National Pension System (NPS): April timing key for NPS investment for these two reasons

 

The National Pension System (NPS), regulated by the Pension Fund Regulatory and Development Authority (PFRDA), stands out as an accessible retirement savings scheme for Indian citizens aged 18 to 70, including NRIs. This initiative, initially limited to Central Government employees, expanded post-May 2009 to embrace the private sector, offering diverse models such as NPS Central Government, NPS State Government, and NPS Corporate. 

The All Citizen Model further allows voluntary participation. Particularly beneficial for private sector workers lacking employer-sponsored pension schemes, NPS has recently opened its doors to younger investors through NPS Vatsalya. 

Investing in NPS

As the financial year 2025-26 commences, experts suggest the first week of April is an advantageous time to embark on your NPS investment journey. Early investment facilitates the compounding effect, significantly enhancing long-term financial growth. For instance, an investment of Rs 1,000 today can grow over six times in two decades and more than 17 times in three. Starting in April ensures you capture returns throughout the year. With no upper contribution limit and flexible payment options, investors can choose between lump sums or regular installments.

Current market conditions present another compelling reason to consider NPS investments now. The recent correction in equity markets offers a unique opportunity for higher returns as part of a long-term strategy. NPS fund managers allocate a fixed portion of investments in equities, making the timing ripe for maximising potential gains. Over time, the NPS corpus is poised to navigate various market cycles, promising returns for those committed to long-term investment horizons. 

Tax savings

NPS investments also unlock significant tax benefits. Under the old tax regime, investors can claim an additional deduction up to Rs 50,000 under Section 80CCD (1B) in addition to Rs 1.5 lakh under Section 80CCD (1). Furthermore, upon maturity, 60% of the NPS corpus is withdrawable tax-free in a lump sum, with the remainder used to purchase a tax-free annuity.  While the deadline for this is March 31, 2026, early action can help you avoid complications.

For those opting for the new tax regime, employer contributions up to 14% are tax-exempt. Early investment not only simplifies tax planning but also avoids last-minute financial manoeuvring. 

NPS framework

The NPS framework simplifies complex asset allocation decisions, providing a seamless mix of debt and equity investments tailored to individual risk appetites. Investors can choose 'active' or 'auto' allocation strategies, with the latter offering lifecycle funds that automatically adjust equity exposure with age. 

For individuals who struggle with choosing how to allocate their assets, there is an automatic option available with the ability to select from one of four life cycle funds:

LC25: This fund allocates 25% to equity and 75% to debt.
LC50: This fund allocates 50% to equity and 50% to debt.
LC75: This fund allocates 75% to equity and 25% to debt.
Balanced Life Cycle Fund: This fund maintains a 50% equity allocation until age 45, after which the equity portion is gradually reduced to mitigate risks as retirement age approaches.

Moreover, the flexibility to revise asset allocation four times a year enables investors to align portfolios with evolving economic conditions. Additionally, the 'invest and forget' approach suits long-term goals, with NPS offering government backing, enhancing its appeal over unregulated financial products. The scheme allows for deferred annuity and lump sum withdrawals until age 75, providing flexibility for late or extended investment journeys.