Saturday, 12 September 2015

Atal Pension Yojana (APY) Indepth Analysis: Why it is not the best?

The Hon’able Finance Minister of India had announced the Atal Pension Yojana (APY) in his Budget speech earlier this year. The scheme is aimed at people working in unorganized sector in order to provide them with Social Security cover. The Scheme has been running for past couple of months and has evoked decent response from the people. But it remains to be seen that whether the Scheme gains popularity among the people working in Unorganized Sector as they are usually susceptible to plans which require investment over a long period of time. However the assurance of Guaranteed Pension from the Government should encourage people to take up this Scheme.

In my previous post, I have discussed the Features and Benefits of the Atal Pension Yojana (APY) and you may go through the same in the link provided below. In this post I will do an in depth analysis of the scheme and discuss why mere investment in this scheme will not just be enough for your future.

Analysis of Atal Pension Yojana (APY)

Return on Investment: The return on the Investment stands out to be roughly 8% which is pretty mediocre in my opinion as we have some other Government schemes which are offering higher rate of return. Even the bank interest rates on Fixed Deposits are higher compared to it.

Guaranteed Pension: This is one of the major reasons behind the Rate of Return has been kept at a moderate level because the pension amount is fixed and will not be revised so to safeguard the Interest of Investors.

Professional Management of Funds: The Pension Fund will be managed by the Pension Fund Regulatory and Development Authority (PFRDA), who are also responsible for managing funds under National Pension Scheme (NPS). These funds are managed by professional fund managers like SBI and ICICI. So, one can be assured that the investment is safe and secure.

Inflation to Depreciate Your Pension Value: Since the Pension Sum is fixed, it will fail to negate the impact of Inflation which is not an ideal Investment deal for the Individuals. Thus rising costs will have an impact on the return.

Ease and Low Cost Investment: Investment in the Scheme is easy and hassle free. It allows anyone and everyone above the age of 18 to invest in the scheme which is done with the aim to attract more people to invest in the scheme. So that more and more people are covered under the Social Security Welfare Scheme.

Investment in NPS Is A Better Option: Investment in NPS is a far better option as compared to Atal Pension Yojana as it promises to provide better returns on the investment.

Tax Benefit: Recently Income Tax Department has issued a notification stating that contribution to APY is eligible for Tax Deduction U/S 80 CCD (1). This makes it a decent scheme for Individuals looking for Tax Saving option beyond the deduction available U/S 80C (Rs1,50,000/-).  This will be inclusive of the additional deduction Rs 50,000/- available U/S 80 CCD (1). 

Time Value of Money: The basic concept is that value held by Re 1 today will not be the same after 30 years. The value of money depreciates with time. To put this into perspective say if inflation rises by 6% over the next 30 years then the purchasing capacity of an Individual with Rs 5,000/- pension will be equivalent to that of Rs 850/- today.

Overall Verdict

The Investment in this scheme is good for Individuals who are looking for fixed return Retirement Plans and are averse to risk. But if you are looking for a good retirement plan which would be able to take care of your future needs then it is always advisable to invest in National Pension Scheme (NPS), Mutual Funds (ELSS) and Public Provident Fund (PPF). It will not only ensure better returns on the investment but also provide tax benefits on the investment. 

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