NPS Calculation– Everyone is worried about retirement, especially when the source of income becomes limited with age. But if you do a little planning from now on, you can not only avoid financial difficulties in old age, but can also get a hefty pension every month. National Pension System (NPS) is one such option, which can get you a pension of more than Rs 1 lakh in retirement by investing just Rs 5,000 per month from the age of 25. This scheme is not only flexible and transparent, but also gives tax exemption as well as market-linked returns.

What is NPS and why is it special?

National Pension System is a scheme of the Government of India, which gives every citizen an opportunity to save for retirement. This scheme is open to people between the ages of 18 and 70, in which not only people living in India but also Indians living abroad can participate. The specialty of NPS is that it is completely voluntary. You can invest in it according to your need and capacity.

This scheme provides two types of accounts – Tier-1 and Tier-2. Tier-1 account is your main retirement account, in which regular investment is deposited and it cannot be withdrawn till retirement. On the other hand, Tier-2 account is optional, in which you can withdraw money whenever you want, provided your Tier-1 account is active.

The biggest advantage of this scheme is that it gives tax benefits. Your investment is exempted under Section 80C and 80CCD of the Income Tax Act. Also, this scheme gives good returns in the long run as it is linked to the market. Another benefit of investing in NPS is that it is completely transparent and governed by the regulatory body Pension Fund Regulatory and Development Authority (PFRDA). This ensures the safety of your investment.

How to get a pension of Rs 1 lakh by investing Rs 5,000?

If you start investing Rs 5,000 every month in NPS from the age of 25, then by the age of 60 your investment can become a big fund. Suppose you increase your investment by 5 percent every year and your investment mix is 75 percent in equity and 25 percent in government bonds. In this case, your total investment after 33 years will be around Rs 54.73 lakh. But due to the returns from the market and compound interest, your retirement fund can grow to around Rs 4.45 crore. However, this is estimated. For this, it can be possible if more than 10% return is continuously received for more than 30 years.

As per the rules of NPS, at the time of retirement, you can withdraw 60% of your corpus in lump sum. According to this, you will get about Rs 2.67 crore in lump sum. You will have to use the remaining 40% amount to buy an annuity, which will give you pension every month. If the rate of return on annuity is assumed to be 6.75%, then you can get a pension of Rs 1,00,281 every month. This amount will not only make your retirement secure, but will also give you financial freedom.

Investment Options and Flexibility

Another feature of NPS is its investment options. You can choose the investment according to your risk taking capacity and age. There are two types of investment options in NPS – Active Choice and Auto Choice. In Active Choice, you decide yourself how much of your money will be invested in equity, corporate bonds or government securities. Whereas, in Auto Choice, your investment is managed automatically based on your age. As your age increases, the equity portion is reduced and the bond portion is increased to reduce the risk.

Apart from this, there is flexibility in the amount and time of investment in NPS. You can invest monthly, quarterly or annually as per your convenience. Opening and managing an NPS account is also very easy through online platforms. This scheme is low-cost, which means more of your money goes into investments and less is spent on fees.

 

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