National Pension System: Investing in NPS? These are the choices you have

National Pension System (NPS): There are many retirement plan instruments available these days. But of these options, National Pension System (NPS) is gaining widespread popularity because of it being a government-sponsored retirement planning instrument, which is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). Under the NPS account, an individual is given an option to set allocation to asset classes including government securities, equity market instruments, corporate debt and alternative investment funds, thereby, enabling him.her to set his or her own choice for fund allocation. 

According to information given on PFRDA's website - pfrda.org.in, the subscriber can exercise this option by selecting an "active" approach to allocate money. NPS offers a number of funds and investment options, and the subscriber gets two types of investment modes - active and auto.

The website further states that if the subscriber does not want to exercise the option of setting his/her own preference, the money is invested under the "auto choice" mode. In the auto option, the money is invested in various type of schemes according to the subscriber's age. Here are key facts about NPS investment modes: Active and Auto choice:

Active choice

Under this choice, an individual is given the option to invest in NPS to the available asset classes is the “auto” option. The subscriber can actively decide as to how his or her NPS pension wealth is to be invested in different asset classes, according to the PFRDA website. Thus, the subscriber can distribute his/her pension wealth across asset classes including E (predominantly equity market instruments), C (fixed income instruments other than government securities), G (government securities) and A (alternative investment funds), subject to conditions as may be prescribed by the regulator, it says.

Further, the website informs that the subscriber can choose to invest the entire pension wealth in classes C or G, a maximum of 50 per cent in class E, and a maximum of 5 per cent in class A. 

Auto choice

Those subscribers who do not have adequate information to manage their investments can use this NPS option. Under this choice, subscribers' funds are invested according to the “auto” option if they do not exercise the choice to set the asset allocation.

According to the PFRDA, the proportion of funds invested across three asset classes E, C and G, is determined by a pre-defined portfolio, which changes according to the subscriber's age, with the investment in E decreasing, and increasing in C and G with the age of the subscriber.

Under the auto choice, subscribers should know that National Pension System offers three life cycle funds, according to the PFRDA website: 

1. LC75- Aggressive Life Cycle Fund has exposure in equity starts with 75 per cent till age 35 and gradually reduces with the subscriber's age.
2. LC50-Moderate Life Cycle Fund has exposure in equity starts with 50 per cent till age 35 and gradually reduces with the subscriber's age. 
3. LC 25-Conservative Life Cycle Fund has exposure in equity starts with 25 per cent till age 35 and gradually reduces with the subscriber's age. 

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The default option under auto is Moderate Life Cycle Fund, the website adds.