NPS: Tips to turn your small monthly investment into over Rs 2 crore – With decreasing interest rates on most of the popular saving schemes in India, many people have turned to investment schemes with low risk and higher returns like Public Provident Fund (PPF), Systematic Investment Plan, Gold Exchange Traded Funds (ETFs) and many more. National Pension System (NPS) is another such investment option and is one of the most popular investing destinations at present in India.
The National Pension Scheme (NPS) has emerged as a good option for someone seeking a low-cost investing opportunity, while at the same time saving big through tax deductions. The government-backed retirement scheme’s benefits, interest rates and easy to manage online portal have encouraged subscribers to secure post-retirement life.
NPS Calculator: Tips to turn your small investment into over Rs 2 crore
Invest Rs 12,500 monthly in NPS
Contributing till the age of : 60 years
Total years of contribution – 30 years (If you start investing at the age of 30 years-we will discuss this in the below of section of ‘Power of Compounding’)
Expectation of return on investment is – 10%
Your Expected Monthly Pension will be – Rs 46,146
And you can create a retirement corpus of nearly Rs 2,37,03,119
In fact, not just this by investing monthly or annually in NPS, you can considerably reduce your taxable income every year.
NPS Interest Rate
The NPS interest rate usually ranges from 9% to 12% p.a
NPS Income tax benefits
Employees contributing to NPS are eligible for tax deduction up to 10% of salary (Basic + DA) under section 80 CCD(1) within the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE.
In respect of employer’s contribution toward NPS account of an employee, the person is eligible for tax deduction up to 10% of salary (Basic + DA) (14% if such contribution is made by Central Government) contributed by employer under Section 80 CCD(2) over the limit of Rs. 1.50 lakh provided under section 80 CCE.
What gives NPS the edge over other retirement schemes is the fund management charge is low. Moreover, all across the world, countries are facing higher inflation since the waning of the pandemic and also due to geo political situations. So, it can be concluded that NPS could be really helpful to build retirement corpus over time.
NPS Power of compounding
Remember, in the calculator above we counted your total years of contribution to be 30 years because investing early can significantly benefit you. You can plan your investments and give them the time they need to develop into a corpus that satisfies your financial objectives. Compounding basically means reinvesting the profits from your investments to make your investments grow exponentially.
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Investment Process
Individuals can choose to invest in four types of assets
Equity
Corporate bonds
Government bonds
Alternative Investment Funds like CMBS, MBS, REITS, AIFs, Invlts etc.
NPS offers you two approaches to invest in your account:
Active choice
Auto choice
The pension cum investment option brings an attractive long term saving avenue to effectively plan your retirement through safe and regulated market-based return.
The NPS with both Tier 1 and 2 options have the lowest management costs of any pension programme. As the account maintenance is low, the benefit of accumulated pension wealth to the subscriber becomes larger.
Also Read | NPS Tier 2 vs Mutual Fund: Ensure THIS before making investing decision | Pension calculator, scheme, returns
