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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Retirement Products

Caselet: Ms. Nair, aged 30, wants to invest in NPS and asks about the Active and Auto choices for asset allocation. Which statement is correct?

Under NPS Auto choice, allocation follows a lifecycle approach, so equity exposure is reduced progressively as the subscriber gets older. In Active choice the subscriber, not the fund manager, chooses the split among asset classes within regulatory limits, and equity is allowed.

  1. AUnder Auto choice, equity exposure reduces progressively as the subscriber agesCorrect
  2. BUnder Auto choice, equity exposure increases as the subscriber ages
  3. CUnder Active choice, the fund manager decides the allocation for the subscriber
  4. DActive choice does not permit any equity investment

Explanation

Under Auto choice, allocation follows a lifecycle path, with equity exposure gradually reduced as the subscriber ages. Under Active choice the subscriber decides the split among asset classes within prescribed limits, and equity is permitted subject to the cap.

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