Open nps tier 2 account to anyone

Open nps tier 2 account to anyone

Sebi has changed rules to lower the expenses mutual funds charge investors. This is fine, given that expenses eat into a sizeable chunk of returns. An expense ratio of 1% means that, each year, 1% of the fund’s total assets will not be available for investment. The regulator has also banned upfront commission, allowing distributors only trail commissions. This makes sense. It will ensure that distributors get a steady stream of income if the investor stays invested in the scheme.

However, rigid allocation rules that mutual funds need to follow hurts small investors. The best way to help the small investor and put pressure on mutual funds to lower their costs is for the government to open up the Tier 2 account of the National Pension System (NPS) to everyone. It will provide the public at large access to low cost fund management expertise. The Tier 2 account is now only open to those who hold a Tier 1pension account. The restriction must go. The assets under management (AUM) of the NPS is only around Rs. 2.56 lakh crore, roughly 10% of the AUM of the mutual fund industry, true. The larger the pool of funds that the NPS gets to handle, and the more diversified the portfolio is across asset classes, the higher would be the return for investors. So, small investors will gain.

The regulator has cut the expense ratio for open-ended equity schemes on the basis of size: larger funds will have to lower fees by a bigger amount. The expense ratio for schemes with AUM up to Rs. 500 crore, for example, has been capped at 2.25% every year. Funds with assets above Rs. 50,000 crore will be able to charge 1.05% annually. A sliding scale works to the advantage of smaller fund companies. Mutual funds should compete for custom, with lower fees and superior returns — amongst themselves, and with the NPS.