The National Pension Scheme (NPS) is a government backed retirement plan that offers a window for a person to invest regularly to build a retirement corpus to draw annuity at the time of retirement. 40% of the corpus is used to buy annuity at the time of retirement with 40 % of the retirement amount tax free. The Atal Pension Yojana is a similar scheme meant for poor workers in the unorganized sector.

NPS as prevalent now, enjoys a tax edge over unit liked pension plans offered by insurers as the amounts up to Rs.1.5 lacs is tax deductible under section 80CCD and an additional 10 % of basic salary under section 80CCE, without any limit, in case the employer opts to contribute to the Pension Fund.

Employee Provident Fund

The Employee Provident Fund should be mentioned as this also makes up for pensions earned at a later stage of life. EPF manages a corpus of around Rs.10 lakh crores which is now permitted to invest a part of the corpus in the share market (up to 15%). NPS funds can have an exposure to markets up to 75% of their corpus. The user in NPS can switch from one fund manager to another and the interest returns in NPS are totally market related. EPF is compulsory for all organisations employing more than 20 employees while NPS is more voluntary and not mandatory except in Government run companies.

ULIP – Advantages

By definition, ULIP with an element of life cover and investment should be the ideal investment option for many. But with a host of other products in the market like Equity Linked Savings Scheme (ELSS), and high charges made from the investor, ULIP lost out on other schemes. But ULIP has some elements of a good saving plan for the following reasons:

• ULIP plans come with a lock in period of 5 years but even if the policy is bought once, tax benefit can be availed every year till the end of the premium paying term (premium can be paid monthly or in lump sum)

• ULIPs offer better returns compared to other offerings in insurance because of its equity advantage, though the maturity amounts will vary based on market conditions. The maturity amount is tax free at the hands of the investor whereas in NPS, a major portion is taxed.
• ULIP holders have the option of switching funds during the term. Four switches are allowed in a year without any charges. Prudent switching of plans can result in substantial long term benefits, adding to a tidy amount on maturity.
• The dual benefit of life cover in ULIP, gives a tax advantage up to Rs.1.5 lacs with minimum sum assured equal to 10 times the annual premium.

Recent IRDA guidelines have made ULIPs much more investor friendly than before as a lot of costs have come down. ULIPs are therefore considered great wealth creating tools for the long term because of the diversity of funds offered.

The bottom-line is simple; ULIPs today can be considered more attractive than NPS when it comes to a retirement fund.