National Pension System, or NPS as it is generally known is a government-sponsored scheme. Under this scheme, the amount the individual receives in the future depends on the amount accumulated at the time of maturity. It was started to develop financial stability for citizens after their retirement. Any citizen between the age of 18 to 60 is eligible to invest in this scheme and reap its benefits in old age. Since this scheme is not one of the market-linked instruments, it beards sound returns and stands as one of the preferred investment for the individuals working in the private sector.
What is an NPS calculator
An NPS calculator is a carefully designed tool that helps the investors estimate the wealth gained, maturity amount of their investments, and the monthly pension they would receive. The maturity amount is based on the investments made during the investment period. Higher the accumulated amount, the more the benefit in the future. This calculator helps in estimating the amount that shall be invested to achieve the financial goals. One feature that makes NPS an attractive retirement plan is the power of compounding. The investor only needs to enter his monthly or annual investment amount, his age, and his withdrawal %.
The calculator gives the estimate of monthly pension and the wealth gained. However, it must be noted that these are just estimates and not actual values. The actual return varies due to the allocation to equities and underlying assets’ performance. Also, users must decide whether they will be investing monthly or in a lump sum and the amount they want to withdraw on retirement.
For instance: If you are an individual who wants to invest INR 50000 annually in the scheme, it is advisable to explore the NPS investment. To know the wealth that can be accumulated through NPS, you must use the National Pension System calculator. First, you must decide the type of investment you want to make i.e. monthly or yearly, and the amount you want to withdraw on retirement or maturity.
Suppose, you invest yearly, your current age is 30 years, and the withdrawal percentage is 40%. The results that the calculator will show are:
Monthly pension- Rs 34,617
Wealth Gained- Rs 39,56,181
Withdrawal (on Retirement)- Rs 98,90,453
Formula to calculate National Pension System Amounts
To understand the formula, let’s take an example:
An individual named Ravi subscribes to NPS. His age at the time of initiating the subscription is 25 years.
He invests a monthly amount of INR 10000
His retirement age is 60 years and invests for 35 years I.e 60 years minus 25 years
Let the expected return on investments be 10% and purchase of the annuity be 50%
Also, let the rate of return on an annuity stand at 7% and annuity period be that of 10 years
Once Ravi enters the above details, the NPS calculator will provide him with the relevant output.
Principal amount invested = Rs 4,080,000
Interest earned computed on monthly compounding basis = Rs 30,459,348
Pension wealth generated = INR 34,539,348
Amount re-invested in annuity = INR 17,269,674
Amount that is withdrawn in lump sum = INR 17,269,674
Monthly pension post-retirement = INR 200,514
Who can use the NPS calculator
The National Pension System (NPS) calculator can be used by all the individuals who invest in this scheme. The individuals who are between the age of 18 and 60 years of age can invest in this system. Such individuals, however, need to comply with the KYC norms to start investing.
How to use the NPS calculator
The investors in the NPS should fill the following details to see the corpus accumulated:
1. Current age and the retirement age
2. Amount to be invested monthly
3. Expected returns from the investment
4. Years for which pension is to be received
5. Percentage of accumulated corpus to be used to buy the pension plan. This % should not be below 40% if the withdrawal is done at 60 years or above and it must be below 80% if withdrawal is done before 60 years
6. Expected interest rate on the annuity
With all the above inputs, the user gets the accumulated corpus by the retirement time. This corpus is calculated by the principle of the power of compounding. It also shows the interest earned, pension to be received, amount to be re-invested, and the lump sum withdrawn.
Advantages of using the NPS calculator
The National Pension System calculator provides several benefits to the users. Some of these advantages are:
1. There is no need for complex calculations. The online calculator gives the right result with the user just inputting a few details
2. The users can determine how much pension will be available. This aids in their future planning
3. It provides one-stop online calculation
NPF vs PPF
Both, National Pension System and Public Provident Fund have their features and benefits. NPF is a market-driven instrument. However, PPF is independent of the market situation. Therefore, the decision between which investment to choose largely depends on the financial objective of the investor.