Should I invest in NPS or mutual funds via SIPs?

I will be starting my job next month and I am free of any debt. I will have a disposable income of Rs 10,000. I can invest this amount. Please suggest me an investing profile. Should I go with NPS or ELSS and mutual funds through SIPs? I would also like to get a financial advisory service, please suggest me some if possible.

--Deepan Chakravarthy

Your investment choices are dictated by your goals, horizon and risk profile. Are you looking for a government-backed product to plan with exclusive tax breaks (Rs 50,000) for your retirement? If yes, National Pension System (NPS) is ideal for you. Do remember, you can only withdraw 20 per cent of the corpus from NPS before you are 60 years old. You must use 80 per cent of the corpus to buy an annuity. At 60, you can withdraw 40 per cent of the corpus tax-free, use 40 per cent of the corpus to buy annuity. You have two choices before you to utilise the remaining 20 per cent of the corpus: withdraw and pay tax or use it to buy an annuity. If you are okay with these features, you can go ahead and invest in NPS for retirement.

If you are not happy with the restrictions in NPS and want to manage your investments yourself and want more freedom to decide how to use your corpus, you can consider using the mutual fund route. You can use Equity Linked Savings Schemes (ELSSs) and other equity mutual funds to create your retirement corpus. ELSS qualifies for tax deduction under Section 80C of the Income Tax Act, but there is no exclusive tax deduction like NPS available to them.

Here is a list of our recommended ELSSs.

Here is our recommended SIP portfolios.

(If you have any mutual fund queries, message ET Mutual Funds on Facebook. We will get it answered by our panel of experts.)