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Planning for retirement is no longer something you can do in your golden years. With changing economic landscapes, unpredictable expenses, and rising life expectancy, creating a stable post-retirement income has become significant. The National Pension System and mutual funds are attractive options in India. While both help you to create a financial corpus in the long term, their structure differs significantly.
So, what should you choose between NPS and mutual funds while planning for your retirement? Let’s discover the key differentiators in this blog.
National Pension System: A Retirement-First Approach
The fundamental aim of NPS is to create retirement security. Every feature of NPS encourages individuals to invest in the long term with discipline, structured contributions, and a mandatory pension amount. This makes NPS ideal for individuals who look for a stable income to meet their financial goals after retirement.
NPS invests in a mix of asset classes, such as equities, corporate bonds, government securities, and AIFs. Hence, it offers the right balance of growth and security. NPS offers, depending on the market situation, 8-12% returns over a long period of time, which is higher than any traditional retirement investment scheme. Moreover, with NPS, you not only accumulate wealth, but you will also receive a regular pension after retirement.
Mutual Funds: A Wealth Creation Approach
Mutual funds give investors flexibility in terms of contribution, withdrawals, fund choice, and redemption. They are the preferred choice for long-term growth and wealth creation for many investors. They invest in equity funds during their working years and leverage SWP (Systematic Withdrawal Plan) after retirement for monthly income. But during market fluctuations, investors often stop SIP or redeem their funds early, and this weakens the retirement corpus. Mutual fund investments can be a great tool to plan for your golden years, but they also demand strong investor behavior.
Click here to learn more about the drivers of NPS returns.
NPS Preferred Retirement Scheme – Learn Why?
- Long-term Commitment: The long-term lock-in period ensures your retirement corpus stays untouched. This can safeguard your future from impulsive financial decisions.
- Assured Monthly Pension: 40% of your accumulated corpus must be used to buy annuities to receive a regular pension. This gives you a guaranteed pension amount, something mutual funds do not mandate or guarantee.
- Tax Benefits: NPS offers tax benefits of ₹1.5 lakhs under Section 80 (C). Moreover, there is an additional tax benefit under Section 80CCD (1B) of ₹50,000, which is over and above 80 (C). This makes a highly efficient tax-saving retirement scheme.
- Lower Investment Amount: NPS is one of the lowest-cost retirement schemes. Any Indian citizen can open an NPS account with ₹500 only. Moreover, there are lower charges, which means more of your money stays invested.
Final Thoughts
For long-term retirement planning, especially for those who struggle with disciplined investing or want an assured monthly income later, the NPS pension plan stands out as the more reliable and structured choice. Mutual funds can complement NPS, especially for early wealth creation and liquidity. But if your goal is to retire comfortably, with a dependable monthly pension and a financially stable future, NPS forms the strongest foundation.
