I agree that 5 bps is the net of charges and that mutual funds will have separate charges but if you look at the volumes of the fund that will be invested, there is always room for fund managers to negotiate for a lower charge. If you look at the charges that mutual funds levy, it is largely due to recordkeeping function. We have a CRA already in place. So that cost can be deducted straightaway .

• Even then the cost is high. Apart from the 5 bps there is brokerage charge, which is capped at 10 bps, and then there are charges on account of CRA.

But it is still much lower than mutual funds. Also, CRA costs are fixed. So, initially, the cost might appear on the higher side but as the corpus grows the costs will come down. In mutual funds or other investment funds, where the charges are a percentage of total assets under management, the costs remain high but as pension funds grow, the CRA costs will come down. To talk about brokerage charge we have capped it to 10 per cent whereas mutual funds have no caps.

• If fund managers can invest in mutual funds, why do we require separate pension fund managers? Plus, why would an asset management company (AMC) invest in successful schemes of other AMCs?

To answer your first question, we need separate fund managers to keep checks and balances and it is easier for the regulator to administer named entities. On your second question, the allocation of pension fund among three fund managers — 55 per cent with SBI, 40 per cent with UTI and 5 per cent with LIC — is for one year. This will be reviewed every year taking into account the fund manager’s performance and costs. Further, the contract that I have with these pension funds is for three years after which again there will be bidding.