Which investment option is better in NPS, active or auto

1. Active Vs Auto: Which investment option is better in NPS? National Pension Scheme (NPS) is a voluntary retirement investment option introduced by the Government of India that allows you to make a defined contribution to building a significant retirement corpus. NPS investment is governed by PFRDA (Pension Fund Regulatory and Development Authority). NPS is a long-term investment that comes with many attractive features and flexibility. It ensures your returns are optimized by giving you a choice to allocate your money to different asset classes such as equity, government securities, corporate bonds, and alternate assets. There are eight different NPS Pension Managers to choose from depending on your preference with two choices of investment options – active and auto. When it comes to investing in NPS online, it’s challenging to choose between auto and active investment strategies. As the name suggests, the auto choice is a default strategy that is based on your age and the allocation keeps changing with the life cycle. The active choice is a strategy where you need to actively take control of your investments. To understand which one is better and suitable for you, it’s important to know both the choices in detail. Following are the asset classes available for investment in NPS online Asset Classes Class E Class C Class G Class A Particulars Equity and related instruments Corporate debt and related instruments Government Bonds and related instruments Alternative Investment Funds include instruments like CMBS, MBS, REITS, AIFs, Invlts, etc. Auto Choice In an auto choice, your money is invested in Life Cycle Fund, which is a pre-defined portfolio that changes based on age. As your age increases, equity exposure automatically gets reduced. However, based on your risk appetite you can choose between the below three funds at the time of investing. ▪ LC75 – Aggressive Life Cycle Fund This fund starts with a higher percentage to equity of up to 75% which gradually decreases with age. ▪ LC50 – Moderate Life Cycle Fund If you are a moderate risk seeker, you can choose this fund as it keeps the equity exposure to a maximum of 50% which gradually reduces with age. ▪ LC25 – Conservative Life Cycle Fund If you are a conservative investor, you can choose this fund as the equity exposure is the lowest. Let’s take a look at the change of allocation with age: LC75-Aggressive Life Cycle Fund LC50-Moderate Life Cycle Fund Asset Allocation in % Class E C LC25-Conservative Life Cycle Fund Age Class E Class C Class G Class Class G Class E Class C Class G

2. Up to 35 years 40 years 45 years 50 years 55 years 75 10 15 50 30 20 25 45 30 55 15 30 40 25 35 20 35 45 35 20 45 30 20 50 15 25 60 20 20 60 20 15 65 10 15 75 15 10 75 10 10 80 5 5 90 Active Choice Based on your personal investment preferences and the risk appetite, you can actively decide allocation for your investments. You need to choose the NPS pension managers and choose how much to be allocated in each scheme of NPS pension managers. While investing in NPS online, you are allowed to select multiple asset classes under a single NPS pension manager. However, you need to keep the maximum equity allocation in mind as mentioned below based on your age. Age (in years) Up to 50 51 52 53 54 55 56 57 58 59 60 and above Maximum Equity Allocation 75% 72.50% 70% 67.50% 65% 62.50% 60% 57.50% 55% 52.50% 50% To sum up, if you have limited knowledge of financial planning and cannot allocate time for active management, you can auto option. If you are a seasoned investor, you can choose the active option. Whatever be your choice of investment in NPS online, NPS is a great option to save for your post-retirement life in a tax-efficient manner.