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Expect 5-fold jump in NPS fund management fee; slabs to be introduced

Currently, there are seven pension fund managers - Aditya Birla Sun Life Pension Management, HDFC Pension Management Company, UTI Retirement Solutions, SBI Pension Funds Private, ICICI Prudential Pension Funds Management, Kotak Mahindra Pension Fund and LIC Pension Fund

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The National Pension System (NPS), under the supervision of pension regulator PFRDA, is growing and improving. Expanding the gambit of the pension fund industry for NPS subscribers, the regulator will soon issue licences to more pension fund managers to manage NPS funds. At the same time, the pension fund management fee is being revised to make the NPS fund management business viable and attract serious players.

The request for proposal (RFP) has already been floated to which the interested parties should reply by January 22. "By the end of March, 2021 we hope to have more fund managers. We haven't fixed a number as to how many PFMs will be added," says Supratim Bandyopadhyay, Chairman, PFRDA.

Revision in fund management fee

Currently, there are seven pension fund managers - Aditya Birla Sun Life Pension Management, HDFC Pension Management Company, UTI Retirement Solutions, SBI Pension Funds Private, ICICI Prudential Pension Funds Management, Kotak Mahindra Pension Fund and LIC Pension Fund.

PFMs charge a flat fee of 1 paisa for every Rs 100 assets under management. Now there will be a slab structure to calculate the fund management fee. "The AUM size varies among various fund managers. If the biggest fund manager is managing more than Rs 2 lakh crore, the smallest one is managing just Rs 300 crore. So, we thought we can't put them all in parallel. We are proposing little higher fees for PFMs managing less AUM. As the AUM goes up in the slab, the fees will go down," says the Chairman.

Following are the four slabs with the fund management fees in the range of 3 paise to 9 paise:

A cap of 9 paise for the AUM up to Rs 10,000 crore; 6 paise for the AUM between Rs 10,000 crore and Rs 50,000 crore; 5 paise for the AUM between Rs 50,000 crore and Rs 1.5 lakh crore and a flat fee of 3 paise for the AUM above Rs 1.5 lakh crore.

Eligibility criteria for new PFMs

The new fund managers have to meet certain technical requirements before they make their commercial bids. Below are the four key ones:

  • Fund management experience of five years in equity and debt categories
  • Rs 50,000 crore average AUM in the last one year
  • Minimum capital requirement of Rs 50 crore, from the earlier Rs 25 crore
  • The fund house should have been profitable for at least 3 years in the last 5 years; no cash loss in any of those years

"Based on the requirements, final approvals will be given by the board of PFRDA. Once that happens we'll issue licences. We hope to announce new fund managers by March-end."

How will a large number of PFMs be beneficial for the industry? "Since the product is more or less same, the fund managers will focus on performance to gain larger market share. The competition will drive them to introduce better risk management practices and customer-friendly services. Besides, a larger number of players will ensure heightened awareness around NPS, which is needed," says Bandyopadhyay.

How to choose a PFM?

With a number of pension fund managers to be chosen from as you subscribe to the NPS, you need to take a prudent call. "You have to look at long-term performance given by various PFMs as to how they have performed in different cycles. Don't go by one-month, six-month or a year or two years of returns. The ones with limited downside and steady performance over a long period should be your choice," says Bandyopadhyay.

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