Rs 4.6 Lakh Lump Sum In NPS Tier-1 — Value Projection At 12% CAGR

The National Pension System (NPS) is a popular long-term savings scheme in India, introduced by the central government to help people build a steady income after retirement. The scheme encourages disciplined, long-term savings and also offers tax benefits, making it an efficient option for individuals and employers. NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It is a market-linked, defined contribution scheme. 

Your returns depend on how the chosen pension funds perform. All citizens between 18 and 70 years can join this scheme. All Central Government employees who joined on or after Jan. 1, 2004, are covered under NPS, except defence personnel. Many State Governments have also adopted it.  

A key feature of NPS is the Tier-I account, which is the main retirement account. For all NPS subscribers, it’s mandatory to open a Tier-I account. All investors are required to deposit at least Rs 500 to open an account. A minimum contribution of Rs 1,000 must be made in a year to keep the account activated.

All regular contributions made by investors and their employers go into this account. The money is invested as per the fund manager and scheme selected by investors. While the voluntary Tier II account comes with greater flexibility, the Tier-I account has strict withdrawal rules. Withdrawals from the Tier-I account are not allowed until the retirement age of 60. At retirement, up to 60% of the corpus can be withdrawn as a lump sum and it comes with tax benefits. The remaining 40% must be used to buy an annuity, which will act as a steady pension income.

To understand the scheme better, the official NPS website also offers a calculator for investors. By using it, investors can understand the estimated growth of their NPS fund by the time of their retirement.

Assuming an investor wants to start NPS investments through the Tier-I account at the age of 25, with a lump sum amount of Rs 4.6 lakh as lumpsum, let’s see how the retirement corpus will grow over the years.

 Fund type: 75% equity oriented, 25% debt oriented 

• Contribution: Rs 4.6 lakh

• Age: 35 years

• Invested till: 60 years

• Expected return: 12% p.a.

• Annuity: 40% of the fund

• Annuity rate: 6%

• Total corpus value: Rs 2.24 crore

• Lumpsum Withdrawal: Rs 1.34 crore

• Annuity value: Rs 89.42 lakh

• Monthly Pension: Rs 44,711

Investors should note that the NPS calculator provides only estimated projections. The results are based on assumed returns and fund allocations. However, as this scheme is market-linked, the actual returns may vary due to economic and other factors.