Who Wins in Retirement Planning? NPS vs Mutual Fund SWP vs PPF – Understanding Profit and Los

March 31, 2025 By: Naresh Saini0 comments

Retirement planning is one of the most important financial decisions. Choosing the right investment option can determine how comfortable and secure your post-retirement life will be. Among the popular choices, National Pension System (NPS), Mutual Fund Systematic Withdrawal Plan (SWP), and Public Provident Fund (PPF) are widely used options for building a retirement corpus. Each has its advantages and disadvantages. But which one is the best for you? Let’s break down the complete mathematics of profit and loss in each option to make an informed decision.

Understanding the National Pension System (NPS)

What is NPS?

NPS is a government-backed retirement savings scheme that provides both market-linked and fixed returns. It is a mix of equity, corporate bonds, and government securities, offering a disciplined savings approach with tax benefits.

Returns and Profitability in NPS

• NPS returns depend on the asset allocation and fund manager’s performance.
• Historically, NPS has given 8% to 12% annual returns.
• It has exposure to both equity (for high returns) and debt (for stability).
• Returns are not guaranteed, as they depend on market performance.

Tax Benefits in NPS

• Under Section 80CCD(1): Up to ₹1.5 lakh tax deduction.
• Under Section 80CCD(1B): Additional ₹50,000 deduction.
• Maturity Taxation: 60% of the corpus is tax-free; the remaining 40% must be used for annuity, which is taxable.

Loss or Limitations in NPS

• Lock-in Period: Withdrawals are restricted until retirement.
• Mandatory Annuity Purchase: 40% of the corpus must be invested in an annuity, which has lower returns.
• Returns Depend on Market Conditions: No guaranteed returns.

Mutual Fund SWP (Systematic Withdrawal Plan) for Retirement

What is SWP?

SWP in mutual funds allows investors to withdraw a fixed amount regularly while keeping the rest invested. It is a self-managed pension scheme that provides flexibility and liquidity.

Returns and Profitability in SWP

• Equity mutual funds have historically given 12% to 15% annual returns.
• If invested in a balanced or hybrid fund, returns range from 8% to 12%.
• Allows flexibility to withdraw a fixed sum every month while earning returns on the remaining amount.

Taxation in SWP

• Long-term capital gains (LTCG) tax: If held for more than a year, 10% LTCG tax applies beyond ₹1 lakh in a financial year.
• Short-term capital gains (STCG) tax: If held for less than a year, a 15% STCG tax is applicable.
• SWP from debt funds is taxed as per the investor’s income tax slab.

Loss or Limitations in SWP

• Market Risks: Returns are not guaranteed.
• Taxable Withdrawals: Withdrawals are taxable, unlike PPF which is fully tax-free.
• Requires Active Management: The investor needs to track market trends and rebalance as needed.

Public Provident Fund (PPF) for Retirement

What is PPF?

PPF is a long-term government savings scheme that offers guaranteed returns and tax benefits. It is preferred by risk-averse investors looking for stable returns.

Returns and Profitability in PPF

• Currently, the PPF interest rate is 7.1% per annum (subject to change quarterly by the government).
• Interest is compounded annually, ensuring a steady corpus.
• It provides guaranteed returns, making it a low-risk investment.

Tax Benefits in PPF

• E-E-E (Exempt-Exempt-Exempt) Taxation: Contributions, interest, and maturity proceeds are all tax-free.
• Investment up to ₹1.5 lakh per year is tax-deductible under Section 80C.

Loss or Limitations in PPF

• Lock-in Period: 15 years (with partial withdrawals allowed after 6 years).
• Lower Returns Compared to Market-Linked Investments: 7.1% is lower than NPS and mutual funds.
• Limited Contribution: ₹1.5 lakh per year max contribution limit restricts high corpus growth.

Comparing NPS, Mutual Fund SWP, and PPF – A Mathematical Perspective

Let’s assume you invest ₹10,000 per month in each scheme for 30 years. We will compare the maturity corpus based on historical returns.

Projected Corpus After 30 Years

Investment Option	Monthly Investment	Assumed Annual Return	Maturity Corpus (Approx.)
NPS	₹10,000	10%	₹2.28 crore
Mutual Fund SWP	₹10,000	12%	₹3.52 crore
PPF	₹10,000	7.1%	₹1.22 crore

Which Option Gives the Best Profit?

• Mutual Fund SWP has the highest growth potential due to compounding and equity exposure.
• NPS is a balance of equity and debt, with mandatory annuity purchase reducing lump sum benefits.
• PPF is the safest option but has lower returns.

Best Choice Based on Investor Profile

1. For Risk-Taking Investors: Mutual Fund SWP provides the highest returns with flexibility.
2. For Moderate Risk Investors: NPS balances equity and debt while giving tax benefits.
3. For Conservative Investors: PPF ensures safety with tax-free returns.