I am 40 years old and want to invest in National Pension Scheme (NPS). If I invest Rs 15,000 to Rs 20,000 in NPS equity, how much monthly pension can I expect at 65 years?
Reply by Amitabh Lara, Executive Director & Unit Head – Mumbai, Anand Rathi Wealth Limited
The National Pension System (NPS) is a widely favoured investment scheme that provides financial security and stability in old age, a period when retirees commonly face a lack of regular income. Planning for retirement is crucial to securing financial stability down the line. By employing a proactive and strategic investment strategy, individuals can effectively build a substantial retirement fund. As life expectancy in India rises steadily, saving for one’s golden years becomes even more imperative.
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When investing in the NPS for retirement goals, investors should be aware that it is associated with multiple uncertainties, like it is mandatory in NPS that 25% of the investment must be allocated to debt instruments, such as government or corporate bonds.
The remaining 75% can be invested at the investor’s discretion. Upon maturity, only 60% of the corpus is allowed to be withdrawn, while the remaining 40% must be reinvested in annuities, which restricts liquidity for the investor. If an investor wishes to exit before maturity, they must reinvest 80% of their corpus in annuities.
Additionally, if an investor finds their chosen fund manager is underperforming, they can’t switch the fund manager more than once a year, which can create uncertainty regarding active portfolio rebalancing.
The ideal choice for building a retirement corpus is investing in mutual funds with 80:20 in equity and debt as it come with zero lock-in period and are flexible for investors to withdraw at any time, which ensure liquidity and stability in the portfolio.
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| Particulars | Amount |
| Monthly contributions | Rs 20,000.00 |
| Current age | 40 |
| Investing till | 65 |
| Expected return | 13% |
| Corpus by 65 (In Cr) | Rs 4.49 |
By investing with 80:20 allocation strategy you can create a corpus of 4.5 crore by the time of retirement.
| Particulars | Amount |
| Investment corpus at 65 | Rs 4.49 cr |
| Monthly withdrawal | Rs 2 Lakh |
| Expected growth rate | 10.50% |
| Annual SWP increment | 6% |
| Funds last till age | 100 years |
After reaching retirement, you can invest with an asset allocation of 60:40 in equity & debt to create stability & liquidity in the portfolio. Plan your withdrawals from debt and shift the same corpus from equity to debt from prior the year’s expense incurred and repeat the cycle every to maintain liquidity in the cash flows. By withdrawing 2 lakh per month with a 6% annual increment, you can last the funds till the age of 100.
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NPS in a nutshell
The National Pension System (NPS) was introduced on January 1, 2004, initially for new government service recruits (excluding armed forces personnel). As of May 1, 2009, it became available on a voluntary basis to all citizens of the country, including those in the unorganised sector. The primary goal of the NPS is to ensure retirement income for all citizens and promote a culture of saving for retirement through reforms in the pension plan.
NPS investments qualify for tax benefits under Section 80CCD(1) within the overall limit of Rs 1.5 lakh as prescribed under Section 80CCE. Furthermore, NPS subscribers are entitled to avail an additional deduction of up to Rs 50,000 for investments made in their Tier I account under Section 80CCD(1B).
