NPS Investment: Start investing ₹10,000 at age 25, by retirement you will have ₹3.4 crore in hand, understand the complete math.

NPS investment: When planning for retirement, people often think that there is still a long way to go. But in the world of investing, time is the biggest money. If a person starts investing Rs 10,000 per month in the National Pension System (NPS) at the age of 25, he can accumulate a fund of Rs 3.4 crore after retirement. DSP Fund CEO Rahul Bhagat, speaking to CNBC-TV18, explained some very important rules of retirement planning. According to him, a small decision taken at the right time can completely secure your old age financially.

Big advantage of starting 10 years ago

Rahul Bhagat says that the earlier the investment is started, the greater the benefit. Suppose you invest Rs 10,000 every month. If you continue this investment for 25 years and get a return of around 10 percent annually, you will have accumulated around Rs 1.2 crore.

But if you start the same work 10 years earlier i.e. the investment period becomes 35 years instead of 25 years then the whole math changes. By investing for an additional 10 years, your total out-of-pocket amount will be Rs 12 lakh more. But at the end of 35 years, your total fund triples to around Rs. 3.4 crore will be.

Compounding builds returns upon returns

The power of compounding works behind tripling the fund in just 10 years. When you invest money for a long period of time, the return on your principal also starts generating new returns in the future. However Rahul Bhagat also clarified that this calculation is only to understand things in simple language. There is no fixed guarantee of return in any market related product. Actual returns depend entirely on market performance.

Investment needs to increase as earnings increase.

Starting early isn’t enough to build a big retirement fund. For this, it is also very important to increase the investment amount according to your increasing earnings, along with proper asset allocation. Rahul Bhagat explains that if an investor increases his monthly investment by just 5 percent every year, it has a big impact on his retirement fund in the long run.

Why equities are better for young investors

It is generally seen that people in the age group of 20 to 30 years invest more money in equity i.e. stock market. There is a solid reason behind it. Young investors have a much longer time to stay in the market. When you invest for a long time, stock market fluctuations have little impact on your funds. Even if the market falls in between, it recovers again in time.

Due to investment cost Rs. 33 lakh fund may decrease

In retirement planning, people often ignore investment costs, i.e. the charges on investments. While it has a direct impact on the final fund. This can be understood by a simple example. Suppose a person invests Rs 10,000 every month for 30 years. On this he gets a gross return of 10 percent per annum.

If the annual charge on this investment is only 0.1 percent, after 30 years he will have a fund of around Rs 2 crore. When this annual charge rises to 1 percent, the final fund falls to just Rs. 1.7 crore will be. That is, because of this seemingly insignificant difference in annual charges, the investor has to pay almost Rs. 33 lakhs direct loss may be incurred. Therefore, it is very important to pay attention to the expenses of the fund while investing.