Why NPS is a bad idea
Well at the Cafe Mutual’s annual event in one of the sessions where the title was ‘How to Grow the Mutual Fund Pie’..Mr. Gautam Chikermane the moderator asked the IFAs..the classic question:
WHY DO YOU GUYS NOT SELL NPS?
It is the world’s cheapest mutual fund…and it is the best product for your customers.
Well, let me now tell you why the NPS is not such a good idea after all.
First and foremost for a sales person to sell the product has to make some money for the salesman. If it does not, HE will not sell. Not that it is a bad product, but he will not sell. Simple.
If tomorrow the editor were to call all the journalists and say ‘you guys are just awesome and do a fantastic job and I am impressed – now onwards you will have all the freedom in the world to write, BUT, you will not get any salary’ I am sure all the journalists will seek other jobs.
As simple as that Mr. Gautam.
I am an Ayn Rand Fan and believe that collectively the government can NEVER MANAGE FUNDS on behalf of any other person.
So when the government launches a scheme like NPS, jokers like subramoney start looking for loopholes. The NPS was supposed to invest in the index.
What do you understand by this? Well, if you are reasonably smart, you think that the fund manager will invest this in the shares that are there in the index in the same weight.
Right?
Well, well if you are the government’s fav kids like UTI and LIC you can tweak it a little. You can invest the money in an index fund of their own AMCs. Nice. Double whammy for the customer. He buys the cheapest fund which invests in the MOST EXPENSIVE index fund!! LOL. (thanks to SEBI the index fund costs have come down now earlier LIC used to be the most expensive).
What about the other fund houses?
Well they also invested in their own schemes (they all have brilliant reasons for doing it, of course) – for example ICICI invested in ICICI liquid fund – (beats me why) – and would have made asset management charges – in both places.
Why did the MSM not take up these matters?
Because they have already decided that NPS is the best, so now they do not like facts to change their view.
PLEASE NOTE THIS IS AN OLD ARTICLE….now I am not sure whether the portfolio has changed much. My feeling is SUCH A THING SHOULD NEVER HAVE HAPPENED…AND THE REGULATOR SHOULD HAVE CALCULATED THE DAMAGE AND CHARGED THAT AS A PENALTY.
why did this not happen? Search me…
Read on:
http://www.investmentkit.com/articles/2011/11/nps-trustees-questions-fund-managers-on-portfolio/
Shiv
That’s right.. While NPS will continue to have low expenses , the returns will be taking a hit due to the charges of internal funds. So NPS is a Fund of Funds. It is always better to take exposure to the underlying funds directly instead of going thru NPS. Don’t forget the stipulations laid down to withdraw money like compulsory annuities etc. Also, the fund option (Equity ) considered the highest risk-taking one, allocates only 50% of the investment to equity. So a 25 year old new joinee will be investing only 50% of his retirement savings in equity that too limited to index stocks. Well, good luck to him!!
Annapurna
Your article is an eye opener.One of the main selling points used to sell the NPS when it was launched is that it is cheap – charging a mere 0.25 % compared to the 2 – 2.5 % charged by pension plans of AMCs and Insurance companies
subra
Annapurna – this is not the norm, but hey such things have happened in the past. I am not even saying this is happening…nor am I saying that it will not happen in the future….
Jay
i am a govt employee and have the mandatory NPS being deducted from my salary.
How do i offset the loss of returns ??
kindly advise.