PFMs will charge less fee for services

NEW DELHI: Commission costs charged by pension fund managers (PFMs) to manage assets of subscribers will now be restricted to 1.5% of the total assets under management, the pension fund regulatory and development authority (PFRDA) has said.

With the government chipping in to bear the fees that will be charged by the central record-keeping agency (CRA), in this case the National Securities Depositories (NSDL), the pension fund managers will now charge lower commission.

Prior to this development, the regulator was contemplating fixing a ceiling of 2-2.5% as fees that PFMs can charge for their services. However, since the CRA’s costs will be borne by the government and not the PFMs, the ceiling is expected to be tightened.

The fees that a PFM will charge is going to form part of the eligibility criteria used for appointing fund managers. A prescribed ceiling will ensure that fund managers do not bid exorbitantly for their services.

The finance ministry has given the PFRDA the go-ahead to appoint three fund managers from the public sector through an executive order since the PFRDA Bill is yet to be passed. The PFMs will manage the pension funds of government employees appointed after January 1 2004.

The regulator has invited expressions of interest (EoIs) for appointing PFMs late last week. SBI Funds Management, UTI AMC and LIC, among others, are contenders who have shown interest.

PFRDA will consider registering an entity as a fund manager on the basis of the following parameters: minimum capital requirement criteria; past track record, including ability to provide guaranteed returns, costs and fee structure, and customer base and information technology capabilities, among others.

The mandatory capital requirement for PFMs could be anywhere between Rs 10-50 crore. Public sector funds will be allowed to have a maximum foreign equity holding of 26%. The regulator is likely to adopt a bidding process for selecting the PFMs under which the regulator will auction a licence for a limited period, specifying the eligibility criteria for bidders.