Is National Pension Scheme Safer Than Mutual Fund?

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NPS

The National Pension System (NPS) is a government scheme that has seen year-on-year growth and provides a safe and regulated market-based return for retirement planning.

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Mutual Fund

A mutual fund is a type of investment fund that combines money from multiple investors to purchase a diversified portfolio of securities.

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SIP

Systematic Investment Plan (SIP) has gained significant popularity among mutual fund investors and is often compared with the Tier-II of NPS for investment options.

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Lesser Risk

NPS doesn’t offer much flexibility for risk management. While Equity-Linked Savings Scheme (ELSS) has a higher exposure to equity-oriented mutual funds compared to NPS, the investment risk is also comparatively higher for ELSS.

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Tax Benefits

NPS offers better tax advantages compared to equity mutual funds. Long-term returns from equity mutual funds are subject to a 10% exit tax, while NPS doesn’t have such a tax.

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Retirement Fund

NPS is a highly cost-effective managed retirement fund, with a management fee of only 0.1%. On the other hand, mutual funds or asset management companies charge an expense ratio ranging from 0.50% to 1.50%.

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Higher Returns

NPS generally offers higher returns in comparison to traditional fixed-income securities. Since its inception, the NPS scheme has historically provided returns ranging between 8% and 10% annually.

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Low Fee

The NPS has the lowest management fees compared to other managed retirement funds, charging only 0.1%. In contrast, mutual funds impose expense ratios ranging from 0.50% to 1.50%, which is significantly higher than the NPS administration cost.

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Government Support

The NPS is a government-backed investment option, which means that the government is in charge of the investment’s safety and security. This provides investors with an added layer of security.

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Transparent Investment Process

The NPS employs a transparent investment process, and investors can monitor the success of their investments through periodic statements and yearly reports.

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Disclaimer

Both the National Pension Scheme and Mutual Funds have their own set of advantages and risks. It is advisable to assess your investment goals, risk appetite, and retirement plans before making a decision.

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