PFRDA raises fund management fee cap as it launches tenders

The Pension Funds Regulatory and Development Authority (PFRDA) has raised the cap on fund management fees to attract more companies in the sector and maintain long-term returns.

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

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

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

There will now be four tiles. The Assets Under Management (AUM) cap 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 limits will push companies to invest in human resources as well as in information technology infrastructure, the two main components of the pension sector. The current ceiling prevented investment in these two areas, Bandyopadhyay said.

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The tender says that fund manager sponsor companies must be supervised 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 must be profitable for at least three years out of the total of the last five years and should not suffer any loss of cash during the year.

The chairman said a separate Minimum Insured Scheme tender would be launched later this month to choose actuarial experts for the product. He said that such a product was not offered by anyone in the market systems.

For pension fund managers, the RFP also increased the average AUM requirement under corporate sponsors to Rs 50,000 crore in the last 12 months from the previous requirement of Rs 5,000 crore, a said the PFRDA president, adding that the last RFP was issued in 2012.

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

The RFP will be there until January 22. There will be technical and commercial offers. Once the companies have qualified for the technical offers, their commercial offers will be evaluated.

Bandyopadhyay said existing businesses, if eligible, would start operating from the start of the next financial year, while it would take another five to six months for new ones to start operations in the pension sector.

The National Pension System had 5.49 trillion rupees in assets under management as of December 31, 2020, up 31.6% from the end of March. Equities had yielded a compound annual growth rate of return of 10.75% at the end of December, corporate bonds 10.56% and government bonds 10.19%.

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