Mutual Funds in India are legally considered as assets of an individual. In case a person takes any loan and failed to repay then banks through an attachment order by the court can claim your assets such as land, building, shares including your mutual funds, etc. Generally, if your assets are under an attachment order, they cannot be used or sell.

NPS (National Pension Scheme) is regulated by the government. The Parliament of India has placed various financial assets special legal protection and hence cannot be attached by any court. NPS along with PPF and EPF has also been kept under special legal protection, therefore, cannot be attached, except for 25% balance.

Therefore, mutual funds are legally considered as same as your other assets and hence have the same legal implications as that of that other assets. While, NPS is an asset for you, but is legally protected and hence is safe and cannot be attached legally.