NPS Vatsalya Calculator: How Rs 5,000 monthly contribution can help your child build Rs 75.50 crore retirement corpus; know it through expert calculations
NPS Vatsalya Calculator: Parents/uardians can open minos/children's NPS Vatsalya account. They can contribute till the child turns 18, then NPS Vatsalya account will be converted into a normal NPS account. Corpus up to 20 per cent can also be withdrawn at 18.
NPS Vatsalya Calculator: Retirement planning should be started from the child's birth. It may sound absurd, as when a child is born, parents think of their upbringing, education, and expenses that play a key role in the child's personality development. Retirement planning is hardly a thought in that case. In most cases, retirement planning comes into play in the mid-30s or early-40s. But starting investing late for retirement planning has a problem. A person starting investing for retirement in the early 40s gets much less time for compounding growth of their investment compared to a person starting investing at 25. So, if the late starter wants to match the retirement corpus of the early starter's, despite having the same growth, their monthly investment will be much larger. E.g., if A is 25 years old and B is 40 years old and both are planning a Rs 2.75 crore corpus by 60 with 12 per cent annualised growth on their investment, A needs to invest Rs 5,000 a month (Rs 21 lakh overall), while B needs to invest Rs 30,000 a month (Rs 72 lakh overall). So, the best strategy can be to start investing early. But what if one starts it when their child is born, does it till the child starts earning, and then the same investment is continued till the NPS account holder turns 60, the outcome of such a long-term investment can be magical. A monthly investment of Rs 5,000 in a scheme such as National Pension System (NPS) Vatsalya and then in a normal NPS account can help one create a retirement corpus of Rs 75 crore by the age of 60. In this write-up, through expert calculations, we will tell you how it can be done. Before that, let's know what is NPS Vatsalya and how it works.
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NPS Vatsalya
The government allowed minors' entry into NPS this month. Parents/guardians can open the accounts of minors/children as young as newborns. The minor will be issued a Permanent Retirement Account Number (PRAN) and the account will also be in their name. They will get the benefit of investment, which will be done by parents/guardians in the child's name.
NPS Vatsalya: Who can open account
Indian citizens, non-resident Indians, and Overseas Citizens of India can open the account.
NPS Vatsalya: What are contribution conditions
The minimum investment in a year is Rs 1,000, while there is no maximum limit. The investment can also be done on a monthly basis.
NPS Vatsalya: Till when one can contribute
The maximum age to contribute is 18 years.
NPS Vatsalya: Maximum equity exposure that one can opt for
The maximum equity exposure that one can opt for is 75 per cent.
NPS Vatsalya: What will happen to account then?
The account will be converted into a normal NPS account. In the NPS account, anyone can contribute from the age of 18 to 75.
NPS Vatsalya: Can money be withdrawn at 18?
Only 20 per cent corpus can be withdrawn at 18, from the rest of the 80 per cent, they need to purchase annuity to get monthly income. However, if the corpus is less than Rs 2.50 lakh, it can be fully withdrawn.
NPS Vatsalya: How to create Rs 75.50 crore retirement corpus
We will show you how a Rs 5,000 monthly contribution can take the retirement corpus to Rs 75.50 crore at 60 in 2 phases. In the first phase, we will show that what will happen if one does not open an NPS Vatsalya account and starts contributing Rs 5,000 monthly in NPS from the age of 18 till 60.
NPS Vatsalya: How to create Rs 75.50 crore retirement corpus
In the second example, we will what is the impact if a parent invests Rs 5,000 monthly for their minor till 18, convert it into a normal NPS account, and the same contribution is continued till 60 years of age. We will take 13 per cent annualised growth on this investment (the 13 per cent figure is in line to PFRDA’s assumptions of 12.86 per cent, with 75 per cent equity and 25 per cent Government Securities exposure)
NPS Vatsalya: Retirement corpus if one starts Rs 5,000/m investment at 18
In that case, their investment in 42 years will be Rs 25.2 lakhs, while the retirement corpus will be Rs 8.30 crore.
NPS Vatsalya: Retirement corpus if one starts Rs 5,000/m investment at 18
The total invested amount in 60 years will be Rs 36 lakh, while the corpus at 13 per cent annualised growth will be Rs 75.44 crore.
NPS Vatsalya: What's the benefit of starting early
Extra years of compounding can do magic to the retirement corpus. In 18 years, the additional investment is Rs 10.8 lakh, but the additional corpus is Rs 66.70 crore.
| 0 Years to 60 Years | |
| Investment | 5,000 |
| Tenure | 60 Years |
| Total Invested | 36 Lakhs |
| Fund Value | 75.44 Cr |
| Expected Rate of Return | 13% |
| 18 Years to 60 Years | |
| Investment | 5,000 |
| Tenure | 42 Years |
| Total Invested | 25.2 Lakhs |
| Fund Value | 8.3Cr |
| Expected Rate of Return | 13% |
Chart Courtesy: Max Life Pension Fund Management