It is funny that the NPS is compared to the PPF and not to a mutual fund. If it was compared to a mutual fund, we would have expected to get indexing while calculating the tax. Because it is NPS we do not expect indexation. After all our EPF and PPF do not have indexation, do they?
Actually on EPF also I would not mind if i were told the following: My contribution and the company’s contribution would be kept separate, the interest would be shown separately, and indexing would be applied to the interest and taxed like capital gains. Believe me the tax will come to NIL. Or almost nil.
IN a country with 9% inflation and 8% interest on PPF and EPF I would stand to pay almost no tax.
Why does the government not do this? Simply because the Innumerate population would understand the trick. So what better than introducing a 80CCD with ‘extra’ Rs. 50000 just for NPS? Smart move. Many fund managers will fall for your trick Mr. Jet Lee.
Worse provision is the compulsory annuitization in a country which has only one annuity provider. His portfolio is another secret and is nothing short of a black box. As long as he can sell more policies and redeem a small fraction of that…and know that many families have no track of the amounts of money sunk into the game…this Ponzi will continue. Now do not give me the technical argument that there are 15 or 25 annuity providers. Their terms and conditions are worse than that of LIC – and LIC does not have a very great or flexible products. For example I would want the flexibility in NPS to allow me to do a part withdrawal to buy a DEFERRED ANNUITY. So at age 45 I should be able to take some money out of NPS and put it in an annuity with LIC for the pension to start at say 70. Will I get a better price than starting an immediate annuity at age 70? Maybe yes.
I should be allowed to let the money lie with NPS till age 90 and give it away to my children on my death. In such a case I may buy annuities at various ages – say 70, 75 and 80. Thus I get 3 pensions priced according to the interest rate then prevailing and a higher amount because I am older. Why no flexibility? No clue.
What you get back is taxed at the full rates and that is not a fair thing at all – simply because of inflation again. Why cannot this be taxed at say 10% especially considering that you are not providing an inflation cover? sounds like a cruel joke.
I will surely get a better return in a well managed mutual fund especially over the next 30 years. The NPS is like a compulsory product with a very expensive EXIT load, if there is one at all….and in equity it is tax free too.
Is my capital safe? I have my doubts. Getting a good fund manager with good management skills in debt is a nightmare. Equity getting a fund manager who has to choose among many indices is difficult. Competence, honesty, integrity and wanting to work with NPS do not go hand in hand.
I have met some of the people right at the conception of NPS and I have had my reservations about selling and misselling. In case of NPS there is huge mis-selling by the LEFT and its cronies. I hope all of them put their money and the interest rates go up. In fact so damn up that it takes 5 years to recoup losses due to a fall in the portfolio.
Then the Credit risk will hit. God bless.
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