SIP vs NPS: Which can generate a higher corpus on Rs 7,000 monthly investment for 25 years?

NPS investment has low equity exposure. The maximum percentage that can be invested towards equity shares or stocks is 75 per cent. SIP is a way through which you can invest a fixed amount in mutual funds of your choice. Mutual Funds offer a wide assortment of investment options. Depending on your risk appetite and time horizon, you can either decide to invest in equity funds, ELSS, debt funds, hybrid funds, fund of funds, etc. The bottom line to choosing the right investment option depends on how fast you want to retire, how long your investment horizon is, the amount of corpus you want to generate, and ultimately, your risk profile. Thus, let’s find which can generate a higher corpus on a Rs 7,000/month investment for 25 years.

Also read: SIP vs NPS: Rs 10,000/month investment for 25 years, which can generate a higher corpus?

National Pension Scheme?

NPS is a government-backed pension scheme that helps people save for retirement and provides a regular income after they stop working.. 

Systematic Investment Plan (SIP)

SIP lets you invest a fixed amount regularly in mutual funds. It’s a flexible way to save for goals like your child’s education, retirement, or future needs..

Investment option in NPS

NPS in India offers two kinds of investment options to investors: active choice investment and auto choice investment. 

Active choice investment in NPS

In the active choice investment, investors decide to invest in their choice of securities according to their risk appetite and age. 

Auto choice investment in NPS

In auto choice investment, the scheme manager chooses the securities to invest on your behalf based on the age slab of the investor. 

SIP in mutual funds

Depending on their risk appetite, investors can decide to invest in equity funds, debt funds, and hybrid funds. 

NPS calculation conditions

Monthly Contribution: Rs 7,000
Investment duration: 25 years
Annual increase in contribution: 5 per cent
Annuity rate of return: 6.75

NPS Calculation

We are calculating the NPS corpus for the non-government sector with:
Investment mix: 75 per cent equity, 25 per cent government bonds
Check the calculation below.

NPS: What will be your retirement corpus with Rs 7,000 monthly investment?

Total investment during that period will be Rs 40,09,076. The estimated capital gains will be Rs 1,33,91,015, and the estimated retirement corpus will be Rs 1,74,00,091.

NPS: What will be your lump sum withdrawal amount?

At the age of 60, you can withdraw an estimated of Rs 1,04,40,055.

NPS: What will be your monthly pension?

Your estimated monthly pension will be Rs 39,150.

SIP calculation conditions

Monthly Contribution: Rs 7,000
Investment duration: 25 years
Annualised return: 12 per cent
Since there are no fixed returns in SIP investment, we are calculating as per annualised returns of 8 per cent (debt fund), 10 per cent (equity fund), and 12 per cent (hybrid fund).
 
SIP: What will be your retirement corpus with Rs 7,000 monthly SIP in equity fund?

At a 12 per cent annualised return, the estimated corpus in 25 years will be Rs 1,19,15,446, where Rs 98,15,446 will the your total investment, and the estimated capital gains will be Rs 21,00,000.

SIP: What will be your retirement corpus with Rs 7,000 monthly SIP in hybrid fund?

At a 10 per cent annualised return, the estimated corpus in 25 years will be Rs 87,02,117, and the estimated capital gains will be Rs 66,02,117.

SIP: What will be your retirement corpus with Rs 16,000 monthly SIP in debt fund?

At an 8 per cent annualised return, the estimated corpus in 25 years will be Rs 64,03,876, and the estimated capital gains will be Rs 43,03,876.

DISCLAIMER: Not financial advice; invest at your own risk