How the national pension scheme works

NPS CALCULATOR: HOW THE NATIONAL PENSION SCHEME WORKS

Before we get into the basics of a NPS calculator and its purpose, it is crucial to understand how NPS operates. The National Pension Scheme (NPS) operates in two tiers – tier 1 and tier 2.

Tier 1 account does not allow you to make any withdrawals since your entire contribution goes towards your retirement pension.

Moreover, employers can also contribute to the tier 1 account. On the other hand, tier 2 account is an additional account from where you can withdraw money after 5 years. However, you must remember that there is an intervening gap of 2 years between two withdrawals, which is required.

You can investment in National Pension Scheme online.

Therefore, let us start analyzing the National Pension Scheme

calculator and how it helps you in talking the decision for investing online. A web-based app, NPS calculator basically performs the task of calculating the amount of pension that you can draw from your tier 1 account.

You will have to feed in key details in the NPS investment calculator, which includes your current age, expected monthly deposit into your tier 1account, and current rate of interest. The NPS scheme has an annual compounded interest rate. Based on the inputs you fed into the app, the NPS calculator will provide you with an estimate of your pension amount. However, this amount will only be an approximate estimate. This is largely because the returns from NPS scheme are market linked.

Moreover, interest rates also might fluctuate with time. Further, tax rules keep changing with time as well, which has a bearing on the pension withdrawal, etc.

Therefore, NPS calculator serves investors as an effective ready reference tool to understand the retirement corpus they will be getting at the end of 60 years and to calculate amount of total interest their NPS investment would have earned over the years.

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