NPS vs Mutual Fund SIP Calculator 2026

They solve different problems. NPS offers an extra ₹50,000 deduction under Section 80CCD(1B) on the Old Regime and very low fund management charges, but locks money to age 60 (or 15 years of subscription for a non-government subscriber) and forces at least 20% of the corpus into an annuity — 40% for government employees. Mutual funds are fully liquid and flexible but carry no extra deduction.

Section 80CCD(1) within the ₹1.5 lakh 80C limit, an additional ₹50,000 under 80CCD(1B), and employer contribution under 80CCD(2) up to 14% of basic plus DA (10% for a non-government employer under the Old Regime) — which is the only one of the three still available in the New Regime.

Since the PFRDA exit amendment of 16 December 2025, a non-government subscriber must buy an annuity with at least 20% of the corpus and a government employee with at least 40%; the rest can come out as a lump sum or systematic withdrawals. A corpus of ₹8 lakh or less can be withdrawn in full, and between ₹8 lakh and ₹12 lakh the lump sum is capped at ₹6 lakh. Only 60% of the corpus is tax-free under Section 10(12A), so any lump sum above that is taxed at your slab rate, and the annuity pension is taxable at your slab rate for life. That mandatory annuity, at 6%–7% yields, is the main argument against NPS.

Yes, and for most people that is the right answer. On the Old Regime, contribute enough to NPS to claim the ₹50,000 under 80CCD(1B), then route additional retirement savings into equity mutual funds where you keep liquidity and are not forced into an annuity.

Only in a limited way. A partial withdrawal of up to 25% of your own contributions is allowed after three years, up to four times before 60 with at least four years between withdrawals, and only for listed reasons such as a child's higher education or marriage, buying or building a house, or medical treatment. Exiting before you qualify for a normal exit (60, or 15 years of subscription for a non-government subscriber) requires you to put at least 80% of the corpus into an annuity and take at most 20% as a lump sum, unless the corpus is ₹5 lakh or less. A mutual fund, by contrast, can be redeemed any working day with no reason given.

Tier 1 is the retirement account with the lock-in until 60, and it is the only one that carries tax benefits — employer contribution under 80CCD(2) in both regimes, plus 80CCD(1) and the extra Rs 50,000 under 80CCD(1B) in the Old Regime only. Tier 2 is a voluntary open-ended account with no lock-in and no deduction for private employees, and its gains are taxed at slab rates. Treat Tier 2 as an ordinary investment account, not a tax-saving one.