The National Pension Scheme is a low-cost retirement investment plan from the Government of India as a social security initiative for its citizens. Investing in an NPS scheme gives one exposure to both Equity and Debt Funds. Eventually, you get a lump sum amount during retirement, with monthly benefits.

However, your decisions while choosing the Pension Scheme can impact your returns and monthly benefits. One such decision is whether you should be an active or auto investor.  When you open your NPS scheme account, you are given options to choose between one:

Active

The active mode lets you design your NPS scheme portfolio to allocate funds per your risk appetite. You can choose between the following four asset classes while creating your portfolio:

1. Equity: You can invest in Equity markets but remember they are sometimes risky. While the class is volatile, it provides an excellent opportunity to accrue wealth over the long term.
2. Debts: Corporate Debts are fixed income-bearing instrument offered by corporate houses. Such assets have a low-risk profile than the Equity class, but their returns are also relatively medium.
3. Government Securities: These are Securities and Bonds from the government. Since they are government-issued, they are highly safe but offer a comparatively lower return.
4. Alternative Investment Funds: AIFs are private investment vehicles that collect funds from foreign or Indian investors for investing those funds in a defined investment policy. For example, Infrastructure Investment Trusts, Real Estate Investment Trusts, and Mortgage-Backed Securities.

Auto

The auto mode is passive. Here, your funds allocate automatically within the different asset classes. In this case, your fund investments are in Equity securities when you are young. But, as you grow older, the money invests in more Debt Funds. However, you can choose how much money to invest in Equity Funds by selecting from the three options:

1. Aggressive lifecycle fund: Up to 75% Equity allocation until the age of 35 years. It reduces to 15% by 55 years.
2. Moderate lifecycle fund: Up to 50% Equity allocation until the age of 35 years. It reduces to 10% by 55 years.
3. Conservative lifecycle fund: Up to 25% Equity allocation until the age of 35 years. It reduces to 5% by 55 years.

How do you decide whether to be an active or auto investor under National Pension Scheme? If most of your exposure is in Equity, then go for the active option. If less than 50% of your exposure is in Debt securities, then consider the auto option for your NPS scheme

Disclaimer: 

ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. The contents herein above shall not be an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The securities quotes are exemplary and are not recommendatory. The contents above are herein solely for informational and educational purposes.

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