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Supratim Bandyopadhyay, PFRDA chairman.
Supratim Bandyopadhyay, PFRDA chairman.

‘NPS subscribers will soon get same-day NAV option’

We are in discussions with the government of India to have a universal pension product, which can be extended to everyone, says Supratim Bandyopadhyay, PFRDA chairman

India’s National Pension System (NPS) is headed for key changes such as flexible annuities and systematic withdrawals for investors, and perpetual licences and a higher fee cap for fund managers. In an interview, Supratim Bandyopadhyay, chairman of the Pension Fund Regulatory and Development Authority (PFRDA) said NPS investors may soon get the net asset value (NAV) of the day of investment, a change from the current regime where they get the NAV of two days later. Edited excerpts:

In December, announcements were made about systematic withdrawal plans (SWPs) in NPS and flexible annuities. Has there been any progress on this?

These are part of the PFRDA Amendment Bill which is at the last stage of consideration. The monsoon session was curtailed by 6-7 days, so the bill could not be passed. We are expecting it to be introduced in the winter session. Once it is approved by Parliament, then only we will know what shape this takes and we will proceed accordingly. So far as flexible annuity is concerned, Irdai (Insurance Regulatory and Development Authority of India) has brought in some changes in 2019. They are saying pension funds, meaning insurance companies managing superannuation funds, can manage annuities. I have talked to a couple of insurance companies who are thinking of launching new products. We are also very curious to see what kind of products are coming. In fixed annuities, downside risk is protected. But normally, if you are locked in at a very low interest rate, people don’t tend to like it. We will be talking to some of the annuity service providers in a day or two about this.

Flexible in the sense that the annuity will be connected to the investment returns of pension funds?

Yes. Either you take an annuity which is lifelong guaranteed at a certain rate of return and committed to you when you sign the annuity purchase document, or you take a market-linked return. I believe both the options should be there for people to choose. Sometimes people like market-linked returns. Today also, NPS itself is giving market-linked returns. So, if annuity is along similar lines, it will be easier for people to understand.

What is the update on the request for proposals (RFPs) for new pension fund managers?

We have formed a committee. Basically, what we have to do is see the cap on pension fund manager (PFM) fees. PFMs charge a very small fee right now. This revenue model is unworkable to a great extent. The PFRDA board has suggested that we should have a committee on this. In the next 15-20 days, we are expecting a report about what will be the cap in PFM fees. This will be taken to the PFRDA board. Once the cap is approved, we can start with the RFP. Sometime around early December, the RFP should happen.

The pension fund licence will be indefinite?

That change in regulations has already been approved. Earlier, we were giving licences for five years or till the next RFP. But we don’t want to keep that sort of uncertainty in the minds of PFMs. The licence will be perpetual, but every year, the company has to come for renewal, as happens in other industries. If the PFM fulfils all the conditions, the licence will be automatically renewed by paying the renewal fee, unless the company deregisters itself on its own or the PFRDA rejects the renewal application due to some action or inaction of the PFM.

Where does the NPS and APY (Atal Pension Yojana) fit in the social security code?

We are in discussions with the government of India to have a universal pension product, which can be extended to everyone. Our focus is more towards the unorganized class because such people do not have any kind of savings products. Already, a note has gone to the government. Also, a single regulator for all pension products is part of the PFRDA amendment Bill but existing pension products under Irdai will remain with Irdai . But, for instance, superannuation funds or any new pension scheme with no regulatory body, those should ideally come to PFRDA.

There was a statement by National Securities Depository Ltd (NSDL) on enabling SIPs in NPS. Can you elaborate on that?

The SIP they have talked about is in conjunction with another change. Actually, we want to give same-day NAV to subscribers in NPS. Today, there is a waiting period of two days, that is, T+2. If you invest on Monday, you get the NAV of Wednesday. Under the proposed change, if someone comes by 9.30 in the morning and directly deposits their amount to the trustee bank, they will get the same-day NAV. To start with, maybe we will bring forward 9.30 to 8.30. Hopefully by 1 October, it will be operational. May be NSDL wanted to say that if you give a standing instrution to the bank, from your account, the money will be directly debited and you will get same-day NAV. They might have combined these two things.

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