The National Pension System, or NPS, is, without a doubt, one of the best investment plans for Indians to build their retirement funds. In this scheme, anyone over the age of 18 can start building their retirement funds by investing a fixed amount every month till they become 60 years old. However, calculating the maturity amount of the NPS scheme isn’t easy. Therefore, to make a proper plan, you need a reliable calculator. In this article, we will show you how to use the national pension scheme calculator to create a solid investment plan. Let’s take a closer look.
Table of Contents
What is an NPS Calculator?
NPS, or the National Pension System, has become one of the most attractive and low-risk investment options for many Indians to build enough funds for their retirement. In this scheme, an individual can choose any one of the four available asset classes to start their investment and invest a set amount of money every month. What’s more, you can receive additional Rs. Fifty thousand tax deductions under Section 80CCD (1B) on top of the Rs. 1.5 lakhs tax deduction under Section 80C. However, evaluating asset classes and figuring out how much you need to invest every month to get the desired maturity amount can be a tough job. That’s where an NPS calculator can help you.
The calculator allows you to play around with the monthly investment amounts, asset classes, and the age of retirement, so you can figure out how to get a reasonable maturity amount. But before we go into any further discussion, let’s see who can use this calculator and the NPS scheme.
Who Can Use the NPS Calculator?
Now that we know what an NPS calculator is, it’s time to figure out who can actually use it. Ideally, any person who wants to invest in the NPS scheme can freely access the calculator. Some websites give free access to this calculator, while others require you to sign up with them before you can start using it. These calculators help people evaluate how much they need to invest in having a good amount of retirement funds. So, most people who use the NPS calculators are usually people who are looking to invest in the National Pension System scheme.
How to Use the NPS Return Calculator?
As we have mentioned before, a good NPS pension calculator has two different settings. One allows you to calculate the maturity value for a fixed monthly investment amount. And the other allows you to set a target and let you see how much you need to invest each month to reach your target amount within a set time. In this section, we will show you how to use the calculator in both of these settings.
Calculating the Maturity Value
Step 1: Entering the Investment Amount:
In this step, you need to type how much money you are willing to invest every month. Obviously, the higher your monthly investment is, the higher you will get upon maturity of your investment. Make sure you add a realistic investment amount to the NPS return calculator to get realistic estimations.
Step 2: Select an Investment Strategy (Asset Classes):
Most NPS calculators give you four different asset or investment classes or investment strategies to choose from. These investment classes are:
- Aggressive: This is a high-risk asset class that can provide you with an average of 14% return per year on investments. However, this investment class also comes with the highest risk factor.
- Moderate: This asset strategy will give you a 12% annualized return over your NPS investments, and it comes with a moderate risk factor.
- Conservative: This option gives you an average of 10% return per year on your investments. This conservative class also has the lowest possible risk factors.
- Custom: It allows you to try different rates of returns on investment freely.
When using the best NPS calculator, you should choose an investment strategy according to your own risk appetite.
Step #3: Age:
In this step, you need to select your current age. Most NPS calculators set your retirement age at 60 years, so you just have to enter your current age or the age you are looking forward to starting investing in the NPS scheme.
Result
Once you’re done typing all the data, you just need to let the calculator come up with the estimated maturity amount. Depending on the data entered by you, you will get different but pretty accurate maturity amounts.
Calculating the Required Monthly Investment
Step 1: Type the Goal Amount:
In this step, you need to enter the final amount of money you want through the NPS investment scheme.
Step 2: Choose an Investment Strategy:
Once again, you need to choose one of the investment strategies available in the calculator. Just as we have mentioned before, the investment strategy should be chosen depending on your risk appetite and the NPS interest rates you are looking for. In most cases, you can choose from these investment strategies:
- Aggressive
- Moderate
- Conservative
- Custom
Step 3: Age:
Here, you need to put the age you are planning to start investing in the NPS scheme.
Result
Once you hit the calculate button, you will be able to see how much money you need to invest each month to get your targeted retirement fund.
The Formula Used to Calculate the NPS Returns
All NPS calculators follow a specific formula to calculate the returns. The NPS formula for calculating the maturity value is mentioned below.
MV (Maturity Value) = P * (1 + r/n) ^ n*t
Here,
P = Total invested principal
r = Expected annual rate of interest
n = The total number of times the growth rate of the investment compounds
t = The investment tenure
Conclusion
NPS is a great investment option that can help you save enough funds to take care of your post-retirement financial needs. But just like any other investment scheme, you also need to plan your NPS investments carefully. The National Pension Scheme calculator allows you to get clear estimations of the required monthly funds to achieve your retirement goals. Go through the steps mentioned above to use the calculator properly and make a solid investment plan.
