Even the Rs1,000 giveaway announced by the FM in the 2010-11 budget to potential savers has failed to make them join the NPS. It is obvious that potential investors tend to shun market volatility and prefer guaranteed returns
Only around 51,000 people have subscribed to the 'voluntary' part of the New Pension System (NPS), according to the information provided to the Standing Committee of Parliament, which was examining the PFRDA (Pension Fund Regulatory and Development Authority) Bill of 2011. In May 2009, NPS was thrown open to the general public. The subscription level so far has been abysmal-and does not seem to reflect any investor interest in the product. Worse, despite the government's offer of putting in Rs1,000 for every new account opened under the 'Swavalamban' scheme, there have been few takers. This is contrary to the fact that the scheme architecture was designed to make it attractive to the general public.
Seeing the volatility in returns in the schemes of the NPS, it seems that the scheme has been spurned by investors looking for guaranteed returns.
In a recent article dated 2nd September, (Returns from New Pension System schemes are hugely volatile:) we had discussed how the NPS had been launched for all citizens of the country—including workers in the unorganised sector-on a voluntary basis, with effect from 1 May 2009. But returns for the unorganised sector have been abysmal and extremely volatile.
Subscribers to the NPS have an option of choosing one out of the six PFMs (pension fund managers). For May 2009-March 2010 and FY2010-11, the returns for unorganised sector workers of six PFMs ranged between 12.52% and 1.82% for government securities (g-secs); 12.66% and 4.02% for corporate bonds and 25.94% and 7.95% for equity. This leaves investors confused as to which fund manager they should choose to get better returns. But more than choosing the right fund manager, investors would shun the scheme as returns are not guaranteed.
As on 31 March 2011, the total assets under management (AUM) by all PFMs totalled Rs8,585 crore. The non-government sector contributed less than Rs100 crore, of which a bulk has been contributed by two corporates—NALCO (National Aluminium Company Ltd) and NTPC (National Thermal Power Corporation)—which have migrated their employees' pension schemes to NPS. The lack of investor interest in the NPS is apparent.
Investors look for guaranteed returns. For the same reason, nearly 50% of household savings lie in bank deposits and 13% is in provident & pension funds. Just 4% is invested in shares & debentures, a clear indication that investors tend to shun volatility in the market. Investors fail to look at the long-term perspective and are turned off by the short-term volatility of the market. Volatility in returns is an inveterate part of the market, but over the long term, volatility is significantly reduced. This is overlooked by the average investor. What is lacking is adequate investor literacy.
Investors jump to any investment that has the word 'guaranteed' mentioned in it. For the same reason, hoards of individuals fall for chit funds and MLM (multi-level marketing) schemes, which promise them huge and 'guaranteed' returns. On the other hand, mutual fund schemes that have an established track record of providing 22% yearly compounded returns fail to find buyers, as the returns are not guaranteed.
Therefore, without proper investor literacy and guidance, it would be difficult to get subscribers. Investors need to be pushed to invest in market-linked products. At Moneylife we have constantly pointed out the decline in investor participation in mutual funds after the ban on entry loads. The reason being that prior to the ban, financial advisors used to actively sell mutual funds to investors—but after the ban, there was no incentive to advisors to induce investors to go in for any particular scheme.
The standing committee on finance which presented the PFRDA Bill recently is rightly concerned about the poor participation, as NPS schemes are market linked. Under the old pension scheme, a retiree is guaranteed a monthly pension amounting to 50% of the average of the pay drawn in the last 10 months of service and the facility of commutation. The committee has proposed that the investment guidelines should be framed by PFRDA in such a manner that besides the other financial instruments, an option would be given to the subscribers of the NPS where 100% investment in g-secs would be permitted. This would be similar to bank fixed deposits for investors as they would earn interest along with capital protection. But how far this would influence participation would still be a big question.
Ex-SEBI member KM Abraham had alleged that certain corporates and finance ministry officials were exploiting the vulnerability of the market regulator, which was investigating crucial cases involving prominent business houses. However, the ministry termed the allegations as 'false, vexatious and defamatory'
New Delhi: The Central Vigilance Commission (CVC) is examining a finance ministry report on complaints against KM Abraham, a former member of capital market regulator Securities and Exchange Board of India (SEBI), by a sitting member of parliament (MP), reports PTI.
"We have got the response from the finance ministry, which is currently under examination," a senior CVC official said.
The ministry had late last month submitted its findings to the Prime Minister's Office and the anti-corruption watchdog, among others, relating to the complaint forwarded to it by the CVC.
"The complaint was in regard to certain irregularities pointed out by the MP. We had called for the finance ministry's response on it," the official said, refusing to divulge further information.
In a recent letter to prime minister Manmohan Singh, accessed by PTI in response to an RTI query, Mr Abraham had alleged that certain corporates and finance ministry officials were exploiting the vulnerability of the market regulator, which was investigating crucial cases involving prominent business houses.
However, the charges raised by Mr Abraham were rejected by the finance ministry.
In a statement issued on 30th August, the finance ministry dismissed the allegations of interference in the market regulator's job as 'false, vexatious and defamatory'.
The ministry said it had received numerous complaints against Mr Abraham, ranging from corruption to abuse of power.
These include complaints from several MPs about his conduct, while references have also been received from the CVC and Department of Personnel and Training (DoPT).
"The regulatory institution is under duress and under severe attack from powerful corporate interests, operating concertedly to undermine SEBI... I believe these insidious attempts are orchestrated from the office of the Union ministry of finance," Mr Abraham had said in his nine-page letter to the prime minister on 1st June.
The finance ministry has also forwarded a complaint of alleged tax evasion against Mr Abraham and another former whole-time SEBI member, MS Sahoo, to the director general of income tax (Investigation), Mumbai, for necessary action in accordance with the law, the reply said.
Mr Abraham and MR Sahoo retired from SEBI in July.
The former SEBI member, in his letter, alleged direct or indirect interference by certain top government functionaries in cases involving private and public sector giants like Sahara Group, Reliance (both the Ambani Groups of companies), Bank of Rajasthan and the MCX Stock Exchange.
The Lok Sabha decided to drop impeachment proceedings against justice Soumitra Sen after the government on Sunday notified the resignation
New Delhi: The Lok Sabha will drop impeachment proceedings against justice Soumitra Sen, originally scheduled for today, reports PTI.
The decision was taken at a meeting finance minister Pranab Mukherjee had with law minister Salman Khurshid and parliamentary affairs minister Pawan Kumar Bansal.
Speaker Meira Kumar also consulted the government and political parties over the issue in the morning.
"There will be no impeachment as the process has now become infructuous after justice Sen's resignation was accepted," a senior minister said speaking on the condition of anonymity.
He was asked whether justice Sen's impeachment as listed in Lok Sabha business for today, will be taken up.
"I have to consult because there have been new developments. I will be talking," the speaker had told reporters outside Parliament before the House commenced.
The government had yesterday notified the resignation of justice Sen of the Calcutta High Court.
In the normal course, such a notification is not required since the resignation of a constitutional authority is deemed to be accepted if it is in order.
Attorney general GE Vahanvati had opined on Friday that impeachment proceedings, having already been completed in the Rajya Sabha, should be completed by the other house.
This opinion appeared to be based on the premise that the resignation letter faxed by justice Sen to Rashtrapati Bhavan on Thursday could not be taken cognisance of since such letters must be written in the hand of the judge as per Art 217 (a) of the Constitution.
Justice Sen had later sent his handwritten letter to the president on Saturday paving the way for dropping the impeachment motion in Lok Sabha against him.