When planning for retirement, investors often get confused between SIP and NPS, which is a better option to go for a retirement plan. Let us compare both the plans in detail that will help the investor make an informed decision. Let’s read on!
SIP Calculator
Monthly Investment
₹22.4 L
Top Funds with High Returns (Past 7 Years)
17.93%
High Growth Fund
17.6%
Top 200 Fund
13.73%
Accelerator Mid-Cap Fund II
14.37%
Opportunities Fund
9.16%
Equity II Fund
12.73%
Accelerator Fund
14.17%
Growth Opportunities Plus Fund
15.04%
Multiplier
11.46%
Equity Top 250 Fund
12.64%
Future Apex Fund
11.9%
Opportunities Fund
14.02%
Frontline Equity Fund
15.2%
Virtue II
10.41%
Pension Dynamic Equity Fund
11.83%
Top 300 Fund
9.96%
Blue-Chip Equity Fund
SIP vs. NPS: Which is Better for Investment?
| Particulars |
Syststrongatic Investment Plan (SIP) |
National Pension Scheme (NPS) |
| Returns on an average |
Generally between 12% to 15% |
Generally between 8% to 10% |
| Lock-in Period |
No lock-in period.
Only ELSS funds have a 3-year lock-in period |
Up till retirement or 60 years of age. |
| Risk Factor |
Mutual Fund investments are subject to market risk. |
Risk related to equity exposure only. |
| Investment amount (Minimum) |
Rs. 500 |
Rs. 6,000 |
| Investment amount (Maximum) |
No limit |
No limit |
| Equity Exposure |
Completely depends upon the preference of the investor.
Can be from 0% to 100% |
Up to 75% maximum |
| Investment duration |
Up till the investors will. |
Till retirement |
| Prstrongature Withdrawals |
No restrictions in general.
ELSS funds have a 3-year lock-in period. |
Only 20% of the total corpus can be withdrawn before retirement after paying taxes. |
| Tax Benefits |
Only ELSS funds are eligible for tax exstrongption up to Rs. 1,50,000 under Section 80C. |
Up to Rs. 1,50,000 is exstrongpted under Section 80C
Additional Rs. 50,000 is exstrongpted under Section 80CCD. |
| Taxation |
Both Short-term and long-term capital gain returns are subject to capital gains. |
NPS amount is completely tax-free. |
Syststrongatic Investment Plan (SIP)
SIP or Syststrongatic Investment Plan is 1 of the 2 methods of investments under Mutual Funds, the other being the Lump Sum method. The syststrongatic investment itself means investing your hard-earned money in such a way that it does not burn a hole in your pocket. The pre-decided amount is auto-debited from the account of the investor monthly and invested in the units of mutual funds opted for. SIPs are gaining huge popularity these days because of their easy-to-pay installments and high returns than other investment options if invested for a long-term strategy.
Advantages of Syststrongatic Investment Plan
Following are the main advantages of investing in a SIP plan:
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Financial Discipline: The regular monthly amount to invest in a SIP helps in inculcating a habit of financial discipline in the life of the investor.
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Auto-Debit of the Invested Amount: Once opted for the SIP plan, the investor does not have to worry about keeping in mind the next due date of the plan. The amount is automatically deducted from the approved investor’s account on every due date.
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Pocket-Friendly Investments: A SIP can be purchased for an amount as low as Rs. 500. SIP is, therefore, extrstrongely pocket-friendly and an easily accessible plan for investors of every kind.
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Power of Compounding: SIP investments, if made for a long-term period, help in generating a huge corpus in the end. Through the compounding effect, an investor, if investing a fixed amount regularly for a certain period, can achieve returns higher than expected.
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Rupee Cost Averaging: Rupee cost averaging is a phenomenon wherein an investor can freely purchase more units during the market decline and less when the market price is high. Rupee cost averaging helps in bringing down the per unit cost of a Mutual Fund.
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Flexibility: SIP offers flexibility to each and every investor to select a Mutual Fund as per their own financial backing and risk tolerance. SIP is one of the few investment options that provide complete flexibility to investors.
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High Returns: On average, a decent SIP plan offers returns somewhere between 12% to 15% on an annual basis. Depending upon the fund type, whether low-risk or high-risk taking investment, the returns vary drastically.
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Multiple Investment Options: Equity funds, Debt funds, Hybrid funds, ELSS, Aggressive funds, Tax-saving funds, etc. There is a huge variety of fund options to choose from when it comes to investing in a SIP plan. The selection of fund type depends upon the risk taking ability of the investor and the financial corpus desired in the future. SIP calculator online tool can be used to analyse the SIP returns.
National Pension Scheme (NPS)
NPS or National Pension Scheme is a complete government backed, voluntary retirement plan regulated by the PFRDA (Pension Fund Regulatory and Development Authority). Under this scheme, the investor has to allocate a certain amount from their monthly income towards the NPS account during their employment period. At the age of retirement, the investor is eligible to withdraw up to 40% of the accumulated corpus, and the rest 60%, needs to be reinvested in the annuity.
Advantages of the National Pension Scheme
Following are the main advantages of investing in an NPS Scheme:
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Flexibility: NPS offers a wide range of investment options to choose from, making it one of the most flexible government-backed fund Schemes available in the financial market.
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Voluntary Contributions: At best part about the NPS scheme that makes it distinctive from most of the other investment options is that the investor has the authority to reduce or increase the investment amount under the scheme as per their own financial capacity.
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Transparency: As National Pension Scheme is a complete government-backed scheme regulated by the PFRDA (Pension Fund Regulatory and Development Authority), transparency is guaranteed.
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Contained Risk: The equity exposure under the NPS scheme is limited to 50% of the corpus of the investor. This capping helps in controlling the market volatility and ensures that the wealth created is not is not impacted.
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Tax Benefits: Tax is exstrongpted up to Rs. 1,50,000 per annum under Section 80C of the Income Tax Act, 1961. Further, Rs. 50,000 tax deductions can be availed under Section 80CCD (1B) of the Income Tax Act.
People also calculate: NPS Pension Calculator
Bottom Line!
SIP vs. NPS is very difficult to compare as both the investment options have their own benefits and drawbacks. Ultimately, the financial goal, risk tolerance, and investment horizon of the investor are the key factors that play a major role when opting for any investment option. It is advised to study the market carefully before putting your hard-earned money into any investment type. To get the better idea of SIP plans, it is suggested to study the best SIP plans in the market before investing.
Happy investing!
