calc here, please do your calculations.
1.10% direct cut from pre-tax salary( Am into 30% Tax bracket)
2. putting an additional 50K PA for tax saving
3. To get decent debt allocation from a PF standpoint ( There is always a debate on EQMF + EPF combination) - I have stopped investing in FDs and NCDs and I treat NPS as a pure aggressive hybrid debt investment given that NPS EQ has stringent rules on where to invest (https://www.etmoney.com/learn/nps/new-rules-for-nps-fund-managers-how-will-they-impact-your-returns) - - Not expecting more than 8-10% at NPS PF level
If I put money in NPS for 15 years - (I started investing in NPS in 2021 at the age on 31)
=fv(0.1/12,180,14000,0,0) --> which gives you around 58L --> ( so am in 46) --> Assuming am stopping working in corporate here and not contributing any penny towards NPS
Keep this money for another 14 years to attain 60YR at an assumption of getting 7%pa for this period ( =fv(0.07/12,168,0,-5800000,0) ) Which comes -- > 1.54cr
40% of this 60L - we might get 35-45K Per month as an annuity --> at 5% Inflation it is equivalent to 9K as of now ( =pv(0.05/12,348,,40000,0) )
invest 94L in different debt and EQ to get a 6-7% return at the PF level.
PS: if you are above 40years, please avoid NPS given the lockin and other pre-mature exit conditions
And i have taken very very conservative calc here, please do your calculations.
curios_mind_huh
TF Select
The longer you stay invested in NPS at 10%, the better the MFs at 12% will look even after including 31.2% tax benefits with NPS & discounting 10% capital gains with MFs.
One thing you could do to improve the situation is treat the saved tax amount (31.2%) from NPS as free money and invest it in a Equity MF. This would make sure that you'll have ~11% or slightly higher overall returns. But at the end of day, MFs at 12% will come out higher even with this strategy for an investment period more than 25 years.
You should seek clarity about the goal of your investment before proceeding with NPS. Or any investment for that matter. If your goal was to save taxes with NPS, you will succeed in the short term since no one can give you 31.2% returns in a year. If you want to have a long term slightly risk averse investment, NPS is still a good option for growth. If you are an aggressive investor and don't mind the risks with 100% equity for (really) long term, Equity is the way to go and NPS will not suit your needs.
I realised this after 2 years of 50k invesment into NPS. Now that money is just stuck there and I am not contributing anything more than 1k/year mandatory requirement.
Also I am better off in new tax regime, so the saving tax part doesn't even apply to me. Although I might rethink about Employer contribution to NPS if my employer agrees (current one doesnt). Employer NPS is tax free even in new regime
Also my wife is a govt employee thus forced to have a large NPS contribution. 🙁
Also I am better off in new tax regime, so the saving tax part doesn't even apply to me. Although I might rethink about Employer contribution to NPS if my employer agrees (current one doesnt). Employer NPS is tax free even in new regime
Also my wife is a govt employee thus forced to have a large NPS contribution. 🙁
curios_mind_huh
TF Select
You should be able to withdraw the whole amount after 5 years if it is less than 2.5L
Avg NPS XIRR for SIP model over last 2 yrs is 14% and. standard MFs is similar.. so how why are the assumptions that NPS is lower.. it is finally still going into equity? NPS is an MF.. just has a lock in for tier 1 and with a specific purpose of retirement planning.. Cannot be used as a normal investment plan and be compared.. Compare exit/ entry & TERs for MFs with NPS chgs and the tax treatment for corporate nps.. its way way ahead of MFs..
curios_mind_huh
TF Select
NPS cannot beat Index MF returns at any given point of time. All the AMCs under NPS invest heavily in Large Caps with focus on not losing money as the first priority. Even if I consider NPS to give 14% long term, Equity Index funds would have at least a 2% delta over it.
Like I said, Equity MFs and NPS are intended for different purposes. But if the goal is to accumulate wealth till the age of 60 and risk of 100% Equity isn't an issue, I don't see why both MFs and NPS should not be considered. I compared Expense Ratio, Exit Load, Capital Gains for Equity MFs and 31.2% tax discount on NPS over a period of 30 years before coming to the conclusion.
panchabhut
TF Ace
- NPS has the lowest expense ratio of all MF. There is no exit load etc for NPS. This factor does not seem to have been considered.
- I am invested in NPS for the last 8 years, with avr Equity ratio of 50%. My cumulative IRR on gross value (before considering tax benefit) is about 17% and effective IRR (after adjusting for tax exemption) is around 24%. However, I have leveraged the switch option, making the most of pre covid dip and post covid rise in equity markets. Even without that, the avr IRR is around 14% and tax benefit adjusted IRR is about 19%
- However, old tax regime is only beneficial if someone has taken housing loan or plans to take one in near future.
- NPS is a combination of 3 MF, Equity MF, Corporate Debt MF & Govt Debt MF. Each type has their own merits & demerits but with NPS, you get the balance of all 3. And based on market perception, one can switch the ratio between them at the cost of just Rs.25. If you are investing in 3 MF separately, every time you switch, you end up paying LTCG, but for NPS no tax is payable for switching from equity to debt or from debt to equity within the NPS. So, if you believe that markets are expected to saturate or fall, you can easily reduce the equity share and the accrued gains would be finalised and shifted to debt for just Rs.25. Again, if you believe that markets will rise, you can swithc from debt to equity same way.
- NPS is for the future. The fund requirement to maintain the same lifestyle roughly doubles every 7-8 years. So if someone is 30 yr old and spending 50K a month today they will need 8 Lakh / mth to maintain the same lifestyle by the time they turn 60. NPS is for this purpose. Further, the rate of return of NPS far exceed the Annuity factor. That why, instead of going for 60% direct withdrawal, it is better to opt for SWP in NPS at the time of exit, where 40% is converted to annuity and the remaining 60% remains in NPS and a fixed sum is withdrawn from that every month (in addition to annuity).
- In older times people used to work for whole life and then buy a house or do other things that require large investments. Now the trend is reverse. People buy first and pay EMI. So by the time they are 60, all EMI are paid off and they do not really need large sum of money at one time and rather need steady flow of money every mth to pay for their daily expenses and medical costs (main exp after 60).
- 50K a year translates to little more than 4K/mth. The remaining amount can be easily invested in other forms. However, personally I feel that at least 15% of mthly net salary should be invested in NPS from the age of 25, to enable a steady mthly inflow after the age of 60.
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