NPS Investment: Active choice vs Auto choice, where to invest

Are you planning to invest in National Pension Scheme (NPS) to claim some additional tax benefits? While investing in NPS, you have to choose where you want to invest in an Auto choice or Active choice mode. Let's understand how they work

In Active choice, an NPS subscriber selects the allocation percentage in asset classes while in Auto choice, funds are automatically allocated among asset classes in a pre-defined matrix, based on the age of the subscriber.

In Active choice, the NPS subscriber has the freedom to decide the ratio by allocating funds among the available four asset classes. This is called Active choice. Here are the four asset classes available under active choice:

a) Equity or E
b) Corporate Debt or C
c) Government Securities or G
d) Alternative Investment Funds or AIF

Under Auto choice, the subscribers need not take any asset allocation decisions. In Auto choice, your money will be invested in asset classes - E, C, and G - in defined proportions based on your age.

As an individual’s age increases, exposure to equity and corporate debt is gradually reduced, and that in Government Securities is increased. Depending upon the risk appetite of the subscriber, there are three different options available within Auto Choice-Aggressive, Moderate and Conservative.

a) Aggressive (LC-75) – Maximum Equity exposure is 75 per cent up to the age of 35
b) Moderate (LC-50) - Maximum Equity exposure is 50 per cent up to the age of 35
c) Conservative (LC - 25) – Maximum Equity exposure is 25 per cent up to the age of 35

The active option is for those who wish to manage NPS portfolio asset allocation actively. The Auto option, on the other hand, is for those who don’t want to get involved in portfolio decision-making.