We will have to wait and see what happens to ELSS after DTC is implemented. At the moment, it does not look promising. I think the government missed a trick. Along with DTC and SEBI removing distributor commissions on MF, will result in lower investments. With no tax saving incentives and a dwindling distributor network will hamper growth in mutual funds. I suspect at some point, the finance ministry will come up with reactionary measures to sustain retail investments in mutual funds. In the meantime tax saving investors have a problem. Where the put the money that they normally set aside for ELSS?
I think NPS cannot be compared to pure equity funds, its closer to balanced or debt funds in nature.
Your investment in NPS depends on your investment outlook. If you are looking at a retirement plan then it is a viable alternative. If you want money in a few years that NPS is not for you. Couple of other points with NPS is that they have very very low expense ratios which translates to better investment returns over extended periods for investors. One of the reasons for such low expense ratios is that NPS will invest index funds (the portion of your investment that is placed in equities). The bad news is that it is limited to a max of 50% of your NPS fund value.
The disadvantage with NPS Tier I is that you do not have access to your funds until you are closer to retirement. Even then a minimum of 40% should be set aside for annuity.
An important area that was addressed by revised DTC is that taxation on withdrawal of funds was removed. This was a significant change as it now makes NPS a thousand times more attractive that ULIPS.
All in all, its a great investment avenue for long term investors. It cannot be compared to ELSS funds though.
Cheers
lonsharim
