In this post, let’s discuss the new developments in National Pension Scheme (NPS).
Introduction of Karvy as CRA
A CRA does not back-office work and performs administrative and customer service operations. In addition, it interfaces with different entities in NPS system.
Earlier, NSDL was the only Central Record-Keeping Agency (CRA). In January 2017, PFRDA allowed Karvy as the second CRA. I assume this was done to increase competition in this space.
And this has begun to show results.
NSDL has already reduced its charges from April 1, 2017. Therefore, I think it is a good development. I hope the competition will improve service levels too.
Among the various charges that you incur for maintaining an NPS account, the two prominent (and the explicit) ones are:
- CRA charges (NSDL or Karvy will be CRA)
- PoP (Point of Presence). Depends on where you opened your NPS account
Investment management fee etc. is beyond your control.
Source: NPS Trust Website
CRA has three types of charges:
- Account opening (one-time)
- Annual maintenance (annual)
- Transaction charges (per transaction)
PFRDA has also spoken of portability of your NPS between CRAs. However, I see no reason why you should change your CRA. You can see the difference in CRA charges is not really meaningful.
A much bigger focus area should be PoP charges, which are a percentage of your transaction amount (0.25% of transaction amount). If you can save on PoP charges, you can add to your returns to some extent.
Point to Note
The charges in NPS are transaction based and not asset based.
This means you do not have to pay charges on the basis of your NPS corpus but on the basis of your transaction size.
Therefore, the presence of PoP (Point of Presence) does not hamper your returns as much.
Contrast with regular and direct plans of MF schemes. In case of mutual funds, the intermediary charges are a percentage of your fund corpus. Therefore, the cost of a financial intermediary can be very high.
Opening NPS Account Online and avoiding PoP charges
If you want to open an NPS account online, you can open either through Karvy eNPS website and NSDL eNPS website. In an earlier post, I had discussed how to open your NPS account online using Aadhaar card (on NSDL website)
Do note you can open NPS account online through bank and broker websites such as ICICIDirect too. However, in such cases, the respective banks or the broker will act as Point-of-Presence and will earn a commission (PoP charges) when you transact.
By bypassing the PoP (by opening NPS account directly through CRA websites), you can save on PoP Charges.
When you open NPS account directly through NSDL (I believe it will be similar in case of Karvy too), your PoP will be eNPS (which is the default for accounts opened online on NSDL CRA website). There are no PoP charges in case of eNPS.
You can make contributions through eNPS portal even if you have opened your NPS account through a PoP (say a bank branch). However, in that case, you will have still have to incur a reduced service charge of 0.05% of transaction amount (this is lower than 0.25%if you have invested through PoP).
You can now shift to eNPS
Till about a few months back, you could not shift your PoP to eNPS i.e. eNPS could not be your target PoP. I had mentioned this aspect in my earlier post of shifting NPS account.
If you shift to eNPS, you can avoid PoP charges (as there are no charges expect payment gateway charges if eNPS is your PoP).
Recently, when I logged into eNPS portal, I could see the option “Shift to NPS”
I had opened NPS account using Aadhaar on CRA portal only. I couldn’t test the functionality since I was already on eNPS.
I checked with NSDL CRA team. They confirmed that the shift to eNPS portal was allowed.
Therefore, if you had been planning to shift PoP to eNPS, you can do it now.
Please understand I have not tried this functionality. Therefore, I cannot comment on operational specifics.
If you have tried the shift, do let me know about your experience in the comments section.