All investment strategists say that the biggest benefits can be wrung out of the National Pension System, or NPS, when one starts subscribing from an early age. It has also been designed in that manner and one can start investing from the age of 18. And the government is working out the details of introducing it even for minors as is the case with PPF (Public Provident Fund).
NPS investment: 45 to 75 age group
However, thanks to the power of compounding in the long term, even if one begins investing at the age of 45, it can` produce significant benefits. The assumption is that the contribution will be continued till the age of 75 years, the maximum possible age.
NPS calculator: Rs 10000 per month contribution
If we take the help of the NPS calculator, we can see that if someone begins investing Rs 10,000 per month, one can get a pension of Rs 68,380 from the age of 60. He/she would also get a lump sum payment of Rs 2.05 crore. This assumes that the contributor buys annuity (that provides the pension) with 60% of the total amount generated in the NPS account.
Rs 15k/month contribution
If the amount is raised to Rs 15,000 per month, the pension goes past the Rs 100,000 mark, again with 60% of the corpus reserved for pension. The contributor will also get a one-time payment of Rs 1.36 crore.
Significantly, if one begins investing from the age of 30, the pension of Rs 1 lakh is achievable with a monthly contribution of Rs 3,200 only. If one begins investing from the age of 25, the Rs 1 lakh is possible with a monthly investment of Rs 1,950. This calculation illustrates why investment from an early age is necessary.
Conservative assumptions
There are two other assumptions built into the NPS calculator – both on the conservative side. One is that 10% returns will be generated by the monthly investments that are made in the NPS account. By the way, this money is, in turn, invested in market-linked products and can generate even higher returns. And the annuity kept aside for paying pension from the age of 60, will get a return of 6% per annum.
NPS calculator: The National Pension System can pack in surprisingly high pension possibilities, even if someone suddenly wakes up to it in his/her forties. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
