The pension sector would see more new players and higher sales if the business model is slightly changed, increasing the fee for fund managers and allowing even the insurance agents to sell the schemes, say industry officials.
Industry experts categorically told IANS unlike the life insurance sector which needs large doses of capital, the capital needs of a pension fund manager is low.
"The start up capital is Rs.25 crore. The capital needed to run the business is low," Sumit Shukla, chief executive officer, HDFC Pension Management Company Ltd told IANS over phone from Delhi on Tuesday.
On Monday, the Indian government notified the raised limit of foreign direct investment (FDI) in the pension sector to 49 percent.
The department of industrial policy and promotion under the commerce and industry notified the increase in line with the FDI cap raised recently in the insurance sector from the existing 26 percent. The FDI limit is in the forms of FPI, FII, QFI, FVCI, NRI and DR.
No government approval is required till 26 percent, but the Foreign Investment Promotion Board (FIPB) approval would be needed for investment beyond 26 percent and up to the cap of 49 percent. All investments however will have to abide by the pension sector regulator.
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As per the Pension Fund Regulatory and Development Authority (PFRDA) Act, the FDI limit is linked to the limits set for the insurance sector under the Insurance Regulatory and Development Authority Act, 2013.
"The move is expected to bring in more players. This in turn would grow the overall pension market benefiting all," S. Bandyopadhyay, MD and CEO of LIC Pension Fund Ltd, told IANS.
Industry officials told IANS that the low capital may be one incentive for the foreign players but the remuneration is too low even for many domestic players to come in.
The fund management fee is 0.01 percent - the lowest quoted by an industry player while the second best rate quoted was 0.15 percent.
Industry officials say that NPS is going to be a default pension scheme for the nation.
Even PFRDA chairman Hemant G. Contractor had said that the effect of 49 percent hike in FDI would be seen only couple of years down the line.
"To spread the pension message, the NPS, all the financial intermediaries should be allowed to sell it. The insurance regulator should allow the insurance agents to sell the NPS. From the subscriber perspective, NPS is a good scheme," an industry official told IANS.
According to another industry official, the Indian pension sector is currently around Rs.80,000 crore and bulk of it is managed by three players -- LIC, SBI Pension Funds and UTI.
More than 90 percent of the business is from the government.
Including the private parties, there are seven players in the domestic pension sector licensed by PFRDA as the pension fund manager for the corpus under National Pension System (NPS).
The extra tax benefit for NPS subscription is expected to bring in additional business for the players, officials say.
Similarly allowing the employees to choose between Employees Provident Fund (EPF) and the NPS is expected to bring in more business for the pension players.
According to Shukla, the pension regulator has come out with regulations and some more are in the offing.
(Venkatachari Jagannathan can be contacted at v.jagannathan@ians.in)