How to invest in Direct NPS (eNPS) and save middlemen costs?

NPS investors mistakenly think there are no middlemen and direct investment isn’t possible. However, through eNPS, you can invest directly and avoid middlemen costs.

When thinking of investing in any product or asset class, the primary consideration should be minimizing costs. The expenses associated with financial products are generally fixed, while returns can fluctuate. Therefore, to enhance your returns, it is advisable to seek opportunities that allow for cost reduction.

It is unfortunate that most individuals tend to focus primarily on returns while overlooking the aspect of expenses, which is entirely within the investor’s control. By selecting more cost-effective options, one can inherently enhance returns.

This also applies to investments in the National Pension System (NPS). I believe that approximately 99% of investors do not realize the extent to which intermediaries are diminishing their returns when investing in NPS. Moreover, if you have chosen to invest in NPS through your employer, it is likely that your employer has a direct or indirect relationship with these intermediaries, which may pressure you into selecting the regular NPS option, resulting in a more expensive investment approach.

Intermediaries frequently highlight the low fund management fees linked to the National Pension System (NPS). Nevertheless, they often downplay the commissions they earn for assisting with the establishment of NPS accounts. I have previously written an article addressing this issue, which is referenced here: “Charges of investing in NPS – It is not so cheap!!“. There may be few changes post I wrote that article. You can refer to the current charges by referring directly to the NPS TRUST website.

Some intermediaries often justify their commission fees by claiming they provide guidance, monitor your actions, and ensure you remain a long-term investor. While this perspective may hold some validity for liquid assets or products, it does not apply in the same way to the National Pension System (NPS), which is an illiquid investment. In the case of NPS, the only adjustments you can make involve changing asset allocations or selecting different fund managers, tasks that do not require extensive financial expertise.

In such a situation why to opt for regular NPS and lower your returns for the long term?

How to invest in Direct NPS (eNPS) and save middlemen costs?

Currently, eNPS or direct NPS is available with CRAs only (Central Record Keeping Agencies). The current three CRAs who offer you to open eNPS are – KFintech, CAMS and Protean (NSDL). You simply visit their respective websites and can open the eNPS account.

A major limitation of this feature is that existing NPS account holders who are using POPs cannot move to eNPS. In contrast, investors in eNPS have the option to switch to POP NPS. However, once a transition is made from eNPS to POP NPS, reverting back to eNPS is not permitted. This scenario is regrettable and somewhat confusing.

I am unclear about the reasoning for these restrictions. Are they intended to safeguard the interests of intermediaries? If that is the case, what happens to the interests of the investors? Given that the National Pension System (NPS) is a long-term and illiquid asset, investors typically do not require ongoing support, aside from initial service-related assistance. In this context, why must NPS investors incur substantial costs associated with intermediaries over such an extended period?

Conclusion – New NPS investors can eliminate the costs associated with intermediaries by utilizing eNPS. Unfortunately, existing NPS investors who are currently investing through Points of Presence (POPs) have no alternative but to persist with their current arrangements, as they can switch POPs but cannot transition to eNPS.

I have created a short video on this. You can watch it here.