Build an Income that pays after You STOP Working

0:01 [music] NPS actually this is India's workforce the youngest population in the world and these guys are retiring in the next few decades but hey mud NPS corporate bonds NPS correct Okay, so let me explain what NPS actually is, what are the pros and cons, and finally what strategy you can actually use to make this a tax benefit because new regime you don't have a lot of options to actually save tax, but

0:46 this not only does that also grows your wealth. And as a bonus, I'm going to give you a calculator where you can just put your salary and you can find out how much money you can actually save in tax and how much potentially you can actually make by doing the NPS. So the NPS was actually introduced to the central government employees and after 2009 it was introduced to the general public. It's basically a postretirement plan. In your working years, you keep contributing to the pension system and after you're done with working, that's after 60 during retirement, you can withdraw a lump sum or receive a monthly payment for the rest of your life. So, when you contribute to the national pension

1:32 system, it's like basically choosing 10 portfolio managers. Right now, you can see all these options here. You can choose any of them. Now after you've selected the manager you can also select the asset class. So over here we can see equity, government bonds, corporate bonds, investments. [music] So now that we know the assets, how do we actually invest? So if you look here there are two kinds of accounts. Tier 1 and a tier 2 account. A tier one account is your basic pension scheme account. This is your main retirement account and you must open this to actually have access to a tier 2 account which functions just like a normal savings account and does not have a lot of restrictions and rules. Now let's talk about the tier 1

2:17 account. There are a bunch of rules around this but I want to tell you the most interesting ones. First there are caps. You cannot put 100% money in say equity. Equity has a cap of 75% and this totally makes sense. The government does not want the public to put all of their money in a risky asset like equity. Then we have government bonds and corporate bonds. Here there is no capping. This could be 100% as well. But the government has also launched something called the multiple scheme framework for non-government employees. Here basically you can choose multiple schemes and multiple assets and it even allows you to do 100% in equity but you can't exit this for 15 years. Now this may seem like a con but

3:04 it's actually really good because the biggest problem with equity is all of you want a return of 1 or 2 or 3 years but the asset class needs you to invest for 10 15 years for it to be relatively safer. Now let's talk about the tier 2 account. The tier 2 account is exactly like a savings account. There are not much restrictions over here. Over here you can even allocate 100% to equity and alternatives don't exist. Now comes the interesting part. How much money should you allocate for any of these asset classes? Now you can decide the asset allocation yourself or you can choose one of these options which is basically auto mode. You have aggressive, moderate and conservative. And I think the way that the NPS works in this is quite interesting. Hear me out. So let's look

3:50 at aggressive. Aggressive roots 75% of your contribution [music] into equity and then after you turn 35 every year it reduces the equity exposure by 4%. And redirects it. So basically as you're aging you're moving the money from riskier assets like equity towards bonds. So by the time you're 60 most of your money is towards fixed income. Interesting. Then there is moderate option where it allocates 50% to equity. Then as soon as you turn 35 it starts pushing that money towards bonds and reducing your equity exposure. Same for conservative. The starting over here is just 25% in equity and once you cross 35 it reduces by 1% exposure every year. I

4:38 think the aggressive option over here looks like moderate only to me. But the national pension scheme is designed to be safe. It doesn't want to take too much undue [music] risk. But the advantage about the NPS is you're thinking retirement. And when you have time on your side, you can actually unlock real value because you're thinking in terms of decades. Now that you know how to contribute, let's talk about actually withdrawing the money. So how does that withdrawal actually look like? Let me explain. So once you turn 60, the withdrawal is actually pretty simple. Imagine this is your entire corpus. Now there are two things you can do over here. There is a lumpsum

5:24 withdrawal or annutity. It basically functions like this. This is your corpus. You withdraw a lump sum amount and you're able to do something with this because you get a big fat paycheck after you retire. And then the money that's left over is converted into an annuity. Annuty basically means that this certain amount is paid off to you every single month for the rest of your life. That is annuty. And this is also growing. So there is some money that's also being added albeit a little slowly. So this is what it is. You have lumpsum and then there's annuality where this is also growing very very slowly and you're also withdrawing something every single month. So let me tell you the actual

6:10 numbers. If it's less than 8 lak rupees then you can withdraw the entire thing at once or you can convert it into these monthly payments to yourself. If it's between 8 and 12, you can take out a maximum of 6 lak rupees and annual for the rest. And if it's more than 12 lakhs, the maximum you can withdraw is 80%. So let's suppose you have an entire corpus of 1 cr rupees in your NPS account. Then 80% that's 80 lakhs you can choose to withdraw in one shot and the rest lakhs is then converted into an annuality. Now let's talk about tax. For that I'm going to put this back here. This is your entire NPS corpus. Now this

6:56 entire amount 60% is tax-free and the rest is taxed according to your slab. Now let's start about the pros and cons. First a little bit more on tax benefits. You see the new regime doesn't give you a lot of options to actually save tax. NPS is one of those roots you can actually save tax over here. If you look at the structure, if your basic salary is 10 lakh rupees and you contributed 1.4 lakhs to NPS, then that can be reduced from your taxable salary. In other words, 14% of your basic salary can be reduced and therefore you pay lesser tax. If you go to the description and click on the Excel sheet, simply go

7:43 to file, make a copy and fill these numbers up. As soon as you do this, you will know how much money you can actually save. But I also want you to think you are smart. You want to get ahead in life. Correct? So please do not assume that your salary will be the same over the next decade. So I want you to do a little experiment. increase that amount a little bit and see what your contribution can be far into the future. And with this calculator, imagine what benefit you can get over the next 10 years. And also uh I think you should hit the subscribe button because you're watching it, you're liking 01, but you're not hitting subscribe. [music] Please do that. One rule I wanted to tell you was that if you contribute to

8:30 NPS yourself, there is no tax benefit. you have to do it through your employer and your employer has to give you the option of doing NPS. Another pro we have is cost effectiveness because the government is involved. They want to make sure that the prices the cost is actually competitive and one thing that's interesting is that the Indian NPS system is the lowest cost pension system in the world. So when you invest in a mutual fund, the TER or the total expense ratio could be what 1% or something like that. But the government has capped management fees for NPS at 0.12%. [music] Which is much lower than the average

9:16 expense ratio of say.5% all the way to 1.2 1.5%. [music] Another benefit is annuity. But think about India. Most of India invests in uh assets like uh land or gold. Think about your parents. They probably own these assets, right? And it makes you wealthy over a long period of time, but it makes you asset rich and income poor. So NPS is an option where you actually have liquid cash after you retire and it's actually quite interesting because Indians have forgotten how to save. I think one thing I'm a little worried about this new India in 2026 is saving think about your friends they have credit cards they're

10:01 spending and they're enjoying their lives they're yoloing [music] which is good but to you have to think about the future right so if you look at the NPS system basically you can start withdrawing after 60 two options you can do that entire lumpsum or you can do the annuality now if you do the lumpsum you can put it in another mutual fund and start an S swp as well so you have a regular income coming every single month. But remember when you're doing the annuity option in NPS that monthly payment to you is not taxfree. Now let's talk about the disadvantages and the first biggest disadvantage which there is a lock in. Basically you can't withdraw your money for a long period of time. But I have an opinion on this. See first we can see over here that you can

10:47 access partial withdrawal only after 3 years. The partial withdrawal can be done only four times until the age of 60 and that too in special circumstances kids education, kids marriage, building a home, medical expenses or all of the above. But this is bad, right? I mean you have saved this money in the NPS to Mhara Pesa and they're not letting you withdraw the entire thing. [music] But that's the point. The point is discipline and they're making these rules. So it's very tough for you to withdraw your money. Think about your chao other people in your life who made some wealth. They had bought some land or something but they had bought it in 19 something

11:32 and because it was very tough to sell those assets they are worth a lot today. Correct? Equity is also the same. They're trying to actually make you more disciplined. Now let's talk about some basic strategies. You can withdraw up to 80% as a lump sum. But remember only 60% of the total amount is taxfree. So another option exists here. Instead of withdrawing that lumpsum amount, you can redirect it into the same system into a new kind of account which is called the RIS account. And basically this functions as an SWP. It functions as a place you can withdraw every single month and receive something. And if it's below your income tax threshold, it becomes tax-free. Otherwise, you will

12:19 end up paying the long-term capital gains tax on it. Basically, this is one way where you can save a little bit of tax and also make an extra monthly income after you've retired. The second thing is that this is not a replacement for mutual funds. [music] See, just because fund managers exist in the system, they're investing in equity, they're investing in bonds, [music] does not mean that this is like a mutual fund. The way you have to think about it is the NPS's objective is for retirement only. You [music] must continue with your mutual funds for different goals you have in life like your vacation, for short-term goals or something more serious like your car or your home or education etc. So that goal-based investing in mutual fund should still exist. A good option is to do the NPS

13:06 for retirement plus mutual funds like you normally do. They should both coexist. Now, what did we miss in this video? I think we missed talking about the knowledge that you have now about investing. And hopefully you've seen other 01 videos. You know what? You still don't have habit. Um, you know your friend who started doing some vice when he was younger, maybe drinking, maybe smoking, maybe [music] something. It's very tough for him to um change his life, his habits. That person has not changed even today. I can see it. My friends who were 23 back then, I'm 37 now. They're mostly same and their life choices have been shaped by those habits. Think about it. How you spent your life last week is

13:54 likely going to be your next 10 years because your habits is what will actually change. The problem with India is that we were a savings economy. Now we are on credit. There is no retirement income and everyone's yoloing. You just need to add one power habit. That power habit is saving some money and putting it into some investment. Doesn't have to be equity, could be bonds, could be something. But if you make that first step today, it'll mean that you're ahead of most of the population. Just by doing one power move of starting some investment today, you can actually get ahead of everyone because no one's actually doing it. So if you decide to change, please type I'm

14:40 starting today. So I know and all of us know at 01 that hopefully this video probably started that one power habit. I hope you enjoyed this. Say thank you to the team. My name is Pratik Singh. See you in the next video.