Central Board of Trustees, the apex decision making body of EPFO, in its meeting on 14th January is likely to approve proposal to appoint a consultant to start process for selection of new fund managers
The Employees’ Provident Fund Organisation’s (EPFO) is planning to decide next month on hiring a consultant for starting process of selection of new fund managers for its huge corpus of about Rs5 lakh crore.
According to agenda of a meeting of Central Board of Trustees’ (CBT), the apex decision making body of EPFO, the proposal for appointment of the consultant would be discussed and approved.
The consultant would also evaluate the performance of new fund managers and appoint a custodian and concurrent auditor for the EPFO. At present, ratings agency CRISIL is providing consultancy services to the EPFO.
The existing four fund managers of EPFO – SBI, HSBC AMC, Reliance Capital and ICICI Securities Primary Dealership – were appointed for three years beginning 1 September 2011.
Among the four managers, SBI manages biggest chunk of fund with 35% of corpus followed by ICICI Securities Primary Dealership at 25%. HSBC AMC and Reliance Capital manage 20% each.
In the last bidding, Reliance Capital had quoted a fee of 4 paisa per annum for managing Rs10,000, and was the second lowest bidder after ICICI Securities Primary Dealership which quoted a rate of 3 paisa.
SBI had quoted a price of Re1 per Rs10,000 per annum whereas HSBC AMC’s rate was 36 paisa.
The CBT had approved the appointment of Standard Chartered Bank as custodian of securities of EPFO and Chandabhoy and Jassoobhoy of Mumbai as external concurrent auditor for the body.
The EPFO had appointed multiple fund managers for the first time in July, 2008, for earning better rate of return on deposits for its over five crore subscribers.
During the two-and-half-year tenure from 17 September 2008 to 31 March 2011, ICICI Pru had provided highest yield (return) of 8.72% followed by HSBC AMC (8.64%), SBI (8.61%) and Reliance Capital (8.57%) against the benchmark yield of 8.52%.
Before July 2008, SBI was the sole fund manager for the retirement fund body since its inception in 1952.
Elderly population in India is turning into the new customer segment that is large and distinctive with significant purchasing power
Today there is an urgent need to address the wellness of present day Elders, officially designated Senior Citizens, that encompass their physical, emotional, intellectual, social and spiritual needs by looking at them from an entirely new perspective because of their sheer increasing numbers in absolute terms in the demographic divide that now make them an extremely vital segment of the community that require to be reckoned with. One report puts it – “In India, the senior living sector with strength of over 100 million is poised for a significant growth in the years to come.”
Mr. Harish Bhat, MD&CEO of Tata Global Beverages and author of Tata Log: Eight Modern Stories from a Timeless Institutions writing in the Brand Line column of the Hindu Business Line calls upon the marketers to include the Elderly Population of India as the “new customer segment that is large and distinctive with significant purchasing power”. He writes their population increasing, they are also willing to spend reasonable amounts of money on their essential requirements, in many cases their children, who earn good money are also willing to contribute. They have a distinct set of needs – as they may suffer from weak eyesight or infirm hands that are unable to work with small buttons or phone or remote controls with small keys, slippery bar soaps, wrist watches. He suggests easy to use uncomplicated mobiles with large fonts. Also, banks and reality need to develop products to cater to this segment. Besides there is also a significant proportion of this segment who are naturally either obese and of large build or unusually tall or with large waists, wrists and feet who search for ‘jeans that can make them look slimmer’, bathroom slippers that they can easily slip their feet into, cars and airline seats that they can be comfortable in. They even have specific needs of foods and beverages at variance from others.
The FMCG sector too has now come to recognize the fact that the Elders too have truly arrived as a new class of discerning customers:
A recent Research Survey of 1,900 elders from 12 cities in India reveals:
Many reality operators have now zeroed on the seniors to satisfy the growing demand for Senior Care Communities where the lifestyles, socio-economic and healthcare requirements are well taken care of. The developers have jumped into the bandwagon to take a piece of the burgeoning cake of the Assisted Living Community Projects.
Will the next PFRDA chairman be another bureaucrat on a sinecure after exodus of PFRDA chairman Yogesh Agarwal?
The process of appointing and supervising the many independent regulators in the financial sector is clearly breaking down. Over the past few years, Moneylife has repeatedly pointed out how independent regulators are not exactly pro-consumers even as they have been armed with extraordinary powers, due to the disinterest of the finance ministry and the parliamentarians on the standing committee of finance. Our attention was mainly focused on the capital market regulator, insurance regulator and the banking regulator.
The pension regulator, Yogesh Agarwal, flew below the radar because he operated without an empowering statute and also because the National Pension System (NPS) had failed to attract investors. Then, on 12th November, just two months after Pension Fund Regulatory and Development Authority (PFRDA) got its statutory teeth, came the startling news that Mr Agarwal has been asked to resign.
The exit came a year and half before his term was to expire and without any explanation beyond unattributed comments that he wasn’t getting along with finance ministry bureaucrats. My sources say that the PFRDA did not hold board meetings and there was some rumbling about frequent foreign trips and some questionable appointments at PFRDA during his tenure. He was even kept out of the selection committee to appoint whole-time members. Mr Agarwal has apparently chosen to remain silent about the reasons for his exit.
PFRDA oversees the defined contribution NPS which has over 5.3 million subscribers and a Rs35,000 crore corpus of mainly government employees on whom this scheme was thrust in 2004. When NPS was first launched, Moneylife was extremely bullish about the product as a safe, long-term investment.
However, in the absence of distribution commissions, neither banks nor independent advisors had any interest in pushing the scheme. Our view turned negative soon after Mr Agarwal took over and began to tinker with the scheme. Our view remained negative, even though the government tried to push the product by contributing Rs1,000 per year to each subscriber for four years.
In January 2013, Moneylife wrote, “A retirement product should be less volatile, small on charges, big on tax benefits and flexible after retirement.” We had pointed out that, over 2009-11, returns of the scheme for the unorganised sector had varied from 23.51% to -3.15%, although NPS investments are supposed to be strait-jacketed.
This is bound to scare away savers who simply cannot afford volatility on a pension plan. Also, if this was the volatility in just three years, what would be the fate of the pensions over 30 years? The product was further marred by high fixed transaction charges, which would deplete the savings of small investors, rendering the product unattractive for them. PFRDA also increased the investment management fee and allowed fund managers to revise it every year. For long-term investors, who are expected to lock their funds for several decades, this uncertainty and tinkering killed the product and Moneylife refuses to endorse it anymore.
Typical of India’s financial regulators and the ministry, these concerns were never even acknowledged, let alone addressed. Will things change now that the PFRDA chairman has been asked to go? Or will he merely be replaced by a retired bureaucrat after going through the motions of an elaborate selection process? The SEBI saga outlined in the next report only shows the urgent need for greater transparency and accountability in selecting independent regulators in India.