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NPS or Mutual Fund, which is best for retirement planning? Read the answers to all your questions

With the increase in financial literacy, awareness about retirement planning has increased among people. Its effect is also visible. People are investing in mutual funds, PPF to NPS. Now the big question arises that which is better for retirement planning, NPM or mutual fund? That is, which of these will give better returns? If you are also looking for answers to these questions, then we are going to answer all your questions.

Choose according to financial objectives

The choice between NPS and mutual funds should be made keeping in mind the financial objectives. NPS gives the benefit of financial security and tax exemption. At the same time, mutual funds help in achieving high risk, large funds in the long term and big goals. NPS is a government-backed retirement savings scheme, in which a fixed amount is invested every month until the investment target or retirement age is reached, and after retirement, a part of the fund can be withdrawn, while the rest of the amount remains under the management of a PFRDA-registered pension fund manager.

NPS vs Mutual Funds

NPS investors get tax exemption as per Section 80C and 80CCD of the Income Tax Act. At the same time, investment in ELSS mutual funds gets tax exemption under Section 80C. It has a lock-in period of 3 years. At the same time, the amount invested in NPS remains locked till the age of 60 years. With ELSS funds, you have the shortest lock-in period of only three years. ELSS is an ideal option for new investors, as apart from tax benefits, they also get experience of equity investments and mutual funds.

Less volatility in NPS

Talking about NPS, it is more secure and less volatile as they invest their funds in equity, corporate bonds and government securities, whereas equity mutual funds invest most of the funds only in equity i.e. shares. Therefore, the volatility is more. If you are planning for retirement, then investing in NPS would be a better option.

Tax exemption benefits

NPS investors get an additional tax benefit of Rs 50,000 under Section 80 CCD (1B) of the Income Tax Act. NPS investments include tax exemption, tax exemption on capital appreciation, and tax exemption on 60% of pension corpus and tax exemption on purchasing annuity products. At the same time, only equity linked savings scheme (ELSS) mutual funds can avail tax exemption. NPS schemes generally give 10-12% returns, while equity mutual funds give 14-16% returns in the long term.

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