Taking a financial decision could be confusing with the number of investment avenues available in India, such as mutual funds, stocks, ETF, FD, PPF and many more. National Pension Scheme (NPS) and Fixed Deposts (FD) are two such investment options that could help you grow your wealth. Both have unique features and benefits that are essential to make an informed decision. In this blog, we will explore NPS vs FD, providing an in-depth comparison and analysis to help you choose the right financial path for your needs.

What is a Fixed Deposit?

A Fixed Deposit is a low-risk investment option offered by banks and financial institutions. It involves depositing a specific sum of money for a fixed tenure, and in return, the investor receives a fixed interest rate. FDs are known for their stability and safety, making them an attractive choice for risk-averse investors.

Benefits of Fixed Deposits

  • Guaranteed Returns: FDs offer assured returns, as the interest rate remains constant throughout the investment period.
  • Capital Preservation: The invested amount is safe and secure, protected from market fluctuations.
  • Flexible Tenure: Investors can choose the tenure of their FDs based on their financial requirements.
  • Regular Income: FDs provide an option for periodic interest payouts, ensuring a steady income stream.

What is NPS?

The National Pension System (NPS) is India’s government-regulated retirement savings scheme. It was introduced to encourage systematic savings and provide financial security during retirement. NPS operates on a defined contribution basis, where the investor contributes regularly towards the retirement account.

Benefits of NPS

  • Market-Linked Returns: NPS investments are distributed across various asset classes, allowing the potential for higher returns.
  • Tax Benefits: Contributions made towards NPS are eligible for tax deductions under Section 80C and 80CCD(1B) of the Income Tax Act.
  • Retirement Corpus: NPS helps build a substantial retirement corpus, ensuring financial independence during the post-retirement years.
  • Flexibility: Investors can choose between different NPS fund managers and allocation options based on their risk appetite.


AspectNational Pension System (NPS)Fixed Deposits (FDs)
Type of InvestmentRetirement savings and investment planFixed-term investment with banks/institutions
PurposeProvides retirement corpus and pension incomePreserves and grows the principal amount
ReturnsMarket-linked, potential for higher returnsFixed interest rates, lower returns
RiskModerate to high, subject to market fluctuationsLow risk, not affected by market changes
TenureLong-term investment, locked in until retirement ageFixed tenure varies from a few months to years
Tax BenefitsTax deduction under Section 80C and additional 80CCD (1B)Tax deduction under Section 80C
Taxation on ReturnsPartially taxable at maturity, lump sum or annuity withdrawalFully-taxable as per the investor’s income tax slab
LiquidityPartial withdrawals are allowed after certain yearsPremature withdrawals may attract penalties
Annuity OptionCompulsory purchase of an annuity for a portion of the corpusNo annuity purchase required
FlexibilityChoice of investment allocation between equity and debtFixed interest rates, no allocation choice
Investment LimitationsNo maximum limit on investmentDepends on bank/institution policies
Flexibility of DepositsRegular contributions with the flexibility to changeFixed deposit amount with no changes allowed
Government InitiativeRegulated and administered by the Pension Fund Regulatory Authority of India (PFRDA)Not government-regulated or sponsored
Please note that the information provided in the table is for general understanding and may be subject to change based on government regulations and financial institutions’ policies. It is always recommended to conduct thorough research and consult with financial advisors before making any investment decisions.

NPS vs FD – Key Differences

1. Returns on Investment

FDs offer fixed returns, usually lower than NPS’s potential returns. While NPS returns are market-linked, they are subject to market fluctuations and may carry higher risks.

2. Tax Implications

NPS provides tax benefits on contributions and partial withdrawals, making it a tax-efficient investment. On the other hand, the interest earned from FDs is taxable as per the individual’s income tax slab.

3. Liquidity

FDs typically have a fixed tenure, and early withdrawals may attract penalties. NPS, however, offers some flexibility, allowing partial withdrawals after a certain investment period.

4. Retirement Planning

NPS is specifically designed to build a retirement corpus, making it an ideal choice for long-term financial goals. FDs, while secure, may provide a different level of financial security during retirement.

Which is Better, NPS or FD?

The choice between NPS and FD depends on individual financial objectives and risk tolerance. If you seek stability and guaranteed returns, FDs may be more suitable. However, NPS could be the better option if you aim for higher returns and tax benefits.

It is essential to diversify your investment portfolio to balance risk and returns. A combination of NPS, FDs, and other investment instruments can help create a well-rounded and secure financial plan.


In conclusion, both NPS and FDs have their merits and are popular investment choices in India. NPS offers the potential for higher returns and tax benefits, while FDs provide stability and guaranteed income. It is crucial to assess your financial goals, risk appetite, and investment horizon before deciding. Seeking advice from a financial advisor can also be beneficial in creating a personalised investment strategy.


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