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Investment Choices under NPS

 

The Subscriber under NPS is required to decide his/her investment choice whether Active Choice or Auto Choice.

 

 1. Active Choice

 

In active choice, subscribers can actively allocate their investments across various asset classes subject to the investment caps prescribed under the investment guidelines issued by the PFRDA.

In this type of investment choice, subscriber has the right to actively decide as to how his / her contribution is to be invested, based on personal preference. The Subscriber has to decide the Pension Fund and Asset Class as well as percentage allocation under each asset class to be done in each scheme.

There are four asset classes (equity, corporate debt, government bonds and alternative investment funds) from which the allocation is to be specified under single pension fund as per the following:

 

  • 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 instruments like CMBS, MBS, REITS, AIFs, Invlts etc.

 

Under active choice, a subscriber can select single or multiple asset class under a single Pension Fund with a specific cap as mentioned below:

 

 Asset Class

Cap on Investment

Equity (E)

75%

Corporate Bonds (C)

100%

Government Securities (G)

100%

Alternate Investment fund(AIF)

5%

  • It may be noted that the total exposure to be chosen by the subscribers under active choice / auto choice across the asset classes i.e. E, C, G & A cannot exceed 100%.

 

   2. Auto Choice

 

NPS offers an easy option for those Subscribers who do not have the required knowledge to manage their NPS investments. In this option, the investments will be made in a life-cycle fund. Here, the proportion of funds invested across three asset classes (Government Security, Corporate Bond and Equity) will be determined by a pre-defined portfolio (which would change as per age of Subscriber).

 

As age increases, the individual’s exposure to Equity and Corporate Debt tends to decrease. Depending upon the risk appetite of Subscriber, there are three different options available within ‘Auto Choice’ – Aggressive, Moderate and Conservative. The details of these Funds are provided below:

 

    i.LC75 - Aggressive Life Cycle Fund: This Life cycle fund provides a cap of 75% of the total assets for Equity investment. The exposure in Equity Investments starts with 75% till 35 years of age and gradually reduces as per the age of the Subscriber.

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   ii.LC50 - Moderate Life Cycle Fund: This Life cycle fund provides a cap of 50% of the total assets for Equity investment. The exposure in Equity Investments starts with 50% till 35 years of age and gradually reduces as per the age of the Subscriber.

 

   iii.LC25 - Conservative Life Cycle Fund: This Life cycle fund provides a cap of 25% of the total assets for Equity investment. The exposure in equity investments starts with 25% till 35 years of age and gradually reduces as per the age of the Subscriber.

 

Asset Allocation under Auto Choice

 

 

Age

 Aggressive Life Cycle Fund ( LC - 75) Moderate Life Cycle Fund ( LC - 50) Conservative Life Cycle Fund ( LC - 25)
Asset Class (In %) Asset Class (In %) Asset Class (In %)
E C G E C G E C G
Up to 35 Years 75 10 15 50 30 20 25 45 30
36 Years 71 11 18 48 29 23 24 43 33
37 Years 67 12 21 46 28 26 23 41 36
38 Years 63 13 24 44 27 29 22 39 39
39 Years 59 14 27 42 26 32 21 37 42
40 Years 55 15 30 40 25 35 20 35 45
41 Years 51 16 33 38 24 38 19 33 48
42 Years 47 17 36 36 23 41 18 31 51
43 Years 43 18 39 34 22 44 17 29 54
44 Years 39 19 42 32 21 47 16 27 57
45 Years 35 20 45 30 20 50 15 25 60
46 Years 32 20 48 28 19 53 14 23 63
47 Years 29 20 51 26 18 56 13 21 66
48 Years 26 20 54 24 17 59 12 19 69
49 Years 23 20 57 22 16 62 11 17 72
50 Years 20 20 60 20 15 65 10 15 75
51 Years 19 18 63 18 14 68 9 13 78
52 Years 18 16 66 16 13 71 8 11 81
53 Years 17 14 69 14 12 74 7 9 84
54 Years 16 12 72 12 11 77 6 7 87
55 Years 15 10 75 10 10 80 5 5 90

·            It may be noted that the total exposure to be chosen by the subscribers under active choice / auto choice across the asset classes i.e. E, C, G & A cannot exceed 100%.