The Case For MFs In Financial Planning

The tax saving season has arrived one month early this time as many investors have started their search for tax-saving instruments now, instead of waiting for the month of January. In the already crowded space, the recent move by the government to ease some of the constraints imposed on NPS (National Pension Scheme) earlier has increased one more contender. For starters, the government has introduced some changes that have made the NPS less taxing. Therefore, it has raised the age-old question again whether NPS is a better alternative to mutual funds when it comes to achieving the twin goal of tax saving and financial planning.

Before jumping the gun, take a while to understand the nuances of investing in NPS. The pension scheme still do not enjoys the E-E-E (Exempt- Exempt- Exempt) status. Moreover the scheme lacks the flexibility that a mutual investment can give you. First, with the NPS, you have to invest till the age of 60 regularly. Besides, in case of any emergency, you can withdraw only 20 per cent of the corpus. These are serious restrictions that rob you of the flexibility you need while doing your financial planning. In addition to this, at the time of your retirement, 40 per cent of the corpus should go into buying annuity, which may not be the best thing to do.

Therefore, notwithstanding the recent changes in the NPS, mutual funds still have an upper hand when it comes to your financial planning. NPS is useful for those who still believe in government-sponsored products to plan for their golden days. However, for the rest, mutual fund can still serve them better.

On the theme of tax-saving, in our cover story, we have recommended 5 best tax-saving mutual fund schemes. You can pick and choose couple of them, according to your needs and risk appetite.