To secure a stable financial future, consider NPS or LIC. Understand both schemes before deciding which one is better for you. Here’s a quick guide.
What is NPS?
- NPS is a government-regulated retirement income program
- Investors can allocate their investments among government funds, corporate bonds, fixed deposits, and equities
- The program offers two account types: Tier 1 (with withdrawal limitations) and Tier 2 (without limitations)
- Each account type has unique features
What is LIC?
- LIC is a well-known insurer that offers life insurance options
- The typical endowment policy combines savings with insurance protection
- Unit Linked Insurance Plans (ULIPs) provide both life insurance and investment opportunities by investing a portion of the premium in equities or debt funds
NPS or LIC which is better?
The decision between NPS vs LIC in terms of financial planning might be difficult. Both have special benefits that meet certain demands. Let's look at the elements that can help you make a decision -
| |
NPS |
LIC |
| Investment Option |
Equity, Bonds, FD |
Traditional Plans, ULIPs |
| Taxation Benefits |
NPS contributions are eligible for tax advantages under Sections 80C and 80CCD(1B), up to a maximum of 1.5 lakhs and 50,000 rupees, respectively. |
Under Section 80C, premiums paid for LIC insurance are tax deductible, while Section 10(10D) exempts the maturity amount from tax. |
| Investment Flexibility |
It provides investing flexibility by letting you select between stock, corporate bonds, government bonds, and fixed deposits based on your risk tolerance. |
The only available investment alternatives are the plans provided by LIC, most of which are classic plans or ULIPs. |
| Risk Profile |
Depending on how much debt and equity are allocated, NPS has a different risk profile. Risk increases as equity allocation increases. |
Traditional plans have lesser risk since returns are guaranteed, according to LIC. ULIPs have market risk since they are exposed to equities. |
| Returns |
The NPS returns are market-linked, with the equity component having the potential to offer larger returns over time. |
Conventional endowment plans include both guaranteed returns and bonus increases. Returns on ULIPs are market-linked and based on how well the underlying funds perform. |
Conclusion
Choose NPS or LIC based on your financial goals, risk tolerance, and salary structure. NPS is better for a balanced investment with higher returns, while LIC's endowment plans or ULIPs are ideal for combining investment and insurance.
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Frequently Asked Questions
1. Is NPS better than LIC?
NPS and LIC serve different purposes. LIC provides life insurance with assured returns, while NPS focuses on flexible investments for retirement planning. When deciding between NPS and LIC, consider your objectives.
2. What is the lock-in period for NPS?
NPS has a 60-year lock-in duration. After the third year has passed, some conditions permit partial withdrawals.
3. Is NPS a good or bad investment?
Because of the tax advantages, flexibility, and possibility for higher returns, NPS can be an excellent retirement investment. However, it depends on your risk tolerance and financial objectives.
4. What are the disadvantages of NPS?
The NPS offers few investment possibilities, market-related risks, and withdrawal limitations before retirement. It might not be suitable for people looking for rapid money or returns that are certain.
