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NPS vs ULIP - Which One Is Better?
National Pension System (NPS) and Unit Linked Insurance Plans (ULIP) are two popular long-term investment options in India. On one hand, NPS focuses on building a retirement corpus, while ULIP combines both investment growth and life insurance benefits in a single product. Both options also offer tax advantages. Let us explore the differences between NPS and ULIP to help you make an informed investment decision.
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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 | Focused on retirement savings | Combines investment, insurance, and retirement planning |
| Investment Options | Invests in equity, debt, and government securities | Offers equity, debt, and balanced fund options |
| Liquidity | Limited liquidity; withdrawals are restricted before retirement | Partial withdrawals allowed after a 5-year lock-in |
| Maturity Benefits | Option to withdraw a lump sum and use the balance for an annuity | Maturity amount paid as a lump sum, with insurance benefits |
| Insurance Component | No life insurance cover | Includes life insurance protection |
| Flexibility | Limited flexibility in contributions | Flexible premiums and fund-switching options |
| Risk Tolerance | Includes safer investment components | Depends on the funds chosen |
| Lock-In Period | Withdrawals generally allowed after age 55 (partial withdrawals permitted) | Mandatory 5-year lock-in period |
| Transparency | Clear and transparent investment structure | Investment details depend on the chosen ULIP plan |
Invest More Get More
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 *
Who Should Consider NPS?
NPS is ideal for individuals aiming for a steady monthly pension after retirement and works well as a long-term pension plan. It's a good choice for those who prefer low-risk investments or are planning to retire early. Salaried employees who haven't fully used their Section 80C tax benefits can also invest in NPS, as it helps save taxes while building a reliable retirement income.
Who Should Consider ULIPs?
ULIPs are best suited for people who don't have existing insurance coverage and are willing to take higher investment risks for potentially greater returns. Since ULIPs combine life insurance with market-linked investment growth, they can offer higher returns than NPS, compensating for the added risk.
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 support long-term financial planning, but they are designed for different needs. Choose NPS if your focus is retirement planning with stable returns and tax benefits. Opt for a ULIP if you want life insurance along with market-linked growth. Before investing, assess your financial goals, risk appetite, and investment horizon. The right option ultimately depends on what fits 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
Insurers Offering Pension Plans
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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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˜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.