Recently the pension sector regulator revised distribution charges for the NPS. Lets see all the charges and fees associated with these schemes.

Charges and Fees Associated with NPS

Recently the pension sector regulator revised distribution charges for the NPS. Lets see all the charges and fees associated with these schemes.

PoPs and the Charges

There are two ways of opening an NPS account:

  • Offline Mode: For opening an NPS account offline, one has to visit any of the Points of Presence (PoP) such as banks appointed by the PFRDA. PoPs provide the services under NPS through their network of branches called PoP Service Providers (PoP-SP). Almost all financial institutions, including banks, insurance companies, have enrolled themselves as POPs.
  • Online Mode: One can open the NPS account online through the eNPS platform. But if you open your account online using your Permanent Account Number (PAN), you will need to provide details of a bank account, that’s empanelled PFRDA so the authorities may tap it for the Know Your Customer (KYC) process.

What They Charge For

  • Initial Subscriber Registration fee – A flat fee charged by PoPs from the investor only at the time of registration.
  • Initial Contribution – Paid as a percentage at the time of initial contribution.
  • All Subsequent Contributions (offline) – A recurring charge you pay the POPs every time you make an investment.
  • e-NPS (online)– Paid as a percentage at the time of each contribution for all subsequent contributions if made online.
  • All Non-Financial Transactions – Like change of address etc.
  • Persistency charge – It is a newly introduced charge and is applicable only for NPS. All Citizen accounts. POPs are paid as a fixed fee when the investor remains associated with the POP at least for 6 months.

Various service charges applicable on these charge heads are:

Charge head Charges How deducted Who gets it?
Initial subscriber registration fee ₹ 200 Deducted upfront from investment PoP
Initial contribution upload 0.25% of contribution          (Min. ₹ 20 to Max. ₹ 25,000) Deducted upfront from investment PoP
Any subsequent transaction (offline) 0.25% of contribution          (Min. ₹ 20 to Max. ₹ 25,000) Deducted upfront from investment PoP
Any non-contribution transaction ₹ 20 per request Deducted upfront from investment PoP
e-NPS (for subsequent contributions) 0.10% of contribution         (Min. ₹ 10 to Max. ₹ 10,000) Deducted upfront from investment Bank under online service
Persistency charge ₹ 50 per annum cancellation of units at financial year end PoP

CRA and the Charges

The Central Recordkeeping Agency (CRA) is the backbone of NPS architecture. CRA is responsible for recordkeeping, administration, and customer service functions for all NPS subscribers.

The function includes receiving instructions from subscribers through the points of presence, transmitting such instructions to pension funds, and effecting switching instructions received from subscribers.

Earlier NSDL e-Governance Infrastructure was the only Central Recordkeeping Agency (CRA) for NPS subscribers, but now PFRDA has appointed Karvy Computershare as well.

Subscribers of NPS will now have an option to choose NSDL or Karvy as the CRA to open an account. Existing subscribers can also select the CRA of their choice, once in a year.

What They Charge For: 

CRA charges a flat fee under these three heads:

  • CRA account Opening charges – A one-time fee charged while opening the account.
  • Annual account Maintenance cost – Annual recurring fee.
  • CRA per transaction cost – Flat fee charged for each transaction financial or non-financial.

Various service charges applicable on these charge heads are:

Charge head Charges How deducted Who gets it?
CRA account Opening charges ₹ 40 for NCRA                          ₹ 39.36 for KCRA Cancellation of units over 4 quarters CRA
CRA Annual Maintenance cost ₹ 95 for NCRA                          ₹ 57.63 for KCRA Cancellation of units quarterly CRA
CRA per transaction cost ₹ 3.74 for NCRA                          ₹ 3.36 for KCRA Cancellation of units quarterly CRA

Other Charges

In addition to these, there are three more charge-heads:

  • Investment management fee: Your money in NPS is being managed by the pension fund managers such as ICICI Prudential Pension Fund, LIC Pension Fund, Kotak Mahindra Pension Fund, Reliance Capital Pension Fund etc.

    The fee that they get, called the Investment Management Fee, is akin to the fund management charge in a mutual fund and is inclusive of all transaction-related charges such as brokerage, transaction cost etc.

  • Custodian fee: The custodian, Stock Holding Corporation of India (SCHIL), is responsible for the custody of underlying assets.
  • NPS trust fee: PFRDA has established the NPS Trust under Indian Trusts Act, 1882 and appointed NPS board of trustees under whom the administration of the scheme vests under Indian Law.

    The Trust is responsible for taking care of funds under NPS. The Trust holds an account with Axis Bank which is designated as the Trustee Bank.

Various service charges applicable on these charge heads are:

Charge head Charges How deducted Who gets it?
Investment management fee 0.01% per annum of AUM Reflects in NAV Pension Fund Manager
Custodian fee 0.0032% per annum of AUM Reflects in NAV Stock Holding Corporation
NPS trust fee 0.01% per annum of AUM Reflects in NAV NPS Trust

*AUM-Asset Under Management
*NAV-Net Asset Value
*Keep in mind that each of these costs heads will invite a GST at 18%. Only, costs on account of NPS Trust is exempt from GST.

Impact of New Costing

The new charge structure gives slightly more to the PoPs to sell NPS and also incentivizes them to get customers to invest in NPS every year.

In fact, even the pension fund management charge that you pay the fund managers is likely to go up once the pension fund managers (PFMs) get fresh licenses.

From a long-term standpoint, the overall charges are still low when you compare to other financial products. The subscriber should not see a significant difference in the long term.

About NPS

The National Pension Scheme (NPS) is an investment that is largely focused towards one’s retirement. NPS is a defined contribution pension scheme launched by the Government of India.

The returns generated in it are linked to the market performance of the underlying assets such as equity or debt. It has three main objectives-

1. To provide old age income,
2. Reasonable market based returns over long run and
3. Extending old age security coverage to all citizens.

Launched in Jan 2004, it initially focused on the new government recruits (except armed forces) but since May 2009 it has been extended to all citizens of the country including the unorganised sector workers on voluntary basis. It is managed by the Pension Fund Regulatory and Development Authority (PFRDA).

Any Indian citizen, resident or non-resident in the 18-65 year age group can open an NPS account. After attaining 65 years of age, the subscriber will not be permitted to make further contributions to the NPS account.

Pros and Cons of NPS

Advantages of NPS

  • It gives you additional tax benefit,
  • NPS has low default risk,
  • These schemes are handled by skilled experts in the financial industry.

Disadvantages of NPS

  • NPS has low annuity returns.
  • Lock-in period associated with NPS are very long
  • Mandatory annuity and
  • There is taxation on maturity.

If you want to explore options besides NPS for investing, you can check out the Groww 30 best mutual funds to invest in 2018.

Happy Investing!