Should I invest in NPS?

NPS or National Pension Scheme is a voluntary scheme, where one should be contributing to build the retirement corpus until the age of 60 and beyond that derives pension from the acculmulated corpus. Hence, it's fundamentally a retirement product.

During the accumulation phase, an individual keeps investing till the age of 60. At the age of 60 when he/she retires, then he is elligible for withdraw upto 60% from the corpus as lumpsum. For the balance corpus which is at-least 40%, he must buy an annuity that comes to him as monthly pension.

Now, the question comes whether I should start putting my money in NPS or not? Well, I will try to answer that question, but a little later in the post. Before that let's list down what are the pros and cons of investing in NPS.

Pros

• This is one product that has least cost of maintenance/management amongst all the equity products available (MFs, ULIPs etc.). Just 100 would be charged as management fees for managing a fund of 10 lakhs. 
• If you want to save for retirement and do not want to bother with balancing of your asset allocation over the years, then this is the product for you. Life stage option in NPS automatically moves your assets from equity to debt as you start aging. 
• Tax benefit 
• While contributing, the contribution in excess of 1.5 lakhs can be claimed as deduction against section 80CCD(1B)
• At retirement, the 40% of the accumulated retirement corpus will be completely exempted from Tax

Cons

• The funds get locked till the day you retire, which is the age of 60. You might be in your early twenties or thirties and all your money gets blocked till you are 60. 
• The max investment in equity is only 50% of the total contribution. Considering retirement for many would be the long term goal well over 10 years for many. There need to be an option to invest almost 100% in equity. That's where the investing directly in equity funds for retirement would be better. 
• At the age of retirement you must buy annuity for atleast 40% pf the corpus. That may not be the most efficient investment from return perspective at that point in time, but you have no choice. Also the pension from annuity is taxable in your hands for that year. A systematic withdrawal plan from an equity fund would be much better in that case, and note these withdrawals from equity funds are tax free as they are coming from equity funds after 1 year of investment. 

Hence, my take here would be, you would be better off investing directly in equity funds via SIP approach. When you are nearing 60s, 

• you should start systematic transfer plans from these equity funds into aggressive/conservative debt oriented funds. 
• And start a systematic withdrawal plan from these debt funds

What do you think? Do you see anymore advantages of NPS? Do you think you would still want to buy an NPS?

PS: There are chances that govt may start taxing the returns from equity funds which today are completely tax free after 1 year. If that happens we may have to review the attractiveness of the NPS with new scheme of things. However, till then i would say avoid NPS.