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Investment management fees hiked for pension funds in NPS

Investment management fee, charged by pension funds in the National Pension System (NPS), has been increased by the Pension Fund Regulatory and Development Authority (PFRDA) effective April 1, 2021 (Link). The fund management fees, which was 0.01% of the asset, will now stand increased but will be capped at 0.09% depending on the total asset under management of the pension fund. The revised revenue structure for pension funds will be a staggered-based model, under which different slabs of the management fee will be applicable on different slabs of AUMs (assets under management) (refer table 1&2). Among the seven NPS fund managers, UTI AMC stands to gain particularly considering the NPS subsidiary is 100% owned by UTI AMC. SBI MF holds 20% stake in SBI Pension funds.

Based on Mar’21 AUM and revised investment management fees, UTI NPS fund (retirement solutions) is expected to earn Rs860mn revenue (FY20 UTI retirement solutions revenue was Rs112mn). We reiterate our buy rating on the stock with a target price Rs700 based on 25x core FY23E EPS of Rs18 and adding cash and investments of Rs255/share. At CMP, stock is trading at 16x / 26x based on FY23 EPS / Core EPS.

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