Quoted (New Indian Express) – Sep 2022 – Invest in NPS to Build Retirement Corpus?

I was recently quoted in an article in New Indian Express (19 Sep 2022) titled “Invest in NPS to build Retirement Corpus”. Here is the article from the print version below –

And here is the link to the online version of the article – Link

Here are a few of the points from the article –

One should not look only at NPS to plan their retirement. It can be one part of the retirement planning bucket which has components like EPF/PPF, Equity funds, and NPS. So how can one use NPS in their retirement portfolio? Different people will require different strategies. If you are young and have 2-3 decades left for retirement, then you can and should be aggressive with your retirement savings. This means your investments should have a large allocation towards equities via Scheme E. Assuming EPF is being sufficiently contributed via EPF+VPF+PPF, if you want to go via the NPS route, then it’s best to have a high component of equity in your NPS. If your EPF corpus isn’t very large as your employer doesn’t have a generous PF policy and you have already utilized PPF Rs 1.5 lakh annual limit, then you can use your NPS account as a debt product and have a high allocation to debt schemes G and C. For equity exposure, you can invest via pure equity funds. On the other hand, if your past employment(s) have led to a substantial accumulation of PF corpus and your equity exposure is low, then you can use NPS as a vehicle to increase equity exposure by making a maximum allocation to scheme E.

While NPS is considered to be a quite restrictive product but it does have its advantages.

Most people look away from NPS due to compulsory annuitization where one is forced to put 40% corpus in low-yield annuity plans. And no doubt this is a pain point. But remember that NPS is the only product that gives importance to putting in place a predictable income stream in retirement years. The rest of the products don’t focus on this aspect. So from a retirement corpus diversification perspective and the fact that annuity ensures a lifelong pension for the investor, this (having an assured stream of income for life) is something that might be good for many who are not disciplined enough to generate regular income from a large corpus.

Also, long lock-in means very low liquidity. I think it’s a part of the deal and actually a good thing actually. NPS is a pure retirement product. It’s not meant for anything else and hence, discourages premature withdrawal. And ideally, if someone is doing goal-based investing (for other goals), then there wouldn’t be a need to withdraw from NPS for other things. NPS is the only retirement-focused product that tries to put in place a real source of reliable pension during retirement years. And to be fair, this is a good thing for those who would find it hard to generate regular income from their retirement kitty.

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