There are many features of NPS. It comes under EEE category of investment instruments like EPF, PPF and Sukanya Samriddhi Yojana. This means that there is no tax on investment, interest and maturity.
Do you want a good regular income after retirement? If yes, then you have to start investing in NPS soon. The government had earlier introduced NPS for government employees. In 2009, it was also opened to the general public. This is a scheme of the government. Its terms and conditions are decided by the institution formed by the government. So you can rely on it.
There are many features of NPS. It comes under EEE category of investment instruments like EPF, PPF and Sukanya Samriddhi Yojana. This means that there is no tax on investment, interest and maturity. The lump sum amount you receive on maturity is tax-free.
Another feature of NPS is that it allows the investor to invest in both debt and equity. An investor can invest a maximum of 75 per cent in shares. The rest of the money can be invested in debt. Allowing more investment in stocks increases the returns in the long run. Younger investors can take more risk. He can invest 60 per cent in stocks and 40 per cent in debt.
We can expect an average annual return of 12 per cent from stocks over the long term. Similarly, 8 per cent annual return can be expected from debt in the long term. Thus, looking at the returns of both (equity and debt), we can estimate an average return of 10 per cent in the long run.
An average 10% annualized return is attractive over the long term. Therefore, the sooner a person starts investing in NPS, the more he will be benefited. If an investor starts investing Rs 5000 every month in NPS at the age of 20, then his money increases significantly till retirement (60 years of age). The NPS calculator states that on maturity, he will get a lump sum of about Rs 1.91 crore. Apart from this, he will get Rs 1.27 crore as annuity.
Annuity amount can be used to get monthly pension. The NPS calculator states that on an annuity of Rs 1.63 crore, you will get a pension of Rs 63,768 per month at 6 per cent return.
You can invest Rs 1.91 crore in Systematic Withdrawal Plan (SWP). SWP lets you withdraw your money every month. At least 8% returns can be expected in the long term in SWP. If Rs 1.91 crore is put in SWP for 25 years, then at 8% return, you can get a monthly income of Rs 1.43 lakh per month.
In this way, by investing only Rs 5000 in NPS every month at the age of 20, you can get an income of Rs 2 lakh per month on retirement. This math is easy. You will get Rs 1.43 lakh every month from SWP, while Rs 63,768 will be available from annuity every month. You have to keep in mind that the monthly income of Rs 63,768 will continue to accrue as long as the investor is alive. An income of Rs 1.43 per month from SWP will be available only for 25 years.
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