PF CORPUS: FUNDS QUOTE LOWEST FEES

Mumbai: The Employees’ Provident Fund Organisation (EPFO), which runs one of the biggest social security schemes in the world and has often been criticised for the way it runs the scheme, has attracted one of the lowest fund management fees from top fund houses.

Over five fund houses have quoted a fee of one basis point (0.01%) or less for managing the incremental or fresh funds of the EPFO which is reckoned to be close to Rs 25,000 crore annually. The EPFO had invited bids from asset management firms for outsourcing the fund management functions of the organisation which has over 2 crore subscribers and has a corpus aggregating Rs 2,40,000 crore.

The plan is to have multiple fund managers for the scheme to help generate higher returns and to bring about greater professionalism by infusing competition.

From a provident or pension fund subscribers’ perspective, a lower fund management fee translates into higher returns over a long stretch. Typically, provident and pension fund monies remain invested over decades and there is evidence to show that each percentage fall in fund management charges is reflected in higher returns. In India, mutual funds charge, on an average, well over 2% as fund management fees.

The pension sector regulator PFRDA has also adopted a similar approach of awarding the mandate of fund management to three stateowned fund houses on the basis of the lowest fees quoted.

According to persons familiar with the EPFO’s bidding process, the asset management arms of HSBC, ICICI Bank, SBI, HDFC and Birla Sun Life are among those that have quoted a low fund management fee. What could be encouraging for these fund houses is access to a fairly large corpus at a time when there has been a decline in the assets under management of the mutual fund industry.

If the EPFO board approves the choice of three fund managers as proposed it may well have an impact on other exempt and what is known as excluded trusts, provident and pension funds. The funds, given their long-term nature, could also help provide stability in a rocky market.

These funds also may be enthused then to outsource their fund management activities to professional fund managers. In turn this could put pressure on the government to liberalise the investment guidelines to permit greater play for equity.

Source: The Economic Times