It is prudent to start planning your long term finances early. Investing for retirement should begin as soon as one starts earning. Several options of investment are available to accumulate a substantial amount for one’s retirement with funds like EPF, NPS, mutual funds, real estate etc.
The New Pension System or NPS is a great investment option which is safe and brings back handsome returns. With the fund, you can invest in a way to ensure a monthly pension of over Rs 50,000 for retirement. Here’s how.
Investing in NPS
Starting at 30 years of age and investing Rs 10,000 per month in NPS can bring a lump sum amount of over Rs 1 crore and monthly pension of over Rs 50,000, if you retire at 65.
Guaranteed by the government, the NPS scheme will get annual returns ranging between 9 to 12 percent. You have to invest 40 percent in an annuity scheme on maturity to receive regular pension with the plan. The annuity return is close to 6 percent. As per the NPS calculator, you will receive the following amount after 35 years with expected return of 9 percent on investment:
- Lump sum amount: Rs 1.7 crore
- Pension: Rs 59,277 per month
NPS investment details
- Age of starting investment: 30 years
- Age of retirement: 65 years
- Amount invested monthly in NPS: Rs 10,000
- Investment in annuity plan: 40 percent
- Expected return on annuity: 6 percent
It must be noted that the calculations are an approximate figure, and the actual figures and returns may vary. Account holders can increase or decrease investment in NPS accordingly. The returns accrued via NPS is dependent on various factors including age of investor, equity market performance. Eligibility criteria for age of investment is 18 years to 65 years.
NPS tax benefits
NPS investment also offers an opportunity to save tax up to Rs 2 lakh annually. You can save up to Rs 1.5 lakh under Section 80C and an additional exemption of Rs 50,000.
NPS accounts can be of two types – Tier 1 and Tier 2. For Tier 1, the minimum investment amount is Rs 500. For Tier 2, the minimum amount is Rs 1,000. There is no maximum limit in investment. Investors can choose from one of three investment options for where there money will be invested – Equity, Corporate Debt and Government Bonds.
People are advised to make any investments only after discussing with their investment advisor.