NPS vs Mutual Funds, PPF, and FDs

At 40, many professionals begin to think more seriously about retirement planning. But with so many investment options—Mutual Funds, PPF, FDs, and now NPS—it’s easy to get overwhelmed. In Episode 6 of “NPS Made Simple”, Subhasis Ghosh, CEO of Kotak Mahindra Pension Fund, helps break down the key question: How does NPS compare to other common savings tools?

Through the lens of a mid-career couple in their 40s, the episode explores performance, tax treatment, long-term viability, and what makes NPS a compelling—and often overlooked—choice.

Q: Is it too late to start retirement planning in your 40s? 
Not at all. Ideally, you should begin in your 20s or early 30s, but if you haven’t, your 40s are still a very viable window. You’ll have more income at this stage, and the NPS allows you to contribute until the age of 70, which gives you time to build a meaningful corpus.

Q: How does NPS compare to traditional options like PPF or Fixed Deposits? 
Let’s take them one at a time.PPF: It’s good but has a fixed tenure of 15 years (extendable by 5), and returns are fixed, not market-linked. NPS, on the other hand, allows up to 75% equity allocation, offering significantly better long-term returns.

FDs: Tenure usually maxes out at 10 years. Also, FD interest is fully taxable, and inflation can erode real returns. NPS provides tax-efficient growth and continues well beyond an FD’s lifespan.

Q: What kind of tax advantages does NPS offer over the others? In both old and new tax regimes, NPS provides exclusive deductions.

₹1.5 lakh under Section 80CCD(1)

An additional ₹50,000 under Section 80CCD(1B)

Employer contributions under Section 80CCD(2): up to 10% of salary (or 14% for government employees)

“No other instrument offers this level of tax benefit in both regimes,” Ghosh emphasizes.

Q: What about mutual funds? Don’t they offer better flexibility and growth? 
Mutual funds are great, but they come with higher fund management charges and no guaranteed tax-free status at exit. NPS, in contrast, is the world’s lowest-cost actively managed fund, and withdrawals at maturity are partially tax-free.

Also, you can switch asset allocations or fund managers within NPS without triggering taxes or exit loads—something that mutual funds can’t match.

Q: Is it wise for both partners in a couple to invest in NPS? Absolutely. Even if one spouse is already receiving a government pension, the other should still open their own NPS account.

“Why lose the tax benefits and long-term growth? You’ll need two incomes in retirement too,” says Ghosh.

He adds, “One pension might not be enough to cover household expenses with rising inflation.”

Q: And what about those who feel they’re too late and won’t benefit much now? That’s a myth. Unless you’re actively managing a high-risk equity portfolio yourself—and doing it well—NPS offers better net returns than most savings instruments due to:

Low fund management charges

Long-term compounding

Built-in discipline

Tax savings at both entry and exit

“It’s not about timing. It’s about starting,” says Ghosh. “Even in your 40s, NPS offers a structured, tax-efficient path to retirement.”

Takeaway: Whether you’re in your 20s or your 40s, NPS deserves a place in your financial portfolio—particularly if you’re looking for retirement security with tax efficiency and low costs. As Ghosh puts it:

“NPS is not just an option. It’s an advantage.”

Watch Episode 6 to see how NPS stacks up against other investment tools—and why it may be the smartest choice for your retirement years.

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