SIP Vs NPS Explained: What A Rs 15,000 Monthly Investment Can Earn You By Retirement
Retirement planning is a critical part of any long-term financial strategy, especially as individuals seek more control over their future income. Two of the most popular market-linked options—Systematic Investment Plans (SIPs) and the National Pension System (NPS)—cater to diverse investor profiles with distinct approaches to building a retirement corpus. While NPS offers a pension-oriented structure with government oversight, SIPs provide flexibility and potentially higher returns. Here's a deep dive into how both fare with a consistent monthly investment over 20 years.
Comparing Two Paths to Retirement Wealth
For those looking to invest Rs 15,000 each month over two decades, both NPS and SIPs offer compelling benefits. However, the difference lies in structure, control, and potential gains. With the NPS being a structured, partly government-backed scheme and SIPs functioning as mutual fund investments, it becomes important to evaluate both for long-term suitability.
NPS Overview and Features
The National Pension System is a retirement-focused scheme available to Indian citizens aged between 18 and 70 years. It allows regular contributions which are invested in a mix of asset classes such as equity, corporate bonds, and government securities.
NPS gives investors the option to select between two models
- Active Choice, where individuals can decide the allocation between asset classes.
- Auto Choice, where the system allocates assets based on the subscriber’s age, reducing equity exposure as one grows older.
Let’s assume a monthly investment of Rs 15,000 for 20 years, with an annual 5% increase in contribution. With a portfolio distribution of 75% equity and 25% government bonds and an assumed annuity return of 6.75%, here are the projected results:
- Total Investment: Rs 59,13,967
- Estimated Capital Gains: Rs 1,28,93,719
- Total Corpus at Retirement: Rs 1,88,07,686
- Lump Sum Withdrawal at Age 60: Rs 1,12,84,612
- Estimated Monthly Pension: Rs 42,317
Systematic Investment Plans involve investing a fixed amount in mutual funds at regular intervals. SIPs offer flexibility in terms of fund type—debt, equity, or hybrid—making them a popular choice for investors with varying risk appetites.
SIP Retirement Corpus Projections
Assuming a Rs 15,000 monthly SIP for 20 years, here are the projected corpus sizes at different annualised return rates:
- Equity Fund (12% return)
- Estimated Final Corpus: Rs 2,84,64,526
- Capital Gains: Rs 1,46,66,666
- Hybrid Fund (10% return)
- Estimated Final Corpus: Rs 1,08,59,801
- Capital Gains: Rs 72,59,801
- Debt Fund (8% return)
- Estimated Final Corpus: Rs 85,89,900
- Capital Gains: Rs 49,89,900
- For Stability and Pension Assurance
NPS offers a predictable structure and is ideal for conservative investors looking for a blend of growth and security. The annuity feature also ensures a regular pension post-retirement. - For Higher Growth Potential and Liquidity
SIPs are ideal for those with a higher risk appetite who wish to maximise returns and retain flexibility over withdrawals and fund choices.
NPS provides tax benefits under Sections 80C and 80CCD(1B) of the Income Tax Act. SIPs, depending on the type of fund and holding period, may be subject to capital gains tax but don’t provide the same upfront deductions.
Choosing between NPS and SIPs depends on one’s financial goals, risk profile, and desired level of flexibility. Both serve as powerful tools to secure retirement, and in many cases, a combination of the two can deliver both stability and superior returns.
Disclaimer: This article is for informational purposes only and should not be construed as financial advice. Investors are advised to consult with a certified financial planner before making any investment decisions.