Active vs auto in NPS: What to choose at 25, 35, 45, 55

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The National Pension System (NPS) (India) gives you two main ways to decide how your savings are allocated across equities, corporate debt, government bonds and alternatives. In the active choice you pick your own mix – you decide how much goes into each asset class (within regulatory caps). In the auto choice you go with a “life-cycle” fund where your allocation automatically shifts with age.

In auto choice you simply pick one of the lifecycle options – typically aggressive, moderate or conservative – and the system adjusts your equity exposure downward as you grow older. For example, in the aggressive option you may have up to 75 percent in equity when young, and that proportion falls steadily over time.

This makes sense because when you're younger you have a long horizon, you can absorb market ups and downs, and you need more growth. As you near retirement you shift focus to preservation and income, so less equity, more bonds.

With active choice you get full control — you decide how much goes into each asset class (equity up to 75 percent is allowed) and you pick your pension fund manager.

But that control comes with responsibilities. You need to review your allocation, rebalance if required, and monitor market/regulatory changes. If you’re not comfortable doing that, you might end up with a mismatch between your risk appetite, your age and your portfolio.

Here’s a rough guideline you can use – whether you pick active or auto – to set equity exposure that roughly aligns with your age and risk horizon:

· In your 20s: You’re early in your working life, so you could aim for 60-75 percent equity if you’re comfortable with ups and downs. If you pick auto, the aggressive option would already give equity near 75 percent.

· In your 30s: You may start having greater financial responsibilities (family, home etc.). A target of 50-70 percent equity could make sense. Auto choice in moderate or still aggressive mode can work; active choice means you might start shifting gradually.

· In your 40s: With maybe 10-20 years to retirement, you might move to 35-55 percent equity. This balances growth with a need to protect. Auto choice will reduce equity; active means you make the shift proactively.

· In your 50s: The margin for error shrinks, so equity might drop to 15-35 percent, depending on how far from retirement you are and how much risk you can bear. Preservation matters.

· At 60+ or retirement age: Equity could be 5-20 percent or even lower depending on what other income you have, and you’ll favour stability, bonds and predictable income over growth.

If you prefer a hands-off approach and want your investments managed automatically as you age, go with auto choice. It takes care of the shifting mix for you.

If you enjoy managing investments, have good knowledge, expect to monitor and adjust regularly, and want to customise your allocation to your own goals, then active choice might be better.

From October 2025, non-government subscribers will be permitted up to the full 100 percent equity allocation under the Multiple Scheme Framework (MSF) for NPS. This means active choice becomes even more powerful (and potentially riskier) if you go all-in on equity.

Also note you can switch between auto and active choice a limited number of times per year; so your decision isn’t forever locked.

Your decade of life really should guide how much equity you hold in your NPS. Auto choice gives you a safe, automatic shrinking-risk path. Active choice gives flexibility and potentially higher returns – if you’re willing to take responsibility. Whichever you choose, make sure it matches your risk appetite, retirement timeline and how much time you’ll spend overseeing it. A good decision now saves stress later.