NPS, the government‑backed pension scheme, has become a staple for millions of Indian salaried professionals looking to build a tax‑efficient retirement nest egg. Launched in 2004, it offers two ways to manage the money you contribute: a hands‑on Active Choice and a hands‑off Auto Choice. Understanding the difference is key to getting the most out of the plan. Both options invest in four core asset classes.
Equity (E) gives exposure to the Indian market, including large‑cap stocks that drive the Sensex and Nifty; Corporate Bonds (C) add a fixed‑income layer; Gilt (G) protects against inflation; and Alternatives (A) tap into infrastructure or real estate. The government caps each class at a maximum of 75% for equity and 25% for the rest, ensuring a balanced risk profile. With Active Choice, you decide the exact mix within those limits, tailoring risk to your age and goals. Auto Choice, on the other hand, follows a pre‑set glide path that gradually reduces equity exposure as you near retirement—shifting from 80% equity for a 30‑year‑old to 20% for a 60‑year‑old.
Both modes are available for every NPS subscriber. For the average Indian investor, choosing the right mix can affect returns, tax savings under Section 80C, and the portfolio’s resilience to market swings. While the auto route offers simplicity, an active allocation may capture higher upside if you’re comfortable managing risk. Either way, staying informed about asset limits and glide paths helps you align NPS contributions with your long‑term wealth goals.