NPS: Invest Rs 10,000 to generate Rs 1.5 lakh per month pension, here’s how

New Delhi: Inflation can eat away at your retirement savings like termites. Receiving a monthly income in your bank account to supplement your retirement funds is always more convenient.

The government-backed equity-linked National Pension Scheme (NPS) is one of the safest and most suitable for the aforementioned objectives. It is a pension-cumulative-investment system developed by the government to provide citizens with old-age security. Through safe and regulated market-based returns, NPS provides an appealing long-term saving channel for efficiently planning your retirement. The PFRDA-established National Pension System Trust (NPST) is the registered owner of all NPS assets.

NPS is a voluntary contribution programme in which members can choose a higher equity-to-debt ratio, which increases returns due to the long-term nature of continuous investments. Investors must purchase an annuity worth 40% of the maturity value, with a maximum withdrawal of 60% allowed at maturity, providing the benefit of creating a lump sum as well as the comfort of a regular monthly income.

NPS returns can easily exceed 10% per year for a 60:40 equity-debt mix. This equates to 7.2 percent (0.6x12) on equity investment and 3.20 percent (0.4x8) on debt investment. The NPS programme generates returns using a combination of stock and debt securities.

A monthly investment of Rs 10,000 in NPS for a period of 30 years at a 60:40 equity to debt ratio.

According to the NPS calculator, a monthly investment of Rs 10,000 in an NPS account for 30 years with a 60:40 equity to debt ratio will result in a lump amount of Rs 1,36,75,952 and annuity purchase will result in a pension of Rs 45,587.

However, if investors purchase a systematic withdrawal plan (SWP) with a maturity value of Rs 1,36,75,952 for a term of 25 years, they will receive an additional Rs 1.03 lakh per month, bringing the total monthly annuity to Rs 1.5 lakh per annum. The Pension Fund Regulatory and Development Authority (PFRDA), which runs the NPS system, has modified the admission and exit requirements for subscribers and increased the maximum age for entering NPS from 65 to 70.