NPS vs Mutual Fund: Which is better for retirement planning? Know everything

NPS vs Mutual Fund – Nowadays people have started thinking about their retirement planning in advance. For this, some do Mutual Fund SIP, while some consider NPS (National Pension System) better. But the question is where will one get more returns in the long term? And which option is more convenient and beneficial?

If you are also in the same confusion, then here we are explaining to you the special features of both SIP and NPS in simple language, so that you can decide for yourself which option will be best for you.

In mutual fund SIP, the investor can decide himself whether to invest the money in equity fund or debt. If you choose equity fund for long term, you can get a return of up to 10–15% per annum. Whereas in NPS, the share of equity is limited (maximum 75% in Tier-1).

Therefore, the return from NPS is usually between 8–10%. The scope of returns in SIP is higher, but the risk is also a little higher.

NPS is more beneficial for saving tax

If your aim is to save tax, then NPS is a good option. In this, you can get a deduction of up to Rs 1.5 lakh under 80C and an additional Rs 50,000 under 80CCD (1B). That is, a total tax saving of up to Rs 2 lakh. Whereas in SIP, tax benefit is available only in ELSS fund and in that too, exemption is only up to Rs 1.5 lakh under 80C.

In SIP, you can stop investing, withdraw money or increase or decrease the investment amount whenever you want. That means you have complete freedom. But in NPS, there are strict conditions for withdrawing money. You can withdraw the entire money only at the time of retirement. And even then, you will get 60% of the amount in lump sum and will have to buy pension with the remaining 40%.

Who is how safe?

NPS is a scheme run under the supervision of the government and its funds are invested in the stock market as well as government bonds and debt instruments. Therefore, there is less fluctuation in it. If you choose equity funds in SIP, then the risk is higher, but the returns can also be better accordingly.

So what to do? SIP or NPS?

Let us tell you that both have their own importance. If you want, you can make NPS the base of your retirement security and also create money for different goals through SIP. This will give you the benefit of tax savings, returns and liquidity. If you are thinking about retirement planning, then take the right decision according to your needs.

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