National Pension System is a retirement scheme in which, by starting investing early and contributing small amounts, an adequate pension and corpus can be arranged for retirement. Any Indian citizen (government employee or private sector employee) between the ages of 18 and 70 years can open an account in it. NRIs are also eligible for this. After opening the account, one has to contribute till the age of 60 or till maturity. At least 20 years of investment is necessary in this.
Where is your money invested
National Pension System (NPS), regulated by PFRDA or Pension Fund Regulatory and Development Authority under PFRDA Act 2013, is an investment scheme. This scheme is designed for pension after retirement. Under NPS, the savings of investors are deposited in the pension fund. Investors’ money is invested in a diversified portfolio of government bonds, bills, corporate debentures and shares by PFRDA regulated professional fund managers.
NPS: Build a retirement corpus first
Age to start investing: 21 years
Investment period: 40 years (till the age of 61 years)
Investment in NPS every month: Rs 1000
Top up in NPS every year: 10%
Total investment in 40 years: Rs 53,11,111
Estimated return on investment: 12% annually
Total corpus on retirement: Rs 3,50,44,023 (Rs 3.51 crore)
Total benefit: Rs 2,97,32,913 (Rs 2.97 crore)
NPS: Buy annuity for pension
Investment of total corpus in annuity plan: 50%
Pension wealth: Rs 1,75,22,012 (Rs 1.75 crore)
Lump sum value: Rs 1,75,22,012 (Rs 1.75 crore)
Annuity rate: 8%
Monthly pension: Rs 1,16,800 (about Rs 1.15 lakh)
Getting better returns
A part of the amount deposited by you in NPS is invested in equity, so guaranteed returns (NPS Return) cannot be obtained in this scheme. However, it can still give higher returns than other traditional long-term investments like PPF. If you look at the return history of NPS, till now it has given 9% to 12% annual return. In NPS, if you choose the aggressive investment option, then the annual return can be 12 to 14 percent. If you are not satisfied with the performance of the fund, then you are also given the option to change your fund manager.
Withdrawal rules after retirement
Currently, a person can withdraw up to 60 per cent of the total corpus as a lump sum, the remaining 40 per cent goes to the annuity scheme. Under the new NPS guidelines, if the total corpus is Rs 5 lakh or less, subscribers can withdraw the entire amount without buying an annuity plan. These withdrawals are also tax-free.