The fund management charges for the National Pension System (NPS) are likely to fall as two more fund houses have evinced interest in managing the NPS corpus.
Currently, there are 11 fund houses (eight private and three Government-owned fund houses) managing the NPS corpus of about ₹40,000 crore. But now two more fund houses — Tata Capital and Aditya Financial Services — have decided to bid for managing the corpus, said industry sources.
In January, the Pension Fund Regulatory and Development Authority (PFRDA) decided to appoint new pension fund managers to manage the NPS for the unorganised sector, forcing the existing fund managers to bid again for a license.
The regulator also decided to once again fix the fee of the managers through competitive bidding. Earlier, the PFRDA had raised the fund management fee to 0.25 per cent from 0.0009 per cent. PFRDA called for re-bids after the earlier chairman Yogesh Agarwal resigned three years into his five-year term. According to industry sources, Hemant Contractor, Managing Director of State Bank of India, has been shortlisted for the post of Chairman and is likely to take over after clearance from the Central Vigilance Commission.
The chief executive officer of a private sector fund house said: “Companies have already placed bids at very low rates. Though the regulator will give out eight licenses (to private fund houses), 10 groups have applied. So, fund houses have panicked and bid lower.”
The eight pension fund managers from the private sector are: HDFC Pension Management Company, ICICI Prudential Pension Funds Management Company, Kotak Mahindra Pension Fund, Reliance Capital Pension Fund, DSP BlackRock Pension Fund Managers, LIC Pension Fund, UTI Retirement Solutions and SBI Pension Funds.
According to industry officials, distribution is a major issue for the NPS. Despite being much cheaper than insurance and mutual fund products, the low fee (0.25 per cent of the amount garnered) make marketing and distribution of the NPS product unviable for fund houses.
The NPS started as a pension scheme for employees of the unorganised sector in 2004. Subsequently, to lower its burden on account of pension liabilities, the Government moved its employees to NPS from the earlier defined benefit pension programme. In 2009, the NPS was extended to all employees.
Currently, NPS has 55 lakh subscribers with a total corpus of around ₹40,000 crore. The scheme has given returns of 12-14 per cent during 2012-13.