The entry of the second CRA has led to a lowering of the fees. NPS also has low fund management charges and offers the option of investing in schemes that have high equity component to generate good returns.
The competition ushered in by the entry of a second Central Recordkeeping Agency (CRA) into the National Pension System (NPS) that has triggered off a reduction in fee structure is yet another step in making NPS one of the best retirement savings option for the long term.
The lowering of CRA fee structure is accompanied by low fund management charges under NPS and the option of investing in schemes that have high equity component for the risk-taking investor along with the highly safe option of investing in a pure debt scheme.
The Pension Fund Regulatory and Development Authority (PFRDA) has recently allowed Karvy Computershare Ltd to compete with the NSDL e-Governance Ltd, the existing CRA. Karvy Computershare will be fully operational CRA from March 31, 2017. A CRA is a depository offering service to NPS subscribers.
Karvy has been licensed with a lower fee structure than that offered by NSDL. The latter has also decided to bring down its fees from April 1, 2017.
Karvy will be offering its services to subscribers of NPS regular with an annual maintenance charge (AMC) of Rs 57.63, less than one-third of the present Rs 190 annual maintenance charge being offered by NSDL. However, from April 1, NSDL will levy lower charges for regular NPS by bringing AMC to Rs 95. There will be a lowering of account opening and transaction charges as well.
The lowering of CRA charges comes at a time when PFRDA is set to licence 10 new fund managers with a cap of 0.1 percent per annum (10 basis points) on investment management fees. The fee structure for fund managers under NPS is substantially low compared to that levied by mutual funds and insurance companies on investments. The overall impact of the low structure over the accumulation period on a person’s corpus would be substantial.
Along with a low fee structure, NPS also offers a life-cycle fund where equity investment can go right up to 75 percent at age younger age, which gradually comes down as one grows older. The option of such a high equity component opens up the possibility of generating inflation-beating returns over the long run and building a decent corpus for retirement years.
The PFRDA has also allowed investment up to 5 percent in alternative investments such as venture capital and private equity, which is high risk but comes with the possibility of high returns.
The NPS architecture and investment options provide a platform to create a healthy retirement corpus for those who are looking to save for their golden years.