A Look At The Various Investment Options Under NPS

The benefits of NPS are many, including tax savings, asset choices, and ease of investment. When Investing in NPS, it gives you various options to choose from, which one should you go for?

Amit Sethi
September 26, 2023
Investment Options Under NPS

Investment Options Under NPS

What makes the National Pension System (NPS) a better investment choice is the flexibility that it offers to investors. Investors can select a mix of equity and debt instruments in their portfolios. They can also select whether they want to manage their investment actively or they want to do it in auto mode. Here’s how it works.


How Does NPS Invest Your Money?

NPS invests your money in mainly 2 types of assets; equity and debt. The debt can be corporate bonds, Government bonds or a mix of both. Sometimes they do invest in alternative funds but the amount invested is very small.

The proportion of your investment to be put into the two types of assets depends upon your risk profile and age. Your age is an important factor that determines your investment horizon. The proportion also depends on the types of options. There are three options; namely aggressive, moderate, and conservative. Let’s understand this with an example. Assume that an investor is 32 years old.

An aggressive fund may invest 75% of its money in equity and 25% in debt.

The proportion may be 60% in equity and 40% in debt for the moderate option while this will be 50:50 in equity and debt for the conservative option.

As the age goes up, the proportion of equity reduces and that of debt goes up in all the options available.

Auto Mode Versus Active Mode – What Is Good For You?

Both are suited to different sets of investors. Auto mode offers no headache for you to select the equity-debt mix. The mix is pre-defined based on your age and the choice you gave while investing in NPS. In this case, you can select the three options as defined above and the investment mix will be created automatically for you. This will keep changing as you grow older.

Active mode is good for those who want to select the mix on their own. Naturally, if you have knowledge about your investment horizon and risk profile, you can go for active mode.

What is good for you depends on whether you have time to do your own research. If not, go for auto mode. You need not worry about your investment safety as NPS is managed by competent and highly skilled fund managers.

NPS Benefits

Finally, the fee charged in NPS is very low. An equivalent fund manager for a mutual fund may cost more in terms of management fees. Tax benefits, flexibility in structuring asset mix and a disciplined investment meant for the long-term, are some of the benefits that one looks for when investing for their retirement. So, while it is an attractive proposition to be able to manage your investment, you must think about whether you can do it better than the fund manager.

The author is an independent financial journalist

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