Blog

Types of NPS accounts & investment choices
Comments0

 

There are two types of accounts under the NPS which are tier-I and tier-II. Tier-I is the default account and Tier-2 is a voluntary addition. Table below explains two types of accounts in detail:

NPS3

An active Tier I account is a pre requisite for opening a Tier II. PFRDA allows subscribers with tier-I account to use tier-II account for easy withdrawal and deposit of money without any restriction provided the individual meets the above specified conditions mentioned in the table.

Investment Options under NPS

NPS1

Investor has to select his/her investment choice from the following:

a. Active Choice

In this choice, investor has the right to provide percentage allocation in preferred asset classes according to their risk appetite. Four asset classes available to choose from are:

  • E – Equity and related instruments
  • C - Corporate debt and related instruments
  • G - Government Bonds and related instruments
  • A - Alternative Investment Funds including instruments like CMBS, MBS, REITS etc.

Investor can select any allocation in the asset classes by keeping in mind the equity allocation matrix given below, such that total allocation across E, C, G and A asset classes must be equal to 100%. In the case of Alternative investment funds, percentage contribution value cannot exceed 5%.

 

Age (Years)

Max. Equity Allocation

Up to 50

75%

51

72.50%

52

70%

53

67.50%

54

65%

55

62.50%

56

60%

57

57.50%

58

55%

59

52.50%

60 & above

50%


b. Auto Choice:

Investors who don’t have the required knowledge to manage their funds can opt for Auto choice according to the risk appetite of the investor. In Auto choice, there are three asset classes with pre-defined portfolio based on investor’s age which is often called ‘Life Cycle Fund’.In this choice, as the age increases, the risk exposure to equity and corporate bond decreases and percentage allocate of funds will be towards the less risky instruments such as government securities (Asset Class G).

Details available in this choice are as follows:

LC75 - Aggressive Life Cycle Fund: In this Life cycle fund, L75 signifies the cap of 75% allocation for equity investment. Allocation in equity investment starts with 75% till 35 years of age and gradually decreases to 15% as per the age of investor. Risk exposure in this fund is much more on the higher side as 75% allocation is in equity investment, 10% in corporate bonds and 15% in government securities.

LC50 - Moderate Life Cycle Fund: In this Life cycle fund, L50 signifies the cap of 50% allocation for equity investment. Allocation in equity investment starts with 50% till 35 years of age and gradually decreases to 10% as per the age of investor.

LC25 - Conservative Life Cycle Fund: In this Life cycle fund, L25 signifies the cap of 25% allocation for equity investment. Allocation in equity investment starts with 50% till 35 years of age and gradually decreases to 5% as per the age of investor. Risk exposure in this fund is much on the lower side as 25% allocation is in equity investment, 45% in corporate bonds and 30% in government securities.

Other blogs in the series:

National Pension System (NPS) - An Introduction Click here


Disclaimer

Author Image

Comment

Recent Post

  • PC Jeweller Demerges its Expo..

    What’s the deal? PC Jewelers recently announced that it would demerge its Export Division and merge with its wholly owned subsidiary - PCJ Gems & Jewellery Limited. Company c..

  • Insurance- Introduction

    Risk and uncertainty are associated with life in some of the other ways. These risks and uncertainties are increasing daily because of the increment in the speed of life. For example, i..

  • Rail Vikas Nigam Ltd. IPO

      Offer Details Price band Rs 17-19 Per Equity Share Offer Open Date Mar 29, 2019 Offer Close Date Apr 03, 2019 Lot Size..

  • Tech Mahindra Buyback

    The Board of Directors of Tech Mahindra Ltd. approved a share buyback for its investors on Feb 21, 2019. The details of the buyback include: Ex-Date: March 5th, 2019 Record Date: Marc..

  • BHEL Buyback

    The Board of Directors of BHEL approved a share buyback for its investors on Oct 25, 2018. The details of the buyback include:  Record Date: November 6th, 2018 Buyback price: Rs...