NPS vs SIP vs Step Up SIP: Which can help generate larger corpus on Rs 10,000 monthly investment for 25 years; see calculations
Savings without investment are like trees without fruits. They can go hand in hand. Today, we will discuss National Pension System (NPS), Systematic Investment Plan (SIP), and step-up SIP. Let’s find out which scheme can help generate larger corpus on Rs 10,000 monthly investment for 25 years.
NPS, SIP, and Step Up SIP are market-linked investment methods. All three help investors build a retirement corpus, but they differ in their functionality. For any investor, choosing between three different investment options is a common yet challenging part of investment. Therefore, we will brief you about NPS, SIP, and step-up SIP to ease your understanding. Here, we will understand which of the schemes can help generate larger corpus on Rs 10,000 monthly investment for 25 years.
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(Disclaimer: Our calculations are projections and not investment advice. Do your due diligence or consult an expert for financial planning)
Understanding National Pension System (NPS)
NPS is a market-linked retirement pension scheme to help people invest for retirement. Citizens from any domain 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. The Pension Fund Regulatory and Development Authority (PFRDA) regulates all pension schemes such as NPS in India.
A closer look at SIP
A systematic investment plan is a method of investing in a mutual fund SIP where an individual invests a fixed amount regularly to fulfill their financial goals. SIPs can be set up online with a one-time set of instructions, and the investments will automatically accumulate.
What is Step Up SIP
A step-up SIP allows investors to increase their investment amount automatically at a specified and at a particular amount or percentage. For example, as an investor, if you start a monthly SIP of Rs 10,000, the amount can increase by 5% or 10% after a year. Resulting in Rs 500 or Rs 1,000 increase in SIP amount.
NPS vs SIP vs Step Up SIP
Difference: NPS is a retirement focused market-linked investment scheme, while SIP is a method of investing in a mutual fund, and Step Up SIP is a type of SIP that allows investors to increase their monthly investments over time.
Investment tenure: NPS comes with a long-term tenure till the age of retirement. SIP and step-up SIP is flexible, it can range from short-term to long-term.
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 vs SIP vs Step Up SIP: How much corpus investors can generate on Rs 10,000 monthly investment for 25 years in NPS?
We have used the official NPS calculator to do the calculations. We are calculating for non-government persons here. We have taken 14.41 per cent annualised return.
If you invest Rs 10,000 monthly in the scheme. In 25 years, the total investment will be Rs 30,00,000, the estimated capital gains will be Rs 2,60,72,250, and the maturity amount will be Rs 2,90,72,250.
NPS vs SIP vs Step Up SIP: How much corpus investors can generate on Rs 10,000 monthly investment for 25 years in equity funds SIP?
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.
NPS vs SIP vs Step Up SIP: How much corpus investors can generate on Rs 10,000 monthly investment for 25 years in hybrid funds SIP?
If investor invests Rs 10,000 monthly in a 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.
NPS vs SIP vs Step Up SIP: How much corpus investors can generate on Rs 10,000 monthly investment for 25 years in debt funds SIP?
If investor invests Rs 10,000 monthly in a 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.
NPS vs SIP vs Step Up SIP: How much corpus investors can generate on Rs 10,000 monthly investment for 25 years in Step Up SIP?
A step up SIP of Rs 10,000 monthly with 5 per cent annual step up, and 12 per cent annualised return for 25 years can generate an estimated corpus of Rs 2,73,47,861. The invested amount will be Rs 57,27,252, and capital gains will be Rs 2,16,20,609.