In the NPS scheme you will be offered two types of choice to build your portfolio. You can either pick your own asset allocation or outsource it to the pension fund manager. Let’s find out how they work:
The investors can choose their scheme references under these two options:
Active choice: under this option, the investors can choose the desirable split of the NPS deposit. The investor can choose between asset types namely Equity, Corporate debt, Government Bonds and Alternative Investment Funds on his own.
The investor must keep in mind that the equity allocation cannot exceed 75% of the total corpus and this percentage is valid up to 50 years age, post which the equity allocation decreases as per a defined matrix.
Auto choice: this is a default option under NPS wherein the funds invested are automatically managed based on the profile of the subscriber. There is a set of a defined matrix of the allocation of fund as per the investor’s profile under the auto choice as well. Investors who have limited knowledge about investing in market-linked products must choose this option until they acquire knowledge on equity investment.
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See Also: Benefits of National Pension System
There are four assets classes available under the NPS which can be classified as the following:
So, basically under NPS, there are four Asset Classes namely Equity, Corporate debt, Government Bonds and Alternative Investment Funds from which the allocation is to be specified under single Pension Fund Manager.
An NPS subscriber must choose a fund manager as well as the preferred scheme while registering for the CRA system under NPS. There are 8 pension fund managers operating in India. They are as follows. The subscriber must first select the pension fund manager and after that, they will be provided with the option to choose the investment options.
The NPS account and contributions of the government employees are managed by SBI pension, UTI and LIC pension funds. In this category, 15% of the contributions will be invested in equity funds. The rest of the contributions will be invested in corporate bonds and government securities.
Private sector employees can also invest in this scheme. For the private sector, the equity investment limit is 75%. Investors can change their fund managers once a year by evaluating their past performance.
See Also: Simply Invest In NPS Online
NPS is one of the best financial instruments as it comes with tax saving options. However, many people still fail to understand the tax benefits provided by the NPS scheme. Listed below are the different sections under which an individual can avail tax benefits by investing in NPS.
See Also: How Does National Pension Scheme Work?
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