With a right debt to equity investment ratio and the Systematic Withdrawal Plan, National Pension System beneficiaries can get high returns with their monthly pension.
The National Pension System (NPS) is a government-backed investment scheme that offers a regular monthly pension on maturity. It offers exposure to debt and equity in a single investment. An account holder with the right ratio of the two and the Systematic Withdrawal Plan can get up to Rs 2.23 lakh of net monthly pension on maturity.
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Experts recommend keeping the debt-equity in a 40:60 ratio or 50:50 ratio for long-term returns. With this NPS interest rate can be expected around 10 percent per annum in long term. Thus, if a person invests Rs 15,000 per month in an NPS account, after growing 30 years he/she can get a Rs 2.23 lakh monthly pension after turning 60 years if they invest in the Systematic Withdrawal Plan (SWP) as well.
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Pankaj Mathpal, MD & CEO at Optima Money Managers, told Livemint that in NPS an account holder gets a part of the sum accumulated as a lump sum amount. Investors are mandated to use at least 40 percent of the maturity lump sum amount to buy an annuity. However, according to Mathpal, the account holder should opt for NPS Systematic Withdrawal Plan and invest the lump sum there to get around 8 percent return on it for the long term.
Thus, if a person invests Rs 15,000 per month in the NPS scheme, with debt-equity exposure in a 40:60 ratio. Then the monthly pension of the amount after 30 years will be around Rs 68,380 and the investor will receive a Rs 2.05 crore lump sum amount on maturity. If the account holder, opts for NPS SWP and invests the Rs 2.05 crore lump sum amount for 25 years, then he/she can expect at least an 8 percent return 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 get income tax exemption under Section 80C of up to Rs 1.5 lakh invested in an NPS account in a single financial year. An additional Rs 50,000 income tax exemption under Section 80CCD (1B) can also be claimed for one’s NPS investments.
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(Edited by : Sudarsanan Mani)