NPS: Invest Rs 500 per day and get Rs 1.89 crore, here's how

National Pension System: Strategizing for financial security post-retirement has assumed paramount importance, particularly for individuals employed in the private sector. Enter the National Pension System (NPS), a commendable solution that empowers individuals to build a retirement fund that can range anywhere from Rs 2 crore to Rs 6 crore.

The NPS not only facilitates the creation of a substantial retirement fund but also boasts tax-saving advantages. It guarantees a fixed monthly pension or a substantial fund upon retirement, effectively alleviating any financial anxieties that may plague individuals during their golden years. Thanks to its commendable returns, the NPS has garnered the trust of pension fund managers, many of whom have achieved double-digit returns surpassing the 10% mark.

Here are a few examples: The SBI Pension Fund, since its inception in 2009, has achieved an annual return of 10.43%, a truly remarkable feat. The HDFC Pension Fund tops the charts with the highest return of 14.14% since August 2013. Meanwhile, the LIC Pension Fund has garnered a return of 12.24% up to this point. Other fund managers such as UTI SRL, ICICI Pension Fund, Kotak Pension Fund, and Birla Pension Fund have also managed to deliver returns exceeding 11% since their establishment.

NPS subscribers have the ability to generate great returns over the long term, especially in light of these astounding numbers. Considering a scenario where the average return is 10%. After 35 years, 30 years, or 25 years, respectively, a monthly investment of Rs 5,000 can yield a wealth of Rs 1.89 crore, Rs 1.13 crore, or Rs 66 lakh.  If you increase your monthly investment to Rs 10,000 or Rs 15,000 over a 35-year period, you can earn Rs 3.8 crore or Rs 5.69 crore, respectively.

Let's focus on determining how to calculate the pension payment every month. The NPS Tier-1 account is specifically designed with retirement planning in mind. After retirement, you are permitted to take a lump sum payout of up to 60 per cent of the total amount, with the remaining 40 per cent going towards buying an annuity that would provide a consistent monthly income. Those who have accumulated savings of Rs 2.5 crore are eligible for a pension of Rs 50,000 each month. When it comes time to retire, 60% of this money, or Rs 1.5 crore, can be withdrawn all at once, leaving Rs 1 crore to be used to buy an annuity. Individuals are qualified for a Rs 50,000 monthly pension, assuming a 6% annual annuity rate.

The NPS Tier-1 account offers tax exemption benefits on contributions and withdrawals in addition to retirement benefits. Under the Income Tax Act's 80C, contributions are allowed for tax deductions of up to Rs 1.5 lakh, with an extra Rs 50,000 possible under 80CCD (1B). While income from annuities is subject to income tax, withdrawals from the NPS Tier-1 account are totally tax-free.

Read more: From SCSS, NSS to Post Office Time Deposit Scheme: Government schemes offering more interest than bank FDs