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NPS is the Best Way to Plan for Retirement. Why?

National Pension Scheme is one of the most sophisticated innovations which are based on world’s excellent practices in the pension segment. It is a fact that saving for long term like retirement certainly costs a lot. By the age of 35-40 years, these charges can shave off a prominent amount from the corpus. The NPS levies 0.0102% as fund management fees for the government employees. While there is hike of 0.25% for the employees working in private sector.

The population of India is graying and as per the current UNFPA report, the numbers of Indians that are above the age of 60 years are projected to rise to approximately 55% by the year 2050. The demographics also point an accelerating longevity together with an active lifestyle after retirement because of better medical facilities and health awareness amongst the individuals.

While on one hand, this is incredible news, it also signifies that tomorrow’s retirees shall have longer retirement and must henceforth save ample corpus for their later years of life.  They must look for different retirement plan options that involve disciplined savings, watchful investment for building an ample retirement corpus together with a well thought-out drawdown in their post retirement period.

Most of the individuals that are planning for their retirement must have heard about NPS – National Pension Scheme. It is considered as one of the best retirement plan options owing to its flexibility and lifecycle fund. This is particularly meant for those individuals who are not much financially aware or for those who cannot manage their asset allocation by themselves. This retirement plan option also works best for individuals who have not signaled the desired allocation for their investments.

Under NPS, the age of investor decides the exposure of equity. Nearly 50% allocation to equity is decreased every year by two percent, once the investor reaches the age of 35 years, till it comes down to ten percent. This is done intentionally to choose a higher return, higher risk portfolio mix in early stages of life, when there is sufficient time to make up for the feasible black swan event. Resultantly, as the individual investor reaches his retirement, he tends to move towards a much more stable, low risk and fixed return portfolio. The automatic re-jigging of individual’s asset allocation is an exceptional feature of National Pension Scheme. If you compare, no other retirement plan options offer such facility to the investors like NPS does.

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