A change in the way commissions are structured for onboarding clients to the National Pension System (NPS) may still fail to draw significant interest from distributors, experts said.
Points of Presence (PoPs), the intermediaries that act as the primary customer interface for the NPS, can now earn 0.20% of the assets under management per annum as a trail commission in addition to a one-time onboarding fee of ₹200 when a new client is registered, the Pension Fund Regulatory Authority of India (PFRDA) said in a circular on 10 March.
Before this, trail commissions—a recurring fee paid to distributors as long as a client remains invested—were not allowed. Distributors could only charge a direct fee of ₹200-300 per customer.
PoPs are regulated institutions appointed by the PFRDA to provide services to all citizens seeking to open and operate their NPS accounts. They carry out services including KYC verification and subscriber registration and receive contribution instructions. Even after the latest change, earnings for PoPs remain significantly lower than those offered by mutual funds.
Moreover, experts said pension agents engaged by PoPs to distribute products and expand last-mile reach may get only a part of the 20-basis point (bps) commission.
“PoPs may pass on a portion of the commission and will retain the balance,” said Subhasis Ghosh, chief executive officer at Kotak Mahindra Pension Fund. The split depends on agreements between PoPs and agents and can vary based on business volumes, he added.
“Even if PoPs pass on 70% of the 20-bps commission to the pension agent, it’s unlikely that pension agents will carry on with a 14-bps commission,” said an NPS distributor.
Mutual funds
Currently, mutual funds can charge a base expense ratio of as much as 2.1% of the AUM. Within this, mutual funds do not have a cap on commissions for distributors – this can go as high as 2%, but it is the mutual fund’s call to take. Comparatively, an NPS distributor’s commissions will be less than 0.2% of the AUM after paying its pension agents.
The economics become even less attractive for distributors managing small asset bases, where trail commissions of less than 20 bps translate into negligible earnings.
"NPS is good for client acquisition as then, other products can also be sold to the customer,” said Ritesh Kale, a director at Big Bull Capital Services, a mutual fund distributor (MFD) who advises over ₹200 crore in assets. “But as a business model, it is not attractive to sell NPS.”
Kale explained: If a distributor brings in ₹1 lakh in a mutual fund equity scheme, he can earn about 1%, which is ₹1,000 annually. But if they bring in ₹1 lakh in an NPS, and assuming they get the full commission of 0.2%, they will earn ₹200 annually along with a one-time ₹200 onboarding fee.
While the fees may seem lower compared to insurance and mutual funds, NPS is a long-term product where compounding and AUM growth can generate a stable and meaningful income stream over time. NPS strengthens investors’ retirement portfolios while creating an additional, sustainable revenue line, said Pranay Dwivedi, MD and CEO of SBI Pension Funds.
However, Kartik Sankaran, a distributor at Happyness Factory, said that while the trail commission for NPS is not as competitive as normal mutual funds, distributors of mutual funds can bundle them to offer clients a wider basket of offerings. Sankaran added that selling NPS is a volume game and complementary to the MFD business.
Reaching out
Yet, with the change in commissions, pension funds are seeing a ray of hope from distributors. Ghosh of Kotak Pension Fund noted that the pension fund previously did not actively engage with distributors as their income stream was not particularly attractive.
“However, after the increase in commissions, we have reached out to the top 35 distributors and are actively engaging with over 25. A couple of them have already signed up,” Ghosh said.
Dwivedi of SBI Pension Funds said that it was among the first to integrate its product with the newly launched STAR NPS platform by BSE under the guidance of PFRDA, enabling onboarding through our pension agents. "This is a significant step, and broader participation from the mutual fund distributor ecosystem can further accelerate NPS penetration," he added.
In parallel, SBI Pension Funds is expanding its reach by onboarding Business Correspondents (BCs) and Farmer Producer Organisations (FPOs), particularly to drive awareness in Tier III and Tier IV markets are bringing underserved segments into the pension net, Dwivedi added.
NPS had assets of ₹16 trillion in FY26, as per data from the NPS Trust. Of this, ₹12.22 trillion was from the central and state governments. Corporate assets were at ₹2.64 trillion, or 17% of the total. The number of NPS subscribers increased to over 21 million in FY26.
Comparatively, mutual funds had ₹73 trillion as AUM in FY26 and 273.9 million folios.