Home >Opinion >NPS design works; distribution and support need innovation
Shyamal Banerjee/Mint
Shyamal Banerjee/Mint

NPS design works; distribution and support need innovation

One look at the NPS application form is enough to put off a potential investor

There is no doubt that the National Pension System (NPS) is a well-architected retirement solution for the Indian market. It is innovative in design and is well tailored for the market it seeks to serve. Unfortunately, the innovation stopped with the creation of the product and has not extended to methods of distribution, enrollment processes and support structures. Consequently, it has become emblematic of good ideas that flounder for the lack of good execution.


With its ultra-low cost structure, the NPS is designed to prevent mis-selling. And that is good. However, as an investment product, it does need to be sold. Making a product available in points of services (POSs) is not the same as selling it. In a country where people love investing in gold, real estate and bank deposits, we see advertisements every day from jewellers, builders and banks. When even such sought-after products need to be sold, what chance does a multi-year lock-in, delayed gratification product like NPS have without any selling whatsoever? Even the POSs chosen for making NPS available are distinctly old school—bank branches, post offices and brokerages. The consequence is that NPS is competing for shelf-space in these entities with other traditional (read: high-commission) products and it’s an easy guess as to which product will be presented to customers walking in looking for pension products.

Also, the Pension Fund Regulatory and Development Authority (PFRDA) stipulates that an entity needs to have nationwide physical presence to qualify for setting up NPS service points. What is the need for such a requirement? Why cannot small advisory firms, advisers or online entities be service providers?

The bottom line is that one cannot assume that placing a long-term retail financial product in the shelf is going to automatically sell itself. A distribution mechanism needs to be in place and a modern product such as NPS, with a unique cost structure, requires an innovative approach to distribution. Assuming that it would sell by itself, or to use old-school distribution channels that are tied to high commission structure products are both unlikely to be fruitful.

Enrollment process

Any system as ambitious as NPS should have an enrollment or on-boarding process that is as frictionless as possible. On the contrary, enrolling for NPS is anything but a smooth process for investors.

When NPS was introduced to the broad market in 2009, there were already systems in place for identification (Permanent Account Number or PAN) as well as verifying addresses of individuals (mutual funds and banking know-your-customer (KYC)/KYC Registration Agencies). Instead of piggy-backing on these systems, a brand new system was created requiring identity proofs, address proofs and bank account proofs to enroll.

One look at the NPS application form is enough to put off a potential investor.

The form with tiny boxes needs to be filled in a precise manner with only black ink. Else, it is liable to be rejected. The photograph should be 3.5cm x 2.5cm. Else, rejected. Signature should be within the box below and not on the photograph as is commonly done in other such forms.

Else, rejected. And, what is the need for a photograph for enrolling in NPS? Twenty or thirty years from now, when an investor goes in to redeem, are they going to be able to identify using a photograph that is decades old? If it is for printing on a Permanent Retirement Account Number (PRAN) card, let me ask, what is the need for a PRAN card in the first place? Would just an identification number not be sufficient?

All these point to, again, a conventional execution for a product that deserved a modern approach. How would it be if one could simply login to a website, type in his PAN card number and a few details? And if she is already KYC registered with her bank or other investments, she would just need to sign a simple pre-filled form and send it in with a proof of her PAN card and bank account?

Again, reducing friction at the point of enrollment is critical for any broad-based adoption of any retail financial product. NPS scoring poorly on that count was an important reason why it failed to gain traction in the market.

Servicing and support

Once a person is enrolled into NPS, the experience of investing, monitoring their portfolio, watching their nest egg as it grows, and the ability to manage their allocations are all very important. If this data is transparent and easily accessible, people will delight in using the system, and for what it’s worth, it would create a viral effect in the adoption of the product in the market. With a low cost structure, NPS should have gone all out in this direction since word-of-mouth would have brought it more customers than any high-spend marketing campaign.

NPS had an opportunity here as well and sadly, this was not utilized too. The post-enrollment support structure is conspicuous by its absence. Even performance data about pension fund managers and their funds are not easily available in a consolidated form.

Rather, there should be a consolidated platform (or data feeds made available to external platforms) that shows all the data about the funds and their performances in one place. This platform should be accessible online or via mobile devices and should also enable an investor to login to track their portfolio, make changes and manage information.

End note: It is evident that NPS has not gained traction in the retail financial market as was expected. The fault does not lie with the product or with the market. The reason for its lack of popularity is how it was packaged, distributed, and serviced. The good news is that these are fixable problems.

Given the strength in its product design, NPS could still come back to occupy its rightful place as a prudent retirement solution for the country’s citizens.

Srikanth Meenakskhi is founder and director, FundsIndia.com

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