<div><em><strong>Hemant Contractor,</strong> Chairman, Pension Fund Regulatory and Development Authority (PFRDA) talks to BW|Businessworld's <strong>Sunil Dhawan</strong> about several changes NPS will witness soon including making it available online. </em></div><div> </div><div> </div><div><strong>A big contentious issue with NPS is to do with fee structure of Pension Fund Managers? What is PFRDA doing towards it?</strong></div><div>With the Act having being passed and the Pension Fund Managers (PFM) regulations also being put in place, we will have to re-register all the PFM’s. We will be going through process of re-registering and inviting bids from existing as well as new PFM’s. And the fee structure would be decided at that point of time. We are looking at that performance based model and also we are looking at 2-3 models. Last time it was done on pure price bidding, it was an auction basically. We feel that auction probably is not the best way to go about it. We are therefore also looking at other ways. </div><div> </div><div><strong>What changes are you bringing on the distribution front to make NPS more of a pull-product?</strong></div><div>One issue is of this distribution problem. On paper, we have all bank branches, NBFC, and registered some 40,000 POP but they aren’t pushing hard in this. Going forward, we are putting in place an online platform to allow subscribers to join NPS for all those having Aadhaar card to invest in NPS without going through banks. It will be entirely Aadhaar-based online process and will be less expensive too as there won’t be any intermediary. This should appeal especially younger generation. </div><div> </div><div><strong>Any new steps in the pipeline for the pension fund managers (PFMs)? Is there a conflict of interest in allowing them to sell NPS? </strong></div><div>This is again a recommendation of Bajpai Committee that PFM can be allowed to sell. We have taken it up with government. It was a very strong argument earlier when the PFDRA was not a statutory body and the Act had not been passed that if you permit them to sell and if there is mis-selling, since we were not statutory body, we would not have any powers to act against them. But now we have the powers and so if there is any mis-selling, we can take action. We are in much stronger position to enforce our decisions.</div><div> </div><div><strong>NRIs were allowed to invest since beginning. Why is NRI investor in focus now for PFRDA? Is the clarity on tax treatment better now?</strong></div><div>It was allowed even in the past but it was not clear whether they can invest on repatriable basis or not. Unlike in insurance and mutual funds, where it is clearly defined by RBI that they can invest on repatriable basis. RBI now has clarified that NRI can invest in NPS on repatriable basis and soon FEMA by end of this month will come out with notification. Now, with notification coming, we can approach NRI with confidence. Since it is available on repatriable basis, the investment need to be made through NRE account. If they don’t want repatriation, it can come from NRO account. </div><div> </div><div><strong>Is PFRDA considering investment of NPS money in venture capital (VC) and private equity (PE)? How will it benefit subscribers? Will there be an option? How much will be allowed?</strong></div><div> It’s currently at the stage of finalization and we have not really decided on it. This is also one of the recommendation of Bajpai committee that in a phased manner, we should look at other investment classes like alternate investments. We may not do it immediately but over period of time definitely we would like some of the NPS funds to be invested in VC. It won’t be much but 2-3 percent of corpus to lend diversity to the whole portfolio and also over period of time the returns from VC, PE is very high. Of course risk is also higher, but if you are putting in small amount, it does add to diversity and does increase the yield also. We are looking from that perspective to investing in VC.</div><div> </div><div><strong>The Bajpai committee report recommends, “Phased movement from Directed Investment regime to Prudent Investment regime with Active Management”. What impact will it have?</strong></div><div> In the prudent investment regime, its investor deciding for himself where he would like to put his money. In the directed system we lay down categories that so much money goes into government securitises, so much into bonds but that won’t happen in prudent system as the investor himself will decide what to do. We are talking about doing this in phased manner because this requires some sort of sophistication on the part of the subscriber. Investors should understand all the risks involved before we give them the freedom to choose where to put their money. </div><div> </div><div><strong>Any other recommendation of the Bajpai committee report that you are actively considering?</strong></div><div>One of them is like offering minimum guarantee product that we are actively looking at. We have set up a committee to come up with a scheme in accordance with Bajpai committee and very soon they will come out with such a scheme.</div><div> </div><div><strong>Has the Budget 2105’s additional tax benefit worked to any advantage for NPS? How has been the response so far especially with regards to average collections? </strong></div><div>Little early to talk about the benefit of additional tax benefit. This will start happening around the year-end. But, certainly we are seeing an increase in the number of subscribers joining NPS in the first three months of this financial year. The numbers have grown by at least 25-30 percent over last year and as far as total additions to corpus is concerned, from government sector we get close to Rs 1,000 crore a month and for private sector its much less at about Rs. 15 crore a month.</div><div> </div><div>We have about 92 lakh subscribers overall of which 46-47 lakh are government, and about 40 lakh are Swavalamban and in corporate sector it would be 4-5 lakh. Swavalamban figures are included in private sector and by definition it is a scheme for under-privilege, so corpus amount is small. So that pulls done the average ticket size of corpus in private sector. Private sector average ticket size to my mind would be about Rs 10,000-Rs 12,000. We would like to see numbers grow and this year with the additional tax benefit of up to Rs 50,000, we expect many more people joining and average ticket size should also go up substantially.</div><div> </div>