Any citizen of India between 18 and 70 years can contribute to the National Pension System or NPS to build a secure future. But it is obvious that the sooner one starts contributing to it, the bigger the benefit with a small contribution. It provides both a lump sum and a monthly pension to a contributor.
At the end of May 2024, there were 1.81 crore NPS subscribers in the country.
NPS calculator
Small monthly amount
The beauty of the scheme is one can actually invest a small amount and yet create a big pool of funds thanks to the long term of compounding.
Consider a young investor who was born on January 1, 2006. He/she is just 18 and let’s assume he/she has started earning. He/she can even start contributing from pocket money.
Rs 1,500 a month
If he/she opens an NPS account and starts investing Rs 1,500 a month, let’s see where the contributor can go.
Invest regularly
The following are the investment parameters:
Investment is continued till the contributor reaches the age of 75 years. In other words, investment continues for 57 years.
The expectation of return on investment is a moderate 10%.
The investor would opt for an annuity for 40% and the expectation of an annuity will be 6%.
Pension of Rs 105,594
If these criteria are fulfilled, NPS will give the contributor a monthly pension of Rs 105,594.
Also, the contribution of Rs 1,500 does not change though his/her income grows along the years.
Pension begins at 60
The point to note here is that the pension starts from the time when the contributor turns a senior citizen.
Over a period of 57 years, the contributor will make a nominal payment of Rs 10,26,000 (Rs 10.26 lakh) to NPS.
The total corpus that NPS will build for this person is Rs 5,27,96,753 (Rs 5.27 crore). Therefore, the gain will be Rs 5,17,70,753 (Rs 5.17 crore crore).
40% for annuity
NPS rules state that one can withdraw 60% of the accumulated amount at the age of 60. The rest 40% will be maintained from which monthly pension will be paid.
And 60% of the accumulated amount till 60 years will be a considerable sum. If our contributor invests this lumpsum prudently, he/she can earn a hefty amount from that fund too. So his effective income per month would stand at far higher than Rs 1 lakh pension that he/she would be eligible for.
NPS is regulated by Pension Fund Regulatory and Development Authority (PFRDA).
The growing popularity of NPS is due to its ability to turn small contributions into a big pool. You can also benefit from it if you are disciplined in your approach. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
