PFRDA raises cap on fund management charges as it floats RFPs

The pension regulator has also raised the minimum capital requirement to Rs 50 crore from earlier Rs 25 crore.
The Pension Fund Regulatory and Development Authority (PFRDA) has raised the ceiling on fund management charges to reel in more companies in the sector and sustain returns in the long run.

It has already floated a request for proposal (RFP) for pension fund managers. All the existing seven companies as well as new ones can apply.

PFRDA Chairman Supratim Bandyopadhyay told Business Standard that there was no cap on the number of fund managers sending in applications.

Currently, the cap on fund management fee is 1 paise for managing every Rs 100.  

There will now be four slabs. The cap for assets under management (AUM) for Rs 10,000 crore and below will be 9 paise per Rs 100. Between Rs 10,000 crore and Rs 50,000 crore, it will be 6 paise per Rs 100, and 5 paise per Rs 100 between Rs 50,000 crore and Rs 1.5 trillion. The cap will be 3 paise per Rs 100 above Rs 1.5 trillion.

This will attract more pension fund managers since the new caps will push companies to invest in human resources as well as the information technology infrastructure — the two main components in the pension sector. The current cap was getting in the way of investing in these two areas, clarified Bandyopadhyay.

The RFP says that the sponsor companies of fund managers have to be controlled by at least one of the financial sector regulators — Securities and Exchange Board of India, Insurance Regulatory and Development Authority, Reserve Bank of India . They will have to be profitable for at least three years out of the total last five years and should not run intoo cash losses in any of the year.

The chairman said an RFP for the minimum assured scheme would be floated separately this month to choose acturial experts for the product. He said such a product was offered by none in the market schemes.

For pension fund managers, the RFP also increased the requirement of average AUMs under sponsor companies to Rs 50,000 crore for the past 12 months, against the earlier requirement of Rs 5,000 crore, said the PFRDA chairman, adding that the last RFP was issued in 2012.

The pension regulator has also raised the minimum capital requirement to Rs 50 crore, from the earlier Rs 25 crore.

The RFP will be there till January 22. There will be technical and commercial bids. Once the companies qualify for the technical bids, their commercial bids will be assessed.

Bandyopadhyay said the existing companies, if they qualify, would start functioning from the beginning of the next financial year, while it would take another five-six months for the new ones to start their operations in the pension sector.

The national pension system had Rs 5.49 trillion as AUM as on December 31, 2020, up 31.6 per cent from end-March. Equity had given a rate of return at the compound annual growth rate of 10.75 per cent as on end-December, corporate bonds 10.56 per cent, and government bonds 10.19 per cent.

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