What Is Nps? Db Active Nps Vs Auto Nps

By Author: mani
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The National Pension System (NPS) is the country's first voluntary long-term investment plan. It is governed by the PFRDA. This pension plan is available to all employees, public and private. NPS is also open to employees from underserved industries.

Investing in NPS is extremely advantageous for investors. NPS is a flexible scheme in which the investor determines the amount to invest. Investing options are also simple and straightforward.

NPS contributions can also be used as a tax deduction by the investor. Furthermore, NPS investments allow you to exit early and withdraw a portion of your corpus at the time of exit. As a result, even a tiny NPS contribution can help you secure your future.

NPS provides us with two choices of investment.

Active Choice
Auto Choice

NPS Active Choice:
In NPS, there are eight fund managers. They are HDFC pension fund, UTI retirement solutions, Aditya Birla sun life pension management, SBI pension funds, ICICI Prudential Pension Funds Management, LIC pension fund, Reliance pension fund, and Kotak Mahindra pension fund. A subscriber can choose ...
... his/her NPS fund manager from these 8 and if he/she wishes to design their portfolio on their own, they have to choose Active choice in NPS.

In NPS, there are different asset classes to diversify your portfolio. It minimizes the risk of investment. In active choice, you will choose the asset classes in which you want to invest.

The asset classes in NPS are as follows,

Class E(Max allocation is 75%)
The investment is in the equity market investments with a provision of high risk-high return.
Class C(Max allocation is 100%)
The investment is made in fixed income-bearing instruments issued by corporate houses with a medium risk-medium return.
Class G(Max allocation is 100%)
The investment is made in Government securities and bonds with a low risk-low return.
Class A(Max allocation is 5%)
The investment is made in Real Estate Investment Trusts (REITs), Mortgage-backed Securities (MBS), Infrastructure Investment Trusts (InvITs), etc.

The overall asset allocation in the active choice should be equal to 100%.

NPS Auto choice:
The auto choice of NPS is suitable for the subscriber who wants an automatic diversification of investment. In the auto choice, the fund managers will choose the asset classes based on the risk preferences and age of the subscribers. In simple words, auto-choice works on the basis of a lifecycle-based approach. The lifecycle-based approach starts with a high equity asset percentage at the subscriber’s young age and gradually decreases to reduce the market risk.

In the auto choice, there are three life cycle(LC) modes. They are,
Aggressive mode (LC 75) - Maximum equity investment is 75%
Moderate mode (LC 50) - Maximum equity investment is 50%
Conservative mode (LC 25) - Maximum equity investment is 25%

Age
Aggressive
Moderate
Conservative
% of asset classes
% of asset classes
% of asset classes
E
C
G
E
C
G
E
C
G
Up to 35 years
75
10
15
50
30
20
25
45
30
40 years
55
15
30
40
25
35
20
35
45
45 years
35
20
45
30
20
50
15
25
60
50 years
20
20
60
20
15
65
10
15
75
55 years
15
10
75
10
10
80
5
5
90

In auto choice, class A is not available. If you are starting your NPS and you have a question of what to choose - Active or auto choice, go ahead with auto choice at first and after understanding the market and investment strategies, you can switch to active choice and design your own portfolio.

“Choose NPS and invest wisely to create a happy future.”

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Hey there everyone! I'm mani I am a content writer I love writing and hunting for interesting stories I Hope you enjoy reading my articles and learn something new in the process