Chennai, May 1 (IANS) Life insurers are depending on their strong distribution network to stave off the competition challenge posed by the cheaper National Pension Scheme (NPS) that was launched Friday.
Even though the fund managers for NPS will charge only 1 paise per Rs.100 (0.0009 percent) as service charge, comparing to 2.5 percent on the fund value charged by life insurers, the latter do not expect drastic reduction in sales, industry officials said.

The near absence of intermediaries for NPS and the differential tax treatment on withdrawals would give insurance funds an edge in the market over the NPS.

While the subscription to NPS will enjoy several income tax benefits, withdrawals will suffer tax deductions that are not so in mutual funds.

“Any long-term financial product is not bought but sold. At the looks of it, NPS is depending on the pull factor (attractive features including low service charge) and not the push factor (marketing),” P. Nandagopal, chief executive of Reliance Life, told IANS from Mumbai over phone.

He said the NPS would help the pension fund market grow, but it “has to be seen whether people would move away from life insurers to NPS merely because the fund management charges are low”.

According to Kamesh Goyal, chief executive of Bajaj Allianz Life: “Financial products are always sold and cannot be dependent on the pull factor alone.”

V. Srinivasan, chief financial officer of Bharti Axa Life, told IANS from Mumbai over phone that he was unsure whether the NPF would make profit by charging such a low fund management fee.

Even private life insurers, who are selling predominantly unit-linked insurance policies (ULIP) with much higher fund fees, are making losses, he said.

According to the pension regulator, Pension Fund Regulatory & Development Authority, there will be 300 points of purchase (POPs) at the beginning which will be scaled up to 10,000.