Newly appointed Indian pension fund managers, who are yet to start operations, will set a new global benchmark for the lowest administrative expenses in the business.

The new fund managers, State Bank of India (SBI), Life Insurance Corporation (LIC) and UTI MF, have agreed to manage pension funds worth Rs 2,000 crore and charge an administration cost of three to five basis points. Many analysts reckon that this could set a trend for low fund management costs for other fund categories.

The Pension Funds Regulatory & Development Authority (PFRDA), after setting up the new structure, is now planning to kickstart the New Pension Scheme by June 2008. With another maximum 5 bps for brokerage, the total cost for the management of pension funds is pegged at around 10 bps.

?This is the lowest in the world in the entire gamut of fund management,?? said a senior PFRDA official. Administrative expenses for managing funds in mutual funds, life insurance, stock broking and private banking range from 50 bps to 400 bps.

All pension fund managers have signed a written agreement with the pension fund regulator to stick to these benchmark rates. Among the three players, SBI has agreed to manage its fund at the lowest, 3 bps, and has bagged a Rs 1,200-crore mandate?the largest chunk.

India?s largest capital market player, LIC, which quoted a 5-bps charge, has been allocated only Rs 100 crore, while UTI MF, which has also quoted 5 bps as its administrative expenses, will receive Rs 700 crore.

With the overall guidelines from the Centre, PFRDA justified the low fee saying the Indian pension fund business would be volume driven. PFRDA officials estimate the total volume of pension funds that will be available for investment at around Rs 2 lakh crore in ten years.

Currently, the Centre, through PFRDA, has allowed a small part of the government pension corpus to be managed by these fund managers. Once the PFRDA Bill is passed by parliament, PFRDA would appoint more fund managers to manage the larger unorganised sector, estimated to benefit around 40 crore people.