NPS - Should I Invest in it ?

The National Pension Scheme, or the NPS, which its commonly called, has gained more and more popularity over the past few years, is indeed a very good way to save your money.
For one, its a scheme pushed by the government, but It would still be investing the funds in the different investment avenues, which the traditional government driven initiatives, would keep away from. In short, apart from many debt funds, based on the option one chooses with the NPS partner bank, one can invest in many of the Equity Based Funds.
So, the next question would be, how is it different from investing in Mutual Funds ? More than one, to be precise.

1. This is meant to be a Retirement Fund
2. There is Tax Benefits under section 80CCD (80 CCD(1) and 80CCD(2))  while investing the amount.
3. These Tax Benefits are over and above the Tax Benefits under section 80CCC, which currently(Budget 2017), is pegged at 1.5L only. Mutual Funds investment come under this 1.5 Lakhs investments.

Now coming to the NPS itself, the investment can be done in two forms, under section 80CCD(1) and 80CCD(2), or in layman terms, from Employee and Employer. 
If the investment is done by the Employer, then the maximum investment, that one can do is 10% of your basic salary and  capped at 1.5 Lakhs per annum.  While the Employee's contribution can be a maximum of 50,000/- per annum.
So if your basic salary is 10Lakhs, then under section 80CCD(2) you can invest up to 1 lakh per annum and get tax benefits, while under section 80CCD(1) you can get additional benefits of 50,000/- .
A bit of clarification, on the so called Employer's contribution. Its not that the Employer might be adding further investment, and this might still be taken as a part of your CTC.
Now, coming to the Tax on the Returns from NPS.
The contribution made towards the NPS scheme, could be withdrawn on Retirement or by Surrender of the Policy.  As per the Budget 2016, 40% of the returns from NPS would *not* be taxed. However, as per the Budget 2017, if the entire returns from the NPS be converted into a Annuity Plan in the same year, then there would be no tax applicable at all.
In Summary, those who have to plan for their retirement and still save taxes, this is an excellent way on both the counts. And more so, for those, who have ran out of all further options to save taxes after the section 80CCC is all filled up by your Insurances/ULIPs/Home Loan etc.
Each NPS account will have an unique PRAN Card and that account number will be associated with your PAN and hence it would be likely that only one PRAN account would be applicable per person.

Few Pointers to keep in mind 

1. Investment in NPS is meant for Saving for Retirement
2. 50,000/- can be invested on Section 80ccc, above your 1,50,000/- in other instruments. Well, you can also invest the whole 2,00,000/- in NPS.
3. Apart from the above , you can invest upto 10% of your basic in NPS, capped at maximum of 1,50,000/- per year.
4. These investments can be converted into an annuity, which can make it tax free on withdrawal. If not, then it will taxed based on your taxable bracket.
5. This investment instrument is not just for Salaried Class, and can also be availed by those in business or self-employed
6. The age limit for investing in NPS is from 18 to 65 years of age.

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Avoid Last Minute Tax Planning

Came across this nice link in Economic times.
http://economictimes.indiatimes.com/articleshow/7389665.cms

I found this article very good. In simple words one shouldn't wait for the last minute to invest or rather to plan your investments. Do it regularly and plan it will. Use the power of averaging and stagger your investments over a period of time. They help you not only from losses but also give you great returns. Systematic planning is the best way to invest, unless you are full time into this investments.

Here's the article mentioned above in the link

Aamir Humayun looks forward to holidays because they help him unwind and let him spend time with his children. But the public holiday for Mahavir Jayanti in 2007 put the Delhi-based businessman in a quandary. It was 31 March and Humayun had not finished his tax planning. “All banks and post offices were closed. There was just no way I could save tax,” he says.

So his chartered accountant stepped to help. One call to an insurance agent and a few signatures later, Humayun’s tax planning for the year was done. He and his wife had been sold two unit-linked insurance plans with an annual premium of Rs 1 lakh. “I was told that I would have to invest only for three years and that my investment would grow to about Rs 48 lakh in 20 years,” says Humayun.

The agent, who was incidentally the chartered accountant’s wife, conveniently glossed over the fact that these were only projections and based on the ridiculous assumption that stock markets would rise 18-20% every year in the next two decades. When the markets crashed in 2008, the value of Humayun’s investment plummeted. He has paid premiums for four years and the fund value is barely in the green. “Now these insurance premiums have become millstones around my neck,” he says in disgust.

The only cold comfort for Humayun, if at all, is that he is not alone. Millions of taxpayers across the country compress their entire year’s tax planning into one month. For salaried taxpayers, the tax-saving season kicks off when they get a note from the accounts division on how much they need to invest. With it comes the warning: give proof of investments or get ready for a hefty tax deduction at source (TDS). “That’s the time when undisciplined investors start running around like headless chicken,” says a financial planner.

In the rush to invest before the deadline, taxpayers often make fundamental investing mistakes, which they rue for years to come. Gurgaon-based software professional Ashwin Arora knows the perils of just-in-time tax planning. Three years ago, he was working with a large global consulting firm that gave him less than two weeks to show proof of his investments. “My company asked for proof by the end of the calendar year and I had only my provident fund contribution to show,” he says. So, Arora promptly invested Rs 33,000 in three tax-planning mutual funds at one go. This was just a few days before the markets went into a tailspin in 2008. “The three funds are good performers but my investments are still in the red,” he says glumly. Small investors should not put large amounts as a lump sum in equities. It’s best to stagger the investment in monthly SIPs. 

More importantly, experts say tax planning should be a part of the individual’s overall financial plan. In other words, the investment choices should not be governed by the potential returns they offer but by their ability to fit into the asset allocation of the individual. “One should choose the option depending on one’s risk appetite and asset allocation,” says Pankaaj Maalde, a financial planner working with Mumbai-based Sykes & Ray Financial Planners. Invest in the Public Provident Fund (PPF) if you need long-term debt in your portfolio. Go for NSCs, fixed deposits and infrastructure bonds if you want medium-term debt. Buy ELSS funds if you want equity exposure. And take an insurance policy if you require life cover. 

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Why Medical Insurance ?

Why Medical Insurance ? This is a typical question many of us have those who are covered by their companies they are employed in.
Well, first lets talk from the Tax savings. Whatever premium that you are paying for covering you and your family upto 35000/- INR is deductible from your taxable income. Please note, this is over and above your 100,000 that you are saving under section 80ccc. So thats again a saving also.

Now, the actual reason as to why one should take a medical insurance.
The days are gone, when medical treatment was affordable with your own savings. One definintely needs Insurance.
Those who are covered under insurance by your companies, please note that this is only until you work for them. The day you quit or retire, the insurance stops. So lets say that you retire at 60, do you really think a Insurance company will give you a health insurance, especially when you are at a age you would be needing it the most. So the best would be to take an insurance now itself when its easy for you.

ICICI has a good product which invests your money into an ULIP and that actually covers you till 75 if i am not wrong. There are many companies who are having wonderful health plans. My suggestion would be to go and get you and your family covered and also save some tax

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Where do I start from ?

Everyone wonders, where does one start to invest. Well there is never a good time. If you havent been doing it early, then NOW is the right time. Start with small amount. If you dont know the meaning of small amount as such, then see the difference between your monthly income and expenses. Whatever remains is the only amount you have. Now if that amount is very less, then you should try and save atleast 1000 per month. Cut your expense wherever needed, but then you dont have any other choice. Keep this amount separately in a different account if possible. Once you accumulate anything above 5000 INR, then put it into an FD.
Well this is the simplest and the safest form of investing you can do without any harm done and least risk. But again the returns too will be dependent on the prevailing interest rates.

For higher returns you would need to venture into Equity markets. Now again in Equity you can chose to play safe by giving your money to a Fund manager and he will invest properly on your behalf. But off course, whether you have a profit or a lot, he will charge you for his services.
The different options that you to invest into equity are

1. Directly into the Stock Market
2. Investing into Mutual Funds
3. Investing into Equity through Insurance related schemes.

These are the high level ones and can be dealt in detail in each one of them

So if you are looking at investing into stock market then get yourself an Demat account opened. 

Again for mutual funds you may need a demat account but for some you may get them in physical form itself.

ULIP's  gives you the flexibility to invest into equity, with the benefit of an Insurance cover and Tax Benefits. For the insurance there are many many plans and schemes. Just call an agent and get yourself familiarised with the same.

Another safe option would be to invest in Gold. Now Gold can be bought in physical form or in the ETF's which are like shares in demat form. This gives you the flexibility to just have the details without having the botheration of safekeeping of Gold. And can be bought and sold easily. Most importantly, even if you have less money , with which no one will be able to give you a small amount of Gold, ETF can do the job for you.

Keep saving, Keep investing. Just remember to save a little everyday, and that would help you a lot in the long run. 

For example, just by skipping one coffee at any coffee outlet you would be saving 60/- per day. Which would amount to 1800 per month and approx 20000 an year. Good enough to have a nice Insurance plan to cover you and your family just at the cost of coffee. 

Have a nice day

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