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NPS vs. APY: Which is a better option?

Retirement is called the golden period of life. However, this phase of life can be golden when you have a significantly large retirement corpus or a steady retirement income to sustain your expenses after you stop working.

There are multiple investment avenues you can consider to create a retirement nest egg. Two of the most popular retirement saving schemes in India are NPS and APY. NPS (National Pension Scheme) and APY (Atal Pension Yojana) are government-backed schemes that allow you to save for retirement and create a stable income source for the latter years of your life. Like mutual funds online, NPS is a market-linked, long-term retirement savings plan that allows you to earn market-based returns to create a retirement corpus. Alternatively, APY is a retirement-oriented fund that primarily supports low-income groups by providing assured pensions.

Understand the differences between the two government schemes in detail:

Basis of Difference National Pension Scheme Atal Pension Yojana
Available for NPS is available for both Indian and non-resident Indians (NRIs) APY is available only for Indian citizens residing in India
Eligibility Anyone between 18 to 60 years can contribute to an NPS Anyone between 18 to 40 years can participate in the APY
Contribution limit In NPS, the type of account you choose (Tier-1 or Tier-2) determines your upper contribution limit. In a Tier-1 account, the minimum contribution limit is Rs. 500, and you need to invest Rs. 1,000 per year to keep the account operational.

If you invest in a Tier-2 account, you should deposit a minimum of Rs. 1,000 to open the account. You have to contribute Rs. 250 to keep the account functional.

There is no upper limit for NPS contributions.

In APY, your contribution limit depends on your date of joining the scheme, the guaranteed pension sum you want, and the frequency of your contributions. Your monthly contribution can be as low as Rs. 42 and can go up to Rs. 8581 half-yearly.
Pension amount In NPS, the pension sum depends on the accrued balance in the account at the time of maturity and the pension option chosen. In APY, your pension sum is fixed in advance, and your contribution is set according to your desired pension amount.
Government support The government does not contribute to the NPS. The government contributes in some capacity to an APY.
Asset allocation In NPS, your funds are invested in four types of funds – ultra-safe, conservative, balanced, and aggressive. In APY, your funds are invested in government securities in a particular manner.
Pension guarantee In NPS, your pension is not guaranteed and depends on the type of plan you choose. The APY provides you with a guaranteed pension for the rest of your life.
Premature withdrawals Premature withdrawal is permissible in Tier-2 accounts There is no option for premature withdrawals

Depending on your financial situation and retirement expectations, you can choose the scheme that best suits your needs. Alternatively, if you want to combat the impact of inflation in the long term and create a large retirement nest egg, consider investing in mutual funds online according to your risk appetite. You can start your mutual fund online investment with a SIP (Systematic Investment Plan) of only Rs. 500 and increase as you advance in life.

Unlike NPS and APY, managing mutual funds online is easy through online platforms like the Tata Capital Moneyfy app. Use the Moneyfy app to make the right investments for your retirement.

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