Friday, May 29, 2009

Investing in New Pension Scheme - Don’t ignore the charges

On May 1, 2009, New Pension Scheme (NPS) was introduced in the markets with much fanfare. Portrayed as a scheme with the lowest fund management charges, they created quite an excitement among individuals. But the fund management cost is not the only charge attached to the scheme. In-fact, there are few other charges as well, which comes out once you start investing in the scheme. The table below shows some of those charges.

Services

Charges
(Rs)

Example
(On Investment of Rs 500 pm)

Annual maintenance charges

350

350

Each Deposit / Switches / Statements 30 360
Central Record- Keeping 50 50
Point of Presence 40 40
Total 470 800

 

In addition to above, there will be a charge for Demat account, asset servicing and investment management fee. As can be seen above, even if an investor invests Rs 500 per month, then for the whole year, his expenses will be a minimum of Rs 800 for an investment of Rs 6,000. The expense ratio turns out to be around 13%, which is way too high when compared to investments in avenues like mutual funds (expense ratio on equity-oriented mutual funds is capped at 2.50% per annum).

Hence, investors would do well to take into account the charges levied on NPS, before making investments in the scheme.

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