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What is Scheme Preference in NPS Account

National Pension Scheme is a pension scheme launched by the Government of India in 2004 for providing a systematic savings & investment architecture to the citizens of India. Under the scheme, the account holder makes contributions to the NPS account either lump-sum or in installments every year. Then the contributions made by the account holder into the account are utilized for making investments in various securities like Equities, Corporate Bonds, Government Bonds & Alternative Investment Funds by the Pension Fund managers appointed by the PFRDA(Pension Fund Regulatory and Development Authority) who regulates & regularly monitors the NPS scheme through the NPS trust. And then at the time of retirement i.e at the age of 60, the subscriber makes a lump-sum withdrawal of up to 60% of the corpus, and the rest of the amount is used to purchase annuity scheme which would provide monthly pensions to the holder.

Scheme Preference in the National Pension Scheme Account 

The contributions made by the NPS subscriber are invested across different asset classes as mentioned before to generate returns on the invested amount. For these investments, the account holder has to choose from the two types of investment options. These are:


  1. Active Choice: In the active option, the subscriber can decide to choose the proportion of allocations to different assets in the portfolio i.e in Equity, Corporate Bonds, Government Bonds & AIFs. Here, the NPS holder can make a maximum allocation of 75% in equities up to the age of 50. After that, the allocation would be reduced every year by 2.5% to come at 50% at the age of 60. Government employees can choose to make a maximum of 50% allocation in equities.

The allocation into Alternative Investment Funds including REITs, InVITs can be made for a maximum of 5% of the portfolio.

  1. Auto Choice: Auto Choice is a passive investing strategy where the investments are made automatically in the specified asset classes by following a lifecycle approach, the investor need not worry about the asset allocation. Here, allocation to the equity asset class is high in the younger years of the subscriber, and later as he reaches towards retirement, the allocation to equity is automatically reduced to lessen the volatility in the portfolio at the near of retirement

The subscribers have to choose one of the 3 lifecycle approach options suitable to their needs for making investments. The options are:

  • Aggressive Lifecycle Fundis suitable for investors who want to take high risk in the portfolio to have higher potential returns by allocating a large portion in equities. Here, there is an equity allocation of 75% of the portfolio up to the age of 35 which is later reduced to come at a 15% allocation in equity at the age of 55.
  • Moderate Lifecycle Fund is suitable for investors who want to invest a modest portion in the equity asset class. Here, there is an equity allocation of 50% of the portfolio up to the age of 35 which is later reduced to come at a 10% allocation in equity at the age of 55.
  • Conservative Lifecycle Fund is suitable for investors who want to take lower risks by allocating a lower portion of the portfolio in equities. Here, there is an equity allocation of 25% of the portfolio up to the age of 35 which is later reduced to come at a 5% allocation in equity at the age of 55.

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