What is NPS?
The National Pension System is a long-term retirement scheme regulated by PFRDA. You pick an asset allocation across equity, corporate debt, government bonds, and alternatives, capped at 75% equity for most subscribers. Contributions get an extra ₹50,000 deduction under Section 80CCD(1B), over and above the ₹1.5 lakh 80C limit. The catch: at age 60, you can withdraw 60% lump-sum (tax-free), but 40% must be used to buy an annuity, which is taxable.
A ₹50,000-a-year contribution from age 30 to 60 (at a blended 10% return) builds roughly ₹90 lakh. Sixty percent (₹54 lakh) comes to you tax-free. The remaining ₹36 lakh buys an annuity yielding 6%, that is ₹18,000 a month, taxable.
Treating NPS as a substitute for equity SIPs. The forced annuity at the end is the worst-yielding piece in your portfolio. Use NPS for the extra ₹50,000 tax break, not as your main retirement vehicle.
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