With a good debt-to-equity ratio and the systematic withdrawal plan, beneficiaries of the national pension system can obtain high returns with their monthly pension.
The National Pension System (NPS) is a government-backed investment scheme that provides a regular monthly pension on maturity. It offers debt and equity exposure in a single investment. An account holder with the right ratio of both and systematic withdrawal plan can get up to Rs 2.23 lakh net monthly pension at maturity.
Experts recommend keeping debt in a 40:60 or 50:50 ratio for long-term returns. With this NPS interest rate, one can expect around 10% per annum in the long term. So, if a person invests Rs 15,000 per month in an NPS account, after 30 years of growth, he can get a monthly pension of Rs 2.23 lakh after reaching 60 if he also invests in the systematic withdrawal plan ( SWP).
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Pankaj Mathpal, MD and CEO of Optima Money Managers, told Livemint that in NPS, an account holder receives part of the accumulated sum as a lump sum. Investors are required to use at least 40% of the lump sum at maturity to purchase an annuity. However, according to Mathpal, the account holder should opt for the NPS Systematic Withdrawal Plan and invest the lump sum in it to get a return of around 8% over the long term.
So, if a person invests 15,000 rupees per month in the NPS program, with exposure to debt in a ratio of 40:60. Then the monthly pension of the amount after 30 years will be around Rs 68,380 and the investor will receive a lump sum of Rs 2.05 crore at maturity. If the account holder opts for NPS SWP and invests the lump sum of Rs 2.05 crore for 25 years, he can expect a return of at least 8% on the amount. With this, the investor would be able to get around Rs 1.55 lakh monthly SWP and Rs 68,000 monthly NPS pension bringing the net total to around Rs 2.23 lakh.
NPS account holders also enjoy income tax exemption under Section 80C up to a maximum of Rs 1.5 lakh invested in an NPS account in a single financial year. An additional tax exemption of Rs 50,000 under Section 80CCD (1B) can also be claimed for his NPS investments.
(Edited by : Sudarsanan Mani)