NPS vs SIP: Which can help generate larger corpus on Rs 12,000 monthly investment for 25 years; get calculations
Do you know what are the basic differences between the National Pension System (NPS) and Systematic Investment Plan (SIP)? Which option can generate a larger corpus from a monthly investment of Rs 12,000 over 25 years? In this write-up, you will get full calculations and projections of each scheme. Whether you're planning for retirement or looking for long-term investment strategies, this will help you. Know the benefits of both NPS and SIP and maximize your financial future.
NPS vs SIP: The National Pension System (NPS) and Systematic Investment Plan (SIP) in mutual funds are viable options for both retirement planning and long-term investing. NPS offers tax-free deposits, interest, and maturity, while SIP earnings are taxed depending on whether they come from equity or debt funds. However, over time, SIP can yield higher post-tax returns compared to NPS. In this write-up, know how these 2 investment options work and how Rs 12,000 investments a month for 25 years can bring in each of these schemes.
What is NPS?
NPS consists of Tier I and Tier II accounts, allowing monthly or annual contributions. Individuals can start investing at 18 and continue until the age of 75. Upon reaching 60, subscribers can withdraw up to 60 per cent of their retirement corpus, with the remaining 40 per cent used to purchase an annuity for monthly pension payments. Both lump-sum and annuity withdrawals in this scenario are tax-free. Contributions up to Rs 2 lakh in a Tier I NPS account qualify for tax deductions. If preferred, individuals can keep their NPS account active until age 75 without making withdrawals at 60.
What is SIP?
SIP enables investors to contribute a fixed amount regularly—whether daily, monthly, quarterly, or annually—into a mutual fund. Investors can choose a step-up SIP, which increases their investment amount at set intervals. This systematic approach helps mitigate market volatility through rupee cost averaging, allowing investors to buy the same net asset value (NAV) at varying prices. Over the long term, SIP can help accumulate a significant corpus after taxes.
NPS vs SIP: What Rs 12,000 monthly investments in NPS can give in 25 years
In NPS, one can get up to 75 per cent equity exposure and 25 per cent in debt. With such a combination, we may expect 10 per cent annual growth in NPS. If you invest Rs 12,000 a month in the scheme, in 25 years, the total investment will be Rs 50,40,000, the estimated total gains will be Rs 4,05,19,657, and the maturity amount will be Rs 4,55,59,657.
NPS vs SIP: What Rs 12,000 monthly investment in SIP can give in 25 years
As far as SIP investment is concerned, one can invest in a debt, hybrid, or equity mutual fund.
NPS vs SIP: What Rs 12,000 monthly investments in debt fund SIP can give in 25 years
If one invests Rs 12,000 monthly in a debt mutual fund and expects an 8 per cent annual growth, the total investment will be Rs 36,00,000 and the estimated corpus after 25 years will be Rs 1,14,88,399, where Rs 78,88,399 will be the estimated long term capital gain.
NPS vs SIP: What Rs 12,000 monthly investments in hybrid fund SIP can give in 25 years
If they invest Rs 12,000 monthly in a hybrid mutual fund and expect a 10 per cent return, their estimated corpus after 25 years will be Rs 1,60,54,684, of which an estimated Rs 1,24,54,684 will be long term capital gain.
NPS vs SIP: What Rs 12,000 monthly investments in equity fund SIP can give in 25 years
If one invests Rs 12,000 monthly in an equity mutual fund and expects a 12 per cent return, the estimated corpus after 25 years will be Rs 2,27,71,621, where Rs 1,91,71,621 will be the estimated long-term capital gain.