National Pension System Trust charges will be cut by half from April 1. This used to be just 0.01% of your corpus and will now fall to 0.005% after 1st April 2018, according to an NPS Trust notification on 19th March.
As far as charges go, the NPS is one of the cheapest retirement products or even investment products around. Its pension managers are currently allowed to impose a charge of 0.01% on Assets under Management (AUM) which is a jaw-dropping 1/250th of what mutual funds charge. In addition to the fund manager charge, the NPS has a few other charges like the CRA (Central Record Keeping Agency) charges, Point-of-Presence (PoP) charges, Custodian Charges and NPS Trust charges. All of these are also incredibly low as the table below demonstrates. It is one of these components, the NPS Trust charge, this is further being reduced.
How much do the charges add up to
Many of the NPS charges are fixed rather than variable. This means that they do not grow automatically as your pension corpus grows in size. If you take a Rs 5 lakh pension corpus with NSDL, you will have to pay Rs 95 to NSDL as annual maintenance, 0.0032% to the Custodian, 0.01% to the Pension Fund Manager and 0.01% to the NPS trust. This comes to about Rs 211 or 0.04% of your corpus.
You might also pay 0.1% to 0.25% to the PoP (usually your bank) on fresh contributions to the corpus in the year. However even assuming the higher figure of 0.25%, your total charge for the year comes to just 0.29% of the corpus. Contrast that with 2-2.5% for mutual funds and even more for insurance.
Although the additional reduction in charges is welcome, the NPS might be going too far into cost reduction zone. The rock-bottom fees and costs mean that the scheme simply isn’t sold enough by intermediaries. Might the additional NPS trust charge have been used to promote the NPS?
The highly successful #MutualFundsSaiHai campaign shows how pooled industry resources can be put to good use. At the recently concluded 4th Pension Conference, NPS Trustee Radha Krishnan Nair called for increasing the commissions paid to Fund Managers to incentivise them to distribute the scheme. There has been a long-standing proposal to hike this from 0.01% to 0.1% but it has not been granted Government approval. This, we think, would be a step in the right direction.
|Intermediary||Charge head||Service Charges*|
|CRA (Central Record-Keeping Agency)||Account Opening charges||NSDL Rs 40 or Karvy Rs 39.36||Rs 15|
|Annual Maintenance cost per account||NSDL Rs 95 or Karvy Rs 57.63||NSDL Rs 25 or Karvy Rs 14.40|
|Charge per transaction||NSDL Rs 3.75 or Karvy Rs 3.36||Free|
|POP (Point-of-Presence)||Initial subscriber registration and contribution upload||Rs. 125||NA||NA|
|Any subsequent transactions||0.25% of contribution,||NA||NA|
|Min. Rs 20 Max. Rs 25000|
|Custodian||Asset Servicing charges||0.0032% p.a for Electronic segment & Physical segment|
|Pension Fund Manager charges||Investment Management Fee||0.01% p.a.||0.0102% p.a.|
|NPS Trust||Reimbursement of Expenses||0.01% p.a|