Amid unprecedented Covid 19 times, when our finances face high uncertainty individuals now look for far safer avenues and if you are not very much convinced from the returns that bank fixed deposits generate currently, you too can consider this retirement product scheme which comes with other advantages too besides stupendous returns in double digits over a 1-year tenure.
Yes we are talking about none other than NPS or National Pension Scheme. While most NPS schemes have fared better than bank fixed deposits, here we stress in particular on NPS Tier II account and compare it with bank FDs-
Greater flexibility in NPS Tier II account
NPS Tier II account can be opened only if one maintains NPS Tier I account i.e. having a NPS tier-I account is a pre-requisite. Further the account comes with flexibility similar to bank FDs or even greater as investors can contribute and redeem money from their NPS Tier II account at any time and by any amount. On the other hand, FDs if redeemed pre-maturely attract some charges.
Provides taxation advantage to central government employees
However, this is not true for central government employees claiming contribution made to NPS Tier II account for tax deduction under Section 80C. For central government employees investing in NPS Tier II account deduction under section 80C is available up to the limit of Rs. 1.5 lakh in a fiscal year. And such accounts come with a lock-in period of 3 years.
Return from NPS Tier II versus Bank FDs
Now coming on to return from the avenue, NPS Tier II account Scheme G investing in government bonds and related securities has provided double-digit returns in the last one year. The average return from the category has been 11.84 percent. While the country's most trusted bank SBI for a 1-year term deposit fetches just 5.1% return per annum. For other investment tenures too, NPS fetches better return than bank FDs. Below is listed the table illustrating the performance of NPS Tier II Scheme G :
Performance of NPS Tier II Scheme G (government bonds)
|Fund manager||1-year return (%)||3-year return||5-year return|
|Birla Sun Life Pension Scheme||11.58||9.24||-|
|HDFC Pension Fund||12.24||9.96||10.66|
|ICICI Prudential Pension Fund||11.50||9.73||10.58|
|Kotak Pension Fund||11.65||9.28||10.48|
|LIC Pension Fund||12.05||11.62||11.95|
|SBI Pension Fund||12.04||9.77||10.66|
|UTI Retirement Solutions||11.82||9.57||10.45|
Note- the return mentioned above are as on August 12, 2020 and Source is Value Research.