Understanding Auto and Active Investment Choices in National Pension System
NPS offers you the flexibility to select the investment strategy as per per your choice. There are 4 asset classes and 2 investment strategies available to you under NPS as shown below.
Asset Classes (Funds) under NPS
There are 4 asset class options under NPS – Equities, Corporate Bonds, Government Securities and Alternative Investment Funds. These are also known as E, C, G and A asset class respectively. Each asset class has its risk profiling and exposure as shown below:
| Fund Options | Risk Profiling | Exposure Limit |
|---|---|---|
| Equities | High | Up to 75% |
| Corporate Bonds | Moderate | Up to 100% |
| Government Securities | Low | Up to 100% |
| Alternate Investment Funds | Very High | Up to 5% |
Investment Strategies
Based on your risk appetite, financial knowledge and future goals you can choose the percentage you want to allocate and invest in these four asset classes by selecting one of the two investment approaches available under NPS.
Active Choice
With Active Choice strategy, you get the flexibility to decide your own asset mix across 4 asset classes E, C, G and A. You should select Active Choice if you want to have complete control over your NPS investments and trust your financial understanding.
If you are up to 50 years of age, you can opt for equity exposure up to 75% after which the exposure to equity asset class will be reduced by 2.5% each passing year. Please click here to see the chart.
You are free to invest up to 100% in asset classes C and G. In the asset class A, maximum investment can be up to 5%.
Auto Choice
It is a convenient option to select if you want the risk associated with your investments to auto-adjust as you approach retirement and hence its also knows as Life Cycle Fund Option.
There are 3 Life Cycle Fund Options named as LC 75, LC 50 and LC 25 which are also known as Aggressive Auto Choice, Moderate Auto Choice and Conservative Auto Choice respectively.
Under Auto Choice mode, investments are done across three asset classes E, C and G as per your age. Please click here to see the chart.
Re-alignment of your portfolio under Auto Choice is a system driven activity and is exercised on your birthday each year. With age, the risk associated with your NPS account reduces to ensure that fluctuations in your accumulated corpus are avoided and you have a happy, secured retirement.
Active Choice
With Active Choice strategy, you get the flexibility to decide your own asset mix across 4 asset classes E, C, G and A. You should select Active Choice if you want to have complete control over your NPS investments and trust your financial understanding.
If you are up to 50 years of age, you can opt for equity exposure up to 75% after which the exposure to equity asset class will be reduced by 2.5% each passing year. Please click here to see the chart.
You are free to invest up to 100% in asset classes C and G. In the asset class A, maximum investment can be up to 5%.
Auto Choice
It is a convenient option to select if you want the risk associated with your investments to auto-adjust as you approach retirement and hence its also knows as Life Cycle Fund Option.
There are 3 Life Cycle Fund Options named as LC 75, LC 50 and LC 25 which are also known as Aggressive Auto Choice, Moderate Auto Choice and Conservative Auto Choice respectively.
Under Auto Choice mode, investments are done across three asset classes E, C and G as per your age. Please click here to see the chart.
Re-alignment of your portfolio under Auto Choice is a system driven activity and is exercised on your birthday each year. With age, the risk associated with your NPS account reduces to ensure that fluctuations in your accumulated corpus are avoided and you have a happy, secured retirement.
Flexibilities under NPS
NPS offers you following flexibilities in terms of managing your funds:
- You can have different Investment Choice (Auto / Active) for Tier I and Tier II NPS account
- You can change the Asset Mix and Investment Choice twice in a financial year for both Tier I and Tier II NPS Account
- You can change the Pension Fund Manager once in a financial year.
