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NPS vs ULIP - Which One Is Better?
Planning for the future requires selecting financial instruments that align with your goals. Two such options widely used in India are the National Pension System (NPS) and Unit Linked Insurance Plans (ULIPs). While NPS is tailored for retirement savings with tax advantages, ULIP combines investment and life insurance in a single product. This article explains how both work and helps you make an informed decision based on your financial needs.
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- NPS vs ULIP - Which One Is Better?
About NPS
The National Pension System (NPS) is a government-backed retirement savings scheme where you invest regularly during your working years to build a pension corpus. It includes a Tier 1 Account, which is mandatory for retirement and offers tax benefits, and an optional Tier 2 Account, which functions like a savings account with flexible withdrawals. You can choose your investment mix across equity, debt, or government securities. NPS offers attractive tax benefits up to ₹1.5 lakh under Section 80C and an additional ₹50,000 under Section 80CCD(1B).
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Your Pension Calculation
Total Investment
Returns Earned
Maturity AmountMaturity Amount split (Lumpsum & Pension)
60%
Lumpsum AmountAt the age of 60 Yrs
40%
Pension WealthAt the age of 60 Yrs
About ULIP
A Unit Linked Insurance Plan (ULIP) combines life insurance with investment, offering financial protection for your family while helping you grow your wealth. A portion of your premium goes toward life cover, while the rest is invested in equity, debt, or balanced funds. ULIPs also allow fund switching based on your risk appetite. They offer tax benefits of up to ₹1.5 lakh under Section 80C. The maturity amount is tax-free under Section 10(10D), subject to certain conditions.
NPS vs ULIP
Let’s understand the key differences between the two investment options for getting more clarity in the NPS vs ULIP comparison.
| Aspect | NPS (National Pension Scheme) | ULIP (Unit Linked Insurance Plan) |
| Purpose | Retirement savings | Investment, insurance, and retirement planning |
| Investment Options | Usually includes equity, debt, and government securities. | Gives investors a choice of equity, debt, and balanced types of funds |
| Liquidity | It has limited liquidity and does not allow accessing the money before retirement. | It allows you to withdraw a portion of your savings after a lock-in period of 5 years. |
| Maturity Benefits | Allows you to choose between a lump sum and an annuity when you retire | You may receive the maturity amount as a lump sum, or a portion can be used for insurance. |
| Insurance Component | Most of their savings are for retirement; no insurance component | Apply your investment in a way that supports life insurance, giving benefits when you die |
| Flexibility | Limited flexibility; contributions are typically fixed | Flexible premium payments and the ability to switch between investment funds |
| Risk Tolerance | Safe investments are included in this type of portfolio. | Depends on the funds picked |
| Lock-In Period | In general, you cannot make withdrawals until after you turn 55, or a specific number of years (partial withdrawals can begin at this time). | 5-year lock-in period; there is a chance to withdraw some money only after the lock-in period |
| Transparency | Transparent with clear investment options | There are open investment options for the selected ULIP plan. |
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Invest ₹10K/Month YOU GET ₹1.5 LAKHS* MONTHLY PENSION
Invest ₹7K/Month YOU GET ₹1 LAKHS* MONTHLY PENSION
Invest ₹5K/Month YOU GET ₹75 THOUSAND* MONTHLY PENSION
standard T&C Apply *
Tax Benefits
Both NPS and ULIP offer tax advantages, but the structure and extent of benefits differ. Here’s a side-by-side comparison to help you understand:
| Tax Criteria | NPS (National Pension Scheme) | ULIP (Unit Linked Insurance Plan) |
| Investment Deduction | - Up to ₹1.5 lakh under Section 80CCD(1)
- Additional ₹50,000 under Section 80CCD(1B) |
- Up to ₹1.5 lakh under Section 80C |
| Employer’s Contribution | Deductible up to 10% of salary (Basic + DA) under Section 80CCD(2) (14% under new tax regime) | Not applicable |
| Maturity Proceeds | - Up to 60% of corpus tax-free at retirement
- 40% used to purchase annuity, which is taxable as per the income slab |
- Tax-free under Section 10(10D) if annual premium ≤ ₹2.5 lakh (after 2021) and policy held for 5 years |
| Lock-in Period | Until age 60 (partial withdrawals after 3 years) | 5 years |
| Tax Regime Applicability | Available under both old and new regimes (with some limitations in the new regime) | Tax-free maturity only applies under the old tax regime with specific premium limits |
Conclusion
Both NPS and ULIP help you save for the future, but they serve different needs. Choose NPS if your goal is retirement planning with steady returns and tax benefits. Pick ULIP if you want life cover along with market-linked growth. Understand your goals, risk level and timeframe before deciding. The right choice depends on what suits your financial journey best.
FAQs
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Which is better, NPS or ULIP?
The choice between NPS vs. ULIP depends on your financial goals, risk tolerance, and investment preferences. If you prioritize retirement savings and tax benefits, NPS may be a better choice. On the other hand, if you want a combination of insurance coverage and the potential for wealth creation for your retirement planning, ULIP might be more suitable. -
Which investment is better than NPS?
It depends on what you're looking for. Some alternatives that may offer better flexibility or returns than NPS are:- ULIPs - if you want insurance + market-linked returns
- Mutual Funds - for pure market exposure and liquidity
- Annuity Plans - for fixed post-retirement income
- Capital Guarantee Plans - for assured capital protection
- PPF - for fixed, tax-free interest with low risk
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Is NPS better than LIC policy?
The following table shows the comparison between NPS and LIC Policy:Feature NPS LIC Policy Tax benefits Yes, up to Rs. 50,000 per year under Section 80CCD(1B) Yes, up to Rs. 1.5 lakhs per year under Section 80C Portability Yes, you can transfer your account from one pension fund to another without any hassle. You can switch between different investment funds provided by the insurer. Potential returns Higher, as investments are invested in a variety of asset classes Varies depending on the investment funds selected Guaranteed returns No Yes, some policies offer guaranteed returns Life insurance cover No Yes, some policies offer life insurance cover -
What are the disadvantages of NPS and ULIP?
The table below summarises the key disadvantages of NPS vs. ULIP:Feature NPS ULIP Limited exposure to equities Yes Yes Mandatory annuity Yes No Complex withdrawal rules Yes Yes High charges Yes Yes Complexity Moderate High Market risks Yes Yes
˜The insurers/plans mentioned are arranged in order of highest to lowest first year premium (sum of individual single premium and individual non-single premium) offered by Policybazaar’s insurer partners offering life insurance investment plans on our platform, as per ‘first year premium of life insurers as at 31.03.2025 report’ published by IRDAI. Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. For complete list of insurers in India refer to the IRDAI website www.irdai.gov.in
*All savings are provided by the insurer as per the IRDAI approved insurance
plan.
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
+Returns Since Inception of LIC Growth Fund
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
++Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.
Insurers Offering Pension Plans
Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or
insurance product offered by an insurer.
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Your Pension Calculation
Total InvestmentReturns EarnedMaturity AmountMaturity Amount split (Lumpsum & Pension)
60%
Lumpsum AmountAt the age of 60 Yrs
40%
Pension WealthAt the age of 60 Yrs
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