4 min read.Updated: 17 Jun 2019, 11:03 PM ISTNeil Borate
Buying the retirement product from a PoP like Paytm Money may be more expensive, but experts say subscribers may prefer the convenience of apps
If you open an NPS account through a CRA, you will avoid the extra fees that online and offline PoPs charge
Paytm Money, the mutual fund platform of One97 Communications Ltd which owns Paytm, has received the Pension Fund Regulatory and Development Authority’s (PFRDA) approval to offer the National Pension System (NPS). In doing so it has joined a host of entities that are in the race for acquiring an online Point of Presence (PoP) licence, according to a person close to the regulator who declined to be named. The number of entities with PoP licences, both online and offline, has gone up from around 70 to 100 over the past six to 12 months, with the bulk of the additions coming in the online space, the person added.
“NPS is a perfect solution for retirement planning and we are excited about bringing convenience of digital and paperless NPS investing to users of Paytm Money. We expect to go live with NPS investing soon," said Pravin Jadhav, whole-time director of Paytm Money, which launched its mutual fund app in September 2018 and currently has over a million users.
It’s not the first time that a mutual fund platform has forayed into offering NPS. FundsIndia started offering NPS in association with IL&FS Securities Services Ltd several years ago. However, it discontinued the service after there was a rule change for PoPs. A mutual fund platform Mywaywealth, earlier known as Fisdom and owned by Finwizard Technology Pvt. Ltd, also started offering NPS on its mutual fund app in association with Lakshmi Vilas Bank in March 2018. After PFRDA promulgated rules for online PoPs on 9 July 2018, the company became an online PoP .
Investors can avail of up to ₹1.5 lakh tax deduction under Section 80C through NPS contribution. In addition, there is a deduction up to ₹50,000 under Section 80CCD(1B), which is solely available for NPS contribution.
The money can be invested in a combination of equity, corporate debt and government debt as per the choice of the subscriber. On maturity, 40% of the corpus must be used to buy an annuity. Another 40% can be withdrawn tax-free. A decision of the cabinet in December 2018 raised the tax-free amount to 60%, but the decision has not yet been enacted into law.
In response to an emailed questionnaire about its charges, Paytm Money said that more information will be shared at the “time of launch".
Both online PoPs such as Paytm Money and offline PoPs such as banks are allowed to charge ₹200 on the initial subscriber registration and contribution. There are different charges if you open an account directly with a Central Record-Keeping Agency (CRA) (see graph).
Remember that if you open an NPS account through a CRA, you will be able to avoid the additional layer of fees that online and offline PoPs charge. But a subscriber who opens his NPS account through a PoP but subsequently contributes through eNPS (a the platform used by CRAs, NSDL and Karvy) pays a lower commission of 0.10% to the PoP.
Currently, if you want to invest online directly, without the PoPs, you can do so via eNPS offered by CRAs NSDL and Karvy. CRAs are tasked with record keeping in NPS and can also process various subscriber requests like fund manager switches.
If you open an account through Paytm Money or any other PoP, you can make subsequent contributions or administrative requests through one of the two CRAs.
PFRDA regulations lay down that a PoP must facilitate the initial registration of subscribers. This involves filling an online form, uploading your signature and photograph. Thereafter, subscribers can either e-sign the forms or print and send the signed form to the NSDL office. It is unclear whether this process can be easily replicated on an app.
The regulations also lay down additional duties for PoPs like answering subscriber queries and processing withdrawals. The delivery of these too, in app format remains to be seen.
In response to a Mint questionnaire, Paytm Money said, “All commitments towards NPS will be fulfilled by Paytm Money. A user can register for NPS and make contributions online through the Paytm Money app." “Whatever is done through a bank branch can also be done through an app," said Sumit Shukla, CEO, HDFC Pension Management Co. Ltd, a fund manager for NPS.
NPS is an important ingredient in your retirement planning pie, particularly for young people who can harness the power of equities to build a corpus. The tax treatment of NPS has also considerably improved over time.
“This venture can greatly expand the scope and reach of NPS," said Shukla referring to Paytm Money’s foray.
The fee too isn’t large compared to what insurance agents or mutual fund distributors charge. It is important to note that the fee is not paid by the pension fund. In mutual fund schemes or insurance policies, it is the individual fund house or insurance company that pays the agent and commissions can differ between companies. In NPS, though, the fee is deducted from the customer’s account and does not change from one pension fund to another. This ensures the important aspect of distribution neutrality.