Rs 6 Cr Fund From NPS and EPF: Employees’ Provident Fund (EPF) and National Pension System (NPS) are two prominent ways to create a retirement corpus. Private sector employees who have just entered the job in an organisation part of Employees’ Provident Fund Organisation (EPFO) can create a corpus by contributing to their EPF corpus. On the other hand, they can open an NPS account, or may as their organisation to open it to create a corpus through a market-linked scheme. But what if one entered the job late in their mid 30s.
Can they still create a substantial target from EPF or NPS or both schemes.
If someone is 35 years old with zero corpus, can they create a Rs 6 crore fund from their EPF and NPS investments by 60 years of age?
See our calculations to know how it may be possible.
EPF’s key features
One can start contributing to EPF with a minimum Rs 1,800 (12% of Rs 15,000) contribution.
The maximum contribution can be 12 per cent of an employee’s basic pay and dearness allowance (DA).
The employer also contributes an equal amount, from which 3.67 per cent goes to the employee’s EPF portion and 8.33 per cent to Employees’ Pension Scheme (EPS).
From the EPS contribution, the employee gets the monthly pension post retirement.
However, the maximum employer contribution to the employee’s EPS account is Rs 1,250.
If it is more than that, it will go to the employer’s EPF contribution.
The government provides a fixed interest of 8.25 per cent on EPF.
NPS key features
NPS is a market-linked scheme where investors can pick equity and debt investments as per their age and risk appetite.
An NPS account holder can pick up to 75 per cent equity and up to 100 per cent debt for their investment.
NPS Tier I account holders can withdraw up to 60 per cent of their corpus at 60 years of age.
From at least 40 per cent of the amount, they need to purchase an annuity plan, which provides them a monthly pension.
Can you create Rs 6 crore corpus?
If you are 35 years old and want to retire at 60 years of age, you have a 25-year investment horizon.
Let’s assume you want to create a Rs 4 crore corpus from NPS and Rs 2 crore corpus from EPF. We will calculate the estimated monthly investment.
Rs 4 crore corpus from NPS
For our calculation, we are taking the example of a private sector employee with 75 per cent allocation to equity and 25 per cent to debt.
We are taking the expected annualised return of 12.25 per cent for NPS and 8.25 per cent interest rate for EPF.
In the table, you can see that at a 12.25 per cent annualised return, a Rs 4 crore corpus can be achieved in NPS by investing an estimated Rs 22,590 a month for 25 years.
The overall investment in those years will be Rs 67,77,000, estimated capital gains will be Rs 3,32,34,481.04, and the estimated corpus will be Rs 4,00,11,481.04.
Rs 2 cr corpus from EPF
At a 8.25 per cent interest rate, one needs to invest an estimated monthly amount of Rs 20,265 to achieve a Rs 2 crore corpus in EPF.
The total investment in 25 years will be Rs 60,79,500, estimated interest will be Rs 1,39,20,754.13, and the estimated corpus will be Rs 2,00,00,254.13.
Total investment= Rs 67,77,000 (NPS)+ Rs 60,79,500 (EPF)= Rs 1,28,56,500
Total corpus- Rs 4,00,11,481.04 (NPS)+ Rs 2,00,00,254.13 (EPF)= Rs 6,00,11,735.17
(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)