Do We Get Investment Options in the National Pension Scheme

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The National Pension Scheme or NPS is a system designed to reform pension in India and encourage systematic savings among the employees of the center, state, and common citizens. This scheme is voluntary and is open to all Indian citizens. It allows a lot of flexibility which makes it an attractive investment option. It can help you in planning your retirement. The subscribers of NPS have to choose the Pension Fund Manager (PFM) and then a scheme preference while registering with the CRA system. Yes, you will get investment options in the National Pension Scheme. There are 2 investment options offered in the NPS to choose from.

Investment Options 

The National Pension Scheme or NPS offers two choices to make investments in four different classes of assets and they are equity, government securities, corporate debt, and alternative investment funds. The first investment choice is a default auto choice option. This option is for those who find it hard to decide on investing. The second option is an active choice option of investment. This is suitable for those who wish to take charge of their investments themselves. 

  • Auto choice (Lifecycle Fund) 

This option is for those subscribers who do not have adequate knowledge to manage their NPS investments. In this type of investment option, the investments made will be in the form of a life-cycle fund. There is a pre-defined portfolio that will determine the proportion of funds in the three classes of assets. this option is the best choice for someone who wants to reduce exposure to more risky investments. As the age of an individual will increase the exposure to equity and corporate debt would tend to decrease. There are three options available in the auto choice for the subscribers depending upon their risk-taking ability. 

  • Aggressive life cycle fund

In the aggressive life cycle fund, at the age of 35, the maximum exposure of equity is 75%

  • Moderate life cycle fund 

In the moderate option, the maximum exposure to equity is 50%

  • Conservative life cycle fund

In this option, the maximum equity exposure is that of 25%

  • Active Choice (Individual Fund)

This type of investment options gives more flexibility and autonomy to the subscriber. Here he or she has a right to decide as to how their contributions will be invested. It is completely based on the subscriber’s personal preference. The subscriber has to provide the Pension Fund Manager, Asset Class as well as the percentage allocation which is to be one on each scheme of the PFM. It is important to note that there are four classes of assets from which the allocation is to be specified and they are: 

  • Asset Class E – Equity and related instruments
  • Asset class C- Corporate debt and related instruments
  • Asset Class G – Government Bonds and related instruments
  • Asset Class A- Alternative Investment Funds including likes CMBS, MBS, REITS. AIIFs, etc.

The subscribers are allowed to select multiple Asset Classes under a single Pension Fund Manager. Up to fifty years of age, the maximum allowed investment on equity is 75% of the total asset allocation. From the age of fifty-one years and above the maximum allowed investment of equity will depend upon an equity matrix. The percentage contribution value should not exceed 5% for the alternative investment Funds and the total allocation across E, C, G, and A, Asset Classes must be equal to a complete 100%.

In conclusion, it can be said that the subscribers do get investment options in the NPS. The subscribers get the flexibility to even select from amongst the seven Fund Managers (PFM). Similar to the Fixed Deposit plan the NPS Scheme is also a much sought-after investment option. However, it is very important to understand the structure of the entire scheme before investing in any area or system. It may turn out to be a more suitable option for you than a fixed deposit plan or other investment options available.

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