60. Here are some of the risks of investing in NPS after

However, there are some risks involved in investing late in NPS. Here’s a look at them:

NPS investment: The investment options for senior citizens and pension fund managers to join after 60 years remain the same.

The normal exit will be after three years, and a senior citizen cannot extend the annuity beyond that. They are allowed to withdraw a maximum of 60% of the corpus at 75. However, the balance amount of 40% will have to be mandatorily annualized. This means the subscriber has to buy a pension or annuity from any life insurer using 40% of the NPS corpus after three years of initial investment. Also, if a senior citizen decides to exit before three years, only 20% can be withdrawn as a lump sum, and with 80% of the balance, he needs to buy an annuity plan.

60. Risks of investing in NPS after

It is important to note that the sole purpose of investing in any tax saving investment for senior citizens, especially NPS, should not be tax saving.

1. liquidity riskThe first is the issue of liquidity. Adil Shetty, CEO, BankBazaar.com said, “NPS have lock-in not only during the investment period but also post-investment, when the investor compulsorily needs to buy an annuity. For senior citizens, lock-in may not be convenient.”

2. return is not guaranteedNPS: NPS is a market linked product with equity contributed, and debt needs time to perform.

“A Senior Citizen Savings Scheme or National Savings Certificate (NSC) investment, for example, clearly advertises a rate of return. Also, with the annuity requirement, the investor should invest 40% of the NPS corpus in a pension plan which can provide sub-optimal returns and fully taxable returns as compared to FDs. Hence, the total return from NPS investment tends to fall on maturity due to the need for annuity. Conversely, an option — an index fund, for example — can continue to provide sustained growth for any length of time,” Shetty said.

3. short investment horizonNPS: NPS may outperform over the long term as equities have generally outperformed other asset classes over the long term.

“The NPS investment tenure available to a senior citizen is much less than that of a 35-year-old person who can go through several market cycles to earn good returns. But a senior citizen would not have that luxury. Presently, returns from corporate and government debt are very low and likely to remain low. Therefore, an aging investor will not have enough time to stay invested for higher returns. Even if the senior citizen has invested 50% in equities, there may not be enough time to enjoy optimum returns due to short investment tenure,” Shetty said.

4. taxable pension incomeAnnuity received as pension income is taxable as per the tax slab of the senior citizen in the year of receipt.