Active Or Auto Investment Strategy For NPS- What Should You Choose?

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    NPS is a market linked investment product that enables investors to accumulate corpus for retirement years. With as less as Rs. 1000 annually, investors can begin to contribute towards the scheme and on reaching 60 years can buy an annuity product for providing periodic pay-out with minimum 40% of the corpus.

    Further down, depending on your financial know-how and investment approach, you can zero-in either of the two investment strategies i.e auto or active investment option for investing in NPS.

    Before getting into the details of the two strategies, let us first know that NPS offers 4 investment schemes or funds:

    Investment schemes

    Investment schemes


    1. Scheme G- Amount under this scheme is invested in government securities
    2. Scheme C- Investment made in fixed income instruments other than G-sec
    3. Scheme E- Investment in equities
    4. Scheme A- Investment in AIFs or alternative investment funds

    Auto choice:

    Auto choice:

     If you wish to have a passive approach in relation to your NPS investment, then auto option is just right for you as in the given option funds are deployed to different asset classes based on the life cycle of the individual investor. Note, that of 4 funds or schemes available, funds in the auto choice are invested only in Scheme G, C and E i.e Scheme A finds no place in the Auto mode.

    So, in the younger years, more funds are allocated to equity and towards maturity less of exposure is taken in them and the scheme thus becomes more concentrated around Scheme G instruments. This lessens risk while optimizing returns for the investor. For providing more flexibility to investors, the auto choice provides three options conservative life-cycle approach, moderate life-cycle and aggressive life cycle exposure which vary in the degree of exposure to equity class at various life-stages

     

    Active choice:

    Active choice:

    Of the 4 investment schemes, investors can choose between the different options together with the proportion for each of them. Currently, a limit has been set forth in respect of investment in Scheme E and Scheme A which is 50% and 5% respectively i.e not over 50% and 5% funds can be deployed towards equity or AIF category.

    Also, note that there are 8 pension fund managers currently and investors can choose either one of them. While the asset allocation is allowed to be changed twice a year, investors can switch to a different pension fund manager only once.

     

    Conclusion

    Conclusion

    So, if you want to better control your investment  in NPS and have the required acumen to do so, you can go with the active option. As else, auto mode will also not falter on return parameter as its based on the basic life-cycle based investing model.

    Read more about: nps active option auto option
    Story first published: Monday, March 12, 2018, 16:23 [IST]
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