Both mutual funds and the National Pension System, or NPS, are very popular tools for long-term financial planning that are constantly increasing their footprint in India. However, there are significant differences between the two.
NPS calculator
First, let’s consider an investor opening an NPS account at the age of 25 and beginning to contribute Rs 2,500 a month – an extremely feasible proposal for most youths. Let him/her also continue the investment till the age of 75, which is the maximum age of investment.
The NPS calculator tells us that at the age of 60, the person would start receiving a pension of Rs 87,344 a month at a minimum. The person would also get Rs 2.62 crore as a one-time payment at the age of 60, which he/she is free to utilise the way he/she deems fit.
Assumptions for NPS
There are a few assumptions. One, the returns on the monthly investments down the years have been assumed at 10%. Returns on the annuity have been assumed at 6%. One can opt for a bigger pension which will reduce the one-time payment at 60, since both are funded from the same pool of money.
Mutual Fund SIP calculator
Now let’s find out what a mutual fund SIP can achieve in the very long term. A free online calculator will tell you that if a person keeps investing Rs 2,500 a month in a mutual fund scheme through the Systematic Investment Plan mode for 5 decades, he/she will end up creating a corpus of Rs 9,86,22,307 or Rs 9.86 crore.
While the investor would be depositing a nominal amount of Rs 15 lakh only in the fund, the total earnings that will be generated would reach Rs 9,71,22,307 or Rs 9.71 crore in this time. The asusmption here is the returns would be 12% don the decades.
Flexibility in MF
However, one has flexibility in mutual funds. One need not necessarily have to wait till the age of 75 to dip into the pool. At any given point of time, especially after a significant sum has accumulated into the MF pool, one can keep withdrawing some funds regularly that would, in effect, become a veritable pension for the investor.
NPS is the platform that enables the common people to build a healthy pension and post-retirement corpus. Mutual funds have a much wider appeal though they can be put to use for the same goals. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
