NEW DELHI : Investing Rs 10,000 every month may seem modest, but over two decades, compounding can make a significant difference.
Planning for retirement can seem like a distant goal, but starting with a fixed monthly investment can make a significant difference over the long term. The National Pension System (NPS) is one retirement-focused investment option in India that allows subscribers to build a corpus through regular contributions.
If you invest Rs 10,000 every month, your annual contribution would be Rs 1.2 lakh. Continuing this contribution for 20 years means you would invest a total of Rs 24 lakh from your own pocket.
Assuming an annualised return of 8%, a monthly investment of Rs 10,000 for 20 years could grow to around Rs 59 lakh. Of this, Rs 24 lakh would be your total contribution, while roughly Rs 35 lakh would come from investment growth.
At an assumed annualised return of 10%, the same Rs 10,000 monthly investment could grow to approximately Rs 76 lakh over 20 years. The difference highlights how even a few percentage points in long-term returns can have a substantial effect on the retirement corpus.
The main factor is compounding. With regular investing, the returns generated over the years can themselves generate further returns. The longer the investment period, the more time the money has to compound. This is why starting early can make a difference even if the monthly contribution is relatively modest.
NPS investments are exposed to market-linked returns, and the actual corpus can be higher or lower depending on investment performance, asset allocation, charges and the period of investment.
NPS is designed primarily for retirement. At the time of exit, the accumulated corpus is subject to the NPS withdrawal and annuity rules applicable at that time. This means the entire corpus should not automatically be considered as money that can be withdrawn as a lump sum. Part of the corpus may be used for purchasing an annuity, which can provide a regular pension.
