SIP Vs NPS: Investing ₹12,000 Monthly? See Which Option Offers Better Returns Over 20 Years
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When planning for your financial future, two options often come up for long-term savings and retirement: the Systematic Investment Plan (SIP) in mutual funds and the National Pension System (NPS), a government-backed pension scheme. Both offer promising returns, but they serve different purposes. While SIPs provide market-linked flexibility and wealth creation opportunities, NPS focuses more on secure post-retirement income. Understanding how each one works can help you make an informed investment decision tailored to your goals.
Investors can contribute regularly during their working years, and upon turning 60, withdraw a portion of the corpus while using the rest to purchase an annuity that provides a steady monthly pension. According to experts, the long-term discipline enforced by NPS helps build a sizeable, tax-efficient retirement corpus.
SIPs offer rupee-cost averaging, compound growth, and the freedom to choose among debt, equity, or hybrid funds — all with the flexibility to pause or alter contributions as needed.
For SIPs:
Growth: ₹81.2 lakh from compounding
Access: Full access to the entire amount at maturity
For NPS:
Monthly Pension (post-retirement): ₹19,983 if annuitised
Access: Partial withdrawal allowed; the rest locked for annuity
While both yield similar long-term returns, NPS provides structured payouts post-60, while SIP offers lump sum flexibility for any life goal.
In contrast, SIPs in Equity-Linked Savings Schemes (ELSS) qualify for 80C benefits, but gains are taxed — 10% on long-term capital gains exceeding ₹1 lakh in a year. Non-tax-saving SIPs don’t offer upfront deductions.
When it comes to risk, NPS has capped equity exposure, reducing volatility, while SIPs in equity funds carry higher market risk but also greater return potential.
In fact, experts often recommend using both in tandem — SIPs for wealth creation and NPS for retirement security — to build a balanced and future-ready portfolio.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Please consult a certified financial planner or tax advisor before making any investment decisions.
Understanding NPS: India's Structured Retirement Tool
The National Pension System is a retirement-focused investment product regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It features two types of accounts: Tier I, the mandatory pension account with withdrawal restrictions, and Tier II, a voluntary savings account with flexible withdrawals.Investors can contribute regularly during their working years, and upon turning 60, withdraw a portion of the corpus while using the rest to purchase an annuity that provides a steady monthly pension. According to experts, the long-term discipline enforced by NPS helps build a sizeable, tax-efficient retirement corpus.
SIP: The Flexible Gateway To Mutual Fund Investing
A Systematic Investment Plan (SIP) allows you to invest a fixed amount into mutual funds at regular intervals. Unlike NPS, SIPs aren’t restricted to retirement savings and are suitable for various goals like buying a house, funding education, or simply building wealth. Since mutual funds are linked to the stock market, returns are market-driven but historically average around 10–12% over the long term.SIPs offer rupee-cost averaging, compound growth, and the freedom to choose among debt, equity, or hybrid funds — all with the flexibility to pause or alter contributions as needed.
SIP Vs NPS : Returns Compared For ₹12,000 Monthly Over 20 Years
To compare, let’s assume an investor contributes ₹12,000 per month in both options for 20 years, with an assumed annual return of 12% for each.For SIPs:
- Total Investment: ₹28.8 lakh
- Estimated Corpus: ₹1.10 crore
- Total Investment: ₹28.8 lakh
- Estimated Corpus: ₹1.19 crore
Tax Implications: Where You Save More
NPS offers additional tax benefits under Section 80CCD(1B), allowing an extra ₹50,000 deduction over and above the ₹1.5 lakh under Section 80C. This makes it especially attractive for taxpayers looking to reduce their liability while planning retirement.In contrast, SIPs in Equity-Linked Savings Schemes (ELSS) qualify for 80C benefits, but gains are taxed — 10% on long-term capital gains exceeding ₹1 lakh in a year. Non-tax-saving SIPs don’t offer upfront deductions.
Liquidity, Risk And Lock-In Differences
NPS accounts are locked in until the age of 60, promoting long-term discipline but limiting early access. Withdrawals are regulated and partly compulsory for annuity purchase. SIPs, on the other hand, are completely liquid (except ELSS, which has a 3-year lock-in) and can be withdrawn anytime, making them suitable for short and medium-term goals as well.When it comes to risk, NPS has capped equity exposure, reducing volatility, while SIPs in equity funds carry higher market risk but also greater return potential.
Which One Should You Choose?
Choosing between SIP and NPS largely depends on your financial goals:- Choose NPS if your primary focus is on long-term retirement planning with guaranteed income after 60. It offers disciplined savings and attractive tax breaks.
- Choose SIP if you're looking for flexibility, higher growth potential, and want to fund life goals other than retirement.
In fact, experts often recommend using both in tandem — SIPs for wealth creation and NPS for retirement security — to build a balanced and future-ready portfolio.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Please consult a certified financial planner or tax advisor before making any investment decisions.
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