More equity in NPS, newer fund managers allowed, but startup investments still being examined: PFRDA Chief

In an exclusive ‘Simply Save’ podcast with Moneycontrol held last week, Supratim Bandyopadhyay, chairman of Pension Funds Regulatory and Development Authority (PFRDA) spoke about easing of NPS guidelines to allow more pension fund managers to enter the space. And that was the rationale behind raising the expense ratio, which has traditionally been the lowest among all financial sector products. Bandyopadhyay also held a press conference on August 17, highlighting the challenges of investing in start-ups. According to PFRDA, NPS added over 2.4 lakh non-government sector subscribers in this financial year, till August 13, up from 1.6 lakh during the same period last year.

If you are an NPS investor, here are three changes related to your investments.

Also listen: Simply Save podcast. An exclusive interaction with PDFRA chairman, Supratim Bandyopadhyay

On NPS investing in start-ups

The successful listing of Zomato has attracted many investors’ attention towards start-ups. Those who favour investing in start-ups say that NPS is one of the best vehicles to invest for retirement, given its long horizon. Also, investors seldom withdraw prematurely, and stay around till their retirement age.

Bandyopadhyay says that investments in start-ups are still being examined. "In our sector, the pension funds declare the net asset value on a daily basis. This is not true of EPFO and LIC. We will have to look at the valuation of these start-ups and then take a call," he told reporters at the virtual news conference. Some reports suggested that the government was mulling allowing LIC and Employees’ Provident Fund Organisation (EPFO) to invest in start-ups.

NPS can now invest in IPOs

The NPS can now invest in initial public offers (IPOs). “The government sector makes up 80 percent of NPS’ asset base. We felt that if we do not allow IPOs, then fund managers and subscribers would be missing out on the opportunities,” he said in the Simply Save podcast last week. The private-sector pension funds are already allowed to invest in IPOs. Already, all NPS schemes are being allowed to invest in Futures and Options (F&O) instruments.

More pension funds managers

Expect more foreign fund managers to participate in the launch of more pension funds in India. Bandyopadhyay says that PFRDA’s move to allow foreign direct investment in NPS to be hiked from 49 percent to 74 percent will bring in more firms. Investors will get more choices to save up for their retirement.

Axis Bank is set to enter the pension fund space soon after its application was recently approved, taking the number of pension fund managers to eight. Also, PFRDA has already approved on-tap registration since July. “Our committee is looking into their applications. If they meet all the eligibility conditions, we could have ten pension fund managers in two months’ time,” he says.

NPS are now slightly more expensive

This follows the relaxation in cap on investment management charges, which are linked to assets under management (AUM) slabs. The minimum fee has gone up from 0.01 percent to 0.03 percent. The maximum cap is set at 0.09 percent. “More players, greater competition bring the best for customers. So, we wanted good sponsors with strong track record to come and join us…the fee is now linked to AUM slabs, which makes their business very sustainable. This also allow them to generate surplus so that they reinvest in the business to get the best manpower and IT expertise from the market. The new applications that we are getting is because of increase in fund management charge,” he says.

More investment in equities

Soon, NPS subscribers who maintain tier-II accounts could be allowed to allocate 100 percent of their funds to equities. At present, the maximum limit is 75 percent.

Coming soon, systematic withdrawal plans

Bandyopadhyay said investors complained about annuity rates being too low. To be sure, when you withdraw from your NPS at age 60, you can withdraw 60 percent of your corpus. The remaining 40 percent must be invested in an annuity plan which will give you a lifetime pension. He says that many investors prefer SWP over an annuity income. “These changes will be implemented only after the amendments to the PFRDA Act, which are awaiting parliamentary approval, go through,” he says.