Jayanta Mallick

Kolkata, May 7 Market players and mutual fund industry generally welcome the extension of the New Pension Scheme to all citizens from May 1.

But some seems to have certain apprehensions regarding its initial success among investors.

Analysts and observers of the equity markets feel that the positive impact on the equity market will be felt as the scheme grows.

The six pension fund managers have been mandated to invest up to a ceiling of 50 per cent in equities.

“Over a period of time this would increase availability of risk capital in the market, help in deepening the secondary market and elongate investment horizon. The new money would also bring in a balance in structure of competition among market players,” said Mr Dipankar Mitra, an analyst at Noble group.

Arindam Ghosh, Chief Executive Officer of Mirae Asset Management in India, said the growing fund flow to equities would lessen susceptibility of local market to volatility.

Mr Dhirendra Kumar, Chief Executive of Value Research, a mutual fund industry monitor, said the scheme of things envisaged by Pension Fund Regulatory and Development Authority for six pension fund managers were of “hands-off” kind – they would have to promote a new company through which it would advise.

This would ensure a safety wall.

But there are issues with promotion of New Pension Scheme among new small investors.

“Pension fund managers cannot take up the promotional activity simply on cost consideration. Fund managers are allowed to charge just 0.0009 per cent a year. On the other hand, the Pension Fund Regulatory and Development Authority, which could take up the promotional activity, does not have the required fund to launch a nationwide campaign,” he added.

The Government may have to chip in through some innovative ways.

Mr Ghosh said in South Korea, where Mirae is the largest pension fund manager, the regulator did the promotion.

“The whole issue depends on the state of maturity of the market.”

He expects that at some stage, wider participation of fund players who have a track record would be allowed.

For the fund to success, there has to be volume and momentum.

Mr Kumar said a fixed cost of Rs 780 a year for an investor, who is opting for a minimum NPS investment of Rs 6,000 a year, would mean an upfront burden of 13 per cent.

“This is too high to attract an investor from the unorganised sector.”

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