NSDL versus NPS PDF Print E-mail
Friday, 03 August 2012 00:00
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Unless NSDL cuts charges, NPS won't take off



Under normal circumstances, a large number of the 5 crore subscribers of the government-run Employees Provident Fund Organisation (EPFO) would like to move to the New Pension scheme where, not only are returns higher, you can get to choose your fund manager and even the investment profile you’d like—more equity when you’re young and more debt as you grow older. In FY12, while the EPFO gave its subscribers a return of 8.25%, government employees under NPS earned 9.3%. The problem, however, is that the law doesn’t allow you to leave the EPFO once you’re a subscriber. There is a loophole, however, and it is not mandatory that anyone earning more than R6,500 per month has to be a member of the EPFO. The EPFO chief has told FE the plan is to plug this loophole by raising this limit to R10,000, possibly R15,000. While that is something to be resisted since it will ensure EPFO’s monopoly gets perpetuated, a lot more needs to be done if the NPS is to take off.

Right now, with a charge of 4-5% per year, the EPFO is probably the most expensive mutual fund in the world, more so since it really buys just safe securities, often those issued by the government. The problem, however, is that the way it is structured, the NPS charges an even higher commission than the EPFO. Since the Central Recordkeeping Authority (CRA), in this case NSDL, charges R280 as an annual fee, a person depositing R6,000 per year can end up paying a fee of 7% if the amount is paid in 6 transactions—0.25%, or a minimum of R20, has to be paid per transaction. If the amount is paid in 12 instalments, the fee can be as high as 10%, thereby negating the higher returns from the NPS. Theoretically, the transaction costs can be brought down since the annual NSDL fee goes down to R70 for NPS-Lite, but that applies only to deposits under R12,000 per year. Considering NSDL and other depositories charge mutual funds a maximum of R8 per folio per year (a folio would equal one NPS account), there’s no reason why NPS charges should be so high. Of course, mutual funds have much higher volumes, but if NPS has to take off, the only way it can is if CRA charges are slashed, a point made by GN Bajpai committee that was set up to come up with ways to increase the NPS subscriber base.




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