National Pension Scheme: More reasons why you should invest in NPS

Investors have the option of investing up to 75 percent in equity under the active option option of the National Pension Scheme (NPS). NPS already offers 75% equity allocation under Auto-Option option.

Pension Fund Regulatory and Development Authority (PFRDA) recently announced the option to invest up to 75 percent in equity under the active option option of National Pension Scheme (NPS). Customers are now allowed to do partial withdrawals for higher education, gain professional and technical qualifications or to establish a new business.

NPS offers two investors the option to allocate their assets in asset classes - auto and active choice. In NPS, investors can spread their investment in four investment categories: C (Corporate Debt), G (Government Securities), A (Optional Assets) and E (Equity). Under the auto option, investors can put money in one of three lifecycle funds - aggressive, moderate and conservative. In these life cycle funds, the allocation of various asset classes changes depending on the age of the customer. In the aggressive life cycle fund, the allocation in equity falls to 35 percent by 75 percent and then falls to 55 percent by 15 percent. In the middle fund, the allocation to equity falls to 35 percent by 50 percent and up to 55 percent. And in the conservative fund, equity allocation is up to 35 percent by 35 percent and then up to 55 percent by 5 percent.

In addition to changes in equity, PFRDA has changed investment grade ratings from 'A' to 'A' for corporate bonds. Pension Fund can not invest more than 10 percent of its total corporate bond portfolio in 'A' rated bond.

In an active choice, the investor decides how much he wants to allocate in various asset classes. By the time the investor decides to change it, the allocation remains stable. Previously, under the active option option, the allocation to equity was kept at 50 percent. NPS already offers 75% equity allocation under Auto-Option option. Now investors have the option of equal level of equity allocation under the active option option. Presently, under the management, NPS's total private sector plan assets are Rs. 27,900 crores.

NPS is used for long term goals such as retirement. Allowing young investors to get higher risk of equity will give them a chance to earn higher returns. It enables its NPS portfolio return by meaningfully defeating inflation. Under NPS, equity funds are actively managed and you currently have the option of choosing from eight fund managers.

For higher returns, equity is considered to be the only property class to generate higher returns. A generous allocation attracts more customers for equity. It is recommended to select 75% equity allocation in the investment, especially for the young investors. The actively managed NPS fund is capable of generating alpha, but investors have another incentive like an additional deduction of Rs 50,000 under section 80CCDD (1B) of the Income Tax Act, which is a total of 1.5 lakhs under section In addition to the deduction. 80 c 

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