The pension fund regulator will finalize a guaranteed product, which will ensure a minimum return, by the end of this fiscal year. In addition, it is likely that the cap on pension fund managers’ fees will currently increase by one basis point of assets under management (AUM), which will allow more managers to enter.
“We are forming a committee very soon. During this fiscal year, we will formulate a product, then submit it to the board for approval, and then launch it,” said the chairman of the Regulatory and Development Authority. pension fund (PFRDA), Supratim Bandyopadhyay. a virtual press conference.
He said the minimum insured plans in the insurance and mutual fund industries have not worked very well.
“Whatever guaranteed products that existed in the insurance industry were withdrawn because it was felt that offering a guarantee for a long time might not be in the best interests of the organization. Sebi also doesn’t really encourage guaranteed products, ”Bandyopadhyay said.
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However, it will be introduced because it is part of the PFRDA law, said.
“The moment you give a guarantee, the capital requirements for fund managers increase. Currently this is absolutely the market value, we face no investment risk on ourselves. But the moment you give a guarantee and the markets go down, obviously the fund managers will have to bring in additional capital. Thus, actuarial inputs are needed. Not only the capital requirements, there are going to be different charge structures, there has to be a separate guarantee commission. We also have to decide what the warranty fee should be, ”the regulator said.
On increasing the fee cap for pension fund managers, Bandhyopadhyay said, “Our board has approved the formation of a committee to recommend a cap on fees. It also has people from the outside, such as the mutual fund industry. We expect a report once next week and by the second or third week of November the council will approve these rates. ‘
After that, PFRDA will issue requests for proposals for new fund managers by early December.
“Currently, fund managers charge very low fees. This is just a baseline of assets under management. We are assessing what it should be. It shouldn’t be too much, but it should be as much to ensure that fund managers have the best infrastructure. , IT backbone, research capabilities that will maintain long-term returns. We are making retirement a low cost product, ”he said.
Citing an example, he said, mutual funds have a total fund expense ratio and Sebi caps it based on the size of the fund. Mutual funds are free to charge fund management fees. “It’s much higher at 10-15% even for a liquid mutual fund or an index fund which is a type of passive fund,” he said.
Bandyopadhyay said that the PFRDA does not need to provide an actuarial valuation of the NPS, as the Comptroller and Auditor General of India (CAG) pointed out, as NPS currently has no guaranteed product. Once this product is launched, an evaluation would become necessary. For Atal Pension Yojna (APY), an actuarial valuation is in progress.
Pension fund managers under PFRDA have combined assets under management of Rs 5.5 trillion as of October 10, representing 35% year-on-year growth. “We have seen nearly 31 percent growth in assets under management since March 31 despite volatile markets,” he said.
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He said the goal is to raise AUM to nearly Rs 6 trillion by the end of March next year. For the current fiscal year, Bandyopadhyay expects AUM to continue to record compound growth of at least 30%, as has been the case in recent years.
The average PFRDA regime gave 9.72% return on equity as of October 9 for 11 years of investment, 10.31% return on corporate bonds, 10.13% on g-sec, 9, 9% on the central government scheme and 9.83% on the state government scheme.
However, due to market volatility, equity returns will be less than 4-5% for the current year, he said, clarifying that pension funds are long-term investments, it is necessary therefore consider longer term returns.
The regulator said the PFRDA has given its suggestions on the universal pension scheme and automatic enrollment with the finance ministry.
The plan will target employees in the unorganized sector as well as micro and small enterprises of less than 20 people each.
“We are working with the ministry to find out if we can get them under NPS or if they are not able to contribute if we can bring them under APY. There must be some constraint on employers that they are automatically enrolled. Employers can also contribute a little bit, ”he said.
Bandhyopadhyay said the Systematic Withdrawal Plan (SwP) will not be rolled out in the near future, but the PFRDA is seriously considering it.
“The current structure of the corpus will guarantee the SwP for 10 to 15 years, but you will need it for a longer period. It’s a challenge,” he said.