The queue to launch a pension fund is slowly get longer. Last week, HDFC MF filed an offer document with market regulator Sebi to launch an open-ended tax-savings-cum-pension scheme.
HDFC MF?s application follows Pramerica MF?s offer document filed in May this year and that of Reliance MF last year. ?It makes sense for mutual fund houses to launch pension funds as the money coming in through these funds is likely to be stickier than that through other open-ended schemes,? said Dhruva Chatterji, senior investment consultant, Morningstar India.
Sebi has been goading the mutual fund industry to enter the pension fund management space. Sebi chairman UK Sinha had said in June that he was willing to work with fund houses if they took initiatives on this front. ?Pension products would greatly benefit investors who are looking to build a retirement corpus over the long term,? said Vijai Mantri, MD & CEO, Pramerica Asset Managers.
According to the offer document filed by HDFC MF, the plan aims to generate a corpus to provide for pension after the age of 58 years by ?investing in a mix of securities comprising of equity, equity related instruments and/or debt/money market instruments?. Accordingly, the fund house?s pension scheme offers four investment plans: Equity Plan, Hybrid-Equity Plan, Hybrid-Debt Plan and Income Plan, each of which will be managed as separate portfolios.
All the three fund houses are awaiting a nod from the Central Board of Direct Taxes and the ministry of finance for approval as a Notified Pension Fund under Section 80C(2)(xiv) of the I-T Act, 1961. Market observers said that the lack of a tax break on pension products might be holding back fund houses from entering the pension space. Investments in pension funds is eligible for tax benefit under Section 80C of the I-T Act, 1961. However, the 80C segment is already crowded and there is a need for tax breaks over and above the 80C limit, said experts.
Market watchers also believe that the government is reluctant to give MFs the green signal for pension plans considering that they would be in direct competition to the National Pension System (NPS). ?MF pension plans might kill the NPS altogether since fund houses can afford to pay higher commissions to distributors than the government-backed NPS,? said a fund official. However, he added that as the market matures, the government will have no choice but to allow mutual funds to operate in this space. NPS can charge a maximum of 0.25% as asset management fees, while MFs can pay commissions of 0.5-2% for equity and hybrid products.
UTI MF and Franklin Templeton MF are the only two fund houses that currently operate pension schemes, which were approved prior to Pension Fund Regulatory and Development Authority (PFRDA) started its operations in 2003. Templeton India Pension Plan had assets worth about R235 crore at the end of July, while UTI Retirement Benefit Pension handled assets worth R940 crore at the end of the same period.
