Mutual Funds

Fund Query: Should investors over 60 go for the NPS?

Parvatha Vardhini C. BL Research Bureau | Updated on September 25, 2021

I am 63 and am a tax payer. I have already invested in instruments eligible for Section 80C investments in full. Now, I would like to join the NPS and make an investment of ₹50,000 in it. Which scheme should I choose to be invested up to 70 years of age?

My husband is 68. Can he can also invest in NPS? Can he expect more than 6-7 per cent returns? Up to which age can one invest in the NPS?

Your opinion in this regard is highly appreciated.


The maximum entry age for the NPS was recently increased from 65 to 70 years. Being 63, you were eligible to enter the NPS even before this change. After this change, your husband, who is 68, is also now eligible. Those in the 65-70 age group entering the NPS now can remain invested until they are 75. So, your husband will have a seven-year investment period if he enters now (although deferment of lump sum withdrawal or annuity or both is allowed). For those 65 or younger, the rule so far has been that they can remain invested until 70. While it can be interpreted that all NPS investors, irrespective of age of entry, can now remain invested till they turn 75 because of the new tweaks, there is no official clarification from the PFRDA (Pension Fund Regulatory and Development Authority) on the same.

Taking your case, it is not a wise decision to invest in the NPS just because putting in a sum of ₹50,000 in the same will fetch you a tax deduction beyond the ₹1.5-lakh limit of Section 80C.

It is not clear if you want your husband to invest in the NPS for tax purposes too. Ideally, NPS investments should start when you are in your prime, and at 60 or after you retire, the corpus must be used to create a regular income stream to make up for the absence of a salary. The compulsory annuity option for 40 per cent of the corpus is designed keeping this in mind and the remaining 60 per cent can also be invested to create a regular income flow.

Secondly, you must understand that the NPS is a market-linked product both on debt side as well as on the equity side. Like every NPS investor, you can choose between auto and active choice. For your age band, the maximum equity (Scheme E) exposure allowed under these options will be 15 per cent (auto, aggressive life cycle fund) and 50 per cent (active) respectively. Under the active choice, you can opt to fully invest only in corporate bonds (Scheme C) or government securities (Scheme G) and avoid equities entirely as well. Under the auto choice, a minimum exposure of 5 per cent to equities will be there (under the conservative life cycle fund).

Whatever be your choice, your portfolio, and hence your returns, will be not be entirely immune to market fluctuations. Over the past five years, top NPS funds across Schemes G, C and E have given 8-15 per cent CAGR returns. But the portfolio returns for each person will vary depending on their allocations to Schemes E, C and G. And as always, past performance is not indicative of future. The shorter the tenure, the higher the risk.

Net-net, being over 60, you and your husband should invest in NPS only if you are not looking for regular income, are willing to take risk, and don’t mind the illiquidity and end-use restrictions of the NPS. Those over 60 can make a ‘normal’ exit from the NPS only three years after joining. A premature exit will imply that at least 80 per cent of the corpus will have to be used for purchasing an annuity product compulsorily (rule applicable for corpus over a certain specified sum).

If not, you can consider conservative investment options such as Senior Citizens Savings Schemes from the post office, PM Vaya Vandana Yojana and RBI floating rate bonds which provide regular income and also returns superior to bank deposits today.

If you are willing to take more risk, you can consider certain categories of hybrid and debt mutual funds which are liquid and also don’t come with end-use restrictions.

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Published on September 25, 2021

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