New Delhi: Most working professionals desire a steady income stream even after retirement. A small investment today can secure a financially bright future. Investing a total of ₹5,000 per month for retirement can help you accumulate a substantial corpus. Over a long period such as 30 years, this strategy can build a significant fund. The real question is whether to invest that ₹5,000 in an SIP or the NPS.
To make the comparison easier, let us assume different rates of return for each: 12% annually for SIPs and 10% for the NPS. For instance, suppose the investment begins at age 30 with a monthly contribution of ₹5,000, continuing for 30 years. By the age of 60, the total investment made would amount to ₹18 lakh.
Find out how large the fund will be after 30 years.
With a 12% return, a monthly SIP investment of ₹5,000 can build a fund of approximately ₹1.76 crore. Assuming an average return of 10% in the NPS, the corpus could reach around ₹1.14 crore. In this scenario, the estimated SIP fund would exceed the NPS corpus by about ₹62 lakh.
Why does an SIP generate more wealth?
You can easily accumulate more wealth through an SIP. Although the difference in returns is only 2%, the power of compounding over 30 years significantly amplifies this gap. A total investment of ₹18 lakh in an SIP can grow to approximately ₹1.76 crore at an average return of 12%.
The estimated returns could add around ₹1.58 crore to the investment. However, a 12% return is not guaranteed; equity mutual funds are market-linked. Returns can be very high in some years, while losses may occur in others.
How much of a fund can be built in the NPS?
Did you know that a substantial fund can also be created through the NPS? Assuming an average return of 10% in the NPS, a monthly investment of ₹5,000 could grow to approximately ₹1.14 crore over 30 years. Your total investment during this period would amount to ₹18 lakh, with the remaining ~₹96 lakh coming from estimated returns. The NPS aims to build a long-term retirement corpus; since investments are market-linked, there is no guarantee of a fixed 10% return.
How do exit rules differ for the NPS?
The primary difference between the NPS and SIPs lies in the withdrawal process. With the NPS, you do not have the freedom to withdraw the entire corpus upon retirement. Under current regulations for a standard exit, non-government subscribers have the option to withdraw up to 80% of the amount as a lump sum while allocating at least 20% towards an annuity.
However, different rules may apply to smaller corpus amounts. An annuity provides a regular income post-retirement. Crucially, the pension amount depends on the annuity rates and the specific plan chosen.
