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NPS calculator: Building a retirement fund is one of the most important aspects of portfolio management. To fend for itself after retirement, an earning individual needs to manage one’s portfolio in such a way where it would be able to create both regular income and a contingency fund for any kind of financial emergency. National Pension System (NPS) is an investment tool that addresses both requirements of a senior citizen. In NPS scheme, the investor is bound to buy annuity worth at least 40 per cent of the maturity amount while maximum 60 per cent can be withdrawn.
Speaking on NPS scheme, SEBI registered tax and investment expert Jitendra Solanki said, "NPS gives both equity and debt exposure in single investment. NPS interest rate is not fixed as it depends upon the debt and equity ratio chosen by the NPS account holder. NPS scheme allows an investor to choose up to 75 per cent equity exposure but ideal equity debt ratio is 60:40." He advised NPS account holders to keep annuity exposure at 40 per cent as it gives around 6 per cent annual return to the investor.
NPS interest rate
Jitendra Solanki said that if an investor chooses 60 per cent exposure in equity and 40 per cent exposure in debt, then he or she would get around 12 per cent return from equity and 8 per cent return from debt exposure. In that case, NPS account holder's equity investment will reap around 7.20 per cent return (12 x 0.60) whereas debt exposure will fetch 3.20 per cent return (8 x 0.40), leading to around 10 per cent annual NPS return.
So, if an investor invests ₹10,000 per month in NPS account for 30 years keeping 60:40 equity debt ratio and decides to buy 40 per cent annuity of the maturity amount, the NPS calculator suggests that the investor would get ₹1,36,75,952 withdrawal amount and monthly pension of ₹45,587.
However, this ₹45,587 monthly pension can go up to around ₹1.50 lakh if the investor uses its NPS withdrawal money ₹1,36,75,952.
Pension calculator
Advising NPS account holders to invest this NPS withdrawal mount in SWP (Systematic Withdrawal Plan); Pankaj Mathpal, Founder & Managing Director at Optima Money Managers Private Ltd said, "An SWP would give at least 8 per cent annual return to an investor. So, NPS account holders are advised to invest the NPS maturity amount in SWP for 25 years. If they invest ₹1.36 crore in SWP for 25 years, they will be able to create an additional ₹1.03 lakh monthly income for themselves for next 25 years. In that case, their monthly pension would go up from around ₹46,000 to around ₹1.50 lakh."
SWP plans to buy
Asked about the SWP plans that a senior citizen can look at expecting 8 per cent annual return, Pankaj Mathpal of Optima Money Managers listed out the following:
1] ICICI Prudential Balanced Advantage Fund;
2] ABSL Balanced Advantage Fund;
3] Nippon India Balanced Advantage Fund; and
4] Axis Balanced Advantage Fund.
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