For a Rs. 1 Lakh Monthly Pension, How much should one invest in NPS ?

The National Pension System (NPS) is a government-sponsored social security programme that aims to provide retirees with a regular stream of income. Pension fund regulator PFRDA in India has made many regulation adjustments over the years so that individual investors can more easily participate. As a hybrid investment strategy, experts suggest it can help young people establish a big retirement corpus by investing modest sums each month in a variety of asset classes.

It is possible to get both a fixed monthly income and a lump payment at the time of retirement by investing in the National Pension System (NPS). If you pick the return of premium option, you can withdraw up to 60% of your maturity corpus from the NPS tax-free, and with the rest, you must purchase an annuity from a life insurance company, which on average provides annuity income at an annual rate of 5% to 6%.

NPS offers a variety of fund alternatives that allow you to select a combination of debt and equity, with the maximum equity component not exceeding 75% of the investment amount. In the long run, one might anticipate a 10-11% yearly return if he allocates 75% of his NPS investment to stocks and 25% to debt, according to financial advisors.

By contributing just Rs 300 per day or Rs 12,000 per month when you obtain a job at the typical retirement age of 24, you may build a retirement corpus of almost Rs 5 crore (see the NPS calculator below) by the time you reach the traditional retirement age of 60. 60 percent of the retirement corpus can be withdrawn as a lump payment and the remaining 40 percent must be utilised to purchase an annuity. Assuming an annuity return of 6%, you may expect to retire with a monthly pension of Rs 1,00,000.

Increase your retirement income by investing amount in mutual funds:

You can increase your retirement income by putting the lump sum money in an equities savings fund and withdrawing a specified amount from that fund every month using a Systematic Withdrawal Plan (SWP). It should be emphasised that equity savings funds invest in equities, equity arbitrage positions, and debt with a minimum of 65 percent exposure to equity-related securities. While these products produce better long-term returns with reduced volatility than debt funds, they also benefit from the tax advantages of an equity fund. Long-term capital gains from equities savings accounts are taxed at 10% once you exceed the Rs 1 lakh barrier.

During this procedure, you can take additional Rs 1.5 lakh using SWP while guaranteeing that your capital or investment amount of Rs 3 crore grows. According to Value Research, the previous 10-year annualised returns of equity savings funds have been greater than 8%. If we believe that these returns would be maintained in the future, your investment will continue to grow even if you remove 6% of the corpus (Rs 3 crore) yearly through SWP (Rs 1.5 lakh*12).