NPS scheme vs equity Mutual funds: Which is better? Explained with ten points

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NPS is a long-term retirement-focused investment vehicle designed to provide a regular income stream after retirement. Mutual funds serve various financial goals, including wealth creation, retirement, and tax planning depending on the objective of the scheme selected. Options are available for short to long-term investment horizons.

NPS Tier 1 provides a diversified array of asset classes, encompassing equity, corporate bonds, government securities, and alternative investment funds. Investors have the flexibility to select from various investment options: Active Choice, enabling self-allocation, or Auto Choice, which allocates based on age. Equity investments within NPS Tier 1 are directed solely towards the top 200 stocks of the equity capital market, sorted by market capitalization.

Equity mutual funds, on the other hand, encompass a broad spectrum of asset classes, including equity, equity arbitrage, and debt instruments, thereby constituting hybrid equity funds. In compliance with regulations, equity mutual funds are mandated to allocate a minimum of 65% of their assets into equity and equivalent securities. These funds may adopt passive or active management strategies, with allocations diversified across sectors/themes and market capitalization segments.

“NPS is more secure and less volatile as they diversify funds across Equity, Corporate bonds, and government securities, whereas Equity Mutual Funds invest most of the funds under equity only," said Ravi Singhal, CEO, of GCL Broking. Kurian Jose, CEO, of Tata Pension Management said,"NPS enjoys Exempt – Exempt – Exempt (EEE). Tax exemption upon investment, tax exemption on capital appreciation, and tax exemption on 60% of the pension corpus and for buying the