National Pension System (NPS) is a market-linked scheme that acts as a tool to generate a sizeable corpus for your retirement period. The NPS voluntary model is available to all the citizens of India, including those residing abroad, between the ages of 18 and 70 years. A Systematic Investment Plan (SIP) is also a market-linked scheme. It is beginner-friendly, and you can start investing in this scheme with as little as Rs 100.
Also read: SIP vs PPF with Rs 1,40,000/year investment: Which can create a larger corpus in 25 years?
National Pension Scheme
The National Pension System (NPS) is a government-supported retirement savings plan where you can regularly invest money, which is then invested in various asset classes to build a retirement corpus. NPS was launched by the Central Government to help individuals have an income in the form of a pension to look after themselves during retirement. It aims to provide a means for individuals to save for retirement and generate a regular income after they stop working.
What is a Systematic Investment Plan (SIP)?
A SIP is a way to invest a fixed amount of money regularly (daily, weekly, monthly, or yearly) into mutual funds. It’s a flexible option to save for goals like education, retirement, or future needs.
What investment options are available in NPS?
NPS offers two investment options: Active Choice and Auto Choice, allowing you to choose how your retirement savings are invested.
Active choice investment in NPS
In the active choice investment, investors decide to invest in their choice of securities according to their risk appetite and age.
Auto choice investment in NPS
In auto choice investment, the scheme manager chooses the securities to invest on your behalf based on the age slab of the investor.
NPS calculation conditions
- Monthly Contribution: Rs 15,000
- Investment duration: 20 years
- Annual increase in contribution: 5 per cent
- Annuity rate of return: 6.75
NPS Calculation
We are calculating the NPS corpus for the non-government sector with:
Investment mix: 75% equity, 25% government bonds
Check the calculation below.
NPS: What will be your retirement corpus with Rs 15,000 monthly investment?
Total investment during that period will be Rs 59,13,967. The estimated capital gains will be Rs 1,28,93,719, and the estimated retirement corpus will be Rs 1,88,07,686.
NPS: What will be your lump sum withdrawal amount?
At the age of 60, you can withdraw an estimated of Rs 1,12,84,612.
NPS: What will be your monthly pension?
Your estimated monthly pension will be Rs 42,317.
SIP calculation conditions
Monthly Contribution: Rs 15,000
Investment duration: 20 years
Annualised return: 12 per cent
Since there are no fixed returns in SIP investment, we are calculating as per annualised returns of 8 per cent (debt fund), 10 per cent (equity fund), and 12 per cent (hybrid fund).
SIP: What will be your retirement corpus with Rs 15,000 monthly SIP in equity fund?
At a 12 per cent annualised return, the estimated corpus in 20 years will be Rs 2,84,64,526, where Rs 1,37,97,860, and the estimated capital gains will be Rs 1,01,97,860.
SIP: What will be your retirement corpus with Rs 15,000 monthly SIP in hybrid fund?
At a 10 per cent annualised return, the estimated corpus in 20 years will be Rs 1,08,59,801, and the estimated capital gains will be Rs 72,59,801.
SIP: What will be your retirement corpus with Rs 15,000 monthly SIP in debt fund?
At an 8 per cent annualised return, the estimated corpus in 20 years will be Rs 85,89,900, and the estimated capital gains will be Rs 49,89,900.
DISCLAIMER: Not financial advice; invest at your own risk
