NPS vs Mutual Funds in 2025: Which One’s Giving Better Returns?

With people living longer and prices rising, planning for retirement is more important than ever. In India, more investors are turning to market-linked options like the National Pension System (NPS) for better long-term returns. NPS equity funds have shown strong performance recently thanks to smart asset allocation and focus on high-growth stocks.

Top Performers Among NPS Funds

As of March 2025:

• DSP Pension Fund gave 13.75% returns in 1 year, beating the Nifty 200 TRI, which returned just 1%. 
• UTI Pension Fund performed well over the long term, delivering 13.47% in 3 years and 17.38% in 5 years. 
• DSP Equity Tier I Scheme also stood out with 15.06% 1-year return, the highest among NPS equity schemes.

Other NPS Scheme Returns (Last 1 Year)

• SBI NPS Equity Scheme: -2.12% 
• Max Life: 0.80% 
• UTI Pension Fund: 4.63% 
• Kotak Pension Fund: 4.64% 
• Aditya Birla Equity Pension Fund: 1.70%

How NPS Asset Allocation Works

NPS lets investors put up to 75% in equities, helping fund managers make the most of market trends. This flexibility allows NPS to focus on multi-cap strategies and high-growth stocks, often delivering better performance than benchmarks.

In comparison, some large-cap mutual funds, like Nippon India Large Cap Fund, offered 9.58% return in the last year. But mutual funds usually have higher expense ratios, while NPS charges are lower, typically between 0.62% and 1.02%, giving investors better long-term value.

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Tax Benefits Make NPS More Attractive

NPS also provides tax benefits under Section 80C, making it a strong choice for retirement savers. When combined with good returns and low costs, NPS becomes a solid option for wealth building with tax efficiency.

NPS vs Mutual Funds: The Verdict

In 2025, NPS equity schemes have delivered better long-term returns than many large-cap mutual funds. Some NPS funds have given over 5% more returns than the category average of mutual funds, making them a great choice for retirement-focused investors.

Two Investment Options in NPS

1. Active Choice
   You choose how to divide your money between: 
   • Equity (E) – up to 75% 
   • Corporate Bonds (C) – up to 100% 
   • Government Securities (G) – up to 100% 
   • Alternative Investments (A) – up to 5% 
2. Auto Choice

This adjusts your asset mix based on your age. Younger investors get more equity exposure, which reduces as they age. It’s ideal for those who prefer a low-risk, automatic investment strategy.

Conclusion

If you’re planning for retirement and want better long-term returns, lower costs, and tax benefits, NPS could be a better bet than mutual funds in 2025. With strong performance, flexible investment options, and growing investor trust, NPS is proving to be a smart, stable way to build your retirement corpus.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.  

 Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.