Planning to Invest in NPS? Here’s One Tip to Build a Larger Retirement Corpus
Introduction
We have all heard the saying, “Don’t save what is left after spending; spend what is left after saving,” by Warren Buffet. In today’s world, planning for retirement is more accessible than ever with the right strategy. One effective option is investing in the National Pension Scheme (NPS), which can help secure your retirement through smart investment decisions.
What is NPS?
The National Pension Scheme (NPS) is a social initiative by the Central Government to secure the retirement of Indian citizens. It is available to employees in the public, private, and even unorganized sectors, except for those in the armed forces. The scheme encourages regular contributions to a pension account during employment, with a portion of the corpus available at retirement and the remaining amount disbursed as a monthly pension.
Auto NPS vs. Active NPS
NPS offers two investment choices: Auto Choice and Active Choice.
Auto NPS (Auto Choice)
Auto Choice invests your money based on your age. This is ideal if you are unsure about choosing the right investment mix. It has three categories:
- Aggressive Life Cycle Fund (LC75): Up to 75% in equities until age 35, then gradually reduced your equity allocation by 4% every year and get reinvested in Corporate Debt and Government Securities.
- Moderate Life Cycle Fund (LC50): Up to 50% in equities until age 35, then gradually reduced your equity allocation by 2% every year and get reinvested in Corporate Debt and Government Securities.
- Conservative Life Cycle Fund (LC25): Up to 25% in equities until age 35, then gradually reduced your equity allocation by 1% every year and get reinvested in Corporate Debt and Government Securities.
Active NPS (Active Choice)
Active Choice allows you to choose how your money is invested across three asset classes:
- Equity (E): Investments in stocks, higher risk, and potentially higher returns.
- Corporate Debt (C): Investments in corporate bonds, moderate risk, and returns.
- Government Bonds (G): Investments in government securities, low risk, and stable but lower returns.
You can allocate up to 75% in equities, giving you more control over your investments.
Comparing Returns
Returns in Auto Choice depend on the lifecycle fund selected, with aggressive funds potentially offering higher returns for younger investors. Active Choice returns vary based on your chosen asset allocation.
Auto Choice is easier, requiring less decision-making as investments are managed automatically. It suits those preferring a hands-off approach. Active Choice offers more control but requires knowledge and regular monitoring. It’s ideal for those comfortable managing their investments.
Things to keep in mind
In conclusion, if you prefer simplicity and peace of mind, Auto Choice is ideal. If you enjoy being involved in your investment decisions and are confident in your abilities, Active Choice may be more suitable. By choosing the right NPS option, you can build a larger retirement corpus and ensure a financially secure future.
Note: Mutual fund investments are subject to market risks. Read all scheme-related documents carefully before investing. The past performance of the schemes is neither an indicator nor a guarantee of future performance.
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