NPS vs SIP: Which is a better investment plan?


Financial stability is an important aspect of life.

This term becomes even more important when you reach your 60s. This is the time you are about to retire.

You might not want to depend on your kids for financial aid. After all, financial independence is a priced possession of any human being.

Also, after decades of hard work, anyone would dream to spend their old-age ideally.

However, the pension you receive might not cover all your expenses.

So, what should you do? The answer is saving and investment!

You should start investing in stocks or mutual funds today only. Financial planning can save you from money problem or crisis in the future.

And investing is the best option a person could ask for. Start planning for your retirement from this moment onwards.

Take heed to invest in mutual funds. Investing in stocks is suitable for risk bearers. Nonetheless, you might not want to expose your money to risk at all.

Mutual funds on the other hand have relatively low-risk and offer regular returns.

There are multiple ways of investment. People use National Pension Scheme (NPS) or Systematic Investment Plan (SIP) to adopt investing habit.

What is NPS?

Pension Fund Regulatory and Development Authority of India launched NPS in 2004 for employees of public, private and unorganized sectors.

According to this plan, you can decide on extracting an amount of your regular income and investing it in a pension account.

This will accumulate a handsome amount for your future, and you will receive a regular pay even after your retirement.

Though, if you wish to extract any amount from your pension account before retirement, you get to transact only 25% of the amount after three years.

There are two types of NPS account available for the people. Tier I account, is supposed to have restrictions over withdrawal. You need a minimum 500 of investment to open this account.

On the other hand, Tier II account do not have such strict restrictions over withdrawal. You can transact a specified amount for certain purposes. You need a minimum of 250 monthly investments to open this account.

Furthermore, you need to maintain this account at least till the age of 60. Likewise, you can extend the maturity period as per your will.

What is SIP?

Systematic Investment Plan is used to make small investments regularly for a fixed period of time.

These investments can be made in mutual funds of your choice. Here, you purchase fund units with the amount invested in MF.

These investments can be made on weekly, monthly or quarter basis depending on your preference.

Investors buy these funds on rupee cost averaging method. This method helps you purchase shares no matter what price may be.

When the price is high, you may purchase fewer shares and buy more when the price is low. But you do need to make regular investments.

SIP should be adopted by those only who are disciplined and can manage risk.

Also Read – Financial ratio analysis that every stock investor should know 


Based on investment

NPS does not require regular investing. You can keep on funding the account as per your comfort.

Contrarily, SIP needs to be disciplined investing. You need to keep on investing your mutual fund regularly. But also, you can make the choice for time interval between investing periods.

Based on risk

Although NPS is linked to market, only a percent of the fund is exposed to shares and equity. This makes it less risky.

On the other hand, SIP is all about investing in the market and earning returns. This spurs the chances of SIP investment being at risk.

Based on withdrawal

NPS allows you to withdraw 25% of the amount after 3 years from opening of account. Hereinafter, you are allowed to withdraw the same percentage of amount after five years of the previous transaction.

SIP allows you to withdraw your invested amount at any point of time.

You can even choose to withdraw this income systematically. A systematic withdrawal plan would serve as a monthly or quarterly income.

Based on return

Compared to NPS, SIP certainly is a better choice if you are looking for high revenue and increasing wealth.

The main reason is that NPS has restricted exposure to the share market.

Since, SIP has full access to equity and shares, this increases the chances of earning good returns on the invested amount.

SIP are believed to incur returns in six folds or more of the invested amount.

The Bottom Line

Both NPS and SIP are potent objects of investment and retirement planning.  However, people with good risk appetite and thriving for more revenue choose SIP.

You should compare the benefits and disadvantages of both the plans and analyse your risk appetite before making investments.

Team R Wealth

Team R Wealth

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