The young are often called reckless. But those who are young also have a large appetite for risk. And investing in equity offers a perfect backdrop for anyone who’s young and is ready to bet on risk. To make NPS (National Pension System) more suitable to the young (and not so reckless), PFRDA has decided to bring some changes in investing scheme of NPS. Let’s take a look.
Where does NPS invest-
NPS invests in
|Scheme||Invests in||Max allocation allowed to subscribers|
|Scheme G||Invests in low risk, only in fixed income instruments such as government securities, commercial paper etc.||100%|
|Scheme C||Invests in medium risk, predominantly in corporate debt and other fixed income instruments||100%|
|Scheme E||Invests in high risk, in equity market instruments||50%.
Maximum allocation Scheme E proposed to be raised to 75%
One can invest in NPS via
- Auto Choice
- Active Choice
Auto choice is based on your age group or your life cycle. Your corpus is allocated to Scheme E, G, C based on your age. Uptil age 35 you could earlier allocate a maximum of 50% to E or equity markets, which is now proposed to be enhanced to 75%. The investment risk automatically reduces based on your age. And works on the principal that your ability to take risk falls as you get older.
Active choice is where you choose in which scheme and what % would you prefer your funds to be split. Here also the maximum amount which can be allocated by you to equity has been raised to 75%.
With this your NPS is likely to earn better returns over a long term as compared to EPF which exclusively invests in debt based or fixed income instruments.
Usually auto choice is a preferred mode of investment for many who don’t have the time and acumen to switch between debt/equity in the most judicious manner.
There’s much to rejoice if you are under 35 🙂
Want to know how to make the most of tax saving via NPS? Read here.
Also, find out if you should include employer’s contribution in your taxable salary while filing your income tax return? Here.