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NPS calculator: How to get ₹2.94 lakh monthly pension by ₹12500/month NPS contribution — explained


NPS calculator: Opening a National Pension System (NPS) account is advised by most of the investment advisors as NPS scheme is a unique investment tool, which gives exposure in both equity and debt via single investment. Experts advise this unique pension scheme for retirement planning as it allows an account holder to earn around 10 per cent annual NPS interest rate without taking much risk.

As per the tax and investment experts, if the NPS account holder uses its full income tax exemption limit of 1.5 lakh per annum through monthly 12,500 NPS contribution from 25 years of age, then he or she would be able to get around 2.94 lakh monthly pension after entering the elite club of senior citizens.

NPS interest rate in long term

Speaking on NPS interest rate one can get in long term, Kartik Jhaveri, Director — Wealth at Transcend Capital said, “NPS accountholders can invest up to 75 per cent in equities but my suggestion to investors is to keep 60 per cent equity exposure and 40 per cent debt exposure. In long term, one can expect at least 12 per cent return from equity exposure 8 per cent return from debt exposure. This means, NPS interest rate that one can expect in long term by keeping 60:40 equity debt ratio would be more than 10 per cent.”

On how NPS interest rate would come around 10 per cent in long term, Kartik Jhaveri explained, “Sixty per cent equity exposure would yield 7.2 per cent (12 x 0.6) while 40 per cent debt exposure would yield 3.2 per cent 98 x 0.4) leading to around 10.40 per cent NPS interest rate in long term.”

NPS calculator

So, if an investor invests 12,500 per month, he or she would be able to exhaust 1.50 lakh per annum income tax exemption limit allowed by the income tax department while income tax return (ITR) filing. Assuming equity debt exposure in 60:40 ratio, if an investor opens NPS account at the age of 25 and keeps on investing for next 35 years, the NPS calculator suggests that NPS account holder would get maturity amount to the tune of 2.87 crore and around 95,707 monthly pension from the annuity.

Photo: Courtesy NPS Trust

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Photo: Courtesy NPS Trust

Pension calculator

On how to use the maturity amount to enhance one’s monthly pension, Pankaj Mathpal, MD & CEO at Optima Money Managers said, “An annuitant can expect around 6 per cent return on one’s investment. But, at the same time, if the NPS accountholder uses its maturity amount withdrawn after 60 years of age, for SWP (Systematic Withdrawal Plan), the monthly pension would grow many folds as SWP would give around 7 per cent annual return.

Pension calculator

Pankaj Mathpal of Optima Money Managers said that if the NPS account holder invests this 2.87 crore NPS withdrawal amount in SWP for next 25 years, he or she would get around 1,98,926 or 1.99 lakh monthly income from this 2.87 crore investment in SWP. As NPS annuity buying would fetch 95,707 monthly pension, adding this 1.99 lakh monthly income from SWP, net monthly pension that an investor can generate from the NPS would fall around 2.94 lakh ( 1.99 lakh + 0.95 lakh).

Asked about the SWP plans that NPS accountholders can look at, Pankaj Mathpal listed out the following SWP plans:

1] ICICI Prudential Balanced Advantage Fund;

2] Aditya Birla Sunlife Balanced Advantage Fund; and

3] Canara Robeco Equity Hybrid Fund.

Disclaimer: The views and recommendations made above are those of individual analysts or personal finance companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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