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I'm investing in large-cap funds and NPS tier-1. Should I move all of it to NPS tier-1?

NPS is a good product and its ultra-low cost is one of its advantages but it comes with certain restrictions, points out Ashutosh Gupta

I am investing in a few actively-managed large-cap funds and also in NPS Tier-I for my retirement corpus. I find their returns to be almost similar. Should I move all my money to NPS Tier-I (75:25) only?
- Ramesh

I would suggest you keep a fair mix of both mutual funds as well as NPS in the portfolio. Of course, NPS is a good product and its ultra-low cost is one of its advantages but it comes with certain restrictions. It is fairly illiquid till the time the investor turns 60. There are certain circumstances under which NPS provides liquidity in the interim but it comes with a lot of conditions. So as I said, for all practical purposes, one has to assume the NPS allocation in his portfolio to be illiquid till the time one attains the age of 60.

Even at the age of 60 when one redeems from NPS, at least 40 per cent of the corpus has to be necessarily used to invest in an annuity product. So that adds another restriction to what you can do with your accumulation in NPS.

In contrast to that, mutual funds do not come with any such restrictions. They provide superior liquidity and also there are no conditions on the way you need to utilise the redemption proceeds or the accumulation. So I would suggest that you keep a fair mix of both in your portfolio. To lower the cost, since you are anyway investing in large-cap funds, you can start investing in index funds instead of actively-managed funds and that could lower the cost even on the mutual fund side.

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