If you are a salaried employee, chances are that you have come across the National Pension System (NPS). It is a government-backed, market-linked retirement savings scheme that comes with tax benefits. As a result, many salaried employees use it to reduce their taxable income while also saving for retirement.
While most tax benefits have been eliminated under the new tax regime, NPS still offers certain tax advantages. For instance, you can contribute up to 14% of your basic salary through your employer to NPS, and this contribution is eligible for deduction from your taxable income. At Rs 10,000 per month, that amounts to an annual contribution of Rs 1.2 lakh. If your income exceeds the tax-free limit of Rs 12.75 lakh, NPS can be an efficient tool for your finances.
Since it is market-linked, NPS also offers the potential for long-term wealth creation. Historically, NPS schemes have delivered average annual returns of around 10%, although actual returns vary depending on the asset class and investment period.
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While returns are not guaranteed, a long-term investment horizon can help you ride out short-term market volatility and smoothen the impact of market fluctuations on your portfolio.
Investing Rs 10,000 every month in NPS can help you build a substantial retirement corpus over time. The longer you stay invested, the more your money gets an opportunity to grow through the power of compounding.
The returns can vary significantly depending on whether you stay invested for 15, 20 or 30 years.
Here's How:
Rs 10,000 in NPS For 15 Years:
- SIP: Rs 10,000
- Time (years): 15
- Expected Rate of Return % (p.a.): 10%
- Invested Amount: Rs 18,00,000
- Profit: Rs 23,79,243
- Total Amount: Rs 41,79,243
Rs 10,000 in NPS For 20 Years:
- SIP: Rs 10,000
- Time (years): 15
- Expected Rate of Return % (p.a.): 10%
- Invested Amount: Rs 24,00,000
- Profit: Rs 52,56,969
- Total Amount: Rs 76,56,969
Rs 10,000 in NPS For 30 Years:
- SIP: Rs 10,000
- Time (years): 15
- Expected Rate of Return % (p.a.): 10%
- Invested Amount: Rs 36,00,000
- Profit: Rs 1,91,93,253
- Total Amount: Rs 2,27,93,253
The calculations show how the NPS corpus can grow significantly with time. Over 15 or 20 years, the accumulated corpus could range from around Rs 41.79 lakh to Rs 76.57 lakh. However, extending the investment period by another 10 years could potentially push the corpus to Rs 2.27 crore.
It is important to understand that actual returns will depend on market performance and your asset allocation. Nevertheless, even relatively small monthly contributions can make a significant difference if you remain invested for the long term.
Also Read | Tax-Free PPF v Attractive SIP: Are Returns Comparable After 15 years?
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