NPS corpus may hit ₹6 trillion in a year: PFRDA chairman Supratim Bandyopadhyay
There have been withdrawals from NPS of only about ₹42 crore between April and July, which in absolute terms is low
PremiumOver the past 12 years, the central government’s fund in National Pension System (NPS) has grown at 10% compound annual growth rate (CAGR), which means the money has grown by almost three times.
In an emerging trend, young retail customers have started investing in NPS to plan more seriously for their retirement years. There are job losses in the private sector, but in an interview Pension Fund Regulatory and Development Authority (PFRDA) chairman Supratim Bandyopadhyay said that assets under NPS, despite the market volatility, have grown by 16-17% year-on-year during the June quarter and of late, some of the large public sector undertakings are investing in NPS funds. These trends will help NPS fight the odds in these challenging times and grow its corpus from ₹4.83 trillion to at least ₹6 trillion within a year. Edited excerpts:
There have been job cuts, hiring freezes and increasing uncertainties because of the covid-19 pandemic. How has this impacted the pension industry?
In terms of fund inflows, NPS has been growing steadily. In the June quarter, new subscriptions have increased in NPS in terms of the total number of customers. As far as the assets under management (AUM) are concerned, it is a factor of contribution as well as market movement. The government sector is showing a growth of about 20% in terms of contribution during April-July 2020 as compared to last year. In the private sector, corporates are showing growth of around 50% in terms of inflows during the same period as compared to last year. In terms of retail, we got 36% more inflows into AUM during the April- July period as against last year.
The total contribution made to NPS by retail customers and private companies put together was ₹4,841 crore during April-July 2020, which was ₹3,328 crore during the same period last year. The overall inflow during the April-July period has been decent at ₹28,531 crore, compared to ₹23,287 crore for the same period last year.
Are investors withdrawing money from NPS?
There have been withdrawals of only about ₹42 crore between April and July, which in absolute terms is low. Withdrawals have happened from all sectors but on a net basis the inflow is ₹28,531 crore. The covid-19 special partial withdrawal scheme was allowed by us to enable customers to withdraw up to 25% of their contributions.
Do you think people should start contributing to NPS?
In 12 years, the central government’s fund in NPS has given 10% CAGR, which means the money has grown by little more than three times. In terms of AUM, despite the market volatility, the amount has grown by 16% during the April-July period as compared to last year. Typically, the annualized growth in AUM has been 30-35% over the past three to four years. Of late, we are seeing large public sector undertakings coming in for contribution to. There have not been any job cuts in the government sector, so the inflows are mostly stable.
The growth in the number of customers from the private side seems to be flattening. What are the bottlenecks?
The total number of corporate NPS customers now stands at 1.03 million. On the retail side, the number of NPS customers increased by 23% to 1.33 million during April-July 2020, which is higher than the growth of 20% in the same period last year. During the same period, the total AUM of NPS has increased by 16% to ₹4.83 trillion, compared to a growth of 12% during the June quarter of last year at ₹3.58 trillion. The issue is that physical onboarding of customers has almost stopped. So we have enabled online subscriptions.
Are retail customers really investing more in NPS? People seem to prefer to keep as much disposable cash as possible rather than investing in something that matures after 25-30 years.
On the retail side, the average ticket size is around ₹42,400, which is somewhat similar to last year. If jobs are created or companies recruit more employees, the ticket size will increase. The average ticket size of contribution made by corporates (per person annually) for individual employees is around ₹96,791, which is slightly higher than the ₹86,008 seen during the last fiscal.
The enrolment of government employees has not been growing at the same pace but around 7 million employees are now under NPS from the central and state governments. In April 2019, the government increased the minimum allocation to NPS from 10% to 14%, which has also helped NPS attract more money.
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