NPS Calculator

The NPS calculator is for you to know how much pension and lump-sum amount you will get when you retire at the age of 60.

The only decision which you have to take is a monthly contribution to NPS.

The more the money you invest, the more the accumulated amount and the larger would be the eventual benefit of the accumulated pension wealth. The power of compounding makes NPS an attractive retirement solution for Indian Citizens.

In this article, I will give you a brief idea of NPS and how to use NPS calculator.

What is NPS?

NPS stands for National Pension Scheme is an investment that is largely focused towards one’s retirement and is a defined contribution pension scheme launched by the Government of India.

This scheme encourages continual savings during work years to create a sizeable corpus post-retirement and acts as a saving-investment tool.

The returns generated in NPS are linked to the performance of the underlying assets such as equity or debt in the Indian market.

Objectives of NPS

Crafted by the government of India in order to encourage savings and enable financial security post-retirement, NPS has several benefits to offer even to low income group.

NPS has three main objectives:

1. To provide old age income especially post-retirement,
2. Reasonable market-based returns over a long period of time and
3. Extending old age security coverage to all citizens of India.

Who can invest in NPS?

Incorporated in Jan 2004 by the government of India, it initially focused on the new government recruits (except Indian Armed Forces) but since May 2009 it has been extended to all citizens of the country including the unorganized sector workers on a voluntary basis.

NPS is managed and regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

Any Indian citizen, resident or non-resident in the 18-65 year age group can open an NPS account. After attaining 65 years of age, the subscriber/investor will not be permitted to make further contributions to the NPS account.

The only condition is that the subscriber/investor must comply with Know Your Customer (KYC) norms.

Even an NRI can join NPS, provided they have a communication address and a bank account in India. However, the NPS account will be closed if there is a change in the citizenship status of the NRI.

How to subscribe to NPS?

PFRDA  offer both an offline as well as an online mode to open NPS account.

Offline Mode

In order to subscribe to or invest in the National Pension System, one needs to open an account with the Point of Presence (POP).

Most banks, both private and public sector banks, are enrolled as POPs. In addition to banks, certain financial institutions are also listed as POPs for NPS subscription.

You can access them through the website of the PFRDA: https://www.npscra.nsdl.co.in/pop-sp.php 

Braches of POP which are authorized for the purpose are called Point of Presence Service Providers (POP-SPs). They act as the authorized collection points.

Once you locate POP near you, collect a subscriber form and submit it along with the KYC papers. Ignore if you are already KYC compliant with that POP.

Once you make the initial investment (which should not be less than Rs. 500 one time or Rs. 250 monthly or Rs. 1,000 annually), the POP will send you a Permanent Retirement Account Number (PRAN).

This account number and the password in your sealed welcome kit will help you operate your NPS account.

Online Process

As we are in the digital era, it is now possible to open an NPS account in less than half an hour through online mode.

Opening an account online (enps.nsdl.com) is easy, if you link your account to your PAN, Aadhaar and/or mobile number.

You can validate the registration process using the OTP sent to your registered mobile number. This will generate a Permanent Retirement Account Number (PRAN), which you can use for NPS account login.

What are the types of NPS Account?

There are 2 kinds of accounts under NPS, these are – Tier-I account and Tier-II account. The table below explains the difference between the two account types in detail.

Particulars Tier-I Account Tier-II Account
Definition Tier 1 account is an account wherein the money in the account cannot be withdrawn until the person reaches the age of 60 Tier II account is more like a savings account and there is no restriction on withdrawal of money, at any point in time whatsoever.
  Status Default NPS account Voluntary NPS account
  Withdrawals Not permitted Permitted but is chargeable
  Tax exemption Up to Rs 1.5 lakh p.a.under 80C and Rs. 50,000 under 80CCD Up to Rs. 1.5 lakh for government employees and for other employees – None
  Minimum NPS contribution The minimum amount that is required to be invested in this account is Rs. 6000 in a year. In this, the minimum amount to open the account is Rs. 1000 and the minimum balance required at the end of the year is Rs. 2000.
  Maximum NPS contribution No limit No limit

Tier-I account is compulsory for all central government employees. Under this account type, they are required to contribute 10% of their basic monthly salary along with DA and DP.

What are the investment options available Under NPS?

NPS provides to its subscribers two investment options for funds allocation, these are:

1. Active Choice

This option allows the subscriber/investor to decide how the money should be invested in the different asset classes.

The various asset classes which are available under NPS are:

  • Asset Class E – invests 50% in stocks;
  • Asset Class C – invests in fixed income instruments other than government securities like Corporate debt funds that invest in bonds issued by the companies;
  • Asset Class G – invests only in government securities.

By choosing the active choice option, a subscriber or an investor can choose the percentage of contribution in available asset classes.

There are three options available to the subscriber/investor – conservative, moderate and aggressive. These options split investor’s money based on the NPS asset classes based on the age of the investor.

2. Auto Choice

This is a default investment option for life cycle funds where the funds are automatically managed by the authority based on the age of the subscriber/investor.

Note that you can change your NPS investment choices once in a financial year for both Tier-I and Tier-II accounts. Also, you can change your scheme preference and pension fund manager.

Advantages and Disadvantages of NPS

Advantages

  • It gives you an additional tax benefit,
  • NPS has low default risk, and
  • These schemes are handled by skilled experts in the financial industry.

Disadvantages

  • NPS has low annuity returns,
  • Lock-in period associated with NPS is very long,
  • Mandatory annuity, and
  • There is taxation on maturity.

All You Need to Know About NPS (National Pension Scheme)

How to use NPS calculator?

Groww has come up with the NPS calculator that helps you to get the corpus that will be accumulated by you at the time of your retirement. The corpus is calculated by using the principle of the power of compounding.

We can calculate it using the following procedures:-

Step 1: Type your current age and the age you expect to retire

Step 2: Enter the amount that you wish to invest every month along with the returns that you expect to earn from your NPS investment

Step 3: Enter the annuity period. It is the number of years over which you wish to receive the monthly pension in the post-retirement years. You are required to mention this number in years.

Step 4: Mention the percentage of pension wealth invested in the annuity plan i.e. the percent of the accumulated NPS corpus you will use to buy a pension plan. This cannot be below 40% if you withdraw at 60 years or more and if you withdraw before 60 years, it cannot be below 80%.

Step 5: And enter the last input, expected rate of interest on the annuity investment. It is the returns that you expect to earn from your annuity (pension) during the post-retirement period.

With the inputs given by you, the NPS calculator will show you:

  • the details of your investment
  • the amount invested by you during the accumulation phase of the scheme,
  • interest earned by you, and
  • the total amount of corpus generated at the time of maturity of your investment.

The Bottom Line

A portion of the NPS goes to equities.

However, it offers returns that are much higher than other traditional tax-saving investments like the PPF. This scheme has been in effect for over a decade, and so far has delivered 8% to 10% annualized returns.

Hence, consider investing in NPS scheme if the benefits elaborated above match your risk profile and your investment goals.


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