NPS: How to include NPS in your investment portfolio, how to do asset allocation?

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NPS is an excellent investment option for employees from all walks of life. It is a retirement focused product that offers multiple benefits along with compounding.

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It is a reliable pension source. It is best suited for customers who are unable to generate regular income from their retirement funds. However, many investors put money in it only for tax deduction of ₹50,000. This method is not correct.

If you are investing in it with the intention of earning long term gains, then it is important that your asset allocation is also strong so that you can earn maximum profits. To do the right asset allocation in NPS account, you have to pay attention to some things, which you will read further in this article. Let us first understand NPS.

Mode of Investment in NPS and Funds There are two modes of investment in NPS. The first active choice in which you allocate your investments yourself. In this, you can put 75 percent of your investment in equity. However, you can do this only for 50 years, after that every year the maximum limit for investing money in equity will decrease by 2.5%. The second option is Auto Choice, in which you do not take any decision regarding asset allocation.

Now let’s talk about different types of funds. The first one is the Aggressive Life Cycle Fund. In this, you can put 75 percent of your total investment in equity for 35 years. Second is Moderate Life Cycle Fund. In this, for 35 years, you can put 50 percent of your investment in equity. The third is the Conservative Life Cycle Fund. In this, for 35 years, you can put 25 percent of your investment in equity.

How to Include NPS in Asset Allocation

People up to the age of 40 should invest aggressively. Invest maximum money in equity. Include NPS in various investment options. People above the age of 40 should invest most of their money in debt (EPF+PPF). Invest maximum money in NPS in equity. On the other hand, if you do not have a huge PF fund and you have already invested most of the money in equity, then keep the investment approach safe in NPS.

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