I think we are missing one extra benefit from NPS. There is an additional tax saving in NPS starting from 2015.
Tax savings: The extra deduction of Rs. 50,000 on NPS can help those in the highest tax bracket of 30 per cent save an additional
Rs. 16,000 in taxes. Those in 20 per cent tax bracket can save over
Rs. 10,000 while those in 10 per cent can save over
Rs. 5,000.
So even if you are 10% tax payer you will save extra 5k and if the fund returns a min 8%..then total return from the fund is 18% per year!!..which looks very good. Let me know if my understanding is incorrect.
More details are here :-
http://profit.ndtv.com/budget/nps-to-give-extra-tax-deduction-of-rs-50-000-10-things-to-know-744518
Ok, i didnt notice that. I thought they only increased the limit from 1L to 1.5L to bring it on same level as ELSS etc. But in addition to that you can also put 50k more over and above 1.5L. So you can do 1.5L in ELSS and and extra 50k in NPS
Its still complicated because
1) It will be taxed on redemption, General LT Equity is not taxed atleast for now.
2) You are locked until 60 years. Max you can take out is 1/5th accumulated. Even after its unlocked atleast 40% must be with "annuities offered by insurance companies". I have no idea what they will provide.
3) NPS invests in Index Funds. If our Index composition remains similar, Over many decades they might be massively outperformed by diversified mutual funds even after accounting for reduced expenses.
4) 50% will be put in debt. Thats rather high if you are young
On the other hand if you are in 33% bracket, you can save 16.5k right now and invest it in diversified mutual funds
I still cant make out if its a good deal overall, especially because our indices underperform. If it was usa, it would be much better.
EPS vs PF seems no brainer for long term though. If you have to put some anyway then EPS should be better.
So even if you are 10% tax payer you will save extra 5k and if the fund returns a min 8%..then total return from the fund is 18% per year!!..which looks very good. Let me know if my understanding is incorrect.
No, ofc not. 10 % saved is only for first year. After that the 10% will only have a small compounding effect. Returns will probably be more than 8% over long term but good diversified MF will be even better ...