NPS vs SIP: Which is a Better Investment Plan?

When it comes to long-term investing, NPS and SIP both come up as top choices. One is built for retirement, the other for flexible wealth creation. The NPS vs SIP debate depends on your goals, risk appetite and how much control you want. To make that call, it’s important to know how they work, what they offer and how they fit into your financial plan. 

Read on to understand the differences and make an informed choice.

What is NPS?

The National Pension System (NPS) is a retirement savings scheme backed by the Government of India. It helps you build a pension fund through regular investments during your working years.

You can open an NPS account online. There are 2 types of accounts:

• Tier I Account: This is the main retirement account. It comes with tax benefits and a lock-in till the age of 60. You must use this if you’re investing in NPS for retirement.
• Tier II Account: This is optional and can be opened only if you have an active Tier I account. It works like a regular savings account. You can withdraw anytime.

Once your account is active, you choose how your money is invested. This can be done in two ways:

• Active Choice: You decide how much to invest in equity, corporate bonds and government securities. It gives you full control over your portfolio.
• Auto Choice: The system manages your investments based on your age. As you grow older, the equity part of your NPS investment slowly reduces. This helps keep your money safer over time. 

You can pick from 3 risk levels based on what suits you:

• LC75: This plan is aggressive. It keeps more money in equity for longer. Suitable if you can take higher risks.
• LC50: Offers a balance between equity and debt, giving you a middle ground.
• LC25: Focuses more on safety by reducing equity early, ideal if you prefer low risk.

So, if you’re wondering which NPS scheme is best? It ideally would depend on how comfortable you are with risk. And also on how hands-on you want to be.

Key features of NPS

• Regulated by PFRDA: Governed by the Pension Fund Regulatory and Development Authority
• Eligibility criteria: Open to all Indian citizens aged 18 to 70
• Low cost: Account maintenance charges are minimal
• Tax benefits: You can claim deductions up to ₹2 lakh under Section 80C and 80CCD
• Withdrawal rules: Tier I funds can be withdrawn only after age 60, with partial access after 3 years
• Pension payout: A portion of the corpus must be used to buy an annuity for a monthly pension

What is SIP?

SIP stands for Systematic Investment Plan. It is a simple way to invest small amounts in mutual funds regularly. You can choose to invest every month or even quarterly. Basically, instead of investing a big lump sum, you invest a fixed amount at set intervals. This helps you build wealth slowly and steadily over time.

You can start a SIP with as little as ₹500 per month. The money is invested in mutual fund schemes of your choice. These can be:

• Equity funds for higher returns
• Debt funds for stability
• Hybrid funds for a mix of both

SIPs are managed by fund houses. You don’t need to pick individual stocks or bonds. The fund manager does that for you.

Also Read: Difference Between Equity Fund & Debt Mutual Funds

Key features of SIP

• Minimal restrictions: No lock-in period unless it’s a tax-saving ELSS fund (3 years). You can withdraw anytime
• Returns vary with the market: Your growth depends on how the fund performs and overall market conditions
• You’re in control: You can start, pause or change your SIP anytime. No penalties
• Goal-based investing: Works for both short-term and long-term financial needs
• Power of compounding: Long-term SIPs help your money grow by reinvesting gains over time
• Rupee cost averaging: Investing regularly helps smooth out market ups and downs by averaging the purchase cost

NPS vs SIP: Key Differences Explained

Both NPS and SIP can help you build wealth, but they serve different goals. Here’s how they differ:

Feature	NPS	SIP in Mutual Funds
Goal	Mainly for retirement	Any life goal, short or long term
Lock-in	Till age 60	No lock-in (3 years for ELSS funds)
Risk level	Low to moderate	Low to high (based on fund type)
Liquidity	Low, limited withdrawals	High, you can withdraw anytime
Tax benefits	Up to ₹2 lakh under 80C + 80CCD	ELSS only, up to ₹1.5 lakh under 80C
Post-retirement use	Monthly pension through annuity	Full or partial withdrawal as a lump sum

Both NPS and mutual fund returns depend on market performance and the funds you choose. 

Which Option Suits You Better?

If you’re choosing between NPS vs mutual fund, the right option depends on your timeline and comfort with risk. It also comes down to how you plan to use the money later.

When NPS is a better fit

NPS works well if you’re focused on retirement. It suits you if:

• You want long-term savings with low risk
• You’re looking for tax benefits under 80C and 80CCD
• You don’t need access to funds before age 60
• You want a pension after retirement

If you’re wondering is NPS a good investment, it’s one of the most reliable tools for building a retirement corpus.

When SIP works better

SIP offers flexibility and suits a variety of goals. Opt for SIP if:

• You’re saving for financial goals like a home, a trip or education
• You want to start small and stay consistent
• You prefer easy withdrawals and control over your investments
• You’re comfortable with more market exposure and risk for higher returns

Instead of choosing between NPS vs mutual fund, many investors use both. NPS for retirement and SIP for other life goals. But while you invest for the long term, life can bring unexpected expenses in the short term. So, if you ever need funds without breaking your savings, Fibe has your back.

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FAQs on NPS vs SIP

How to get a ₹50,000 pension per month in NPS?

You can use the NPS pension calculator to estimate how much you need to invest. For a ₹50,000 monthly pension, you may need a corpus of ₹2.5 crore at retirement. The exact amount depends on your age, returns earned and annuity rates.

Does NPS allow SIP?

NPS doesn’t offer SIP like mutual funds, but many platforms let you automate monthly contributions. This works just like a SIP and helps you invest regularly without manual effort.