 "We've ensured wider choice for investors: Yogesh Agarwal")
What changes have you made in the guidelines for PFMs?
When investment guidelines were framed initially for the NPS (New Pension Scheme), these simply followed the norms applied to all other non-government provident funds. The guidelines said PFMs could invest either on their own in any stock available on the derivative side or in mutual funds (MFs). Very conveniently, most PFMs preferred to park the money in Mfs, as the return the subscriber gets is net of the fee charged by the MF. Only some PFMs, such as State Bank of India, were running their own pension funds, with the result that they saved on the expense charged by the MF company.
Now, when we have increased the fee from last year to up to 0.25 per cent, there is no longer a case to invest in an MF company. So, in the revised guidelines, we have deleted the portion which had allowed them to invest in MFs. This means a net saving of one to three per cent to the subscriber.
What are the choices now before PFMs?
You can mimic the index, known as passive investment, but then there is no differentiator between various PFMs. The net return would be similar, even with so many fund managers who are allowed to market the product. So, why shouldn't we allow PFMs the liberty to invest in any stocks on which derivatives are available, giving them a much wider choice and allowing them to demonstrate their skills in fund management. Then, they can go to the subscriber and say: 'My returns are better than the others'.
Aren't you putting investors' money at risk by doing so?
The subscriber has a choice on whether to invest in equities. If he does, he wants is better returns. Unless you take some risk,the returns will not be there. If you want to be a safe investor, you have the choice of investing everything in government debt and be satisfied with lower returns.
In that case, why will anyone go for NPS, when they can invest directly into equities?
Because there is a cap on equities at 50 per cent. If you are coming to pension funds, you have got a choice between three asset classes: Equity, corporate debt and government debt. And, remember, we have not prohibited PFMs from mimicking the index funds. Some PFMs would do that. So, it's the choice of the subscriber. And, we have given the subscriber the choice of changing the allocation pattern and the PFM once every year, without any cost.
Why didn't you introduce the change in a more transparent manner?
What transparency have I not followed? My PFMs are the ones to whom I will issue the instructions. We are going to put it on our website, too, but I am waiting for the government to approve the revised guidelines.
Since I am managing the funds of both, the private and the public sector, I wanted government concurrence on the change in public sector guidelines. This is for the betterment of investors and the government is on board. The returns will be visible in a couple of months.
Has there been an increase in the number of PFMs after you removed the cap a few months earlier?
Earlier, we had seven, of which one dropped out. I already have two applications with me, from DSP BlackRock and HDFC. This will take the number to eight. Plus, there are other queries in the pipeline. Two-three more might come very shortly. I'm not aiming at a figure much higher than 15-16 PFMs by the end of next financial year.
In the Budget speech, the finance minister talked about allowing pension funds to trade in the debt segment. What does this mean for NPS?
It means, instead of going through a broker, PFMs can become members on stock exchanges and start trading on their own. Instead of limiting to the listed stocks of index funds, you can invest in any listed fund on which derivatives are available.
Contrary to expectations, there is not much for the pension sector in the Budget.
I think the finance minister did not want to tinker much and was keeping all (the changes) for the Direct Taxes Code (DTC). The message of fiscal consolidation would have been diluted if he'd gone for small tinkering here or there.
What are you expecting in DTC for the pension sector?
One thing we are expecting is EEE (exempt-exempt-exempt) treatment. At present, retirement funds are given this treatment but NPS is EET (exempt-exempt-taxable). So, either you make them EET or make me EEE.
Are you hopeful the PFRDA Bill would be passed in this session?
The finance minister has said so. There is no issue with the PFRDA Bill. It's just that foreign direct investment in pensions is linked to the insurance sector.