NPS vs Mutual Fund with SWP – Which is Better for Your Pension?

Date :- 4th August 2025
Author :- Raghav Goel 

Introduction

Welcome to WealthCare Vest by Raghav Goel — Caring for your wealth, strengthening your investment.
When planning for retirement, one of the biggest questions is: Which pension option is better — NPS (National Pension System) or Mutual Fund with SWP (Systematic Withdrawal Plan)?

Both options aim to create a steady income during your retirement years, but the approach, flexibility, and returns can differ significantly. In this blog, we’ll break it down in a simple, practical, and easy-to-understand way so that you can make the right decision for your future.

(For more details on financial planning options, visit our WealthCare Vest resources).

NPS vs Mutual Fund with SWP – Which is Better for Your Pension?


Check out video also :- https://youtube.com/shorts/26yLii4Ifw4?feature=share

What is NPS (National Pension System)?

The National Pension System (NPS) is a government-backed retirement savings scheme. It allows you to invest regularly until retirement and receive a portion as a lump sum along with a regular pension (annuity).

👉 If you’re deciding between structured retirement products and flexible mutual fund options, our blog on SIP vs Lump Sum – Which is Better for 5 Years? will help you understand investment timing better.

Key Features of NPS

Feature Details
Investment Type     Mix of equity, corporate bonds, government securities
Lock-in     Till retirement (60 years)
Withdrawal     60% lump sum + 40% annuity (compulsory)
Tax Benefits     Under Section 80CCD(1B) – up to ₹50,000 extra
Returns     Around 8-10% (market-linked)

What is Mutual Fund with SWP?

Systematic Withdrawal Plan (SWP) in Mutual Funds allows you to withdraw a fixed amount from your mutual fund investment at regular intervals (monthly, quarterly, annually).

👉 To understand how withdrawals work in detail, read our guide: Do Mutual Funds Give Dividends?.

Key Features of MF with SWP

Feature Details
Investment Type         Equity, Debt, Hybrid (as per choice)
Lock-in         No lock-in (except ELSS for 3 years)
Withdrawal         Fully flexible — choose amount & frequency
Tax Benefits         No direct deduction like NPS (but LTCG/STCG tax applies)
Returns         10-14% (historical average in equity-oriented funds)

Flexibility Comparison: NPS vs Mutual Fund SWP

Criteria NPS Mutual Fund with SWP
Flexibility in Withdrawal ❌ Limited ✅ High
Change Investment Strategy ❌ Fixed allocation (low changes) ✅ Can switch funds anytime
Tax at Withdrawal ❌ Tax on annuity ✅ Tax only on gains
Liquidity ❌ Locked till retirement ✅ Withdraw anytime
Returns Potential Moderate (8-10%) Higher (10-14%)

Live Example for Better Understanding

Let’s understand this with a real-life example:

Example 1: NPS Investor

  • Investment: ₹10,000 per month for 25 years

  • Average Return: 9% p.a.

  • Corpus at 60: ~₹1.07 crore

  • Withdrawal Rule:

    • 60% lump sum: ~₹64 lakh (tax-free)

    • 40% annuity: ~₹43 lakh (taxable pension income)

  • Monthly Pension: ~₹20,000–₹25,000 (taxable)

Example 2: Mutual Fund with SWP

  • Investment: ₹10,000 per month for 25 years

  • Average Return: 12% p.a.

  • Corpus at 60: ~₹1.5 crore

  • Withdrawal through SWP:

    • Can start withdrawing ₹30,000–₹40,000 per month tax-efficiently

    • Flexibility to adjust withdrawals anytime

👉 If you are planning beyond retirement, check our guide on How to Build Smart SIP Portfolio Beyond Retirement for advanced strategies.

Key Observations

  • NPS is good for disciplined retirement saving with tax benefits.

  • Mutual Fund SWP offers higher flexibility, better returns, and no forced annuity purchase.

  • Risk factor: NPS has lower risk due to regulated allocation; Mutual Funds depend on fund selection and market performance.

👉 For a deeper look at tax benefits and retirement taxation, see What Are the Tax Implications of Mutual Fund Withdrawals?.

Which One Should You Choose?

  • If you want discipline, tax savings, and guaranteed pension — go with NPS.

  • If you want flexibility, potentially higher returns, and control over your withdrawals — go with Mutual Fund SWP.

  • Many investors choose a combination of both for balanced security and flexibility.

👉 If you’re focusing on aggressive growth along with retirement income, read How to Build a High Growth Investment Portfolio.

Our Recommendation at WealthCare Vest

At WealthCare Vest by Raghav, we believe pension planning should be flexible and aligned to your lifestyle needs.

  • For simplicity and higher flexibility, we lean towards Mutual Fund with SWP.

  • However, we also recommend allocating a small portion to NPS for tax savings and disciplined retirement investment.

(To explore suitable funds and strategies, connect with us at WealthCare Vest).

Disclaimer

This blog is for educational purposes only and does not constitute financial advice. Investments in NPS or Mutual Funds are subject to market risks. Please consult a qualified financial advisor before making any investment decisions.

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