NPS does not allow withdrawals till Retirement at 60

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Investors may want to use the money to meet other financial goals as well.

The rigid rules for withdrawals reduce the attractiveness of the NPS. During the productive years of a person, there are multiple occasions where she might need money. At this stage, inaccessibility to one's own funds curbs a person's financial freedom.

Of course, NPS does give an investor the option to exit before 60. But 80% of the accumulated corpus will have to be put in an annuity and only 20% will be available. The investor can also choose to make partial withdrawals of up to 25% of the contributed amount. But there are restrictions here as well. Partial withdrawals can be made only thrice and only for specified reasons. There should also be a gap of at least five years between two partial withdrawals.

This is very restrictive. A person will not be able to withdraw money for her daughter's marriage if she had made a withdrawal less than five years ago for her education. The withdrawal rules should be aligned with real-life situations to make them more meaningful.  

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