Capitalmind
Capitalmind
Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial
Economy

NPS (New Pension Scheme) has "hidden" charges

Sanjay Bhargava points me to this livemint article:

India’s New Pension System (NPS) promises the lowest fund management charges. But a closer look at the fine print brings out hidden costs.

The cost to the investor is high unless monthly investment is above Rs3,000 An investor depositing Rs500 per month, or Rs6,000 a year, will have to cough up as much as Rs800, or 13%, as charges in the first year. There is a one-time charge of Rs50 to the central record keeping agency and Rs40 to the point of presence, while Rs350 must be paid as annual maintenance charge. An investor also has to pay Rs30 every time one makes a deposit, switches a fund manager or even seeks a statement. Charges of demat, receipt of shares and charges by markets regulator Securities and Exchange Board of India are additional. Fund management charges are added to that.

“The cost to the investor is significantly higher unless he is investing Rs3,000 per month, as NPS is designed today,” said U.K. Sinha, chairman and managing director, UTI Mutual Fund.

The attractiveness of NPS was the lower charges. Otherwise, compared to a mutual fund (much lower tax at 20%) or insurance (zero exit tax), it would have been non-competitive. But I have to do a more deeper post – time is a problem nowadays – to demonstrate the real cost and return expectations of the NPS. (Last year, though, they did very well, with nearly 15% returns, due to the big investment in govt. and corp debt)