Investor Issues
Financial planning: Indians need to start early and save smartly, indicates survey

A recent survey indicates that 76% of Indians have a financial plan in place, but they were able to save just 150% more than those who had not planned for the future. This just goes to prove that a huge majority need to be better educated on how to plan for a future without a steady income—and start early in this process  

In our previous article (Financial Planning: Positive approach but no support), we had mentioned how around 76% of Indian respondents to a recent global survey carried out by HSBC Bank on the 'The Future of Retirement', said that they have a financial plan in place. But there was a glaring contradiction—51% of them were worried about being able to cope with their finances after retirement.

There's another shocker in the survey—this 76% who have a plan were able to save just 150% more than the people who did not have a plan in place!
This shows that Indians have a long way to go as far as financial planning for the future is concerned. Considering the fact that the country does not provide any unemployment dole-or post-retirement benefits, for that matter—investors need to start financial planning early in life, a fact that Moneylife has been consistently pointing out.

And those who do not have a plan in place yet should begin immediately, as the survey results show that those who have planned have accumulated more wealth—albeit by a comparatively small amount, for reasons explained above.

So what is the global scenario, according to the HSBC survey?

On an average, the survey indicates that globally, those who have financial plans in place have accumulated nearly 250% more in savings and investments for their lives after retirement than those who are yet to build their nest egg. For reasons other than post-retirement investments, the ones who have planned have amassed 300% more in savings and other investments than those who do not have any kind of financial plan in place.

Along with the financial benefits, those who have planned their finances have a much more positive outlook toward their later life. But here's another shocker—just 50% of those surveyed globally had a plan in place.

The respondents to the survey were mostly between 30 years and 60 years, living in urban areas and having an above-average income (compared to Indian standards). The three income groups which the survey trifurcated werehigh income with gross annual household income over $100,000 (approximately Rs45,00,000); middle income with gross annual household income of $30,000 (Rs13,50,000) to US$100,000; and low-income, with gross annual household earnings below $30,000. For a country where just 30% of the population are from urban areas, a larger sample size would definitely be more worrying.

According to the report, "Despite India's rising prosperity, unease about the future naturally continues to concern the majority, and the most prominently cited reasons for this centre on fears about healthcare (41%), unforeseen events (45%) and the lack of performance from their investments (39%). Many people in India also worry that they have not saved enough for retirement (34%).  

"While they are excited about their increased prosperity and longevity, people in India understand that longer (life after) retirement will be more difficult to fund. One in ten people do not know what their main source of income will be in retirement."

The report also says that "over the next 30 years, a higher proportion of the population will be of working age and when they retire, India will face the challenges of an ageing, non-working population. As life expectancy increases, the number of years spent in retirement is expected to get greater."

All this just goes to show that retirement planning is crucial. And the sooner you start, greater the benefit. The key to surviving uncertainty is preparation. Decisions therefore need to be made based on research and knowledge. The authenticity of the source should also be considered. The source should have unbiased views and opinions about different financial products and the advice should not favour those products which earn advisors a higher commission.

In India, there is a shortage of qualified advisors who thoroughly understand the intricacies of financial planning. This fact is thrown up in the survey too—55% of the respondents take advice from family and friends on financial products compared to the global average of 46%. Just 33% take advice from 'independent' financial advisors and 21% from banks.

One of the main barriers for an individual stopping him from going for financial planning is lack of time, especially for those in the higher-income groups. People appreciate financial advice which is suited to their busy lifestyles. Globally, 41% feel that a financial advice session should not last more than 30 minutes and should focus on their immediate needs, says the survey.


Oil ministry calls for restraint on CAG report on KG-D6 field cost

On receipt of the ministry’s reply, the CAG will examine the reply on merits and will hold an exit conference with it before making its final observations. “The ministry, therefore, appeals to all concerned to exercise restraint and allow the process to be completed,” a statement issued by the oil ministry said

New Delhi: Amidst a raging controversy over the Comptroller and Auditor General’s (CAG) draft report severely criticising its role in approving Reliance Industries’ (RIL) KG-D6 field cost, the oil ministry yesterday called for restraint and not jumping to conclusion saying the top auditor has not yet finalised its report, reports PTI.

“The CAG report is at the draft stage,” the ministry said in a press statement here. “This ministry is examining the draft report, it involves scrutiny of administrative/ policy issues and technical issues. The preparation of a detailed reply will take some time.”

“It is only after taking into account the reply of government that the office of CAG will suitably amend the draft report and send the final report for placing it on the table of Parliament,” it added.

The CAG in its draft report had alleged that the oil ministry and its technical arm DGH favoured RIL but did not say if by doubling of cost of developing eastern offshore KG-D6 field the Mukesh Ambani firm had overbilled the government and thereby caused loss to the state exchequer.

It also pulled up the ministry for going out of its way to grant nearly 1,700 sq km of additional area to Cairn India adjacent to its oil discovery in Rajasthan block.

“As the process of preparation of reply and its vetting by the office of CAG is yet to be completed, it would be premature for the ministry to give any response on the observations made in the draft report at this stage,” it said.

“It would be equally incorrect for the media commentators, political leaders and civil rights activists to jump to conclusions and thus short-circuit the process,” the statement added.

On receipt of ministry’s reply, the office of CAG will examine the reply on merits and will hold an exit conference with it before making its final observations.

“The ministry, therefore, appeals to all concerned to exercise restraint and allow the process to be completed,” the statement said.

The ministry said it was at its request in November 2007 that the CAG agreed to carry out special audit in respect of certain blocks/fields operated under pre-New Exploration Licensing Policy (NELP) and NELP regimes.

“The draft performance audit report has been received in this ministry on 8 June 2011,” it added. “While the above process is underway, the leaked draft report is being reported and commented upon in sections of the media.”

The CAG in its draft audit report on KG-D6 block said the ministry and the Directorate General of Hydrocarbons (DGH) also bent the rules to grant ‘huge benefits’ to RIL when it was allowed to retain the entire block, but said gains cannot be quantified.

“The increase in (Phase-1) cost from $2.39 billion proposed in the Initial Development Plan of May 2004 to $5.196 billion in the addendum to the Initial Development Plan is likely to have a significant impact on the government of India’s financial take.

“However, at this stage, based on the information provided, we are unable to comment on the reasonableness, or otherwise of the increase in cost, both overall and in respect of individual line items,” CAG said in the draft report.

Responding to the reports in media, RIL earlier this week said that “as a responsible operator, it has fully complied with the requirements in the Production Sharing Contract (PSC) at all times in conducting petroleum operations, and refutes any suggestion to the contrary.”

“The KG-D6 project has been globally acclaimed for its cost effective, speedy, flawless execution and smooth commissioning,” RIL had said in a statement.

Reliance had raised the cost of bringing to production India’s first deep-sea and the largest gas field after reserves almost doubled to 11.3 trillion cubic feet, raising the peak output two times to 80 million cubic meters per day.

An operator like Reliance is allowed to recover all the capital cost incurred on developing a field from revenues earned from the sale of oil or gas before profits are split between the stakeholders, including the government.

The CAG conducted the audit of the RIL accounts after allegations of ‘gold-plating’, or artificially inflating the development costs of Dhirubhai-1 and 3 gas fields, two of the 18 discoveries in KG-D6 block, were levied by the Anil Ambani Group.

The premier auditor, whose report will be tabled in Parliament after incorporating comments from the oil ministry, said RIL never had the intention of developing KG-D6 gas fields as per the initial cost estimates and said it did not initiate tendering for equipment as per the original plan.

CAG recommended that the “role of DGH and government of India representative on the Management Committee may be closely scrutinised to see why the operator was allowed to violate the provisions of Production Sharing Contract (PSC) and not adhere strictly to the terms of the approved initial development plan”.

On Cairns India, the CAG said as per the PSC, the total contract area of the company’s operated RJ-ON-90/1 block' in Rajasthan was 11,108 sq km. The oil ministry agreed to Cairn’s request for grant of additional 852.2 sq km in August 2004 and 856 sq km in March 2005.

“In our view, the contract area under the PSC is sacrosanct... It can by no means be argued that already discovered reservoirs extend over the entire extended area of 852.20 sq km (and) 856 sq km,” it said.


Tata Steel sells Riversdale stake for $1.11 billion

“Tata Steel has decided that it would not want to hold its equity investment in Riversdale Mining, which is proposed to be delisted, without any joint venture agreement with the majority shareholder in unlisted Riversdale,” the company said in a statement

New Delhi:  Tata Steel on Thursday said it has sold its 26.27% stake in Australian coal miner Riversdale to global mining major Rio Tinto for A$1.06 billion ($1.11 billion), reports PTI.

“The sale consideration of about A$1,060 million (about Rs5,074 crore) represents around 100% appreciation of value in less than four years since the first investment,” the Indian steel major said in a statement.

The Anglo-Dutch miner Rio Tinto holds 73.2% stake in Riversdale, which has an estimated 13 billion tonne reserves in its two projects in Mozambique—Benga and Zambeze.

Riversdale has been a takeover target for Rio Tinto since December 2010 when it put in a bid of A$16 per share to acquire a majority stake in the Australian mining firm.

Tata Steel, along with Brazilian steel maker CSN, has been continuously opposing Rio’s buying stake in Riversdale, maintaining that it was more interested in getting coal from Riversdale to feed its European operations than making a quick buck.

CSN backed out from its earlier stand in April and sold its entire 19.9% stake to Rio Tinto.

“As a part of the ongoing review of the strategic investments of the company, Tata Steel board has considered the recent announcement of Rio Tinto Jersey Holdings 2010 to delist Riversdale following its increased shareholding to 73.2% in Riversdale.

“Tata Steel has decided that it would not want to hold its equity investment in Riversdale Mining, which is proposed to be delisted, without any joint venture agreement with the majority shareholder in unlisted Riversdale,” Tata Steel said.

Tata Steel scrip was trading at Rs567.30 per share, up 2.56% in noon trade on the Bombay Stock Exchange today.


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