Comparison Between NPS Account VS. Mutual Funds

The National Pension System (NPS) is a sort of investment in which working people can put their money to work for a secure retirement. Mutual Funds, on the other hand, are professionally managed open-ended investment choices that pool money from various individuals to buy securities. Both investing programmes, however, are market-linked. Many investors mistakenly confuse SIPs with mutual funds and use them interchangeably. SIPs (Systematic Investment Plans) are a type of mutual fund investment that allows you to invest over time (that are an investment option for investors). Before deciding where and how to invest, it is critical that you have a thorough understanding of both investing possibilities.

What Is NPS?

The National Pension System (NPS) is a government-sponsored social security programme that began in January 2004 with the goal of improving the financial security of government employees. By 2009, all working professionals have access to the plan. The National Pension System (NPS) is well-liked as a retirement plan and for the tax advantages it offers.

Features Of NPS

• Employees in the private, public, and unorganized sectors can now contribute to a pension account on a regular basis until the end of their job.
• Depending on your risk profile, 50 percent to 75 percent of your NPS investments are exposed to equity. Given the limit, the investor's equity exposure will decrease by 2.5 percent every year once he or she reaches the age of 50. This balances the risk-reward equation in the investor's favor.
• Employees can take a portion of their retirement fund as a lump sum and invest the rest in annuities to ensure a steady income after they retire.
• Employees of all job profiles, employment types, and locations are eligible to participate in the programme. This scheme, however, does not apply to those who work in the military.
• NPS investments often provide higher returns than PPF investments.
• According to the scheme's past performance, annual returns have ranged between 8% and 10%.
• To modify your risk exposure to asset classes, you can choose to be active or passive.

What Are Mutual Funds?

Mutual funds are a collection of numerous and diverse financial instruments that create returns over a long period of time. AMCs engage experienced experts known as fund managers to carefully manage the funds of investors and adjust allocations in response to market movements.

Features Of Mutual Funds

• With as little as Rs.500, one can begin investing in mutual funds (through SIPs).
• Investors can opt to invest in Mutual Funds at predetermined intervals, such as weekly, monthly, quarterly, or yearly, to avoid the hassle of pooling large sums of money all at once.
• SIP installments in mutual funds must be paid at regular intervals, instilling in investors a sense of duty and dependability.
• Investors can also choose to increase or remove their invested principal amount based on their income.
• Top-up features in SIPs, for example, allow investors to increase their SIP amount by a specific amount at predetermined intervals while also boosting their earnings.
• When deciding on a mutual fund to invest in, it is important to look at the fund's prior performance. It is also a good idea to have a good notion of how much money you will make over a certain length of time. Before making your decision, you can use the Mutual Fund Calculator.

Take Away

Because of their similarities and differences, you should choose wisely between the two investing options based on your financial goals. If your primary goal in investing is to ensure your financial future, NPS should be your first pick. Mutual funds are popular among people who have a high risk appetite, have short-term financial goals, and can also be used to achieve other objectives.

Also read - How Much Income Would You Require After Retirement?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.