I had written an argument of for vs against NPS, sometime back. Here it is.
Option 1:
We hunted down to making a choice of Rs 80,000 as cash or Rs 200,000 with an assured post tax rate of 5.17%. This works out to be Rs 10,340 yearly or Rs 862 monthly.
To get this cash flow on a principal of Rs 80,000 this has to offer 12.93% per annum return. So, getting a post tax rate of 5.17% on Rs 200,000 annuity is equivalent to getting 13% on Rs 80,000 (which is what would be available, by not going into NPS)
Option 2 (not discussed in the other post):
At age 60: Take Rs 200,000 in cash and taken an annuity of Rs 300,000
So here is the outcome at age 60,
Not going for NPS: Have extra cash of Rs 150,000
By going for NPS : Have an annuity worth of Rs 300,000 @ 5.17% post tax (assuming the old service tax of 15% and 10% income tax on annuity income)
By going for NPS, Rs 15,510 yearly or Rs 1,293 per month will be the annuity cash flow. To get an equivalent cash flow on Rs 150,000, the rate would be 10.34% per annum.
As of now, I am still not able to say concretely whether it is go or no-go. Because, depending on how you look at it and what is important (liquidity vs locked corpus), what kind of assumptions being built in (current tax slab, retirement tax slab, returns of NPS versus non-NPS), the case can tilt either way.
Option 1:
We hunted down to making a choice of Rs 80,000 as cash or Rs 200,000 with an assured post tax rate of 5.17%. This works out to be Rs 10,340 yearly or Rs 862 monthly.
To get this cash flow on a principal of Rs 80,000 this has to offer 12.93% per annum return. So, getting a post tax rate of 5.17% on Rs 200,000 annuity is equivalent to getting 13% on Rs 80,000 (which is what would be available, by not going into NPS)
Option 2 (not discussed in the other post):
At age 60: Take Rs 200,000 in cash and taken an annuity of Rs 300,000
So here is the outcome at age 60,
Not going for NPS: Have extra cash of Rs 150,000
By going for NPS : Have an annuity worth of Rs 300,000 @ 5.17% post tax (assuming the old service tax of 15% and 10% income tax on annuity income)
By going for NPS, Rs 15,510 yearly or Rs 1,293 per month will be the annuity cash flow. To get an equivalent cash flow on Rs 150,000, the rate would be 10.34% per annum.
As of now, I am still not able to say concretely whether it is go or no-go. Because, depending on how you look at it and what is important (liquidity vs locked corpus), what kind of assumptions being built in (current tax slab, retirement tax slab, returns of NPS versus non-NPS), the case can tilt either way.
