The National Pension Scheme in India is the most commonly accepted pension product. The Central Government launched this pension program as a social security initiative for India’s citizens. The scheme helps to adequately plan the retirement period with regulated and safe market-oriented returns providing a long-term saving avenue.

The pension plan provides an advantage over the fixed income schemes and also enables tax benefits up to 2 Lakhs under Section 80C. The lock-in period is usually till the retirement age, but premature withdrawals are allowed in specific emergencies. You can even open an NPS account online to manage things at your convenience.

The scheme facilitates you to select the funds either with an active choice or auto choice. The active choice allows you to determine the percentage of asset allocation in the funds. Your percentage of asset allocation is based on your profile and risk assessment requirements in the auto choice.

Let’s delve into the details of the National Pension Scheme application.

Investment Options in NPS Schemes:

Active Choice NPS

The active choice NPS is the latest investment scheme that offers you the flexibility to design your own investment portfolio. The portfolio allocation of funds can be based on your risk appetite. The fund allocation is usually split among the four available asset classes.

Investment Options in NPS Schemes

Equity (E)

The investments are predominantly in the equity market investments with a provision of high risk-high return. In the short-term, the profile is usually volatile but offers a genuine wealth creation potential in the long term.

Corporate Debts (C)

Here the investments are typically made in fixed income bearing instruments issued by corporate houses. The profile carries a medium risk-medium return for investors.

Government Securities (G)

Fund investments purely invest in Government Securities and Bonds. The funds are categorized as low risk-low returns.

Alternative Investment Funds (A)

Under this asset class, the investment is generally made in Real Estate Investment Trusts (REITs), Mortgage-backed Securities (MBS), Infrastructure Investment Trusts (InvITs), etc.

The active fund enables investors to maintain up to 75% in equities and 5% in alternative investment funds till 50 years of age. Even if you aggressive with your investment, once you turn 50 years, the Equity percentage starts to decline by 2.5% each year, making it 50% by 60 years.

The higher equity allocation is mainly suitable for subscribers of young age. A conservative investor, on the other hand, can invest entirely in Corporate Debts and Government Securities.

Auto Choice NPS

The auto choice NPS works best for passive investors who look for automatic allocation of money across the available asset classes. The money allocation starts with a heavy equity portfolio during young age and automatically reduces the equity instruments with the subscriber approaching retirement age.

 Aggressive Life Cycle Fund

The maximum cap on equity allocation comes with 75% to 35 years. After this, it reduces to 15% by the age of 55 years.

Moderate Life Cycle Fund

The maximum limit on equity allocation is 50% until 35 years. It decreases to 10% by the age of 55 years.

Conservative Life Cycle Fund

The upper limit of equity allocation is 25% up to the age of 35. It reduces to 5% by the age of 55 years.

These are the three options available to the subscribers in the auto choice segment. The investments are auto re-balanced for investors every year. The investment allocation is available for Equity, Corporate Debts, and Investment Securities.

Wrapping Up

The new-age pension saving scheme of NPS helps you to prepare for your retirement phase effectively. Based on risk appetite and financial needs, you can choose a good NPS scheme for you.