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Journalism of Courage
The entry of private fund managers in the EPFO is welcome. The system of non-transparent fees and expenses charged by the SBI in the existing system was not in the best interests of EPFO members. Until now, thanks to the politics in the EFPO, the private sector was kept out and the SBI, only thanks to it being a public sector bank, was made the fund manager with no proper system of choice of fund manager. The choice of a public sector fund manager was an ideological position, not based on getting the best deal for EPFO members. As a consequence, very few workers in India are seriously able to save for retirement. Four fund managers have been chosen by the EPFO. Of these, HSBC AMC had the lowest bid at 0.0063 per cent, next came ICICI Prudential AMC with a bid of 0.0075 per cent. The SBI’s bid stood at 0.01 per cent which matched the Reliance Capital AMC’s bid of 0.01 per cent.
This phenomenon of a very small charge on fees and expenses has been seen in other parts of the world in the business of wholesale fund management. The auction based on lowest fees and expenses that was followed in the EPFO auction has already seen successes on two other fronts in India. The Coal Mines Provident Fund saw the first such auction in India, where the lowest bidder, on the basis of fees and expenses to be charged on Assets Under Management, was given the job of fund management. This led to a sharp drop in fees and expenses to 1 basis point. The second auction was seen in the New Pension System where again fund managers have been chosen on the basis of fees and expenses. The EPFO has done much better on this front than the NPS, which chose fund managers charging between 3 to 5 basis points. Considering the long time horizons that are involved, this can lead to large differences in the retirement fund of a worker.
The EPFO has no regulatory capability and this function can be performed by the PFRDA. As soon as the PFRDA bill is passed, the PFRDA will acquire the ability to regulate fund managers. The next step the EPFO should take should be to make sure that its fund managers are properly regulated.
