NPS: What is the difference between auto and active choice?

livemint.com:

National Pension System (NPS) is considered a feasible alternative too. Contrary to a widely-held perception, NPS contributions are open to corporate employees as well. When you invest in the NPS, you can get exposure to four different asset classes: equity, corporate bonds, government bonds and alternative investment funds (AIFs).

Besides, the retirees can opt for any of the 10 pension fund managers based on their credibility and their past returns, among other factors. However, one of the key reasons that determine the performance of your NPS investment is the proportion in which you invest in these asset classes. For the unversed, investors have two options to determine their allocation in asset classes.

First, opt for a pre-decided pattern or second, choose the ratio on their own. The former method is known as ‘auto’ choice, while the latter is ‘active’ choice. 1.

Auto choice: This is essentially meant for the investors who want to cut down their allocation to equity with advancing age. The proportion in three asset classes will be determined in a pre-defined ratio that changes with an increase in age. There are three sub-categories within the category of auto choice.

Aggressive auto choice: In this the maximum allocation to equity can be 75 percent of total assets till the age of 35. Then it reduces by 4 percent with every passing year i.e., 71 percent at 36, 67 percent at the age of 37, so on and so forth. Moderate auto choice: In the moderate lifecycle fund, the maximum allocation to equity is 50 percent till the age of 35, and the remaining in corporate and government bonds.