In just one year, you’ll get a 60% return! Is the National Pension System (NPS) the greatest alternative for retirement planning?

The equities market’s near-peak performance has benefited the National Pension System’s (NPS) equity programme, Scheme E. The government’s pension programme has performed admirably, with equity programmes returning double-digit returns of up to 60% in the last year. LIC Pension Fund has generated the greatest returns of 59.56 per cent in the NPS Tier 1 Account, followed by ICICI Prudential Pension Fund (59.47 per cent) and UTI Retirement Solutions (58.91 per cent). Tier 1 NPS accounts are the most basic retirement accounts and are required if you wish to take advantage of NPS benefits. The returns of NPS equity schemes are comparable to those of the benchmark. Equity programmes in the NPS Tier II Account, which is an add-on account that allows you to invest in and withdraw from numerous NPS schemes without incurring an exit load. Tier I NPS accounts have a lock-in period of 60 years until you extend it, however, Tier II accounts have no lock-in time.

The National Pension System (NPS) has grown in popularity in recent years as a result of the strong returns it generates. Experts, on the other hand, argue that returns should not be the only reason to invest in NPS. Unlike mutual funds, NPS does not offer investors a lot of investment and redemption freedom. “A person cannot redeem his/her full NPS investment before the completion of at least 10 years or reaching the age of 60. Furthermore, the maximum equity exposure in NPS is limited to 75% of your entire NPS investment “Scripbox Co-Founder and CBO Prateek Mehta adds As a result, you’ll have to have some fixed-income exposure as well. For investors with a high risk tolerance and a long investment horizon, this limits long-term growth potential. According to Mehta, staying ahead of inflation is one of the most important goals of any retirement strategy. “Equity assets perform best after reaching this goal over long durations of 10-15-20 years,” he adds.

NPS, on the other hand, is a fantastic investment for conservative investors. In addition, NPS has several unique tax advantages. It allows you to claim a greater tax deduction of up to Rs 2 lakh under Sec 80C, as opposed to Rs 1.5 lakh for mutual fund ELSS plans. Another benefit is that you can withdraw up to 60% of your whole corpus as a lump amount tax-free at maturity. Those seeking to maximise tax benefits may invest an extra Rs 50,000 in NPS after expending Rs 1.50 lakh in other acceptable investment and expenditure alternatives under Section 80C.

There is no single optimum retirement plan.

There is no one-size-fits-all solution, but rather an effective inflation-protected portfolio that can adapt to shifting market conditions. A portfolio like this will have enough equities and fixed income exposure to beat inflation and provide stability based on a person’s risk profile and demands.

Saving for retirement is, first and foremost, a lifelong endeavour. You should figure out how much money you’ll need after you retire before you start saving. You should also re-evaluate this on a frequent basis, based on how your lifestyle changes over time. “One rule of thumb is to develop a retirement nest egg equal to 25-30 times your annual costs when you retire. The concept is to establish a kitty large enough to generate money that is at least equal to your costs (at the time of retirement).

Over and above this, if you have any liabilities or other major scheduled expenses, you should include them “Mehta states.

After you’ve established this financial goal, you can start thinking about asset allocation, which may vary according to your age and stage of life. For example, if you’re between the ages of 35 and 45, you can put 60% of your money into equity funds and 40% into debt funds, according to Mehta. In most circumstances, exposure to equities is necessary for retirement savings since it helps you beat inflation over time. Inflation, according to our estimate, is your primary issue while saving for retirement.

As you go closer to retirement, your asset allocation should ideally adjust to reduce the impact of market volatility on your retirement savings.