Mumbai: India’s New Pension System (NPS) promises the lowest fund management charges. But a closer look at the fine print brings out hidden costs.
An investor depositing Rs500 per month, or Rs6,000 a year, will have to cough up as much as Rs800, or 13%, as charges in the first year. There is a one-time charge of Rs50 to the central record keeping agency and Rs40 to the point of presence, while Rs350 must be paid as annual maintenance charge.
An investor also has to pay Rs30 every time one makes a deposit, switches a fund manager or even seeks a statement. Charges of demat, receipt of shares and charges by markets regulator Securities and Exchange Board of India are additional. Fund management charges are added to that.
“The cost to the investor is significantly higher unless he is investing Rs3,000 per month, as NPS is designed today,” said U.K. Sinha, chairman and managing director, UTI Mutual Fund.
The charge for NPS in subsequent years remains at around 11.84%, but it is still higher when compared to mutual funds or insurance pension plans. While the entry load for mutual funds is 2.25%, insurance pension plan charges are much higher in the initial year but decline close to 10% in the subsequent years.