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Investing in NPS to cost more. Here's why

, ET Online|
Last Updated: Aug 02, 2019, 11.18 AM IST

Summary NPS Trust will restart recovering administrative expenses 0.005% per annum of the Asset under Management (AUM) on a daily accrual basis to meet its expenditure.

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The subscriber can contribute either using physical mode or online mode through e-NPS.
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The expense ratio of National Pension System (NPS) is set to increase as the NPS Trust (NPST) has allowed pension fund managers to recover administrative charges of the AUM on a daily accrual basis. This is will be effective from August 1, 2019.

In a notice to NPS subscribers, Akhilesh Kumar, NPS Trust General Manager, said, "It is brought to the notice of all subscribers under National Pension System that, as approved by the Pension Fund Regulatory and Development Authority, NPS Trust will restart recovering administrative charges / expenses @ 0.005% per annum of the Asset under Management (AUM) on daily accrual basis to meet its expenditure. The same will be effective from 01/08.2019."

The NPS Trust has reintroduced this charge after a gap of six months. Earlier on January 25, 2019, the trust had sent a notice to subscribers stating, "NPS Trust has stopped recovering administrative charges/expenses @ 0.005% per annum of AUM."

Impact of the re-introduced charge
NPS is considered as one of the most cost-effective investment products thanks to its low expense ratio, especially compared to equity-linked savings schemes (ELSS) and unit-linked insurance plans (Ulips). So, will the reintroduction of administrative charge impact the returns on NPS investments and make it less cost-effective?

The impact of the 0.005 per cent administrative expenses would be marginal. Dhruv Arora, Co-founder, Moneycalc, a Mumbai-based fintech platform, said that recovering administrative expenses at 0.005 percent a year of the assets under management (AUM) will have an impact on the investment made by the subscriber. "For instance, on an investment of Rs 10 lakh (AUM) made by a subscriber, the trust will charge Rs 50 on it. This, in turn, will impact the returns as well. However, the charges are not high, so the impact on one's investment will be negligible," he added. "Also, the subscriber should know that they were already paying this charge which has been re-introduced at the same rate starting 1 August 2019. In that sense, it's not an additional charge," Arora said.

Amol Joshi, Founder, Plan Rupee Investment Services said, "NPS is nearly the cheapest retirement product compared to other products available in the financial market. While any charge will eat into the returns, 0.005% is too little to have a meaningful negative impact on the net returns made by investor."

How to subscribe to NPS account
The subscriber can contribute either using physical mode or online mode through e-NPS. However, when you use the physical mode, you have to fill an NPS contribution instruction slip. This can be obtained from the nearest POP-SP or the NPS website. You also need to mention details such as your (subscriber's) PRAN, name, contribution and payment mode in the form.

While opening the account, you need to invest Rs 500 for Tier I (pension) account and Rs 1,000 for Tier II (investment) account. Each fiscal, you have to contribute a minimum of Rs 1,000 for Tier I and Rs 250 for a Tier II account.

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