What is NPS?
The NPS (National Pension System) is an investment plan launched by the Indian Government where you can save for your retirement. The major benefit of investing via NPS is the significant tax benefits that it offers. The tax benefits apply via (1) Income Tax saved every year as your investment amount is exempt from taxation, (2) Capital gains tax saved when rebalancing during the investment period, and (3) Capital gains tax saved at withdrawal.
NPS is also the world's lowest-cost investment product, with an expense ratio of as low as 0.02%. This is 50 times lower vs. Direct Mutual Funds and about 100 times lower vs. Regular Mutual Funds. This can have a significant impact on the amount of money in your retirement corpus.
What is an NPS Calculator?
An NPS calculator is a tool that calculates the returns on your NPS investments. You can input a few basic details to get an estimate of the retirement corpus you can build over time. Using the NPS calculator, you can find the amount of tax-free lump sum amount and the amount of lifelong pension income you will get if you start investing in NPS today.
The NPS calculator will show you the total amount of money invested, the estimated future value of your retirement corpus, and your total gains. Further, it will show you the amount of money you can withdraw tax-free as a lump sum amount on retirement (max 60%) and how much monthly pension income you will receive for the rest of your life. When you are no more, the remaining NPS corpus (40%) passes on to your nominee.
The NPS calculator also shows you your estimated tax savings by investing in NPS. You can save income tax up to ₹62,400 every year by investing in NPS. This is per income tax sections 80CCD(1) and 80CCD(1B) of the Income Tax Act. Further, your retirement corpus compounds completely tax-free and you have zero capital gains tax liability for the lump sum amount you withdraw at retirement. The INDmoney NPS calculator gives you an estimate of both these forms of tax savings.
How to use the National Pension Scheme Calculator?
The NPS calculator is easy to use and is highly convenient for beginners and new investors to estimate their retirement corpus, monthly pension income, and expected tax savings on their NPS investment. You can run the NPS calculator based on any NPS investment plan.
- Investment Plan: The NPS investment plan is essentially your risk profile. It defines how much of your money should be invested in Equity, Corporate Debt, and Government Debt. This input is used by the NPS fund manager to allocate your money, it can be aggressive, moderate, or conservative. Alternatively, you can choose a custom plan, wherein you can define your own custom asset allocation.
There are two ways to use the NPS calculator:
Investment Amount Approach
If you want to calculate the future value of your retirement corpus for a given investment amount, this option should be used. In this option, you can provide the following inputs to the NPS calculator:
- NPS Investment Amount: This is the fixed sum you plan to invest at regular intervals.
- Current Age: This is your current age, it is used to estimate your future investment duration.
- Investment Plan: This can be aggressive, moderate, or conservative
Retirement Goal Amount Approach
If you want to calculate the NPS investment amount required to reach a target retirement corpus amount, this option should be used. In this option, you can provide the following inputs to the NPS calculator:
- Retirement Goal Amount: This is the planned retirement amount you want to achieve.
- Current Age: This is your current age, it is used to estimate your future investment duration.
- Investment Plan: This can be aggressive, moderate, or conservative.
Once you follow the above steps, the NPS calculator shows you the total amount invested, your total gains, and the estimated future value of your retirement corpus. Further, the NPS calculator shows the maximum tax-free amount you will be able to withdraw as lumpsum and the amount of lifelong monthly pension you will receive. Finally, the NPS calculator will show the estimated income tax and long-term capital gains tax you will save by investing in NPS.
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Who can use the NPS calculator?
Anyone planning to save for their retirement can use the INDmoney NPS calculator for free. Any individual who is eligible to invest in NPS can estimate their retirement corpus amount using the NPS calculator.
- NPS Eligibility: All Indian citizens over the age of 18 years but not more than 60 years are eligible to invest in the national pension system. All applicants to NPS must comply with the Know Your Customer (KYC) guidelines and submit relevant documents of identity proof, address proof, bank account details, etc.
Benefits of the NPS Calculator Online
Retirement Planning
The NPS calculator allows you to estimate the amount of NPS investment required to fund your retirement. You can also use the retirement calculator to estimate what is the right retirement corpus for you based on your lifestyle. The NPS calculator also tells you how much monthly pension income you can receive in retirement. As this is a complex calculation to do manually, the NPS calculator makes this calculation significantly easier for you to do.
Tax Savings
The NPS calculator shows your estimated tax savings if you start investing in NPS. This is shown for both (1) Income tax and (2) Long-term capital gains tax savings. As tax saving is a major benefit of NPS investments, clearly showing the estimated tax saving makes it very helpful for investors to quantify the amount of tax savings possible via NPS investing.
Expense Savings
The NPS calculator shows your estimated expenses saved if you start investing in NPS. NPS is the world's cheapest investment product, with an expense ratio of just 0.02%. This makes NPS investing significantly cheaper vs. other comparable products such as Mutual Funds and Indian Stocks. The NPS calculator clearly shows the amount of money saved in expenses when investing via NPS.
Frequently Asked Questions
What is the interest rate on NPS investments?
NPS investments are market linked. This means the NPS fund manager invests your money in Equity, Corporate, and Government bonds. The allocation is based on your choice of NPS investment plan and your age at the time of starting. A young investor (age 30), in the aggressive plan can expect a return of 12-13% per annum. Moderate plan subscribers can expect a return of 10-11% per annum. Conservative plan subscribers can expect a return of 9-10% per annum.
Can I change the NPS investment plans?
Yes, NPS investors can choose to change their investment plan among the available options: Aggressive, Moderate, Conservative, or Custom. Further, NPS investors can change their NPS fund managers too. This is allowed once per financial year.
What is an annuity?
An annuity is a fixed sum of money paid to someone for the rest of their life. It is a kind of financial product sold by various insurance companies. Anyone can purchase a monthly annuity and start receiving a fixed monthly income for the rest of their life.
When your NPS investment matures at retirement, a minimum of 40% of the corpus must be used to purchase an annuity. This ensures that you receive a lifelong fixed monthly income. This 40% of the corpus is passed onto your nominee (tax-free) when you are no more.
Which is better NPS or PPF?
NPS is a market-linked pension scheme offered by the Government of India. Public Provident Fund (PPF) is a government-backed savings scheme. The expected returns from NPS are 10-12% whereas for PPF they are fixed at 7.1%.
NPS is a higher-risk investment vs. PPF. NPS is tailor-made for an individual's retirement planning. The final decision on the choice between NPS and PPF depends on the person's goals, financial situation, and tax-saving potential.
What are the different types of NPS accounts?
NPS subscribers can upon two types of accounts, Tier 1 and Tier 2.
The Tier 1 account must be opened first and a minimum contribution of ₹500 is required to open the NPS Tier 1 account. Further, a minimum contribution of ₹1000 per year is required to keep the NPS Tier 1 account active. The income tax and capital gains tax benefits are applicable only on the Tier 1 account.
The Tier 2 account is optional and a minimum contribution of ₹2000 is required to open the Tier 2 account. There is no lock-in period applicable on the Tier 2 account, you are free to withdraw your Tier 2 investments at any time. Tier 2 investments do not qualify for any income tax or capital gains tax exemptions.