Under the National Pension Scheme (NPS), you can invest in different types of asset classes such as equity, corporate bonds, and government schemes. You can invest in NPS via two options: auto investment and active investment. But before we delve into how you choose the right option, let us first understand what the two options are.
Active investment: Under the active investment option, you have the freedom to allocate assets and funds as per your will across equity, bonds, and other investments. However, the equity allocation should not exceed more than 75% of the total portfolio. Picking the active investment option allows you to choose a scheme in sync with your financial plan.
Auto investment: Under this option, the NPS automatically allocates the funds and assets in place of the subscriber. It uses a lifecycle-based approach for allocation. The exposure of funds and assets to equity is higher when you’re starting. It reduces as your age inches closer to retirement. Three different schemes come under the auto investment option. They are:
Auto or active investment option?
If you’re looking to invest in NPS and are confused about which option to pick, Ajit Kumar, chief strategy officer, KFintech, has some advice for you. He said, “If you are confused about which investment option to begin with, then the auto allocation option may be a good choice. This option can help subscribers spread their contributions across the available assets evenly. However, you must opt for the NPS active choice when you gain enough knowledge and understanding of the markets and the system and have the confidence to manage your portfolio independently.”
For any clarifications/feedback on the topic, please contact the writer at sourabh.dubey@clear.in@clear.in
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