Learn how to choose the right NPS asset allocation between equity (E), corporate bonds (C), and government securities (G) based on your age, risk tolerance, and retirement goals.
NPS gives you a choice: how much to put in equity, corporate bonds, and government securities. This allocation decision can make a difference of lakhs in your retirement corpus.
Understanding these asset classes and choosing the right mix is crucial for maximizing your NPS returns.
NPS Asset Classes Explained
The Three Asset Classes
| Asset Class |
Symbol |
What It Is |
Risk |
Expected Return |
| Equity |
E |
Stocks of large companies |
High |
10-14% |
| Corporate Bonds |
C |
Bonds of corporations |
Medium |
8-10% |
| Government Securities |
G |
Government bonds |
Low |
7-8% |
Calculate your NPS growth: Use our NPS Calculator to see impact of different allocations.
Equity (E) - Growth Engine
| Feature |
Details |
| Invests in |
Nifty 50, large-cap stocks |
| Maximum allocation |
75% (Active), 75% (Auto LC75) |
| Risk level |
High (can drop 20-30% in bad years) |
| Best for |
Long-term growth, young investors |
| Historical return |
10-14% CAGR |
Corporate Bonds (C) - Balanced Returns
| Feature |
Details |
| Invests in |
Bonds of AAA/AA rated companies |
| Risk level |
Medium |
| Best for |
Moderate risk takers, middle age |
| Historical return |
8-10% CAGR |
Government Securities (G) - Safety Net
| Feature |
Details |
| Invests in |
Government bonds, T-bills |
| Risk level |
Very low (sovereign guarantee) |
| Best for |
Capital preservation, near retirement |
| Historical return |
7-8% CAGR |
Historical Performance Comparison
NPS Fund Returns by Asset Class (Indicative)
| Period |
Equity (E) |
Corporate (C) |
Govt Sec (G) |
| 1 Year |
15-25% |
7-9% |
6-8% |
| 3 Years |
12-16% |
7-9% |
7-8% |
| 5 Years |
11-14% |
8-9% |
8-9% |
| 10 Years |
10-13% |
9-10% |
8-9% |
Returns vary by fund manager. Check PFRDA website for latest.
Why Equity Matters Long-Term
₹5,000/month NPS for 30 years:
| Allocation |
Expected Return |
Corpus at 60 |
| 75% E, 15% C, 10% G |
11% |
₹1.24 Cr |
| 50% E, 30% C, 20% G |
9.5% |
₹97 L |
| 25% E, 35% C, 40% G |
8.5% |
₹81 L |
| 0% E, 40% C, 60% G |
7.5% |
₹67 L |
Higher equity = ₹43-57 L more corpus over 30 years.
Active Choice vs Auto Choice
Active Choice
You manually select allocation percentages.
| Feature |
Details |
| Your control |
Full (choose E, C, G %) |
| Maximum equity |
75% |
| Rebalancing |
Manual (you decide when) |
| Best for |
Financially aware investors |
Auto Choice (Lifecycle Funds)
System automatically adjusts based on age.
| Option |
Equity at 35 |
Equity at 45 |
Equity at 55 |
| Aggressive (LC75) |
75% |
55% |
15% |
| Moderate (LC50) |
50% |
40% |
10% |
| Conservative (LC25) |
25% |
20% |
5% |
Auto LC75 allocation by age:
| Age |
Equity |
Corporate |
Govt Sec |
| 25-35 |
75% |
10% |
15% |
| 40 |
55% |
15% |
30% |
| 50 |
25% |
20% |
55% |
| 55 |
15% |
20% |
65% |
Recommended Allocations by Age
Age 25-35 (Aggressive Growth)
| Asset Class |
Active Choice |
Why |
| Equity (E) |
75% |
25-35 years to retirement |
| Corporate (C) |
15% |
Some stability |
| Government (G) |
10% |
Minimal safety |
Or use: Auto LC75 (Aggressive)
Age 35-45 (Growth with Moderation)
| Asset Class |
Active Choice |
Why |
| Equity (E) |
60-70% |
Still 15-25 years horizon |
| Corporate (C) |
20% |
Increasing stability |
| Government (G) |
10-20% |
Building safety base |
Age 45-50 (Balanced)
| Asset Class |
Active Choice |
Why |
| Equity (E) |
50% |
10-15 years horizon |
| Corporate (C) |
30% |
More stability |
| Government (G) |
20% |
Growing safety |
Age 50-55 (Conservative Growth)
| Asset Class |
Active Choice |
Why |
| Equity (E) |
30-40% |
5-10 years to retirement |
| Corporate (C) |
35% |
Balanced income |
| Government (G) |
25-35% |
Capital protection |
Age 55-60 (Capital Preservation)
| Asset Class |
Active Choice |
Why |
| Equity (E) |
15-25% |
Near retirement |
| Corporate (C) |
35% |
Stable returns |
| Government (G) |
40-50% |
Maximum safety |
Active vs Auto: Which to Choose?
Choose Active Choice If
| Criteria |
Reason |
| You understand asset allocation |
Can make informed decisions |
| Want maximum equity exposure |
Active allows 75% throughout |
| Plan to actively rebalance |
Will review periodically |
| Have other retirement savings |
Can take more risk in NPS |
Choose Auto Choice If
| Criteria |
Reason |
| First-time investor |
System handles complexity |
| Don't want to manage |
Set and forget |
| Prefer automatic rebalancing |
Reduces risk as you age |
| Unsure about allocation |
Default works well |
Active vs Auto: Performance Comparison
Assuming same starting age (30) and retirement (60):
| Choice |
Approach |
Expected Corpus (₹5K/month) |
| Active 75% E throughout |
Aggressive |
₹1.24 Cr |
| Auto LC75 |
Reduces E with age |
₹1.05 Cr |
| Auto LC50 |
Moderate |
₹95 L |
| Auto LC25 |
Conservative |
₹85 L |
Active with high equity wins but requires discipline to maintain during crashes.
Rebalancing Your NPS
When to Rebalance (Active Choice)
| Trigger |
Action |
| Every 2-3 years |
Review allocation |
| After major life event |
Adjust risk tolerance |
| Approaching retirement |
Reduce equity |
| Market crash (if brave) |
Increase equity |
How to Rebalance
| Step |
Action |
| 1 |
Log in to CRA (KFintech/Protean) |
| 2 |
Go to allocation change section |
| 3 |
Enter new percentages |
| 4 |
Confirm with OTP/T-PIN |
Note: You can change allocation once per financial year (or as per current rules).
Rebalancing Strategy
| Scenario |
Current |
Target |
Action |
| Young, equity underweight |
50% E |
75% E |
Increase E by 25% |
| Mid-career |
75% E |
60% E |
Reduce E by 15% |
| Pre-retirement |
60% E |
30% E |
Reduce E by 30% |
Impact of Allocation on Corpus
30-Year NPS: ₹10,000/Month Contribution
| Allocation |
Expected Return |
Final Corpus |
Difference |
| 75/15/10 |
11% |
₹2.48 Cr |
+₹1.14 Cr |
| 60/25/15 |
10% |
₹2.08 Cr |
+₹74 L |
| 50/30/20 |
9% |
₹1.74 Cr |
+₹40 L |
| 30/35/35 |
8% |
₹1.34 Cr |
Baseline |
Wrong allocation can cost you over ₹1 crore.
Why 1% Return Matters
| Extra Return |
30-Year Impact on ₹10K/month |
| +1% |
+₹35-40 L |
| +2% |
+₹75-85 L |
| +3% |
+₹1.1-1.2 Cr |
Small allocation changes = Large corpus differences.
Common Allocation Mistakes
1. Too Conservative Too Early
| Age |
Wrong Allocation |
Right Allocation |
| 30 |
30% E, 30% C, 40% G |
75% E, 15% C, 10% G |
| Cost over 30 years |
~₹50 L less corpus |
Maximum growth |
At 30, you have 30 years to recover from any crash.
2. Not Reducing Equity Near Retirement
| Age |
Wrong |
Right |
| 55 |
75% E (from age 30) |
25% E |
| Risk |
Major crash = delayed retirement |
Protected corpus |
Reduce equity progressively from age 45.
3. Ignoring Corporate Bonds
| Allocation |
Issue |
| 75% E, 0% C, 25% G |
Missing C's balanced returns |
| Better |
75% E, 15% C, 10% G |
Corporate bonds provide better returns than G with moderate risk.
4. Switching Allocation During Market Crash
| Action |
Consequence |
| Panic switch to 0% E during crash |
Locks in losses, misses recovery |
| Better |
Maintain or increase E |
Stay disciplined with your long-term allocation strategy.
Allocation Based on Risk Tolerance
Risk Assessment
| If You Would... |
Risk Tolerance |
Equity Allocation |
| Panic if portfolio drops 30% |
Low |
25-40% |
| Feel uncomfortable but hold |
Medium |
50-60% |
| See it as buying opportunity |
High |
70-75% |
Sample Allocations by Risk Profile
| Profile |
E |
C |
G |
Best For |
| Very Aggressive |
75% |
15% |
10% |
Young, high risk tolerance |
| Aggressive |
65% |
20% |
15% |
Young, moderate risk |
| Balanced |
50% |
30% |
20% |
Middle-aged, balanced |
| Conservative |
35% |
35% |
30% |
Pre-retirement |
| Very Conservative |
20% |
40% |
40% |
Near retirement |
Fund Manager Performance
NPS Fund Manager Returns (Equity - Tier I)
| Fund Manager |
1Y Return |
5Y Return |
10Y Return |
| SBI Pension |
18% |
12% |
11% |
| LIC Pension |
17% |
11% |
10% |
| HDFC Pension |
19% |
13% |
11% |
| ICICI Pru Pension |
18% |
12% |
11% |
| Kotak Pension |
17% |
12% |
10% |
| Birla Sun Life |
18% |
12% |
- |
| UTI Retirement |
16% |
11% |
10% |
Returns are indicative. Check PFRDA for latest.
Differences are small (1-2%). Focus more on allocation than fund manager.
My Recommended Approach
Age-Based Active Choice Strategy
| Age |
E |
C |
G |
Rationale |
| 25-35 |
75% |
15% |
10% |
Maximum growth potential |
| 36-40 |
70% |
18% |
12% |
Slight moderation |
| 41-45 |
60% |
25% |
15% |
Building stability |
| 46-50 |
50% |
30% |
20% |
Balanced approach |
| 51-55 |
35% |
35% |
30% |
Protecting gains |
| 56-60 |
20% |
35% |
45% |
Capital preservation |
For Those Who Want Simplicity
Just choose Auto LC75 (Aggressive Lifecycle Fund) and forget about it. The system will automatically reduce equity as you age.
Conclusion
| Decision |
Recommendation |
| Young (< 35) |
75% equity (Active or Auto LC75) |
| Middle (35-50) |
50-70% equity, reduce gradually |
| Pre-retirement (50-60) |
20-40% equity, capital preservation |
| Choice type |
Active if engaged, Auto if hands-off |
| Rebalancing |
Every 2-3 years or at life events |
Key takeaways:
- Equity is the growth engine—use maximum when young
- Reduce equity progressively after 45
- Don't panic during market crashes
- Small return differences = Large corpus differences
- Active Choice gives control, Auto Choice gives convenience
Your NPS allocation today shapes your retirement tomorrow.
Model different allocations: Use our NPS Calculator to see how allocation affects your retirement corpus.
