NPS investment for retirement: Want better return from your NPS? Follow this one tip

Under the Auto choice option in NPS, your investment is automatically allocated to equity and debt, based on your age. As the age of the individual increases, the exposure to equity and corporate debt is gradually reduced. Here the NPS subscriber does not need to decide where his money is invested.

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Depending on the risk appetite of the NPS subscriber, there are different options available under NPS auto choice — L75 or Aggressive Life Cycle Fund, LC 50 or Moderate Life Cycle Fund, LC24 or Conservative Life Cycle Fund.

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1) Under LC75 or Aggressive Life Cycle Fund, up to 75% of your money is invested in equities until 35. Once you cross the age, the equity exposure reduces. With each passing birthday, your debt allocation increases. By the time you reach 15, your equity allocation will come down to 15%. 2) Under LC50 or Moderate Life Cycle Fund is the default option in Auto choice. Under this option, your investments are split equally between equity and debt until you turn 35. After, that the equity exposure reduces and debt allocation goes up with each passing year. By 55, your equity allocation will be only 10%. 3) Under LC25 or Conservative Life Cycle Fund, the equity exposure starts at a maximum of 25% until 35 years. Then it gradually declines with age.

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In Active choice, you can decide how much you want to allocate in equity and debt. Keep in mind that you can invest up to 75% of your money in equity at any point. So, your investments will rebalanced every year as you grow old.

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Historically Active has done better than the Auto choice option. If you had invested Rs 10,000 in NPS each month for the last 15 years, Active choice would have given you Rs 50.66 lakh, according to Value Research data. Meanwhile, LC50 (Moderate Life Cycle Fund), the default Auto Choice option would have given you Rs 43.38 lakh. As you can see you get Rs 7 lakh more if you invest in Active Choice.

Data as of May 2024

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If you are young and in your 30s, you can undoubtedly go for the Active choice option and keep your equity exposure high. If you open an NPS account, a few years away from your retirement, the Auto choice may work for you as your risk appetite would be less.

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