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The National Pension System (NPS) is an investment scheme designed specifically to meet the retirement goals of investors. It is essentially a pension or annuity scheme that helps investors earn a steady stream of income even after retirement. Under this scheme, you can make regular contributions to your NPS account and invest in different asset classes over the investment tenor.  


At the end of the tenor, when you retire, you can choose to receive 60% of the NPS corpus as a lump sum payout, and convert the remaining 40% into an annuity. This way, you can receive regular income when you retire. 


You can choose from two different investment options in NPS: auto or active scheme preferences. Before we tackle the question of ‘NPS auto or active: which is better,’ let us first take a closer look at each of these investment scheme options.

Active and Auto Investment Options in NPS

As indicated by its name, the active investment option in NPS gives you the right to actively choose your asset allocation. In the auto choice of investment, however, your capital will be investment in pre-defined ratios. Not sure which is better — the active choice vs auto choice in NPS? Get to know what each of these options entail, so you can make an informed choice.

1. Active Choice 

If you choose this investment option for NPS, you can select the Pension Fund Manager (PFM) as well as the percentage of capital to be invested in each asset class. You can choose any or several of the PFMs mentioned in the following list:.


  • Axis Pension Fund Management Limited

  • Aditya Birla Sun Life Pension Management Limited

  • ICICI Prudential Pension Funds Management Company Limited

  • HDFC Pension Management Company Limited

  • LIC Pension Fund Limited

  • Kotak Mahindra Pension Fund Limited

  • Max Life Pension Fund Management Limited

  • TATA Pension Management Limited

  • UTI Retirement Solutions Limited

  • SBI Pension Funds Private Limited

As for the asset classes you can choose from, you have the following options:


  • Asset class G: Government securities and instruments 

  • Asset class C: Corporate bonds and instruments

  • Asset class E: Equity and related instruments 

  • Asset class A: Alternative Investment Funds (AIFs) which include instruments like MBS, CMBS, REITS etc.

When you choose this investment choice in NPS, you also need to be aware of the maximum investment allocation allowed under each asset class. This limit varies for Tier I and Tier II NPS accounts as follows:

Asset Class

Investment Limit for Tier I Account

Investment Limit for Tier II Account

Government securities (G)



Corporate bonds (C)



Equity (E)



Alternative Investment Funds (A)



You cannot invest in asset class A from a Tier II NPS account. So, the concept of an investment cap or limit will not apply to these assets. 


In addition to the above key pointers about the active choice investment option for NPS, the Pension Fund Regulatory and Development Authority (PFRDA) has also set the following rules for selecting PFMs under this option. 


  • You can select multiple PFMs for different asset classes

  • This facility is available for NPS Tier I subscribers under the ‘All Citizens’ sector and the corporate sector, and for NPS Tier II subscribers under all sectors 

  • You can select up to 3 PFMs for asset classes G, C and E

  • The PFM for asset class A should be the same as the PFM selected for any one of the other 3 asset classes

2. Auto Choice

In this investment option for NPS, your investments will be made in a life cycle fund. The asset allocation is pre-defined and gets less risky or aggressive as you grow older. It is based on the principle that as a person ages, their tolerance for market risk reduces. 


There are three different kinds of investment options available in the auto choice for NPS. These three options are outlined below. 

  • LC75 - Aggressive Life Cycle Fund:

True to its name, this life cycle fund starts with a 75% asset allocation in the equity asset class till the age of 35. As the subscriber’s age increases, the allocation in equity decreases and the allocation in other conservative asset classes increases. This fund is best suited for investors with a higher risk appetite. 

  • LC50 - Moderate Life Cycle Fund:

In the moderate life cycle fund, the initial asset allocation in equity is 50% till the age of 35. Thereafter, the exposure in equity decreases and in other asset classes increases. If you are an investor looking for a balanced portfolio, this may be more suitable for you.  

  • LC25 - Conservative Life Cycle Fund:

In case you are risk averse, you may want to limit your exposure to the equity asset class. Here is where the conservative life cycle fund may be the best investment option in NPS for you. It begins with a 25% exposure in equity till the age of 35, and then reduces over the years. 

NPS Auto or Active: Which is Better?

Now that you know about the two options available, you will have to understand how to choose the right NPS investment option - active or auto. The key to identifying the best investment option in NPS for your portfolio depends on your risk appetite and your financial goals. 


If you are a new subscriber to the NPS system, or if you are generally risk averse and wish to ensure that your portfolio aligns with your risk appetite as you age, the auto choice may be the best NPS investment option for you. This way, you do not have to actively decide how much to allocate in each asset class. Once you get a better idea of what works for you, you may choose to switch to the active investment scheme. 


On the other hand, if you are more aware of how much risk you can tolerate and take on, you may find that the active choice is the best investment option in NPS for your portfolio. Keep in mind that you should only select this investment choice in NPS if you have a good understanding of the markets and the different asset classes.


This sums up the key details of which investment option is better in NPS and when you should choose each of them. The good news is that you can change your asset allocation choice or scheme up to 4 times a year. So, you can monitor your NPS portfolio and rebalance it as needed every quarter, if needed. You can also switch between the auto and active investment options for NPS up to the maximum number of times allowed.

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