The National Pension Scheme (NPS) now has 10 pension fund managers with Tata Pension Management joining the list, having received its licence from the Pension Fund Regulatory and Development Authority last year. Retirement as a financial goal is slowly gaining popularity with more wealth managers and financial planners joining the discussion, even if many Indians are yet to fully understand the concept of retirement planning. On the flip side, more people are increasingly adopting the FIRE or financially independent, retire early philosophy, which brings the focus back on retirement planning. To tap into this growing (albeit at a slow rate) pool, mutual funds and insurance companies, too, have their suite of retirement products ready. In an interaction with Moneycontrol, Kurian Jose, chief executive officer, Tata Pension Management, shared his plans on how his company aims to take a slice of the retirement planning market pie. Edited excerpts:
It is five months since you started managing money for NPS. How has been the experience so far?
We got our licence to manage NPS money in July 2022 and we commenced our business on August 19, 2022. So far we are managing about Rs 40 crore across 4000 subscribers. We are getting around 320 subscribers per week. The target is to have at least 1,000 subscribers invest with us every week.
That will happen once we have a POP (point of presence, which enables investors to register and operate NPS accounts, besides handling service requests, among other things) licence where we can actively go and solicit business. Right now, we are more focused on spreading awareness than marketing.
How do you plan to scale up this business? How do you differentiate yourself from other money managers for NPS?
We want to be the pension fund manager of choice for every Indian. Though we have the Tata brand, it is not enough. There are already seven big pension fund managers in India. The only way to differentiate is by offering superior service and consistent fund performance. Consistent fund performance matters, as people have some sort of predictability in terms of what kind of money they are able to grow and be prepared for retirement.
The initial idea is to approach corporates for new business. There are many individuals working with corporates and the NPS penetration is very low, around 4-5 percent. So there is scope for expansion. The Tata ecosystem is a starting point, and being a Tata entity, we have an edge there, but I can’t lead with fund performance because other fund managers already have a track record and I don't have that. Our initial growth strategy is to increase our sales team to approach corporates including Tata group companies. This will be possible only after the POP licence, which we should be getting in a couple of months.
What are the common mistakes investors make while investing in NPS? Are there any trends you have seen around asset allocation under NPS?
Most people are not aware of the benefits NPS offers. Many know the tax benefits offered under Section 80C and Section 80CCD(1B). But people do not know that one can invest up to 10 percent of the basic salary under Section 80CCD(2) through corporates, subject to rules. But most people prefer cash in hand over investing for the future. There is peer pressure, many seek instant gratification.
Most people think that retirement is far away. By the time they realise the need to fund their retirement, it is often too late. The earlier you start, you can start small and still make better returns (than those who start late). The biggest mistake here is that most people do not realise that the power of compounding is significant. The only way to overcome this is to start as early as you can. You may start small but keep adding as you get increments and bonuses.
After a lull caused by rising interest rates, the bond markets have turned attractive. Many investors in NPS have large allocations to corporate bonds and government securities. What is your view on fixed income?
NPS is all about long-term investing. If you are buying a 20-year bond, and you hold on to it till maturity, then you are going to get the yield on the bond at the time of purchase. The mark-to-market impact is seen in the short term. In a rising interest rate scenario, yields go up and push the prices down giving some losses in short term. But that also increases the YTM (yield to maturity) of the bond portfolio. Long-term investors do not lose.
There is an expectation that 2023 is going to be the year of a strong comeback of fixed income as an asset class. How are you building your portfolios to make the most of it? Can you throw some light on the duration, credit quality of the portfolio?
We expect a 25-basis point rate hike by the Reserve Bank of India. In corporate bonds, we are holding bonds maturing in seven to eight years, which is a sweet spot. Bonds maturing beyond that are not as attractive. After rates peak, we will go into longer-tenured bonds. We will build long-term portfolios with 10 to 15 years maturities at higher yields. Our corporate bond portfolio is all invested in AAA-rated bonds. Since we invest in long-term bonds, we prefer to stick with top private names and public sector undertakings.
In the government securities and state development loans portfolio, our duration is around nine years.
There is talk of offering an NPS product with an assured return feature. How do you see it? Will it attract more subscribers? Does it make existing market-linked product less attractive?
It all depends on what the assured return on NPS is. For example, if it offers 8 percent assured return, then fixed-income investors may find it attractive, but someone who makes 12 percent in equity may not. This assured return feature will gain importance. It also depends on what the assured return will be, from the point of view of a fund manager. If we are earning 9 basis points, and if we have to guarantee a return, that means we have to block a lot of capital. We already have to put Rs 50 crore of capital into this. Beyond that, if I put in more capital and we're earning nothing, it becomes very difficult for me. But having said that, this is part of the architecture and after discussions with all stakeholders, the product will be launched.
The core function of your parent Tata Asset Management Company is to manage money. You manage money for NPS. How do you ensure that the portfolio decisions for NPS remain independent of the investment decisions made by the parent?
We have a completely different fund management team though we are a 100 percent subsidiary of Tata AMC. Though we may informally seek views from the fund management team of AMC, the view of our fund managers is final.
Also the mutual fund’s investment view ranges from one year to as long as 10 years. In our case, we have to think 20 years. The mutual fund managers have to keep enough liquidity to ensure redemptions go through. We have investors with longer timeframes. That may lead to a situation wherein a security that appears attractive for a mutual fund may not be as attractive for a pension fund. So we have different teams, different timeframes, different style of fund management and we will soon move to a separate office space.
What are your expectations from Budget 2023?
We would like to see the contribution allowed for tax deduction under Section 80CCD(1B) to go up to Rs 1 lakh from the existing Rs 50,000. Also the deduction allowed under Section 80CCD(2) should be hiked. The Rs 50,000 allowed to an individual contributing to NPS is a very small number. Also, the benefits offered under Section 80C need to be increased.
(Preeti Kulkarni contributed to this story)