NPS vs Fixed Deposit: Which is a better option for investment in your 30s?

Before picking either a fixed deposit or opting for the National Pension Scheme, a person needs to first decide on the ultimate goal. Both are very good financial instruments, but which one is better depends on what kind of benefits you are looking for.

After comparing the benefits of NPS and FD, people in their 30s can pick the best investment option for their future.

Starting financial planning in the early years of your employment or after getting your first job is an ideal step for a secure future. If you start investing in your 30s, it can bring more benefits. One can also build a large corpus with an investment horizon of 20-30 years. Before picking a plan, one must develop anstrategy and choose a scheme as per the financial needs. The National Pension Scheme (NPS) and Fixed Deposits (FDs) could be two of the most preferred investment avenues to build a corpus fund.

Keeping these things in mind, let's discuss the two of the best investment tools – National Pension Scheme (NPS) and Fixed Deposits (FD). While these are two extremely different plans, they come with a range of benefits and can be chosen as an option for long-term savings. Scroll down to know in detail.

National Pension Scheme

A government-regulated retirement savings scheme, the National Pension System (NPS) was introduced with the aim to encourage individuals to make savings to build financial security for their retirement.

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NPS Benefits

1. Higher returns: As the contributions made toward NPS accounts are distributed across various asset classes, it also holds the potential to receive higher returns.

2. Tax benefits: One of the major benefits of NPS accounts is the tax benefits that come with them. NPS contributions are eligible for tax deductions under Section 80C and 80CCD(1B) of the Income Tax Act.

3. Retirement fund: After regular contributions, investors can build a substantial corpus in their NPS accounts, in order to ensure a good amount of savings for their post-retirement years.

Fixed Deposits

A low-risk investment option that is usually provided by banks and other financial institutions, investors can deposit a specific amount of money for a fixed tenure in fixed deposits. In exchange for this, they receive a fixed interest rate.

FD benefits

1. Fixed returns: Investors are eligible to receive guaranteed and fixed returns on FDs as the plans are very stable and secure. The interest rate also remains constant.

2. Secure: The invested amount in FDs is known to be very safe and secure as they are monitored by the Reserve Bank of India (RBI) banks and thus are protected from market fluctuations.

3. Flexible: The tenure of FDs are flexible. Investors can choose their FD tenures on the basis of their financial requirements.

NPS vs FD: Which one is the best investment option in 30s?

There are several key differences between the two investment options.

1) FDs offer fixed returns, NPS returns are based on market fluctuations.

2) NPS contributions and withdrawals are subjected to tax benefits, while the interest earned on FDs is completely taxable.

3) FDs have a fixed tenure and investors might need to pay penalties on early withdrawals, NPS allows partial withdrawals after a certain period.

4) NPS is specially designed to build a retirement corpus for long-term financial goals to receive a regular pension, while FDs help to provide a different level of financial security upon maturity.

Keeping in view these key differences between NPS and FD, one has to make a choice on the basis of their financial objectives and risk tolerance in their 30s. Those looking forward to receiving regular pensions after retirement can invest in NPS, while others who want a stable, guaranteed, and surplus amount can opt for fixed deposits.

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