Partner With Us NRI

Factors to Keep in Mind While Choosing NPS Scheme


The NPS scheme is a viable, secure, and popular government-backed pension scheme. With tax benefits, easy accessibility, and flexibility, the appeal of NPS further increases. However, since NPS offers market-linked growth on your money, it is essential to select the right scheme. Read on to know more about the options available under NPS and how you can choose one.

There are two investment options in NPS:

Auto choice:

The auto choice option appoints a fund manager who invests your money on your behalf. The decision to select companies is that of the fund manager and not yours. It is an ideal option for passive investors who do not have enough knowledge or time to make investments independently. If you pick this method, your funds will be automatically allocated to different asset classes. Usually, your portfolio will be heavily invested in equity when you are young and gradually shift to debt instruments as you age. The auto choice is divided into three sub-categories:

  1. Aggressive Life Cycle Fund (LC75): This fund allows up to 75% equity allocation up to 35. Post this, the percentage of equities is lowered to 15% by the age of 55.
  2. Moderate Life Cycle Fund (LC50): This fund allows a maximum limit of 50% on equity allocation up to 35 years. This is reduced to 10% by the age of 55.
  3. Conservative Life Cycle Fund (LC25): This fund permits up to 25% equity allocation up to 35. This is reduced to 5% by the age of 55.

Active Choice:

The active choice method lets you choose the asset allocation for your NPS scheme. That is ideal if you are an active investor with the required understanding and insight into the market. There are four asset classes under this option, and you can select them as per your risk appetite. These include:

  1. Equity: Under this, your money is invested in equity market investments. Equity contains a high level of risk along with the possibility of high returns. It can also be volatile but is a preferred instrument for generating long-term wealth.
  2. Corporate debt:Your contributions are invested in fixed-income instruments issued by corporate houses. Corporate bonds offer medium risk and returns.
  3. Government security:These are low-risk and return instruments. Your money is invested in government securities and exposed to very low volatility or market fluctuations.
  4. Alternative investment funds:These invest your funds in venture capital, Real Estate Investment Trusts (REITs), private equity funds, etc.

You can invest up to 75% of your funds in equities and 5% in alternative investment funds up to the age of 50 under the active choice option. Post 60, the equity allocation will be reduced by 2.5% each year, ultimately reaching 50% by the time you turn 60.

What are the fund options under the NPS scheme?

The government sector offers the following three fund options:

  1. LIC Pension Fund Ltd.
  2. SBI Pension Funds Pvt. Ltd.
  3. UTI Retirement Solutions Ltd.

The private sector offers the following seven fund options:

  1. ICICI Prudential Pension Fund Management Co. Ltd.
  2. LIC Pension Fund Ltd.
  3. SBI Pension Funds Pvt. Ltd.
  4. UTI Retirement Solutions Ltd.
  5. HDFC Pension Management Co. Ltd.
  6. Kotak Mahindra Pension Fund Ltd.
  7. Aditya Birla Sunlife Pension Management Ltd

You can select a fund based on the sector – government or private. Selection within the sector can be based on the past years rolling returns. Since NPS is a relatively new scheme, there is not enough historical data to rely on. However, regardless of the fund you select, it may be advised to allocate more funds to equities in the beginning years of your investment to earn better returns.

To sum it up

Make sure to consider your investment style – active or passive, before picking out an NPS scheme. Moreover, if you select the active choice, keep your risk appetite in mind and then invest as per your current age and future retirement goals.

Disclaimer – ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100.  PFRDA registration numbers:  POP no -05092018. We are distributors of National Pension Scheme. Please note, National Pension Scheme related services are not Exchange traded products and I-Sec is just acting as distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.

Most Popular

  • 21 Jun 2022
  • ICICI Securities

Should you invest in Mutual Funds SIPs or FDs?

Choosing between a Systematic Investment Plan and a Fixed Deposit comes down to risk appetite and investment goal. Nevertheless, mutual fund SIP investments can be beneficial in many ways. This article will outline the difference between the two investment instruments and which one you should choose.

  • 21 Jun 2022
  • ICICI Securities

How to choose the best SIP investment?

Systematic Investment Plans (SIPs) are an option to make regular investments in mutual funds. Before heading to make an investment in SIP mutual funds, consider these factors to find the one that perfectly justifies your financial goals. 

  • 21 Jun 2022
  • ICICI Securities

How does long term capital gains tax impact you?

Certain assets, such as real estate and shares, attract long term capital gains (LTCG) tax. Here’s what you need to know about LTCG tax and how it can impact your finances.

  • 21 Jun 2022
  • ICICI Securities

Choosing between stock market and fixed deposit investments

Choosing the right investment option is critical for meeting personal financial goals. This article will highlight the difference between choosing stock market investments and fixed deposits—the aspects to consider, the risk-return profile, and what would fit into your portfolio.

  • 21 Jun 2022
  • ICICI Securities

Are Small-Cap funds good investments?

The best small-cap funds outperformed large-cap and mid-cap mutual funds last year. Now that the markets are turning bearish, is it a good idea to invest in small-cap mutual funds? Here’s an overview of these equity mutual funds to help you make an informed decision.

  • 17 Jun 2022
  • ICICI Securities

What Does the US Fed's Biggest Rate Hike Mean?

On 15th June 2022, the US Federal Reserve hiked interest rates by 75 basis points, the biggest hike since 1994. Why did it do so? What are its implications for India? Read on to find out more.

  • 15 Jun 2022
  • ICICI Securities

What is ESG investing and everything you need to know about it

In the last few years, since climate awareness and social justice have piqued people’s interest worldwide, ESG investment has increased. This article talks about ESG investing and the options available for ESG investment in India.

  • 15 Jun 2022
  • ICICI Securities

The Latest ESG Reporting and Framework in India

In May 2021, India introduced a new environment, social, and governance (ESG) guideline for the top 1,000 listed companies by market capitalisation. The Business Responsibility and Sustainability Report (BRSR) will be mandatory for these companies from FY 2022-23. Here’s what you should know about this ESG guideline.

  • 15 Jun 2022
  • ICICI Securities

Difference Between ESG and SRI Investing

When it comes to value investing, the two terms—ESG investing and SRI investing—are often confused. However, ESG investing strategies are different from SRI investing strategies. Read more to find out what sets the two apart and how you can decide which approach to adopt.

  • 14 Jun 2022
  • ICICI Securities

Four ways to ensure you leave your children a financial legacy

It is a moment of pride for parents to see their children earn their own money and lead a life with dignity. No words can express the joy to see your children grow, but how do you touch their life when you are gone? You can do that by leaving behind a financial legacy for your children to inherit. Here are four ways you can align your financial plan such that you leave behind something for your children.