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Blending growth and stability is central to long-term wealth creation for securing one’s retirement. For the same, two options that have emerged as favourites amongst Indian investors are the National Pension System (NPS) and systematic investment plans (SIPs).
To choose between the two, however, it is essential to understand how each of them is structured and how they work to help you choose one that aligns with your financial goals.
NPS is a government-backed retirement savings scheme in which one can invest money while employed, to secure financial stability post-retirement. For the same, one requires a Permanent Retirement Account Number (PRAN).
NPS offers the option to invest in two different account types:
NPS also provides the ability to choose between two different investment approaches.
It is important to note that equity exposure is capped at 75% under NPS. This may marginally diminish returns in the long run, especially when compared to mutual funds.
Post retirement, investors can withdraw up to 60% of their corpus as a lump sum, whereas the remainder can be withdrawn as a monthly pension for life.
Subscribers can make partial withdrawals for specific purposes, including their children’s education, marriage, purchasing a home, or treatment for a medical condition. One can, however, only make three partial withdrawals pre-retirement, after a tenure of a minimum of 10 years. Moreover, these must not exceed 25% of their total contribution, and there must be a gap of at least five years between each withdrawal.
SIPs are a means to invest in mutual funds; they refer to investing pre-determined amounts into mutual fund schemes, at a set frequency. SIPs encourage patient and consistent investments which may lead to long-term wealth creation.
Through an SIP, one can choose to start, stop, or restart their investments in a given fund anytime, as well as withdraw their holdings in it, provided the fund doesn’t have a lock-in period. Additionally, most mutual funds have a minimum investment threshold of as little as ₹500 per month, which ensures investing in them doesn’t burden you financially, and helps build your post-retirement corpus at your own pace and scale.
Benefits of investing in an SIP
Both NPS and SIPs offer distinct advantages that help one secure their retirement. Picking between the two, however, requires an evaluation of how well each of them aligns with one’s risk appetite, liquidity preferences, and financial goals.
You should opt for NPS if you:
You should choose an SIP if you:
To get started on your investment journey, head over to SC Invest on the SC Mobile app, or walk into your nearest Standard Chartered Bank branch today.
How to Invest in SIP: The Ultimate Guide for Beginners
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