Pension fund managers’ fees would likely be raised by a new round of licensing on the cards. Such charges are currently limited to 0.01%. The Pension Fund Regulatory and Development Authority (PFRDA) released a circular on 13 August clearing the way for a new round of licenses, which will include permanent licenses rather than those granted for five years at this time. Industry analysts say the new fees will increase by up to 0.1%.
‘An RFPs may be a ceiling,’ said Narayanan Sadanandan, managing director and chief executive of SBI, who added: ‘The regulatory authorities may set a limit for the following round of RFPs;’ I nevertheless expect that the pension fund managers (PFM’)’ would raise their fees to somewhere between 0.1 and 0.25 percent. One-hundredth of a percent is a base point.
“Throughout the RFP cycle the limit was last raised to 0.1%.0.15-0.2% will be the probably figure this time around. Our cost of brokerage alone is five basis points, “a senior manager in another pension fund said.
Due to uncertainty over FDI rules in pension funds, however, the previous 2016 round of RFPs envisaged an increase to 0.1% in PFM payments, as opposed to the existing 0.01%.
Amit Gopal, Mercer’s Indian business chief, clarified why an increase in the fee is important to the sector. “A greater capital demand is expected for pension fund administrators, which needs increased charges. In reality, a modest increase will benefit investors and increase the competitiveness of the industry. Note, too, that pension fund managers do not only construct passive funds but also pick stocks actively, “he said.
Besides PFM payments, NPS funds have charges for intermediaries (0.25 percent of contributions), such as custodial, CRA, and Point of Presence (PoP) charges. Yet even though pension funds are included and factored in a rise, they would be compared favorably with competitive financial products, such as mutual funds and insurance firms.
The cost ratios for mutual funds are reduced to 2.25 percent, 225 times the rate for the PFM currently. The insurance premium premiums are even more costly. For example, unit-linked insurance policies (Ulips) are limited to 1.35% and a number of other charges, such as premium distribution fees, termination charges, and discontinuation fees.
