NPS Fee may be hiked

Source: sify.com/finance

Increase to be based on recommendations by Bajpai Panel, more players to be included.
There is good news for fund houses managing funds under the New Pension Scheme (NPS). The Pension Fund Regulatory and Development Authority (PFRDA) on Tuesday indicated that the fee structure, both to brokers and distributers, could see an increase once the G N Bajpai panel submits its report by December-end. In addition, there could be an increase in the number of fund houses managing the corpus as well.
Speaking on the sidelines of a Federation of Indian Chambers of Commerce and Industries (FICCI) function on the pension funds management, PFRDA chairman Yogesh Agarwal told reporters, " If the fee structure is opened up further, it will have look at giving room for more fund managers."
The pension regulator had appointed six pension fund managers (PFMs) –  SBI Pension Funds, UTI Retirement Solutions, Reliance Capital Pension Funds, ICICI Prudential Pension Funds, Kotak Mahindra Pension Funds and IDFC Pension Funds Management Company – to manage the NPS corpus. These players were selected after a competitive bidding process.
The existing fund management charges are 0.0009 per cent of the asset under management, which is valid for three years. Even the distributors such as, point-of-presence participants are paid a flat charge of Rs 40 for opening the account and per transaction fee of Rs 20. Consequently, both fund houses and distributors have been unwilling to promote NPS aggressively. "In the present structure, this brings in revenues of Rs 100 in the first year to the POP and Rs 80 in the subsequent years," said Agarwal.
Agarwal also added that there were talks about reasonableness and adequacy of charges. Since PFMs are required to be distinct legal entities, separate from their sponsors, and therefore have to be financially self-sufficient to be long-term players.
Said a CEO of one of the top-five fund houses, "The present structure does not make this a profitable venture for mutual funds because we have to dedicate manpower." He said that the mutual fund industry is managing around Rs 3 lakh crore in short-term liquid funds.

"The cost for managing these funds is as low as 30-40 basis points. NPS should pay us at least 15-20 basis points to make it financially viable," added the CEO.
Agarwal also indicated that for a scheme that is of the size of NPS, it would be important to have more players. The Bajpai panel is also considering this matter. The introduction of more players and free competition would be to the advantage of the NPS subscriber, according to the PFRDA chief.
The lack of success of the NPS was seen to be an amalgam of many factors, with lack of awareness, limited access, limited number of distribution points and lack of encouraging response from POPs, being the main issues.
There was a general feeling in the financial sector, the remuneration for the distribution of NPS is very low compared to other financial products. There is also perception that fund management changes are also very low which leave little space for the PFMs to actively promote NPS.