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Is a combination of ETF and NPS suitable for a low-risk investor?

Ashutosh Gupta explains the pros and cons of investing in ETF-NPS combination

For a low-risk investor saving towards retirement, would investing a fixed amount every month in ETFs and NPS be a good option? I plan to exhaust the Rs 2 lakh limit of 80C in NPS, and my time frame is 15 years.
- Nitin Dikshit

The short answer to the question is - yes, it is a viable option, and one can go ahead with it. Now let me explain the reasons for this. Firstly, 15 years is a reasonable enough time frame to build an equity-heavy portfolio, and with the combination of NPS and ETFs, it is very much possible. Apart from that, the big advantage that he gets with this portfolio is its low cost. The only nuance that he needs to keep in mind is that if he builds an equity-heavy portfolio using these instruments, it would still be volatile. The investment value would move up and down with the movements in the equity market. But that should not be a significant concern because he has time by his side. And I believe, over a 15-year horizon, he would still achieve better returns than any fixed-income alternative.

So that's a portfolio worth considering for him. Having said that, if the day-to-day volatility is something that unnerves him too much, he can look to increase the fixed-income allocation in his portfolio slightly. He can do that with his NPS allocation. The other important point I would like to bring to his notice is that with NPS, the investment would be locked in until his retirement. Even after retirement, he would have to invest at least 40 per cent of his accumulation to buy an annuity. So if he is okay with those two restrictions, he can go ahead with this portfolio.

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