“National Pension Scheme is an investment avenue designed to meet regular expenses post retirement when existing income sources (such as salary) cease to exist. NPS is less risky than equity and PPF or fixed deposits offers the best of both worlds with returns higher than Rs.
NPS Investment: Active and Auto-Option Options
There are four asset classes in NPS, i.e. equity, corporate debt, government bonds and alternative investment funds. An investor has two options to invest in NPS – Active and Auto Choice.
Active Option Option allows clients to decide how funds should be invested in various asset classes including stocks, government securities and fixed instruments other than government securities. Under this option, the maximum that can be invested in equities is 75 per cent of the total corpus. However, once the subscriber crosses the age of 50 years, the equity allocation will reduce.
Auto choice option is the default option which automatically invests the money keeping in mind the age of the customer. Under this option, as the age of the client increases, the risk in equity and corporate debt gets reduced. There are three different options available within Auto Preferences – Aggressive, Moderate and Conservative. One can choose any option based on his/her risk profile.
NPS Annuity Rules: How It Works
At present, subscribers cannot withdraw the entire accumulated NPS corpus on maturity. Minimum 40 percent of the total NPS corpus should be invested to buy an annuity plan from a life insurance company. This annuity amount is a regular pension which will be given to the subscribers after retirement.
The remaining 60 percent can be withdrawn as a lump sum. However, a portion of this lump sum can be used to purchase an annuity. Thus, NPS subscribers can use more than 40 per cent corpus and up to 100 per cent to buy annuity.
nps calculatorHow can you get a pension of Rs 75,000 per month after retirement?
If you want to earn more than Rs 75,000 as pension per month from your NPS investment, here is how much you need to contribute.
To earn a pension of more than Rs 75,000 per month, the total accumulated NPS corpus at maturity should be Rs 3.83 crore (ie 60 years of age). Here we are assuming that we use only the mandatory 40 per cent NPS corpus to buy annuity. Assume the annuity rate is 6 per cent per annum.
Here’s how you can get an NPS corpus of Rs 3.83 crore by the time you retire
Like any other long-term investment plan, the returns from NPS depend on when you started investing. If you start early and contribute regularly, you’ll have a solid retirement.
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For example, a 25 year old person is investing Rs 10,000 monthly in NPS for the next 35 years (i.e., till the age of 60 years). Assuming 10% annualized return, the total NPS investment at maturity will increase to Rs 3,82,82,768.
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The above calculations and illustration of figures are only indicative and not on actual basis. Photo: NPS Website,
(The above calculations and depiction of figures are indicative only and not on actual basis. Photo: https://www.npstrust.org.in/)
If she uses 40 per cent of the total corpus to buy an annuity, she will get a pension of Rs 76,566 per month after retirement.
Similarly, for those who start investing in NPS at the age of 30, the monthly contribution should be Rs 16,500 for the next 30 years to get a monthly pension of Rs 75,218 after retirement.
If one joins NPS at the age of 35, he/she will have to invest more than Rs 28,500 monthly for the next 25 years for a fixed pension of Rs 76,260 after retirement.
To simplify the calculation, let us assume that the annuity rates will be 6 per cent and the return from NPS will be 10 per cent. Returns may vary depending on market conditions.
nps calculator
you can use it
nps calculator To estimate your monthly pension in future and invest accordingly. Don’t forget to adjust for inflation while planning your retirement corpus.
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