NPS vs Mutual Fund
Compared on what you can actually deploy at 60, not on headline corpus.
- Total corpus
- ₹1,33,78,903.48
- Lump sum, 80% maximum
- ₹1,07,03,122.78
- Slab tax on the lump sum above 60%
- −₹8,02,734.21
- Locked into an annuity, 20% minimum
- ₹26,75,780.70
- Pension that annuity buys, taxed at slab for life
- ₹1,60,546.84/year
- Tax relief on contributions, compounded
- ₹21,38,038.39
- Lump sum after tax
- ₹99.00L74%
- Tax on the lump sum
- ₹8.03L6.0%
- Locked into an annuity
- ₹26.76L20%
The comparison is on spendable money, which is the honest basis. Under PFRDA's exit rules from 15 December 2025, at least 20% of a non-government subscriber's NPS corpus must buy an annuity at 60, and that portion is not capital you can deploy — it buys an income that is then taxed at your slab rate for life. Up to 80% can be taken as a lump sum, but the income-tax exemption still covers only 60% of the corpus, so the slice above that is taxed at your slab rate; this calculator takes the full lump sum and deducts that tax. A mutual fund has no such constraint and no lock to 60; its gains are taxed at 12.5% above the ₹1.25 lakh annual exemption whenever you choose to sell. NPS is also cheaper to run, with fund-management charges a small fraction of an equity fund's expense ratio, and it earns an extra ₹50,000 deduction under section 124 (the old section 80CCD(1B)) — that relief is treated above as invested alongside, because it is real money. Note the deduction is old regime only: under the new regime, which is the default, it is worth nothing, and setting it to zero here is the realistic case for most people. What genuinely survives the new regime is your employer's NPS contribution at up to 14% of basic plus dearness allowance, which is not modelled here and is a separate argument for the scheme. NPS equity allocation is also capped, which is why its assumed return is set lower by default.
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Independent · No commissions · No fund-house data — how the numbers are computed
How it works
The National Pension System is cheaper to run than a mutual fund and earns an extra deduction of up to ₹50,000 under section 124, the old section 80CCD(1B). Against that, it is locked until 60, at least 20% of the corpus must then buy an annuity whose income is taxed at your slab rate for life, and the part of the lump sum above 60% of the corpus is taxed at slab too.
That annuity requirement is why comparing headline corpus figures is misleading. The right comparison is on money you can actually deploy at 60: the lump sum of up to 80% after its tax, plus the compounded value of the tax relief you claimed along the way. The annuity portion is not capital — it buys an income.
One caveat that changes the answer for most people today: the extra deduction is old-regime only. Under the new regime, which has been the default since AY 2024-25, it is worth nothing, and setting it to zero here is the realistic case.
NPS spendable = 80% of the corpus − slab tax on the 20% above the exempt 60% + the compounded value of the annual tax saved by the deduction. Fund after tax = corpus less 12.5% on gains above the ₹1.25 lakh annual exemption.NPS returns are set lower by default because its equity allocation is capped, which is a structural difference rather than a pessimistic assumption.
Frequently asked questions
How much of my NPS corpus is locked into an annuity?
Under PFRDA's exit rules in force from 15 December 2025, at least 20% at age 60 for a non-government subscriber (40% for a government employee), and that money buys a pension rather than being available as capital. Up to 80% may be taken as a lump sum, of which 60% of the corpus is tax-free and the rest is taxed at your slab rate. If the total corpus is ₹8 lakh or less the entire amount can be withdrawn, and the rules on partial withdrawals before 60 are narrow — specified purposes only, after three years, capped at 25% of your own contributions.
Is the pension from the annuity taxed?
Yes, at your slab rate, as income in the year you receive it, for as long as the annuity runs. The lump sum is exempt but the annuity income is not, which is why the two parts of the corpus should not be added together and compared with a fund's post-tax value. Annuity rates themselves are also modest, typically around 6%, and most annuity options return no capital to your estate.
Does the extra 50,000 deduction apply under the new regime?
No. Section 124, the old 80CCD(1B), is an old-regime deduction and is worth nothing under the new regime that is now the default. What does survive into the new regime is your employer's NPS contribution, at up to 14% of basic plus dearness allowance against 10% under the old regime — a separate and genuinely valuable benefit that this comparison does not model.
Which should I actually choose?
They answer different questions. NPS is cheap, disciplined and tax-efficient on the way in, at the cost of a lock to 60 and a compulsory annuity. A fund is liquid, unconstrained in equity allocation, and taxed at 12.5% on gains. Many people reasonably use both — NPS for the employer contribution and the deduction if they are on the old regime, and funds for the flexibility.
Go further
Where the break-even sits, and why the choice decides everything downstream.
Project the NPS corpus and annuity on its own.
What Scheme E, C and G have actually returned, to set the NPS rate above.
Where the extra NPS deduction sits relative to the main basket.
The mutual fund side of this comparison.
What each side actually wins on, and why your tax regime decides the comparison.