Auto Choice
Also written NPS Auto Choice · Auto Choice Option
The NPS investment option in which your contributions go into a lifecycle fund that automatically cuts equity and raises corporate bonds and government securities as you grow older.
In plain language
When you join the National Pension System (NPS), you have to decide how your money is invested. You can decide yourself, or you can let the system decide for you.
Auto Choice is the second way. Your contributions go into a lifecycle fund, which divides your money between asset classes according to your age.
The rule is simple and sensible:
- When you are young, more goes into equity, which can grow faster but is riskier.
- As you get older, the share of equity goes down, and the share of corporate bonds and government securities goes up.
The idea is that you have time to recover from market falls when you are young, but not when retirement is close. Auto Choice makes that shift for you, without you having to remember.
How it works
The booklet's definition (Chapter 7): "Under this choice the subscriber's contribution will be invested in the lifecycle fund. The lifecycle fund is a dynamic allocation of the subscriber's wealth to the different asset classes in a defined proportion determined by the age of the subscriber, with the exposure to equity decreasing and that to the safer corporate bonds and government securities increasing with the age of the subscriber."
The NPS asset classes:
| Class | What it holds | Booklet's label |
|---|---|---|
| E (Equity) | Predominantly equity-oriented investments | High return, high risk |
| C (Corporate Bonds) | Fixed income securities other than government securities | Medium return, medium risk |
| G (Government Securities) | Pure low-risk government fixed income | Low return, low risk |
| A (Alternative Investments) | CMBS, MBS, REITs, AIFs, InvITs and similar | High risk, high return; not available for Tier II contributions |
The alternative: Active Choice. The subscriber decides the proportion in each class. The only limits: E cannot exceed 75%, and A is restricted to 5%.
| Active Choice | Auto Choice | |
|---|---|---|
| Who decides the mix | The subscriber | The lifecycle fund, by age |
| Changes with age | Only if the subscriber changes it | Automatically |
NPS basics that go with it. Open to all citizens from 1 May 2009 on a voluntary basis, for ages 18-60; each subscriber gets a lifelong PRAN; regulated by PFRDA.
The booklet does not give the exact percentages the lifecycle fund uses at each age.
A worked example
The percentages below are illustrative only. The booklet says equity falls and bonds and government securities rise with age, but does not give the actual proportions.
Two NPS subscribers each contribute Rs 4,000 a month under Auto Choice.
Nikhil, age 26. The lifecycle fund places a larger share in equity:
| Class | Illustrative share | Of Rs 4,000 |
|---|---|---|
| E | 50% | Rs 2,000 |
| C | 30% | Rs 1,200 |
| G | 20% | Rs 800 |
Meera, age 55. The same fund, applied to her age, is far more cautious:
| Class | Illustrative share | Of Rs 4,000 |
|---|---|---|
| E | 15% | Rs 600 |
| C | 35% | Rs 1,400 |
| G | 50% | Rs 2,000 |
Why it matters. Suppose equity markets fall 20% in a year. On the equity part of one month's contribution:
Nikhil: 2,000 × 20% = Rs 400 fall
Meera: 600 × 20% = Rs 120 fall
Nikhil has over 30 years for markets to recover; Meera has about 5. Neither had to change any setting: Auto Choice moved Meera to a safer mix as she aged.
If Nikhil instead chose Active Choice, he could put up to 75% in equity, but no more.
Why NISM asks about it
Chapter 7 (Pension, Retirement and Estate Planning) covers NPS: Tier I and Tier II, the E, C, G and A asset classes, and the two investment choices. Expect: "under which option is money invested in a lifecycle fund?" (Auto Choice), "what happens to equity exposure as the subscriber ages?" (it decreases), and the Active Choice limits (E up to 75%, A up to 5%).
Common exam traps
- Auto Choice = lifecycle fund, decided by age. Active Choice = the subscriber decides.
- Equity goes down with age, and corporate bonds and government securities go up. Do not reverse it.
- The 75% equity cap and 5% alternative-investment cap belong to Active Choice.
- Asset class A is not available for Tier II contributions.
- G is low risk, C is medium, E and A are high, by the booklet's labels.
- NPS is regulated by PFRDA, not SEBI or IRDAI.
Where this is taught
- Series X-B · Chapter 5: Retirement Productsintroduced here
- Series SEBI-ICE · Chapter 7: Pension, Retirement and Estate Planningintroduced here
Related terms
- Active ChoiceThe NPS investment option under which the subscriber sets the split across the E, C, G and A asset classes personally, subject to a 75 percent cap on equity and 5 percent on alternatives.
- Asset allocationThe decision on how to distribute a client's wealth across asset classes — the first decision in building a portfolio, and the one that explains most of what the portfolio then does.
- National Pension SystemA PFRDA-regulated, defined-contribution retirement scheme in which the subscriber builds a market-linked corpus and must convert part of it into an annuity at exit; there is no guaranteed return.
- Permanent Retirement Account NumberThe unique account number issued when an NPS account is opened; it stays with the subscriber for life and across employers, which is what makes NPS portable in a way EPF historically was not.
- Life Cycle FundAn open-ended scheme with a target maturity date between 5 and 30 years, which follows a glide path across equity, debt and other assets — shifting away from equity as maturity approaches.
- Tier II accountThe voluntary NPS investment account open only to holders of an active Tier I account, with no withdrawal restrictions, no mandatory annuity and, except for NPS-TTS, no tax benefit.
- Lifecycle fundThe NPS Auto Choice investment option that shifts a subscriber's money away from equity and toward safer bonds and government securities automatically, as they age.
- Multiple Scheme FrameworkThe PFRDA framework, effective 1 October 2025, that lets non-government NPS subscribers hold branded pension-fund schemes alongside the existing Common Schemes under a single PRAN at each CRA.