Sun. Sep 1st, 2024

Don’t Invest Your Money Here

Don’t Invest Your Money Here

How great would it be if you received 50,000 pm until you die. That's what the NPS (National Pension scheme) tries to solve.

Not 50k per month precisely, it of course depends on how much you've contributed to NPS. It could be 15k per month or even 1 lakh per month.

What's the problem?

I personally think NPS investments are not done in the right way. They have nailed the equity allocation - by allowing upto 75% until the age of 50 and then gradually reduces to 50% until 60. This is in line with the Equity Glide Path method which I have talked about in a previous reel. However, within equity the allocation is highly skewed towards large cap stocks - 90%+

When your retirement goal is more than 30-40 years away, it's not wise to invest 90% in large cap. Having atleast 40% allocation to midcap and another 15-20% in small cap can drastically increase your returns by 4-5% CAGR. Over a 30 year period this difference is massive.

Having said this, investing in NPS still makes sense for tax saving purposes especially if you're in the 30% income bracket. You can ask your employer to structure your salary in such a way that your employer matches your contribution to NPS. It is also possible to get upto 3.5L in tax exemption if use NPS properly. That like 1 lakh in tax saved every year. I will make a separate reel on this topic. Don't worry 🙂

But beyond that do not invest in NPS and consider actively managed mutual fund.

➡️ I talk about how to pick them in my course "The One Percent Finance Club". The link is in my pinned comment !!

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