5paisa Research Team Date: 30 Jan, 2024 04:14 PM IST


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A retirement plan is a significant aspect of ensuring financial security in the long run. It includes a cautious amalgamation of funds that can leverage individuals with necessary economic support when they need to meet their post-retirement expenditures.

The most vital part of retirement planning involves starting early and investing in specific avenues that provide inflation-beating returns.   There are two prevalent streams that individuals look up to when it comes to retirement. They are the mutual fund SIP and the National Pension Scheme. In this piece, you will explore some of the fundamentals and features that will determine your investment decisions regarding NPS v/s SIP. 

What is the National Pension Scheme?

The Central Government has familiarized the National Pension Scheme as a social security platform for individuals functioning in the private, public, and organizational sectors. In this program, individuals will need to consistently contribute a specific amount of their remuneration to a pension account while employed in a company. They can withdraw a portion of the entire fund at maturity or retirement. The corpus balance shall be credited to their respective accounts every month in the form of a pension.

Features of NPS 

When comparing NPS vs. SIP, potential investors must consider each investment stream's detailed and advantageous features. The National Pension Scheme offers investors several flexible features they can seek advantage of based on their requirements. Some of them include the following:
• Investment Flexibility
• Low-risk
• Investment Options
• Equity Portion
• Returns
• Early Withdrawal

What is a Systematic Investment Plan?

Investing in mutual funds with the help of SIP or a systematic investment scheme allows individuals to make dividend payments on their investments on a daily basis while making periodic contributions to a particular fund. Mutual funds are pools of investment that are utilized to purchase assets by gathering specific amounts of money from different investors. These securities may be classified as market-linked or fixed-income.

Features of SIP 

Investors aiming to evaluate between NPS vs. SIP needs to delve into the detailed features of each stream of investment. The Systematic Investment Plan, one of the most significant and popular investment plans, offers many viable features for investors. Some of them include the following:
• Periodical Investments
• Compounding
• Rupee Cost Averaging
• Multiple Options
• Higher Returns
• Easy Investment Process
• Withdrawal

Difference between NPS v/s SIP for Investment

The following table offers a detailed demonstration of the comparisons between NPS v/s SIP.

Basis of Differences NPS SIP
Average Returns 8% to 10% 10% to 12% (for the long run)
Equity Exposure 50% to 75% It relies on the fund type (Maximum ranges up to 100%).
Tax Benefits INR 1,50,000 under Section 80CAdded INR 50,000 under Section 80CCD. Only ELSS investments ranging up to INR 1,50,000 meet the requirements for tax benefits.
Risk Factors Lower chances of risk compared to Mutual Funds Investments are subjected to potential market risks.
Lock-in Period Until retirement No Lock-in (Nonetheless, ELSS funds offer a three-year lock-in period)
Premature withdrawal Just 20% of the corpus amount before retirement. No limitations can be redeemed at any point in time.
Fundamentals of Taxation The pension amount is entirely tax-free. Returns are subject to capital gains (STCG and LTCG).
Investment Duration Until Retirement No static limit

Tax Benefits on NPS vs. SIP 

Before analyzing a comparison regarding NPS vs SIP, it is imperative for all investors to know that Section 80C of the IT Act, 1961, permits the act of tax deductions on both categories of NPS and SIP investments.

NPS: Under Section 80CCE of the IT Act, a NPS subscriber is ideally eligible for tax benefits that range up to INR 1.50 lakh of the gross income. In addition to that, they can also seek advantage of taxation benefits under paragraph 80CCD (1B) of the Income Tax Act, 1961, up to INR 50,000 on investments initiated towards NPS (Tier I accounts).

SIP in Mutual Funds: Under this plan, taxpayers must invest in an equity-linked savings scheme, or ELSS, to receive the tax benefits associated with SIP in Mutual Funds. Taxpayers may withhold up to INR 1.50 lakh from their ELSS investments initiated during a particular financial year under Section 80 of the IT Act. It is wise to consider your financial goals before selecting the kind of investment you would like to carry forward in the future.

For those willing to plan on a stress-free retirement, the National Pension Scheme might be their ideal choice. Nevertheless, if investors are looking for liquidity and flexibility, SIPs would act as a better option in their scenario. It is always imperative to drill down to the nitty-gritty of the real estate investing process instead of mutual funds before making an investment decision.


It is generally a sensible idea to consider one’s financial goals prior to selecting an investment instrument. When comparing NPS vs. SIP, investors must consider attaining extensive and in-depth insights. If you have specific objectives in mind as an investor, such as accomplishing within a specific amount of time, consider investing in mutual funds through SIP. Contrariwise, of choosing between NPS or SIP, NPS might be the most significant choice for individuals looking for a hassle-free retirement plan in the near future.

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Frequently Asked Questions

Through Point of Presence, any individual with an active NPS account, a cell phone contact number, and an email address can easily create a Systematic Investment Plan that is SIP.

These securities may be classified as fixed-income or market-linked. Bonds, debentures and bills are significant examples of fixed-income securities. On the other hand, stocks and equity shares are instances of market-linked securities. Enduring incomes from SIP returns are often higher than those from NPS returns.

If you are wondering about NPS vs. SIP, which is better, you need to consider your unique requirement when it comes to investment. Liquidity and flexibility are two significant aspects in the route to a Systematic Investment Plan when investing in mutual funds. If you choose to invest in equity through the SIP route, you can easily retire early and begin to attain a certain amount of funds on a monthly basis using the systematic withdrawal scheme. Investing in equity via the SIP route will definitely keep you ahead of the NPS. 

SIP offers a static lock-in time of 3 years. On the other hand, NPS permits investors to withdraw the corpus amount only at the age of sixty at retirement.

Choosing between NPS or SIP when it comes to attaining higher returns is a massive inquisition for potential investors today. Such investments might be categorized as market-linked or fixed-income. Debentures, bills and bonds are prominent instances of fixed-income securities. On the other hand, stocks and equity shares are prevalent examples of market-linked securities. Enduring incomes from SIP returns are much higher than those from the NPS returns.

With as petite an amount as INR 500, investors can begin to invest in mutual funds via a systematic investment plan. As one starts to gain experience and a more in-depth understanding of the mutual fund potentials, they can steadily raise their SIPs on a monthly basis.