New Delhi. 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 on the basis of the investments 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 will have to invest regularly in NPS. Let us know its mathematics.
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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 estimated that you will get 10% return on NPS, which is a normal expectation.
Monthly Investment: ₹13,100
Total investment (in 35 years): ₹55.02 lakh
Total Return: 10%
Amount on mutual fund maturity: ₹5.01 crore
Annuity investment: 40% (₹2 crore)
Estimated Annuity Rate: 6%
Monthly pension after retirement: ₹1 lakh
What is annuity?
In NPS, it is mandatory for you to invest at least 40% of your total deposit in the annuity scheme. Higher the annuity rate, higher will be your monthly pension. With this investment you also get 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 investors under NPS is managed by pension fund managers registered by 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 to invest early not only helps in growing the pension fund, but also gives you a stable income in the form of monthly pension after retirement.
Tags: business news, national pension, New Pension Scheme
FIRST PUBLISHED: October 10, 2024, 20:19 IST