Hello Readers!
Retirement, one of the most crucial goal of any individual life, that requires a proper and long-term planned investment for the adequate corpus to grow. There are many ways where people invest in their peaceful retirement days. Most of the investors land in a clash between NPS and Equity MF’s when it comes to choosing an instrument to grow their retirement corpus.
The National Pension Scheme (NPS) under the aegis of the PFRDA, the pension regulatory authority in India has made a niche in this segment and some even refer to it as the mutual fund for retirement. But on the contrary, one needs to have a clear concept about the two.
NPS scheme has many advantages that make it a unique way to invest for retirement, however, it also helps to analyze how mutual funds are a more compatible choice for building your retirement kitty.
NPS Is Unique But Mutual Funds Are Different
NPS is very much similar to mutual funds when it comes to style and strategy of investment, but mark here, NPS is similar to mutual funds but not exact mutual funds.
NPS also pool assets from a number of investors and assign or allot units as investment value in a fund. The money which is collected gets invested in assets as per the allocation mentioned for a particular scheme. This portfolio is then managed actively by a fund manager who endeavors to grow your money over time and give a reasonable return in the long term.
NPS has more tax benefits than compared to ELSS mutual funds. NPS offers its investor for a higher tax deduction of up to Rs 2 lakh under sec 80 C as compared to Rs 1.5 lakh for ELSS schemes offered by mutual funds.
In NPS, the advantage is, the investor can take a maximum of 60% of the total corpus out as a lump sum at maturity and 40% of this is exempt from tax. The remaining amount is invested in an annuity plan that gives its investor a regular income for the rest of their life and this amount too is exempt from tax. However, the regular income that investors receive from the annuity is eligible for taxation as per the investor’s income tax slab rate.
Where NPS Gets Left Behind?
To invest in Tier I NPS, it is mandatory for one to open an NPS account that has restrictions on withdrawals. One cannot redeem their investment from this account before completing at least 10 years or reaching 60 years. This shows that NPS offers very low flexibility as compared to Equity MF’s or any mutual fund scheme.
Investment in equity, through NPS, is restricted to 75% of your total money invested in NPS, which clearly shows that you cannot choose your investment in such a way that your amount is invested only in long-term Equity assets. In the case of investment in NPS, your investment mandatorily will have exposure to fixed income assets. This however restricts your return from the long-term investment, while Equity mutual funds offer good returns with efficient inflation plus growth.
Moreover, investors of mutual funds enjoy the benefit of their investment management from the most experienced fund managers. This advantage is passed on to investors by way of consistent long-term growth.
Bottom Line
If we conclude, then Equity mutual funds, whether those that give tax benefit options (ELSS) or other schemes offer many efficient advantages like flexibility in terms of choosing options, schemes, and investment time horizon as compared to NPS. These unique advantages of Equity mutual funds make them different from unique NPS investment, for any individuals retirement planning.
Use this flexibility to build the retirement corpus that suits you best.
For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee of future returns).