It is difficult to harvest the fruits of compounding over half a century. NPS is perhaps the only instrument that allows one to do so. It is obvious what sort of outcomes can it obtain if the funds are allowed to accumulate over such a long period of time.
Let’s take a concrete example. Let our subscriber join the NPS at the minimum permissible age of 18. This way, he/she can invest till 75 years – for a period of 57 years.
NPS calculator: Begin at 18, invest for 57 years
Let him/her continue investing Rs 5,000 every month in the NPS account.
Let’s see what turns out at the age of 60 for the investor.
The investor would be eligible to be paid a monthly pension of – hold your breath – Rs 3.51 lakh.
Throughout 57 years the investor would invest Rs 34.20 lakh in total. But disciplined investing would inflate the amount to Rs 17.59 crore.
Begin at 24, invest for 51 years
Now push back the date of the investor to January 1, 2000, in which case he/she is 24 years old. If one begins investing the same amount in NPS at that age, the pension that he/she is eligible to get every month from 60 years is Rs 1.93 lakh.
Between 24 years and 75 years, the total nominal investment would amount to Rs 30.60 lakh. The total corpus would rise to 9.65 crore and the gain would stand at Rs 9.34 crore.
NPS withdrawal: 60% at 60
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.
Also, bear in mind that 60% of the accumulated amount till 60 years will be a considerable sum. If the contributor invests this amount wisely, he/she can earn a hefty amount from that fund too. So in effect, the monthly cash flow will be far higher than the monthly pension NPS would be paying him/her.
Real trick
Though one can make partial withdrawals (up to 25% of your contributions) after three years of opening the account, one should adopt it only as the last resort.
Any citizen of India between 18 and 70 years can contribute to the National Pension System or NPS for financial security in advanced age. It provides both a lumpsum and a monthly pension to a contributor.
NPS was launched on January 1, 2004 and is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
NPS Calculator: The popularity of National Pension System or NPS is growing in India quickly. One of the reasons is that it unleashes the power of compounding over a very long period of time. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
