Retirement planning can be overwhelming, but it’s crucial for securing your future. Being prepared for your golden years is essential – it gives you the freedom to partake in activities and experiences that were missed out in your earlier years due to any personal or professional responsibilities.
One of the most crucial aspects of retirement planning is saving and investing. The earlier you start, the more time your money has to generate wealth. The National Pension System (NPS) is one such retirement planning tool that has the potential to secure your financial future with the right strategies. NPS, initiated by the Government of India, is designed to provide long-term financial security to Indian citizens during their retirement years.
Through careful planning and smart decisions, NPS investments can offer retirement plans with tax-saving benefits, so you can enjoy what matters most in the future – without worries over finances. With this in focus, here are 4 practical and smart tips to help you secure your future through NPS investments.
- Choose the right investment option
Once you complete online NPS account opening process (for savings account holder you can visit the mobile App/net banking), you get two different investment options – active choice and auto choice. Active choice allows you to select the asset classes you want to invest in (with set limits), whereas auto choice also known as Lifecycle fund automatically allocates funds into various asset classes basis a predefined matrix given by the regulator PFRDA, where the Subscriber’s age and his risk profile is taken into consideration. The best part is that every year, on the Date of birth of the Subscriber the system will rebalance the asset allocation.
With auto option, you get three risk-based investment options to give you the right balanced portfolio:
- Aggressive Life Cycle Fund (LC-75)
- Moderate Life Cycle Fund (LC-50)
- Conservative Life Cycle Fund (LC-25)
- Be aggressive with your retirement savings if you are young
Considering the long term prospects it is advised to utilise the mix of equity and government securities portfolio and NPS should be part of that investment mix. It’s true that equity investments can be volatile in the short term but in NPS the regulation is for investment in nifty 200 companies so the Subscriber has the cushion; also looking at a longer-term horizon, equities usually tend to show higher returns than those on other asset categories.
- Set up an SIP to make NPS contribution online systematically
One of the best ways to maximise the potential of your NPS investments is to set up an SIP (systematic investment plan). This method allows for regular, small investments at fixed intervals over time rather than investing large sums of money at once. This ensures that your investment portfolio is well diversified, even in the face of fluctuating market conditions, and it also helps to minimise any losses associated with market volatility through rupee cost averaging.
Moreover, you can also enable the auto-pay feature while investing through an SIP. This will ensure that your contributions are deducted automatically from your bank account at regular intervals as per your chosen frequency and invested into your NPS account.
- Review your investment portfolio periodically
It is advisable to review your NPS subscription portfolios periodically to help ensure you are earning maximum returns without taking on too much risk. By regularly evaluating your NPS investments, you can spot underperforming assets and make timely adjustments based on current market conditions. These changes may include shifting the frequency of contributions, selecting different asset allocations, and changing scheme preferences or pension fund managers for the NPS Tier I and II accounts.
National pension system or NPS investments can significantly help you reach your financial goals and provide a secure future, but at the same time, it is important to follow a strategic approach and tips mentioned above. Taking the right approach now can lead to more security in years to come. Moreover, it is wise to consult with a financial advisor as they can provide valuable advice on customising your investment approach to achieve your retirement goals strategically.