BackIs auction the right way to select NPS fund managers?
The Pension Fund Regulatory and Development Authority (PFRDA) wanted to select 10 fund managers for National Pension System (NPS) but only nine have bid.
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The Pension Fund Regulatory and Development Authority (PFRDA) wanted to select 10 fund managers for National Pension System (NPS) but only nine have bid. We asked experts if auctions are working for the NPS.
Renuka Sane, visiting faculty, Indian Statistical Institute
Pension fund managers (PFMs) dropping out of the bid, or not lining up to bid should not worry the PFRDA. There are eight managers already. As the assets under management (AUM) of the NPS increases, potential PFMs’ business calculations may change. The PFRDA should focus on the original mandate of the NPS—low-cost investment though index fund products.
Shailendra Kumar, MD and CEO, SBI Pension Fund Pvt. Ltd
Auction is a good way of discovering pricing for NPS. In the previous two auctions, managers had to match the lowest bid. Now there is a cap and fund managers can bid within the cap. It would perhaps be better if the cap was removed and each company could work out its own costing and bid as per its cost analysis, and the lowest bidders could then be selected.
Sumit Shukla, CEO, HDFC Pension Management Co. Ltd
The current format is much better than the previous two auctions. But the cap of 10 basis points could have been reconsidered. Even for a pension fund manager with substantial AUM, the running costs comes to 5-6 basis points. There should not be a cap on the number of fund managers, and also permanent licences should be given to fund managers to manage long-term monies.
Suresh Sadagopan, founder, Ladder7 Financial Advisories
The regulator is looking at least cost, which is good, but good returns to the customers are just as important. The regulator shouldn’t cap cost unilaterally but have a dialogue with the industry and be aware of market realities. NPS has begun to gain traction and despite being actively managed, at 10 basis points cap, the cost of NPS is lower than most exchange traded funds.
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