Say you are an employee earning Rs. 1 crore and Rs. 2L is going to your EPF account, now you have a choice of putting more in EPF or starting an NPS account which one should you choose?
Well, it depends!
Let us assume you have a Rs. 5 crore equity portfolio and a Rs. 2 crore debt oriented portfolio and your wife is also working and has her own portfolio, my answer would be: Continue your EPF for as much time as possible..i.e. 2 years post retirement (ask your HR when does the interst cease to accrue).
The interest that you receive from your PF is very high and is tax free. More importantly you are NOT subject to MTM of the portfolio. You do not suffer interest rate risk, valuation risk, and default risk. What more can you want from a debt product.
You get to use the INTEREST FREE accumulation exactly the way you wish to use it. Not as a TAXABLE annuity as the NPS will decide to give you. The annuity pricing by NPS is worrisome – I do not have annuity portability, which means I am stuck with the rate that the NPS offers ME on that day when I convert. With my PF accumulation I can choose to buy annuity as and when I want. In fact I encourage people to buy annuities at ages of 65, 70 and 75…without return of corpus. I do not have any such flexibility in Nps.
The huge advantage in EPF is that there is no upper limit of your OWN contribution, there is no tax, there is tax free accumulation (which means on the accumulated amount too you are getting a rate of say 8.6% interest WITHOUT MTM risk). Since you are rich already and have a great direct equity portfolio going, you do not need a govt controlled fund manager – who has a go anywhere mandate. Tsk, tsk they have a go anywhere mandate in debt too. Should I tell you the story of a mf recently buying a back dated paper of a big company? I mean they closed the deal 5 days AFTER THE DOWNGRADE, but backdated to say ‘we buy on X rated paper’?
No, do not take a fund manager risk when you do not even know the mandate. I have trained some of the people there – and when I came out I was happy that I had no money in Nps. It is too broad a mandate, and I would hate a baboo(n) making a law saying ‘any index is allowed’. Rest assured that in 2022 it will be investing in a PSU index or a psu bankex. It is just 4 years away. Already NPS is attracting the political attention. Remember 2 fund houses invested the money in their OWN index funds and you ended up paying AMC twice? Our MSM of course had no time to talk about that faux pas. I spoke to one of the directors …and it took him 5 minutes to understand the game. I do think he is still a director (or trustee, which is worse)..I have lost touch with him.
Of course if you are not this profile, my answer will be different.
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