Worries over new DTC (Direct Tax Code) Law – Equities vs NPS

There’s one thing that worries me about the DTC:

There’s no provision for 100% equity long term savings that will give me tax breaks.

Right now, I save Rs. 10,000 in tax because I invest 1 Lakh in Templeton’s Tax Shield ELSS scheme every year. This mutual fund invests my money in equities and equities only. Over the long term, I get outstanding returns – so I get tax breaks and satisfy my investment needs as well.

Since I’m not formally employed, with the new DTC the only scheme where I get tax breaks is the New Pension Scheme (NPS). I did a bit of research on the NPS and found that I can only invest 50% in equities. This will significantly lower my returns over the long term (25 years). It’s not worth saving 10,000 a year when I can get almost double the returns if I invest in 100% equities. Plus the NPS website is horrible, badly organized and doesn’t instill any confidence in me.

Plus as of now they’re only accepting payments by cheque (gasp!). Do people still use paper slips for financial transactions? At least we’re told that e-payment facilities are in the pipeline. Another problem with the NPS is that if I retire early, I’ll be forced to buy an annuity from an Insurance company with the money. I hate insurance products and want to have nothing to do with them. It’s my money carefully invested over the years and I don’t like being told what can and can’t be done with it.

But unless I invest in the NPS, I get taxed:

  1. When I invest – since ELSS schemes will be dead
  2. When I withdraw

Also worrying is the fact that others will come to the same conclusion. Since equities will lose their tax benefits, the stock market may crash. This isn’t really that bad for me since I’m a long term investor and stock market crashes simply allow me to buy stocks and cheap prices. But it’s something to keep in mind nonetheless.

Waiting for more information to come out on this. Why can’t the government let me invest 100% equity in the NPS? That would ease my troubled heart a bit…

What do you think of this post?
  • Agree (1)
  • Don't Agree but Interesting (1)
  • You're an asshole (1)


  1. Because the govt. has decided for you that as you grow older, you should invest in less risky instruments…Or it could be that they don't have able people to manage a 100% equity scheme…


    • In reply to Sraboney

      Yeah, I figured. But just like the NPS now, I should have the choice to change my asset allocation once a year. That way as I get older I can slowly start moving my investments into debt. But right now I'm young and can absorb the 100% equity risk…


  2. Do people still use paper slips for financial transactions? They do. I had to pay the exact amount (Rs 870/) per month for broadband every month, by cheque, even though they claimed it could be paid online. And if there was some delay or some error in the cheque (one Jan In forgot to change to new year, wrote 2007, instead of 2008) – the connection was disconnected without warning or information :


    • In reply to Indian Homemaker

      That really sucks. Who's your broadband provider? I now pay everything online including:

      1. Internet Bill
      2. Water and Sewerage Tax
      3. Property Tax
      4. Electricity Bill
      5. My mom's mobile bill
      6. My mom's Internet bill
      7. My dad's Internet bill

      Just imagine dropping cheques for each of these! And for government services we have to actually go there and give it by hand…


  3. That was in Pune, it was BSNL.
    Now it's Airtel, I pay it online.

    I also pay,
    LIC premiums,
    All mobile and landline bills
    Broadband and IP TV bill
    Electricity bills (including keeping track of the bill which is paid in Bombay by our tenants)
    Property tax

    I detest ever having to go for something like paying bills – or even school fees, which we could pay by cheques and the kids left the cheques in school office.
    I call my mom my lazy/busy-times-ATM, she sends her driver with the amount I need to withdraw from the ATM, and I transfer it into her account :)


  4. Why don't you just invest in private schemes?


    • In reply to Sraboney

      I will – but previously I had the ELSS mutual fund schemes which allowed me a tax deduction of 1 Lakh under 80C as well as a 100% equity investment.

      Now I'll have to do without the tax benefits it seems…


  5. Skeptic Indian says

    Hi Bhagwad,

    Thanks for raising a relevant issue of NPS India.

    The Indian Government, PFRDA and the authors of the DTC needs to be appreciated for giving a channel to have basic social security in their old age.

    One question you should be asking is even the 50% which you can invest in the NPS (E)quity Class at present Sensex and Nifty lacks transparency.

    No where is it mentioned that these Sensex and Nifty indices are total return.

    The total return index also gives the investor the benefits of the dividend income.

    This is a point which fund managers are silent usually since this helps them to make those huge bonuses on the back of the investors ignorance.

    Would you be happy with your real estate care taker if he keeps the rental income of your property to himself:-(

    Caveat emptor:-)


    Jai Hind Satyameva Jayate not Jai Satyam computers wot:-)


    • In reply to Skeptic Indian

      I think that depends on the type of scheme you're in. Most mutual funds have two options for each type of fund namely:

      1. Dividend
      2. Growth

      If you choose the former, you get dividends on the shares and price remains more or less the same (with some increment) or you choose "growth" which adds the dividends back to the price which increases very fast.

      My problem with the NPS is that it's not a good enough social security tool for me. I don't want to buy an annuity with high fees at the end of my life and I'd like to have more options.