Informist, Tuesday, May 14, 2024

By Priyasmita Dutta and Sagar Sen

NEW DELHI - The fee for pension managers under the National Pension System is currently low and an increase will make the sector viable in the long term, says Rahul Bhagat, chief executive officer of DSP Pension Fund Managers, the latest entrant in the national retirement plan. "A moderate adjustment in the fee structure can be beneficial for sustaining the long-term viability and competitiveness of the pension fund industry," he says.

"Increasing the fee can facilitate fund managers in hiring the right talent and implementing robust systems to ensure optimal returns for our subscribers and investors," says Bhagat in an e-mail interview to Informist.

The Pension Fund Regulatory and Development Authority had in September appointed DSP Pension Fund Managers as the 11th fund manager for the corpus under the National Pension System.

As per the current fee structure, effective for five years started Apr 1, 2021, the maximum charge for assets under management up to 100 bln rupees is 0.09%. For 100.01-500 bln rupees, the fee is capped at 0.06%; for 500.01 bln to 1.50 trln rupees at 0.05%, and for assets under management above 1.50 trln rupees, the charges are 0.03%. UTI Retirement Solutions charges 0.07% under the lowest slab.

As of March-end, DSP Fund Managers' assets under management totalled 1.16 bln rupees. DSP Pension Fund Managers is a subsidiary of DSP Asset Managers, and is backed by DSP Group, one of India’s oldest financial services firms.

As a new entrant in the pension industry, DSP Pension Fund has identified the need for brand recognition to expand its base in Tier-2 and Tier-3 cities, where the brand is still emerging, says Bhagat. "Some difficulties we have encountered include the absence of a track record as a new player and the need to expand our brand recognition beyond Tier-1 cities," he says. "As a new entrant, establishing our presence and credibility has been a key focus."

Bhagat says India's pension sector has potential for growth with its low penetration levels, increasing life expectancy, and rising disposable incomes.

Below are edited excerpts of the interview:

Q. How comfortable are you with the current fee structure? Is there a need to increase the fee considering the market is still developing?

A. We believe that the current fee structure is indeed low, and there is room for adjustment considering various factors. Increasing the fee can facilitate fund managers in hiring the right talent and implementing robust systems to ensure optimal returns for our subscribers and investors.

As the market is still in its developmental phase, it is imperative to make strategic investments on multiple fronts to increase awareness and drive growth. Therefore, a moderate adjustment in the fee structure can be beneficial for sustaining the long-term viability and competitiveness of the pension fund industry.

Q. Your assets under management were at 1.16 bln rupees at the end of March. How has been the experience so far; what are the difficulties that you are facing?

A. As a new entrant, establishing our presence and credibility has been a key focus. While our assets under management stood at 115.65 crore (1.16 bln rupees) as of March, we recognise the challenges inherent in building trust and awareness, particularly in Tier-2 and Tier-3 cities, where our brand is still emerging.

Some difficulties we have encountered include the absence of a track record as a new player and the need to expand our brand recognition beyond Tier-1 cities. Building a household name for DSP across various tiers of cities is pivotal to our strategy.

We are committed to overcoming these challenges through targeted marketing efforts and a customer-centric approach. Our goal is not just to grow our assets under management but to become a trusted partner in retirement space for individuals across all segments of the society.

Q. You are a late entrant in the market. What are the major attractions in the Indian pension space currently?

A. We are not a late entrant, we are in the right place at the right time. We recognise the significant opportunities that exist amidst the evolving landscape. We believe there are several major attractions in the Indian pension space that make it an enticing prospect for players like us.

First, the growth potential--the Indian pension sector is experiencing rapid growth, driven by factors such as increasing life expectancy, rising disposable incomes, and a growing awareness of the need for retirement planning. This presents ample opportunities for new entrants to capture market share and expand footprint.

Second, low penetration--despite the growing awareness of retirement planning, pension penetration in India remains relatively low compared to other countries. This underserved market presents an opportunity for innovative players to tap into unexplored segments and cater to the diverse needs of investors.

Third, government initiatives--the government has introduced several initiatives and reforms to promote pension coverage and financial inclusion. These include schemes such as the National Pension System and Atal Pension Yojana, which have contributed to the expansion of the pension market and increased participation from individuals at different income levels.

Fourth is diverse demographics--India's demographic dividend, characterised by a large and young population, bodes well for the long-term growth of the pension sector. As the workforce ages, there will be an increasing demand for retirement planning solutions, creating opportunities for pension fund managers to cater to the needs of this demographic.

Lastly, regulatory support--the regulatory framework governing the pension sector provides a conducive environment for growth and innovation. The Pension Fund Regulatory and Development Authority plays a crucial role in ensuring transparency, stability, and investor protection, which instils confidence in the market participants.

Overall, the Indian pension space offers a fertile ground for new entrants to leverage these attractions and contribute to the development of a robust and sustainable retirement ecosystem. As a late entrant, we are committed to harnessing these opportunities and delivering value to our investors through innovative products, superior service, and a customer-centric approach.

Q. Which is the target segment for DSP Pension Fund?

A. The target segment for DSP Pension Fund encompasses a broad spectrum of investors across sectors and demographics. Our aim is to cater to the diverse needs and preferences of individuals seeking retirement planning solutions. Specifically, our target segments include all citizen models--the retail, corporate, and the government sector. By targeting these segments, DSP Pension Fund aims to establish itself as a trusted partner in retirement planning.

Q. In order to attract individuals, the government had given tax incentives for investments in National Pension System. However, that has somewhat been negated by the new tax regime. What is your opinion?

A. The tax incentives provided by the government indeed played a crucial role in encouraging individuals to invest in pension funds. However, the introduction of the new tax regime has brought about certain changes in the tax landscape. While the new tax regime offers lower tax rates, it comes at the expense of foregoing certain deductions and exemptions, including those related to pension contributions. Despite this, pension funds continue to offer long-term wealth accumulation benefits and serve as an essential component of retirement planning.

Our focus remains on educating individuals about the long-term advantages of pension investments and helping them make informed decisions aligned with their financial goals.

Q. What is your aim for the next one year, and what is your medium-term expectation?

A. In the next one year, our primary aim is to strengthen our presence and brand recognition across all tiers of cities in India. We aim to enhance our engagement with investors through educational initiatives and personalised financial planning services. Additionally, we are committed to expanding our presence and leveraging our investment expertise to provide a seamless investing experience.

In the medium term, we envision becoming a leading player in the Indian pension space, catering to diverse segments of investors and delivering consistent value.

Q. Although this may be early, is there any plan to infuse more capital?

A. We have already infused 60 crore (600 mln rupees) of capital into DSP Pension Fund, which has provided us with a strong foundation to execute our growth plans. Given our robust business strategy and prudent financial management, we do not foresee the need to infuse additional capital in the near future.

However, we remain agile and continuously evaluate market dynamics to ensure that we have adequate resources to capitalise on emerging opportunities and meet the evolving needs of our investors.

Q. What is your strategy to penetrate the pension market, and which are the segments that you feel are unexplored so far?

A. Our strategy to penetrate the pension market revolves around a multi-faceted approach that encompasses awareness-building initiatives and strategic partnerships. We aim to leverage our expertise, along with the credibility of the DSP brand, to establish ourselves as a trusted partner in retirement planning. Additionally, we recognise the potential for growth in segments such as the corporate sector, where pension penetration is relatively low, and the government sector, where the recent policy reforms present opportunities for private fund managers. End

Edited by Ranjana Chauhan

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