NPS vs Fractional Property: Where Should You Invest For Retirement?


Despite some limitations, NPS is a popular tool known for its affordability and great returns.

While many of us ignore the need for retirement planning, it is hard to overestimate the importance of giving you a dignified life in your sunset years. The potentially disastrous combination of a lack of income, rising inflation, and rising costs of living (including medical expenses) can be too much for even those with modest lifestyles. This explains the existence of several pension schemes offered by the Government of India as well as the private sector to help you secure your sunset years.

Basics of the NPS

The best known of these is the National Pension System (NPS), which was introduced by the Indian government for civil servants in 2004 and opened to the public in 2009. Under the system, subscribers are expected to contribute to a pension on a regular basis during their working years. Once you reach the age of 60, you can withdraw part of the amount (60%) while investing the rest of the corpus in a PFRDA approved retirement plan.

Despite some limitations, NPS is a popular tool known for its affordability and great returns. But there are other investment options on the market, such as partial ownership, which can offer more flexible returns and are equally suitable for retirement planning.

Partial ownership of commercial real estate

Fractional ownership is a relatively new concept in India that allows you to invest in commercial real estate such as office space and shopping malls. One of the lesser-known facts about the country’s real estate market is that the commercial segment experienced a sustained boom for several years prior to the pandemic. It is currently on a recovery path with good prospects supported by the underlying strengths of the Indian office market as well as the economy.

In recent years, the high cost of commercial real estate, often in the hundreds of billions of rupees, has prevented middle-class investors from reaping the benefits of high returns. But the partial ownership model opens up that space by allowing them to invest in part of the property, and at a much smaller ticket size.

Head-to-head comparison

While part ownership is not seen as a traditional retirement plan option, it can come in handy for getting good returns and flexibility. A head-to-head comparison between NPS and fractional ownership suggests why the latter option might be more prudent.


Liquidity is an important factor when investing. Since NPS is a typical pension instrument, the investment is blocked until the age of 60. Individuals who for whatever reason need cash before the due date can withdraw a maximum of 25% of their corpus. Faction ownership is more flexible in this regard as there is no lock-up period and no withdrawal limit.


The fractional ownership model offers more stability compared to the NPS. Investments in class A commercial properties, which are characterized by high quality tenants, long rental periods (usually seven years) and airtight contracts, usually offer stable returns over long periods of time. In contrast, a certain percentage of an NPS investment is dependent on the development of the stock market.

Returns and capital value appraisal

NPS has a track record of delivering good returns in the 9-12% range. In comparison, the average rental yield for commercial properties is 9%. In addition, depending on the location factors, commercial properties experience an increase in value of 7-16% per year. This double benefit of rental income and steady capital growth outweighs the returns on the NPS.


NPS offers significant tax benefits in terms of investment, income, and term, although the income from retirement plans is taxed. Although the partial ownership income does not have any tax breaks, it is still cheap compared to the NPS. The combination of rental income and capital appreciation tends to outweigh the tax benefits on NPS, making partial ownership a better choice.

Choosing the best option

While partial ownership isn’t a traditional retirement option, it can provide healthy social security to protect you in old age. The recent history of commercial real estate investments in India shows that it brings relatively high and stable returns. Adding it to your pension portfolio along with other instruments can be a wise decision.

(By Shiv Parekh, founder of hBits)

Disclaimer: These are the author’s personal views. Readers are advised to consult their financial planner before investing.

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