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Investments (instaed of FD )in Tier- 2 of NPS as like mutual funds

S S Dahale ( Agri and business) (439 Points)

14 June 2018

Many investors keep -park certain amount in FD with banks and NBFC, now a days most of the MF managers and financial advisors ( may be (?)because of commisssion they get) advise to park this amount in mutual funds,instead of FD's

my query, why not park this amount in Tier- 2 of NPS ( National Pension Scheme), which is also governed by PFRDA, and gives better returns as like mutual funds, any experts at this CA club forum , may kindly mention if any if 's and but's of investments in Tier-2 of NPS

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Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (182760 Points)
Replied 14 June 2018

NPS Tier II is not a fund registered under Section 10(23D) of the I-T Act, the equity investment will not be eligible to be as an equity-oriented fund. Consequently, it may not be eligible for long-term capital gains exemption under IT Act.

Unlike the FD, where only the interest is taxed, here the entire amount withdrawn is taxable. Also, unlike debt funds, investments in corporate debt and government plans of the NPS do not enjoy the indexation benefit. It is a big disadvantage and can bring down returns substantially. So, think carefully before considering the Tier-II NPS account as an alternative to fixed deposits and debt funds.

Otherwise, due to low cost structure it is better to other types of investments...

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