How to Calculate NPS Returns & Pension
NPS (National Pension System) is a government-sponsored retirement savings scheme. Your contributions are invested in equity, corporate bonds, and government securities.
NPS Corpus Formula (monthly contribution)
Corpus = P × [((1+r)^n - 1) / r] × (1+r)
Where:
- P = Monthly NPS contribution
- r = Expected monthly return rate
- n = Total months until retirement
Step-by-Step:
- 1
Decide monthly contribution
Minimum ₹1,000/year for Tier-I account.
- 2
Estimate return rate
Historical NPS returns: 8-10% for equity, 9-10% for corporate bonds.
- 3
Calculate corpus at retirement
Use the annuity future value formula.
- 4
Estimate pension
40% of corpus must buy annuity. Pension depends on annuity rate.
Worked Examples:
₹5,000/month for 30 years at 10%
Monthly: ₹5,000Return: 10%Years: 30
Result: Corpus ≈ ₹1.13 Cr
Invested: ₹18L. Returns: ₹95L. 60% lump sum: ₹67.8L. 40% annuity: ₹45.2L.