New Delhi: The National Pension Scheme (NPS) is a retirement-cum-savings plan that works on a contribution-based system. Its main objective is to provide financial security to people after their retirement. The most important thing about NPS is that it does not guarantee any fixed benefit. Your pension amount is decided based on the investment you make and the returns you get on it.
After retirement, your income stops but expenses increase or remain the same. In such a situation, a stable income source is required to maintain financial independence. If you want a monthly pension of ₹ 1 lakh after retirement, then you have to invest regularly in NPS. Let’s know its math.
Suppose you are 25 years old and you are starting to invest in NPS. You will invest till the age of 60 years i.e. the investment period will be 35 years. Here it is assumed that you will get a return of 10% on NPS, which is a normal expectation.
Monthly investment: ₹13,100
Total investment (over 35 years): ₹55.02 lakh
Total return: 10%
Mutual fund maturity amount: ₹5.01 crore
Annuity investment: 40% (₹2 crore)
Estimated annuity rate: 6%
Monthly pension after retirement: ₹1 lakh
What is an annuity?
In NPS, you are required to invest at least 40% of your total deposit amount in annuity scheme. The higher the annuity rate, the higher will be your monthly pension. With this investment, you also get a tax exemption of up to ₹50,000 under Section 80CCD(1B) of the Income Tax Act.
How are funds managed in NPS?
The amount deposited by the investor under NPS is managed by pension fund managers registered with PFRDA. They invest in various financial instruments such as government bonds, corporate bonds and equities under investment guidelines so that the impact of market fluctuations on investors’ funds is minimized. With the right planning and investment information related to NPS, you can meet your financial needs after retirement. Starting investing early not only makes the pension fund bigger, but you also get a stable income in the form of monthly pension after retirement.
