What's the case against NPS tier 2?

[a_bit_of_reason]

@unquirer There is limit to amount on which tax benefit is available. As such there is no investment cap.

NPS FAQ: Canarahsbclife

 

[unquirer]

@a_bit_of_reason Oh ok, didn't know that.

 

[zoli12452]

@unquirer If you use NPS tier 2 for debt how do you rebalance with equity mutual funds?

 

[mrsminx]

@raulcraven Agreed, I believe NPS Tier 2 is a fine option for long term portfolio. Additional points in favor of NPS (both Tier1 and Tier2):

1. We can trigger a manual rebalance twice a year without tax penalty. In the traditional asset allocated portfolio, a yearly rebalance will necessarily involve taxation.
2. Debt portfolio has good credit quality as per mandate. We don't have to track the credit risk too closely.

I made a small investment in Tier 2 around Jan-21 to track its performance over time. Since NPS limits maximum equity exposure to 75%, the right comparison is with a balanced fund.

The following are the results and XIRR comparison with what I would have got with other investment options. Overall, I see that it's able to match a balanced fund very well.

Total Portfolio Cost 100,000

Total Portfolio Value 118,424

Total Gain/Loss 18,424

XIRR - Portfolio 30.04%

XIRR - NIFTY Tracker 37.66%

XIRR - Gold Tracker -7.86%

XIRR - Balanced Tracker 27.49% (70% Nifty, 30% Bond ETF)

XIRR - Edelweiss BA Tracker 30.51%

 

[resjudicata]

@mrsminx The thing that worries me is what is the incentive for the fund managers to outperform? The fee is so small and these schemes are pretty much like locked in, normally people wont even think of moving in and out. So I wonder, if we just do DIY index funds for equity and for debt we could use various strategies depending on the interest rate cycle and keep our liquidity intact, would love to know your thoughts.

 

[mrsminx]

@resjudicata There is no incentive. Think of this as an index fund where you can decide the asset allocation.

If you choose a DIY index fund with debt fund combination, you will need to rebalance every year. This comes at a cost. NPS with its choice to redeploy assets twice a year gives you a low-cost, tax deferred way to change the asset allocation depending on interest rate cycle and market conditions.

Well, one can always go for a hybrid mutual fund. I have my own reservations on that. The least of them is the TER costs involved.

 

[1517today]

@raulcraven I too want to start investing in NPS 2. Can someone answer this question?

How do I withdraw money from this account? Like I don't want to withdraw entire amount and exit. More like whenever money is needed, I can withdraw some amount and keep remaining investment, maybe also continue my monthly investment.

 

[mennosota]

@1517today I have ENPS. I invested in tier 2. and moved the money in tier 1 without any hassle. I don't think their is any issue moving your dough out of tier 2. Tier 1 is a black hole though.

 

[1517today]

@mennosota How about moving out to my savings account. I did not find anything on official website. There is some material about closing the account.

 

[raulcraven]

@1517today You can withdraw just like mutual funds, website and app can be used for same

Yes partial and full withdrawal is an option.

 

[celizabethdavis]

@raulcraven Tier 1 also has some of the features you listed (1,4,5,6). And also, there are no tax benefits. The taxation is also on IT slab rate not on fixed rate like LTCG for MFs. Returns are also not great. You cna earn much higher returns in equity MFs.

 

[htrobert1]

@raulcraven Last I checked,I think one needs to have a tier 1 account to open a tier 2 account and that’s a drawback unless this is relaxed now

 

[andy316]

@htrobert1 Tier 1 needs a minimum of 500 per year, I dont see that as a deterrent.

 

[nansi]

@raulcraven Good read - https://freefincal.com/can-i-use-nps-tier-ii-as-a-low-cost-index-fund/

 

[mennosota]

@nansi What shit it says!!! Recommends no exposure to Equity . Sus!!

 

[nansi]

@mennosota What? You read it wrong for sure.

 

[foxmulder]

@raulcraven Equity part of both NPS tier 1 and 2 don't have defined benchmark, so you don't have anything to compare it's performance hence you won't b le able to tell if it performed good or bad

 

[uncleo]

@raulcraven You can go max upto 75% equity.

Depending on the fund manager, mfs can give better returns since they're actively managed for which the expense ratio is a small price.

The tax implications are unclear, i even wrote to them about this, if it's taxed on your tax slab, then it's highly inefficient.

Also the expense ration is not clear, nowhere a total is mentioned, their official website gives a chart of different charges but they're all %s so you can't really calculate the % out of your investment clearly.

 

[kj_oregon]

@uncleo

Unlike mfs where you can see the porfolio, you don't know where your money is invested.

Kuch bhi ??
All the NPS fund agency are obligated to show their portfolio once a month just like MF

https://www.iciciprupensionfund.com/NPS/#/public-disclosure/portfolio-details

http://www.npstrust.org.in/content/scheme-portfolio

 

[uncleo]

@kj_oregon Oh this is great, didn't know, will edit that. Thanks!