NPS Calculator – NPS interest Rate, Return, Risk & Features

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To make the most of NPS, firstly it is important to understand how it works. An NPS calculator will enable you to understand how much pension amount, and lump sum you will receive upon retirement under this scheme. It will help you decide how much you should contribute per month to get the desired amount upon retirement. Here we will discuss all the basic investment related features of NPS.


 

National Pension Scheme (NPS) Basic features and Interest rates Calculation:

  • The rate of interest on NPS is not fixed. It depends on lots of different factors, and hence fluctuates.
  • The NPS interest rate varies between 12% to 14% based on the scheme chosen by the individual. While the previous years’ records give an estimate, they are to serve merely as guidelines.
  • However, since it is a government scheme, it is very safe.
  • Interest on NPS is compounded monthly. This helps build a large corpus of saving.
  • NPS generally provides a higher return on investment than the Employee Provident Fund (EPF) scheme.

Understanding how NPS works:

  • A separate department of the government, called Pension Fund Regulatory and Development Authority (PFRDA), operates NPS.
  • Your monthly contributions basically go into an investment fund.
  • PFRDA has appointed seven Pension Fund Managers (PFMs). You can choose any one of them to manage your pension fund.

The funds of government employees are managed by either of the following three fund managers:

  • LIC Pension Plan
  • SBI Pension Plan
  • UTI Retirement Solutions

The funds of the others are managed by either of the following six fund managers: 

  • ICICI Prudential Pension
  • IDFC Pension
  • Kotak Mahindra Pension
  • Reliance Capital Pension
  • SBI Pension Funds
  • UTI Retirement Solutions

Other than the fund managers, you have to decide on how you want to invest. There are two options:

2 Options to invest in NPS, Return, Risk Involved & NPS Calculator

1. Active Choice

NPS lets you decide your investment portfolio. Based on the amount of risk you are willing to take, you can invest in either of the following asset classes, and in varying proportions.

  • Equity or E – A: These are high return – high risk investments in equity market instruments. You can invest a maximum of 50% in equity.
  • Corporate Debt or C – A: These are medium return – medium risk investments in fixed income bearing instruments.
  • Government Securities or G – A: These are low return – low risk investments purely in fixed income instruments.

2. Auto Choice – Life Cycle Fund

If you don’t want to design your own portfolio, you can opt for the Auto Choice option. Here, your money will be invested automatically depending on your age. When you are younger, the high return – high risk share will be greater, and as you approach retirement, the low return – low risk share will be maximum. The following table shows the proportion of investment in different asset classes according to age.
Auto Choice - Investing in NPS - NPS Calculator


Points to keep in mind:

  • The fund managers charge approximately 0.0102 % to 0.25% of the investment as fund management fee.
  • Tax laws may change in the future, which may affect the tax savings.

Hence you will note that it is very difficult to calculate the exact amount of pension and lump sum under NPS. The investment portfolio varies for different people. Also, interest is market-linked, and is not fixed. However, you can get an good estimate of the returns offered by the scheme by understanding its working.
To find out more about NPS, you can read the following:
Pros and Cons of NPS
How to Open a NPS Account
NPS Withdrawal Rules

 

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