NPS investment options: All you need to know about Active and Auto choice
NPS subscriber has to first choose the pension fund manager and then chose the investment option.
National Pension System or NPS gives the option to invest in four asset classes namely- equities, government securities, corporate debt and Alternative Investment Funds or AIFs. An NPS subscriber has to first choose the pension fund manager and then chose the investment option. A subscriber can choose from- Active option or Auto option to invest in the above mentioned asset classes. Read on to understand both the options in detail:
Active choice: This option gives subscriber the right to design his own portfolio by specifying his contribution to the asset classes as per his discretion. The subscriber has to also provide the percentage allocation to each asset class. The assets classes are as below:
- Asset class E - Equity and related instruments
- Asset class C - Corporate debt and related instruments
- Asset class G - Government Bonds and related instruments
- Asset Class A - Alternative Investment Funds including instruments like CMBS, MBS, REITS, AIFs, Invlts etc.
Auto choice has some rules for percentage allocation to the four asset classes. The total allocation across E, C, G and A asset classes must be equal to 100%. A subscriber up to 50 years of age can invest only up to 75% of his portfolio in equities which is Asset class E. The maximum equity allocation allowed under the Active choice keeps on reducing as the subscriber gets older as below (see Table 1). A subscriber cannot invest more than 5% of the portfolio in AIFs.
Equity Asset Allocation Matrix under Active Choice of NPS
Auto choice: If an NPS subscriber does not want to design his own portfolio, he can opt for the auto choice option which uses the subscriber's age as the criteria to allocate the portfolio to different asset classes. As age increases, the individual’s exposure to equity and corporate debt tends to decrease. Depending upon the risk appetite of the subscriber, there are three different options available within ‘Auto Choice’ – Aggressive, Moderate and Conservative. The details are as below:
- Aggressive Life Cycle Fund (LC75) : This Life cycle fund provides a cap of 75% of the total assets for equity investment. The exposure in equity investments starts with 75% till 35 years of age and gradually reduces as per the age of the subscriber as below:
- Moderate Life Cycle Fund (LC50): This Life cycle fund provides a cap of 50% of the total assets for equity investment. The exposure in equity investments starts with 50% till 35 years of age and gradually reduces as per the age of the subscriber as below:
- Conservative Life Cycle Fund (LC25) : This Life cycle fund provides a cap of 25% of the total assets for equity investment. The exposure in equity investments starts with 25% till 35 years of age and gradually reduces as per the age of the subscriber as below:
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First Published:8 Aug 2020, 01:21 PM IST
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