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    Fractional Ownership vs NPS: Which is Better? 

    • 5 min read
    • Last Modified Date: February 26, 2024
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    Fractional Ownership vs NPS: Which is Better? 

    Investing for retirement planning comes with a plethora of options. And whether you’re an veteran investor with years of stock market experience under your belt, or a burgeoning one looking to attain financial independence and retire early, you might have come across two of these options in your investment journey: Fractional Ownership investing vs NPS (National Pension Scheme introduced in 2004). 

    Either way, the fact that you’re reading this article is your sign to delve into the unique benefits and considerations of each, and choose the best investment option for you out of fractional ownership vs NPS. 

    NPS Explained: Investing For Retirement 

    NPS, or the National Pension Scheme, is a government backed scheme where you invest in a pension account, at regular intervals during the course of your employment. 

    After you retire, you can take out a certain amount from the pension account as corpus (as a one time payment) and you receive the rest of the amount as a monthly pension. 

    Asset Allocation in NPS 

    Asset Allocation refers to the various financial instruments your money is invested in as a part of the Scheme. 

    The NPS follows an asset allocation based approach that not all retirement funds cater to. This basically means that the NPS gives investors two choices: The Auto Choice, and the Active Choice. 

    In the Active Choice, the investor has the choice to actively choose the asset mix that are a part of the fund in NPS. 

    The Auto Choice shifts between 3 choices: Aggressive, Moderate, and Conservative in terms of the asset mix, depending upon the risk appetite of the investor.  In the Auto mode, the asset allocation shifts from aggressive to more conservative as you grow older.  

    Withdrawals & Liquidity in NPS 

    Partial or premature withdrawals are discouraged in the National Pension Scheme. In fact, your NPS account will be locked till you turn 60 years of age. 

    But, after 3 years of investment in NPS, the investor can withdraw 25% of the NPS Corpus for a certain number of reasons. 

    And after 25 years of investing in the National Pension Scheme, the investor can withdraw 50% of the NPS Corpus.

    The full NPS Corpus cannot be withdrawn in one lumpsum amount, and total 3 withdrawals are allowed during the tenure of the NPS scheme, apart from the monthly pension you receive. 

    In this section of Fractional ownership vs NPS, fractional ownership clearly wins, as it allows for much more liquidity and onetime flexibility of withdrawals.

    Features of NPS 

    • Tax benefits under Section 80C and 80CCD(1B)
    • Choice of investment options – equity, corporate bonds, government securities, and alternative investment funds
    • Flexible contribution options with tier I and tier II accounts
    • Mandated annuitization of a portion of the corpus at retirement

    Tax Benefits of NPS

    Contributions to NPS are eligible for tax deductions under Section 80C, up to a maximum of ₹1.5 lakh, and an additional deduction of ₹50,000 under Section 80CCD(1B). Furthermore, the returns are tax-deferred, resulting in a favourable tax treatment during the accumulation phase.

    Fractional Ownership: An Alternative Investment Avenue

    Now that we’ve read so much about the National Pension Scheme in NPS vs Fractional Ownership, let’s look at what fractional ownership really is. 

    In brief terms, fractional ownership involves multiple investors who pool their money collectively to own a high value asset, which they might not have been able to do so individually. This asset could be any high value asset, such as commercial real estate.

    By pooling their money, the investors divide both the responsibilities of ownership as well as the associated costs and profits. Investing in fractional ownership is done through fractional ownership platforms, such as Assetmonk.

    FOP’s enable investors & individuals to invest in premium commercial properties with a lower entry ticket, thus making fractional ownership of commercial real estate accessible to a broader investor base. 

    Features of Fractional Ownership Investing 

    • Diverse range of properties including office spaces, retail outlets, warehouses, and hospitality units
    • Professional management of properties by seasoned experts
    • Potential for rental income and capital appreciation

    Tax Benefits of Fractional Ownership

    Investing in commercial real estate through fractional ownership provides significant tax advantages. Section 24(b) of the Income Tax Act allows investors to deduct interest paid on loans taken for investment purposes, as well as claim depreciation on property under Section 32. Profits from rental income are also subject to favourable tax treatment.

    Fractional Ownership vs NPS 

    AspectFractional Ownership of Commercial Real EstateNPS (National Pension Scheme)
    Investment TypeDirect ownership of fractional shares in commercial real estate propertiesIndirect investment in market-linked funds managed by pension fund managers
    Entry TicketMinimum investment typically starting from ₹25 lakhsNo minimum investment requirement, but contributions can be made as per individual’s discretion
    Asset TangibilityTangible assets (real estate properties)Intangible assets (fund portfolio)
    Investment ReturnsRental income, capital appreciation potentialMarket-linked returns based on asset allocation
    Risk ProfileModerate risk with potential for stable income and long-term growthMarket volatility and risk associated with equity and debt investments
    Tax BenefitsDeductions on interest paid on loans for investment, depreciation benefits, and favourable tax treatment on rental incomeTax deductions under Section 80C and 80CCD(1B) for contributions, tax-deferred growth, and annuity payments
    Suitable forInvestors seeking diversification with tangible assets and long-term growth potentialIndividuals looking for a disciplined retirement savings avenue with professional management
    Withdrawal and LiquidityGenerally less liquid compared to market-based investments, but potential for selling fractional shares in secondary marketsPartial withdrawal allowed under specific circumstances after a specified lock-in period, but annuitization of a portion of corpus at retirement

    Bottom Line

    For any successful investment, finding the right balance between risk and reward is key. Factors such as your risk tolerance, investment goals, desire for stable monthly income or long term potential goals, all play a huge role. 

    The best way to do that is by strategically planning out your investment strategy, and  creating space for a number of diversified investments in your portfolio. Striking the right balance helps investors remain confident even in the face of market fluctuations. 

    Assetmonk, a new age alternative investment platform specialising in commercial real estate and fractional ownership of high end commercial properties, is always ready to guide investors on their journey towards building a well-rounded and prosperous portfolio.

    Read More 

    Financial Independence Through Commercial Real Estate Investing

    Understanding SPVs in Fractional Ownership of Real Estate

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