NPS or national pension system is a retirement-oriented scheme that gives you the freedom to create a retirement corpus. It is a market-linked scheme where your contributions get invested in a mix of stocks, bonds, and other instruments.
It offers two investment options: active and auto. Both these options come with their own set of benefits and drawbacks. To help you make the best choice for yourself, this article talks about both in detail.
What is the active investment in NPS?
Active investment in NPS is the option where you have the flexibility to choose the asset allocation of your funds. Under this option, you can decide how your contribution will be divided between stocks, bonds, and other instruments. This allows you to customize your investment according to your risk appetite and investment objectives.
It also allows you to take control of your investment decisions and make the most of market opportunities. Furthermore, this option can help you manage risk better as you can decide the asset allocations according to your risk tolerance.
However, it requires you to be constantly monitoring the markets and making changes to your portfolio accordingly. This can be a time-consuming and difficult task for many investors. Furthermore, it is difficult to accurately predict the markets and there is a risk that your investments may not perform as expected.
What is the auto investment in NPS?
Auto investment in NPS is the option where your contributions are automatically allocated to different asset classes based on your profile. Under this option, your funds are divided between stocks, bonds, and other instruments based on your age, risk profile, and investment objectives. This option is ideal for those who do not have the time or expertise to actively manage their investments.
The major benefit of auto investment is that it takes the guesswork out of investing. The funds are automatically allocated to different asset classes based on your profile, so you do not have to worry about making the right investment decisions. Furthermore, it is a hassle-free investment option as it does not require you to constantly monitor the markets.
However, it does not give you the flexibility to customize your portfolio. You do not have the freedom to decide the asset allocation of your funds and you have to rely on the pre-set allocation decided by the fund managers. Furthermore, this option does not allow you to take advantage of market opportunities as the asset allocation is fixed.
Which is better for NPS investment?
When it comes to NPS investment, there is no one-size-fits-all answer. The type of investment that is best for an individual will depend on their goals, preferences, and risk tolerance.
For those who are comfortable taking on more risk and making their own decisions about their investments, active investment may be the better choice. Active investors have more control over their investments and can take advantage of opportunities as they arise.
On the other hand, those who do not have the time or expertise to actively manage their investments should opt for auto investment as it is a hassle-free option. Auto investment requires less effort and knowledge and is less risky than active investment.
It is important for investors to research both active and auto investment strategies before deciding which one is right for them. The choice ultimately comes down to the individual investor's needs and preferences.