NPS: Now you can get Rs 1.78 lakh per month by investing just Rs 12,000; here's how

While opening an NPS account, the account holder is given two options: active or auto mode.

New Delhi: The National Pension Scheme (NPS) is one of the most popular investment vehicles for accumulating a retirement fund. This government-backed scheme, administered by the Pension Fund Regulatory and Development Authority (PFRDA), is a voluntary investment plan for employees in the public, private, and unorganised sectors. The NPS encourages investors to invest in pension accounts on a regular basis.

Individual funds are pooled in a pension fund and invested in diversified portfolios of Government Bonds, Bills, Corporate Debentures, and Shares by PFRDA regulated professional fund managers in accordance with authorised investment rules. These contributions would grow and accrue over time, based on the returns on the investment.

NPS annuity:

When opening an NPS account, the account holder is given two options: active or auto mode. Apart from that, the account holder has the option of deciding how much of the maturity amount to invest in an annuity. This percentage of annuity purchase determines the amount of pension they will receive.

The NPS rules require that an annuity be purchased for at least 40% of the net NPS maturity amount. If someone wishes to raise this limit, there is no cap. Annuities can be purchased with 100% of the NPS maturity amount. 

According to tax and financial experts, a low risk appetite individual can also manage to generate up to Rs 1.78 lakh monthly income by putting Rs 12,000 per month in their NPS account. This is possible if NPS subscribers employ the SWP (Systematic Withdrawal Plan) to supplement their monthly income after retirement.

Rs 12,000 per month to get Rs 1.78 lakh monthly income:

If an investor invests Rs 12,000 per month in an NPS account for 30 years while maintaining a 60:40 equity-debt exposure ratio and purchases annuities worth 40% of the net NPS maturity amount, assuming a 10% return on investment, they will end up with Rs 1,64,11,142 lump sum and Rs 54,704 monthly pension as annuities provide at least a 6% annual return.

The NPS calculator reveals that if a person buys an annuity worth 50% of the net NPS maturity amount, the monthly pension will increase to Rs 68,330, while the lump sum withdrawal amount will decrease to Rs 1,36,75,952. NPS account members can use the SWP lump sum to supplement their monthly income. 

Note: This pension calculator depicts the approximate Pension and Lump Sum amount that an NPS subscriber may expect at maturity or at the age of 60 based on regular monthly contributions, a percentage of corpus reinvested for purchasing annuities, and assumed rates for returns on investment and annuity chosen.

According to experts, putting Rs 1.64 crore in SWP for 25 years would allow an NPS investor to take Rs 1,23,560 each month for 25 years if the SWP yield is 8% per annum. This means that if a person invests Rs 12,000 per month in an NPS account for 30 years with a 50:50 equity debt exposure, they will receive about Rs 1.70 lakh per month — Rs 68,330 from annuity return and Rs 1.02 lakh from SWP.

However, if they deposit Rs 12,000 per month in an NPS account with a 40% annuity exposure, they will be able to produce around Rs 1.78 lakh per month in income — Rs 54,704 from annuity and Rs 1.23 lakh from SWP.