NPS vs SIP: Which can help build bigger corpus with Rs 15,000 monthly investment for 25 years?
National Pension System (NPS) and Systematic Investment Plan (SIP) are popular investment options that can help generate a retirement corpus. Let’s find out which scheme may help investors build a larger corpus on Rs 15,000 monthly investment for 25 years; see calculations.
When it comes to long-term investments, both NPS and SIP in mutual funds are popular options. If you invest Rs 15,000 monthly for 25 years, both schemes can help build a satisfactory corpus, but they work differently and suit different financial goals. NPS is a government-backed pension scheme offering tax benefits and a mix of equity and debt, while SIPs allow flexible investments in mutual funds with higher equity exposure. To decide which option is better for you, it’s essential to understand how they work and calculate their returns over time.
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(Disclaimer: Our calculations are projections and not investment advice. Do your due diligence or consult an expert for financial planning)
Read More: SIP vs PPF: Rs 1,20,000 per year investment for 15 years; which can create higher corpus?
Understanding National Pension System (NPS)
NPS is a retirement savings scheme that helps people invest for their future. It is open to all citizens and allows you to choose how much of your money goes into equities (stocks) based on your risk tolerance and age. This flexibility can impact your long-term returns. The NPS is managed and regulated by the Pension Fund Regulatory and Development Authority (PFRDA), to ensure safety and transparency in your investments.
Understanding Systematic Investment Plan (SIP)
SIP is a simple way to invest in mutual funds by putting in a fixed amount of money regularly, whether daily, weekly, monthly, or yearly. It is a flexible and convenient option to save for different financial goals like a child’s education, retirement planning, or building a fund for future needs.
NPS vs SIP
Difference: NPS is a retirement-focused savings scheme, while SIP is a way to regularly invest in mutual funds and other assets.
Purpose: The goal of NPS is to build a tax-free retirement fund and provide a monthly pension. On the other hand, SIP helps you invest in mutual funds to achieve various financial goals, like education, buying a home, or retirement.
Investment option in NPS
NPS in India offers two kinds of investment options to investors, active choice investment and auto choice investment.
Active choice investment in NPS
In the active choice investment, investors decide to invest in their choice of securities according to their risk appetite and age.
Auto choice investment in NPS
In auto choice investment, the scheme manager chooses the securities to invest on your behalf based on the age slab of the investor.
SIP in mutual funds
Depending on their risk appetite, investors can decide to invest in equity funds, debt funds, and hybrid funds.
NPS: Calculation Conditions
Monthly Contribution: Rs 15,000
Investment duration: 25 years
Annualised return: 12 per cent
Annuity rate of return: 6.75
We are calculating the NPS corpus for the non-government sector opting for NPS Active Choice (investments 75 per cent in equity and 25 per cent in government bonds). The monthly investment amount is Rs 15,000 for 25 years. Here, annualised return is 12 per cent and the annuity rate is 6.75 per cent. See the calculation below.
NPS vs SIP: Rs 15,000 monthly for 25 years; how big can your NPS corpus grow?
As per the calculator, the expected corpus in 25 years will be Rs 2,40,53,598. Out of which, a 35-year-old who wants to retire at 60 can withdraw an estimated Rs 1,44,32,159 as lump sum and get an estimated monthly pension of Rs 54,121.
NPS vs SIP: Rs 15,000 monthly for 25 years; how big can your investment grow in equity fund SIP?
If investor invests Rs 15,000 monthly in an equity fund and expects a 12 per cent annualised return, the estimated corpus after 25 years will be Rs 2,84,64,526, where Rs 2,39,64,526 will be the estimated capital gains.
NPS vs SIP: Rs 15,000 monthly for 25 years; how big can your investment grow in hybrid fund SIP?
If investor invests Rs 15,000 monthly in a hybrid fund for 25 years and expects a 10 per cent return, the estimated corpus after 25 years will be Rs 2,00,68,355, where Rs 1,55,68,355 will be the estimated capital gains.
NPS vs SIP: Rs 15,000 monthly for 25 years; how big can your investment grow in debt fund SIP?
If investor invests Rs 15,000 monthly in a debt fund and expects 8 per cent return, the estimated corpus after 25 years will be Rs 1,43,60,499, where Rs 98,60,499 will be the estimated capital gains.