If you have the opportunity to invest in any scheme for the very long-term – say 15 years or more – it is quite natural to compare the returns with mutual funds, which offer significant returns with a significant degree of safety of funds. The NPS Vatsalya scheme, too, is bound to trigger such benchmarking among investors since one is encouraged to invest regularly in it for 18-20 or more years.
While a long lock-in period such as 18 years (NPS Vatsalya) or 15 years (PPF), can ensure “forced savings and investment”, and long-term compounding, it could also signal a sacrifice of returns by someone who would invest in equity-oriented mutual funds.
The liquidity-return question
Investment strategist and director Wishlist Capital, Nilanjan Dey, has a pertinent question. “Any scheme that runs into 15 or 18 years indicates a lack of liquidity, which is a significant element that many investors keep in mind. This is exactly where mutual funds score. Equity funds offer optimum liquidity with rates of returns that can easily beat such instruments (NPS etc) which mandatorily invest a significant part of their corpus into debt instruments.”
Variety of funds
There are several types of equity funds that perform under different market conditions to build capital effectively in the long term. While there are theme funds to offer spectacular growth for a limited period, there are diversified, balanced, flexi-cap funds that are designed to provide high returns for a long period of time.
The current bull run in the equity markets is constantly attracting more and more people to channelise funds from their income and even from bank deposits into the mutual fund market. A large part of it is fuelling the continuous record inflow through the SIP (Systematic Investment Plan) into the mutual funds.
Very few MFs with lock-ins
Mutual funds, as a rule don’t have lock-in periods. Only 3 types of funds have lock ins. These are ELSS funds, (Equity-linked Savings Schemes) which have 3-year lock-in periods, children funds and retirement funds which have 5-year lock-in periods each.
The savings-cum-pension flavour is a prominent feature in NPS Vatsalya scheme which the government is emphasising. While launching the scheme in New Delhi on September 18, Finance Minister Nirmala Sitharaman focussed on the way it will inculcate a culture of savings and investment from a very early age.
One could easily treat the extremely long-term investment possibility in recently-rolled out NPS Vatsalya through the glass-half-full-half-empty prism, the risk-taking ability of the investor tilting the verdict one way or the other. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
