NPS, i.e. National Pension System, provides you financial security after retirement so that you can meet your needs and do not have to reach out to anyone. National Pension System (NPS) was started in January 2004 for government employees, but in 2009, it was opened for all sections. NPS is beneficial in creating a big fund in the long term and in arranging pensions after retirement. This is the reason why investment in NPS is continuously increasing.

The National Pension System allows people to invest in corporate bonds, government securities or equity. If you are an Indian citizen between 18 to 70 years old, you can invest in NPS. Under this scheme, you can regularly contribute during your working period. After this, at 60 years, you can withdraw a part of the accumulated amount and get regular pension income from the remaining amount.

NPS allows subscribers to invest in multiple assets such as equity, corporate bonds and government securities. NPS gives two options to the subscriber to invest in these assets: auto and Active Choice. An auto choice is an option in which the subscribers provide the fund manager with the freedom to invest their money wherever they want. Whereas, in Active Choice, the subscriber tells in which assets his money will be supported.

Auto choice option

There are three funds in NPS for auto allocation (NPS Auto choice option). It is a Default Moderate Life Cycle Fund. In this, the maximum equity investment can be made at only 50 per cent. Another conservative life cycle fund that allows only 25% investment in equities. The third is the Aggressive Life Cycle Fund, choosing which you can invest up to 75% equity.

Active choice option

By choosing the Active Choice Option (NPS Active Choice Option), you can invest your capital in equity, bonds or other investment instruments of your Choice. The investment limit in equity is 75% of your total invested capital. The fund manager gives you information about all the schemes in this option. You have to choose among them yourself.

Which option is right for you?

If you are confused about about whether to choose between the auto or active, then the auto allocation is proper for you. This option will help the subscribers to distribute their money equally among the available assets. After some time, when the subscribers start understanding the market and know about investing, they can manage their portfolio by choosing Active Choice Plan.

Keep in mind three things for active Choice

If you want to choose the active option, then three things should be considered. First, can they do the proper capital allocation by valuing different asset classes? Secondly, if the Subscriber has investments elsewhere and NPS is only a part of his overall portfolio, he can go for Active Choice. Thirdly, if you need to change the NPS portfolio in the future, you will do so. If you consider yourself proper on these three conditions, you should choose the active option for investing in NPS.