The NPS, or National Pension System, is a pension scheme sponsored by the government of India that provides financial security to individuals after retirement.
The scheme was initially launched in 2004 for government employees, but it was opened up to everyone in 2009. As a result, investment in NPS has been steadily increasing as it is an effective means of creating a big corpus in the long term and arranging pensions after retirement.
If you are an Indian citizen aged between 18 to 70 years, you can invest in NPS. Regular contributions can be made during your working years, and when you reach the age of 60, you can take a portion of the collected funds and start receiving regular pension payments from the balance. NPS provides auto and active investing opportunities.
Although the active choice option lets the subscriber choose their own asset blend, the auto choice option allows subscribers to give the fund management complete discretion over how to invest their money. With the active choice option, subscribers may choose how their funds will be distributed across several asset classes. There are limitations, though, and only up to 75% can be put towards stocks.
For those considering the active choice option, there are three factors to bear in mind. First, consider whether you are capable of valuing different asset classes and making the right capital allocation. Second, if you already have investments elsewhere, can you include NPS as part of your overall portfolio? Finally, be aware that changes to the NPS portfolio may be necessary for the future.
The default moderate life cycle fund, the conservative life cycle fund, and the aggressive life cycle fund are the three funds that NPS provides under the auto choice option. Up to 50%, 25%, and 75% of the total equity can be invested, accordingly.
The best strategy to build a retirement corpus and secure financial stability in old age is to invest in NPS. You can maximise your earnings and live comfortably after retirement by selecting the right investing strategy.
