A Systematic Investment Plan is one of the 2 methods of investing your money in mutual funds^^. National Pension Scheme is a Central Government of India approved initiative that allows an individual to invest a certain amount during the employment period to reap benefits regularly after retirement.

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SIP Benefits
Start SIP with as low as ₹1000
Start SIP with as low as ₹1000
No hidden charges
No hidden charges
Save upto ₹46,800 in Tax
Save upto ₹46,800 in Taxunder section 80 C
Zero LTCG Tax
Zero LTCG Tax^ (Unlike 10% in Mutual Funds)
Disciplined & worry-free investing
Disciplined & worry-free investing

When planning for retirement, investors often get confused between SIP and NPS, which is a better option to go for a retirement plan. Let us compare both the plans in detail that will help the investor make an informed decision. Let’s read on!

SIP vs. NPS: Which is Better for Investment?

Particulars Syststrongatic Investment Plan (SIP) National Pension Scheme (NPS)
Returns on an average Generally between 12% to 15% Generally between 8% to 10%
Lock-in Period No lock-in period.
Only ELSS funds have a 3-year lock-in period
Up till retirement or 60 years of age.
Risk Factor Mutual Fund investments are subject to market risk. Risk related to equity exposure only.
Investment amount (Minimum) Rs. 500 Rs. 6,000
Investment amount (Maximum) No limit No limit
Equity Exposure Completely depends upon the preference of the investor.
Can be from 0% to 100%
Up to 75% maximum
Investment duration Up till the investors will. Till retirement
Prstrongature Withdrawals No restrictions in general.
ELSS funds have a 3-year lock-in period.
Only 20% of the total corpus can be withdrawn before retirement after paying taxes.
Tax Benefits Only ELSS funds are eligible for tax exstrongption up to Rs. 1,50,000 under Section 80C. Up to Rs. 1,50,000 is exstrongpted under Section 80C
Additional Rs. 50,000 is exstrongpted under Section 80CCD.
Taxation Both Short-term and long-term capital gain returns are subject to capital gains. NPS amount is completely tax-free.

Syststrongatic Investment Plan (SIP)

SIP or Syststrongatic Investment Plan is 1 of the 2 methods of investments under Mutual Funds, the other being the Lump Sum method. The syststrongatic investment itself means investing your hard-earned money in such a way that it does not burn a hole in your pocket. The pre-decided amount is auto-debited from the account of the investor monthly and invested in the units of mutual funds opted for. SIPs are gaining huge popularity these days because of their easy-to-pay installments and high returns than other investment options if invested for a long-term strategy.

Advantages of Syststrongatic Investment Plan

Following are the main advantages of investing in a SIP plan:

  • Financial Discipline: The regular monthly amount to invest in a SIP helps in inculcating a habit of financial discipline in the life of the investor.

  • Auto-Debit of the Invested Amount: Once opted for the SIP plan, the investor does not have to worry about keeping in mind the next due date of the plan. The amount is automatically deducted from the approved investor’s account on every due date.

  • Pocket-Friendly Investments: A SIP can be purchased for an amount as low as Rs. 500. SIP is, therefore, extrstrongely pocket-friendly and an easily accessible plan for investors of every kind.

  • Power of Compounding: SIP investments, if made for a long-term period, help in generating a huge corpus in the end. Through the compounding effect, an investor, if investing a fixed amount regularly for a certain period, can achieve returns higher than expected.

  • Rupee Cost Averaging: Rupee cost averaging is a phenomenon wherein an investor can freely purchase more units during the market decline and less when the market price is high. Rupee cost averaging helps in bringing down the per unit cost of a Mutual Fund.

  • Flexibility: SIP offers flexibility to each and every investor to select a Mutual Fund as per their own financial backing and risk tolerance. SIP is one of the few investment options that provide complete flexibility to investors.

  • High Returns: On average, a decent SIP plan offers returns somewhere between 12% to 15% on an annual basis. Depending upon the fund type, whether low-risk or high-risk taking investment, the returns vary drastically.

  • Multiple Investment Options: Equity funds, Debt funds, Hybrid funds, ELSS, Aggressive funds, Tax-saving funds, etc. There is a huge variety of fund options to choose from when it comes to investing in a SIP plan. The selection of fund type depends upon the risk taking ability of the investor and the financial corpus desired in the future. SIP calculator online tool can be used to analyse the SIP returns.

National Pension Scheme (NPS)

NPS or National Pension Scheme is a complete government backed, voluntary retirement plan regulated by the PFRDA (Pension Fund Regulatory and Development Authority). Under this scheme, the investor has to allocate a certain amount from their monthly income towards the NPS account during their employment period. At the age of retirement, the investor is eligible to withdraw up to 40% of the accumulated corpus, and the rest 60%, needs to be reinvested in the annuity.

Advantages of the National Pension Scheme

Following are the main advantages of investing in an NPS Scheme:

  • Flexibility: NPS offers a wide range of investment options to choose from, making it one of the most flexible government-backed fund Schemes available in the financial market.

  • Voluntary Contributions: At best part about the NPS scheme that makes it distinctive from most of the other investment options is that the investor has the authority to reduce or increase the investment amount under the scheme as per their own financial capacity.

  • Transparency: As National Pension Scheme is a complete government-backed scheme regulated by the PFRDA (Pension Fund Regulatory and Development Authority), transparency is guaranteed.

  • Contained Risk: The equity exposure under the NPS scheme is limited to 50% of the corpus of the investor. This capping helps in controlling the market volatility and ensures that the wealth created is not is not impacted.

  • Tax Benefits: Tax is exstrongpted up to Rs. 1,50,000 per annum under Section 80C of the Income Tax Act, 1961. Further, Rs. 50,000 tax deductions can be availed under Section 80CCD (1B) of the Income Tax Act.

People also calculate: NPS Pension Calculator

Bottom Line!

SIP vs. NPS is very difficult to compare as both the investment options have their own benefits and drawbacks. Ultimately, the financial goal, risk tolerance, and investment horizon of the investor are the key factors that play a major role when opting for any investment option. It is advised to study the market carefully before putting your hard-earned money into any investment type. To get the better idea of SIP plans, it is suggested to study the best SIP plans in the market before investing.

Happy investing!

+For Mutual Fund midcap category Returns & for Insurance midcap fund category Returns-
*Past 10 Year annualised returns as on 01-12-2023
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
^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.
~Source - Google Review Rating available on:-
^^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.

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