Retirement planning: how much should you invest in the NPS each month to get a pension of Rs 1 lakh
New Delhi: NPS is a social security scheme launched by the Union government with the aim of providing a stable income to individuals after retirement. Over the years, the PFRDA, the regulator of pension funds in India, has made several changes to the rules of the scheme to make it attractive to retail investors. This is a hybrid investment program (which invests in both equity and debt), so experts say it can help young earners build up a significant body of work for their retirement by investing more. small amounts each month.
By investing in the NPS you will get a fixed monthly pension until you are alive and also a lump sum upon retirement. A subscriber can withdraw a maximum of 60% of his corpus of maturity from the NPS in the form of a non-taxable lump sum and with the remaining amount he must purchase an annuity from a life insurance company, which gives average annuity income at an annual rate of 5-6% if you choose the premium return option.
The NPS offers you several fund options where you can choose between a combination of debt and equity where the maximum equity component cannot exceed 75% of the investment amount. According to financial planners, one can expect an annual return of 10-11% over the longer term if he allocates 75% of his NPS investment to stocks and 25% to debt.
So if you start investing early, as soon as you get a job, say at age 24 when most people start to work, in NPS you can easily build up a retirement corpus of over Rs 5. crore (Check the NPS calculator below) at your retirement age (60) by investing just Rs 300 per day or Rs 12,000 per month. On the retirement corpus you can withdraw 60% or Rs 3.05 crore as a lump sum and the remaining 40% or Rs 2.04 crore must be used to purchase an annuity. Assuming an annuity yield of 6%, you will get a monthly pension of Rs 1 lakh after you retire.
“One must invest at least 50,000 Rs in the NPS each year in order to be able to benefit from a tax deduction on the amount u / s 80CCD (1B) beyond the annual limit of Rs 1.5 lakh under the section 80C, “said Balwant Jain, tax and investment expert. .
Increase your retirement income further by investing the lump sum in mutual funds
It should be mentioned here that you can further increase your retirement income if you put the lump sum in a stock savings fund and withdraw a fixed amount from that fund each month through a systematic withdrawal plan (SWP). Note that equity savings funds invest in equities, equity arbitrage positions and debt with a minimum exposure of 65% to equity-linked instruments. Although these funds generate a higher return than long-term debt funds with lower volatility, they also enjoy the tax advantages of an equity fund. This means that the long term capital gains of stock savings funds are taxed at 10% once you cross the threshold of Rs 1 lakh.
In this process, you can withdraw another Rs 1.5 lakh each month via SWP while ensuring that your principal or your investment amount of Rs 3 crore also increases. According to Value Research, the annualized returns over the past 10 years for equity savings funds have been over 8%. If we assume that these returns will also be maintained in the future, the amount of your investment will continue to increase even if you withdraw 6% from the corpus (3 crore Rs) every year via SWP (1.5 lakh Rs * 12).