Insights

The Biggest Question in NPS

August 23, 2021 . Manas muraleedharan

As soon as one starts earning, the first impulse would be to buy their heart’s wish with their salary. Next, they think about how to grow their earnings. Be it savings or investment, one of the foremost questions anyone asks is about the Returns. We have discussed NPS from various angles such as flexibility, tax-saving, etc. If you have just started researching NPS, our blog ‘Is it worth it to invest in NPS’, would be a good place to start. Today, let us discuss the Returns aspect of NPS. 

NPS Returns

NPS is suitable for long-term investment. Investing from a young age will prove highly beneficial at the retirement age. But the biggest question that arises in every customer is the returns from NPS. The returns of NPS are not fixed or guaranteed as it is linked with the market. The market keeps changing with every passing second. 8 fund managers provide an NPS scheme but every manager has a different return percentage. The returns are also based on the various aspects and features in NPS. Let us see the aspects which affect the NPS returns. 

Choices in NPS

The money you invest in the NPS is divided and invested in various asset classes such as equity, corporate bonds, Government securities, and alternative funds. The diversification of money is done in such a way that the risk will be minimized. There are 2 choices in the NPS scheme. They are as follows,

Active choice: The individual can choose the assets in which he/she should invest.

Auto choice: The fund managers will decide the asset for the individual based on his/her risk preferences(high(LC75)/moderate(LC50)/low(LC25)) and their age.

The various asset classes are as follows,

Equity: The investments are predominantly in the equity market investments with a provision of high risk-high return. The maximum investment in this asset class is 75% of the total contribution. 

Corporate bonds: The investments are typically made in fixed income-bearing instruments issued by corporate houses with a medium risk-medium return for investors.

Government securities: The funds invested are purely in Government securities and bonds. These funds are categorized as low risk-low returns.

Alternate funds: The investment is generally made in Real Estate Investment Trusts (REITs), Mortgage-backed Securities (MBS), Infrastructure Investment Trusts (InvITs), etc. It is available only in the active choice of NPS. The maximum investment in this asset class is 5% of the total contribution. 

The investor can change the asset class, choice of investment, fund managers twice every year. The rate of return on the NPS scheme varies similarly to mutual funds. In the last 10 years, NPS returns have increased from 8% to 10%, which gave confidence in the NPS investment scheme for the investors.

Check your estimated Returns with NPS Calculator

The NPS calculator is a tool which helps the investors to accurately estimate the returns that he/she will receive over some time. The inputs required for the NPS calculator to calculate the returns are

  • The age of the investor
  • The contribution by the investor every month

The investor will receive the following information after providing the above information,

  • The total amount invested by the investor in the NPS account
  • The total amount accumulated upon the investor’s retirement is based on the expected interest rate.
  • The total lump-sum amount can be withdrawn from the account.
  • The total amount that can be invested in the annuity plans.
  • The estimated amount as monthly pension that an investor will receive is based on the annuity plans.

To use the NPS calculator, click here.

NPS is the ideal solution for happy retirement life. You can get more benefits and returns if you invest in the NPS scheme for a longer period so start investing in NPS in the ’20s and enjoy the benefits in the ’60s.

Always invest for the long term to enjoy the benefits.

For more information, visit FundsIndia.com. Should you have any questions regarding NPS, reach out to us at contact@fundsindia.com or at 044-61104100 / 1860 258 3055.

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