India. PFRDA caps MF investment by NPS; Kotak Pension most hit
A recent circular from PFRDA says pension fund managers of NPS can invest only 5% of corpus in mutual funds
The pension regulator has finally taken cognizance of the fact that pension fund managers (PFMs) under the National Pension System (NPS) shouldn’t outsource fund management to mutual fund companies. A circular issued by the Pension Fund Regulatory and Development Authority (PFRDA) on 20 August puts a cap on the amount of corpus the PFMs can invest in MFs to manage the equity corpus. PFMs can’t put more than 5% of their corpus in MFs for equity investment, and can’t levy an investment fee on this corpus.
If you are an NPS investor, it is good news for you as this directive forces PFMs to develop their internal fund management capabilities and saves you from paying double cost: an investment fee levied by the PFM and underlying costs of MFs. As a result of this circular, as things stand today, one PFM, Kotak Mahindra Pension Fund Ltd, gets affected because it had invested its entire equity portfolio in MFs. We explain the impact and what it means to you, but first some background.
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