Invest every month for retirement
If you are investing every month for retirement, then this question must have come in your mind whether National Pension System (NPS) or Mutual Fund SIP is better. Both provide an opportunity to build a large corpus in the long run, but their rules, tax benefits and withdrawal arrangements are different. In such a situation, the right option depends on your need and investment goal.
According to an estimate, if an investor invests ₹ 15,000 every month and increases the investment amount by 5% every year, then the total investment in 20 years will be around ₹ 59.52 lakh.
In which more funds can be created?
According to this estimate, after 20 years a fund of about ₹ 2.81 crore can be created in the mutual fund portfolio. At the same time, in the Active Choice option of NPS, the same amount can increase to about ₹ 2.02 crore. However, after the imposition of Long Term Capital Gain (LTCG) tax on mutual funds, the investor is left with about ₹ 2.53 crore.
The main reason for creation of more funds in mutual funds is that in comparison, a larger part of the portfolio is considered to be invested in equities, due to which the potential returns are also higher. But the risk is also higher with this.
Big tax benefit in NPS
The biggest advantage of NPS is its tax system. On maturity, 60% of the deposited amount can be withdrawn completely tax-free. Out of the remaining 40%, it is necessary to buy annuity (pension plan) with at least 20% of the amount. There is no tax on buying annuity, but the pension received from it is added to your income and tax has to be paid on it as per the tax slab.
If the employer contributes under Section 80CCD(2) to the NPS account of an employee working in a company, then he also gets the benefit of additional tax exemption. This is why NPS is considered an attractive option for investors looking for tax savings.
The biggest advantage of mutual funds
The biggest advantage of investing in mutual funds is that the investor has complete control over the entire amount received on maturity. Unlike NPS, it is not necessary to buy annuity from any part here. The investor can withdraw the entire amount as per his need or re-invest it. Also, equity mutual funds have the potential to give better returns in the long run, although they also carry market risk.
Who should choose?
If your goal is high returns, liquidity and complete control over your investments, then mutual funds can be a better option. At the same time, if you want tax savings, low costs and disciplined retirement planning, then NPS may be more suitable for you. Financial experts believe that for better retirement planning, making a balanced investment in both NPS and mutual funds can be the wisest decision.
