The National Pension System or NPS packs a power that is quite difficult to comprehend at first glance. Launched in India in early 2004, NPS is fast gaining popularity as an instrument to build a secure corpus for post-retirement years.
Towards universal pension
The most significant feature is that it is open to anyone in India. It is not at all necessary that a person has to be in employment to open an NPS account. Anyone between the ages of 18 and 70 can start contributing to an NPS account. One can continue investment till 75, which allows one as long as 57 years to invest during which the power of compounding can get a free playground to unleash its full potential.
NPS calculator
Since the investment gets such a long time to multiply, one does not require a big monthly payment to build a big corpus. You won’t believe the amount you need to invest to get a monthly pension of Rs 50,000.
Consider a person who has just become an adult. Let him/her open an NPS account just after he/she crosses 18 years. How much do you think this person needs to contribute to get a pension of Rs 50,000 every month when he/she crosses the age of 60?
Hold on, the pension is not what the contributor is going to get. He/she will get a significant amount as a lump sum payment when the pension starts. This payment will be one-time while the pension will continue every month.
Rs 600 a month
If he/she invests only Rs 600 a month, he/she can get a monthly pension exceeding Rs 50,000 – Rs 52,797 actually. This pension will be available if the contributor buys annuity with 50% of the accumulated corpus. The remaining 50% will be paid to him/her in a single instalment at the age of 60 – and this amount will be Rs 1.05 crore.
If one invests this amount prudently, it can provide a handsome return every month. Moreover if the investment is raised to Rs 800, the pension will rise to more than Rs 70,000.
Modest assumptions
There are a couple of assumptions here. One, we have assumed that 10% returns will be available on the investment down the years. Two, the return on the annuity retained by NPS to pay pension from will deliver 6% returns. Both are modest rates.
NPS is the common Indian’s tool to get a monthly pension in old age. You would be surprised to know what small contributions can get you a sizeable pension and lump sum at the age of 60. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
