NPS vs SIP: Which can help generate larger corpus on Rs 10,000 monthly investment for 25 years; get calculations

National Pension System (NPS) is a market-linked retirement pension scheme to help people invest for retirement. Citizens from all walks of life can invest in NPS. The subscribers can select equity exposure in the scheme up to their risk appetite and age, minimising their returns in the long term. Pension Fund Regulatory and Development Authority (PFRDA) regulates all pension schemes such as NPS in India. 

Systematic investment plan (SIP) is a method of investing in mutual funds that allows individuals to invest a fixed amount regularly, such as daily, weekly, monthly, or yearly. It is suitable for various financial goals, such as saving for a child’s education, planning for retirement, or building a retirement corpus for future needs. 

Difference: NPS is a retirement-focused investment scheme, while SIP is a method of investing in different assets, primarily mutual funds. 
Purpose: The purpose of NPS is to create a tax-free retirement corpus and get a monthly pension. Whereas in SIP, the purpose is to invest in mutual funds to fulfil different financial goals. 

NPS in India offers two kinds of investment options to investors, active choice investment and auto choice investment. 

In the active choice investment, investors decide to invest in their choice of securities according to their risk appetite and age. 

In auto choice investment, the scheme manager chooses the securities to invest on your behalf based on the age slab of the investor.

Depending on their risk appetite, investors can decide to invest in equity funds, debt funds, and hybrid funds.

In NPS, investors can get up to 75 per cent equity exposure and 25 per cent in debt. With such a combination, we may expect 12.86 per cent annual growth in NPS (we have taken the assumed rate of return as 12.86 per cent in line to PFRDA’s assumptions (75 per cent Equity & 25 per cent G-Sec).
If you invest Rs 10,000 monthly in the scheme. In 25 years, the total investment will be Rs 42,00,000, the estimated capital gains will be Rs 7,69,58,664, and the maturity amount will be Rs 8,11,58,664. 

If investor invests Rs 10,000 monthly in an equity fund and expects a 12 per cent annualised return, the estimated corpus after 25 years will be Rs 1,89,76,351, where Rs 1,59,76,351 will be the estimated capital gains.

If investor invests Rs 10,000 monthly in hybrid fund and expects a 10 per cent return, the estimated corpus after 25 years will be Rs 1,33,78,903, where Rs 1,03,78,903 will be the estimated capital gains. 

If investor invests Rs 10,000 monthly in debt fund and expects 8 per cent return, the estimated corpus after 25 years will be Rs 95,73,666, where Rs 65,73,666 will be the estimated capital gains.