The pros and cons of using a credit card to invest in NPS

The National Pension System (NPS) is a retirement planning vehicle. While investing in NPS, you can claim a tax-saving deduction benefit under Section 80C of up to 1.5 lakh and an additional tax benefit of 50,000 under Section 80CCD (1B).

NPS is characterized by low costs and fees. You can invest in the NPS online using net banking, debit card and even credit card. In this piece, we will try to understand the pros and cons of investing in NPS via credit card and whether you should go for it.

In general, you cannot use a credit product for any investments. For instance, if you want to purchase units of mutual funds or shares via credit card, you cannot do so.

However, in the case of NPS investments, you can use your credit card to invest.

The investment in NPS via credit cards is allowed through the eNPS portal. You can visit the eNPS website and fill in your credentials to log into the NPS portal. Further, you need to have a Permanent Retirement Account Number (PRAN). Also, it is important to have an online NPS Tier I or Tier II account to contribute via credit card.

In general, experts advise against using credit cards for NPS payments if you have money in your bank account. This is on account of the charges involved in card payments for NPS compared to payments through net banking.

In the case of net banking, you need to pay 60 paise per transaction and 18% GST on it as payment gateway charge for making an NPS contribution.

Adhil Shetty, CEO,, said that as investing in NPS via credit card increases your annual spending, it means you will be eligible for bigger and better rewards. So, this is a good way to earn those benefits without actually spending much.

“However, the primary drawback is that credit card transactions are expensive. Say you invest 20,000 a month via credit card. At 0.9%, transaction charges (as applicable on credit cards) and 18% GST, you will need to pay approximately an additional 212 per month. This comes to roughly 2,550 per year. So, using a credit card to make these payments will work out only if your card provides you significant benefits worth 2,550 or more on these spends,” Shetty added.

If you do not have money in your bank account and the financial year is coming to an end, investment via credit card can ensure you get the tax deduction associated with the NPS.

However, the extremely high interest rates associated with credit card borrowing (35-40%) outweigh the tax benefits and the returns offered by NPS in the long run.

You should use the credit card route only if you are confident of paying the credit card bill at the end of the month.

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