The New Pension Scheme: Good intentions, poor execution

 In the current Budget, the Central government had announced that it would contribute Rs1,000 towards each New Pension Scheme (NPS) account opened this year. The Pension Fund Regulatory and Development Authority (PFRDA) plans to make the scheme more attractive. While various efforts have been made to make the NPS attractive, the Centre has failed to attract its own States towards the scheme.

Even after six years of its launch, only 12 States have executed the NPS scheme, eight have merely entered into an agreement with the NPS Trust. Administrative difficulties in identification of eligible employees and the difficulties of implementation of a payroll-linked programme are some of the difficulties that have been cited by various States for non-implementation of the scheme.

The NPS was introduced by the government in April 2004, to cover all entrants in government service. It was subsequently extended to the general public later. At that time, around 23 States in the country had notified adoption of the NPS for their employees.

However, even after six years, the implementation of the scheme has not taken off. According to the 13th Finance Commission Report (2010- 2015), only 12 States have executed their agreements signed with the Central Record Keeping and Accountancy Agency (CRA). In the case of NPS, the National Securities Depository Limited (NSDL) has been appointed as the CRA.The Report further states that an additional eight States have entered into agreements with the NPS Trust.

This lacklustre performance from the States has led to an abysmal transfer of funds worth Rs 133crore so far to the NPS. The amount is quite meagre compared to the total corpus that the government had transferred to pension fund managers. As on 31 March 2008, this amount stood at over Rs1,117 crore. Thus, the total amount transferred to the NPS stands at around 10% of the total amount that the Centre had allocated to the Scheme. According to the Report, this Rs113 crore is the transfer amount put together for only two States.

The Report states, “The contributions of State employees are lying in the State public accounts, earning a return equal to the interest rate allowed for the General Provident Fund. The migration to the NPS needs to be completed at the earliest.” The Report has also recommended a grant to assist States build a database for their employees and pensioners.
The Centre’s intentions may be noble, but if it can’t get the States to follow the NPS, how will it convince the general public to go in for what otherwise is a well-conceived scheme? — Amritha Pillay

Important changes in PPF rules

Public Provident Fund Scheme, 1968: (1) Clarification regarding reckoning of the date of deposit (2) Reiteration of instructions on opening of an account for a minor

Circular No. DGBA.CDD. H-7530/15.02.001/2009-10, dated 29-3-2010

1. Reckoning the date of deposit in case of cheque payment:

(a) As you are aware, in terms of Ministry of Finance letter No. F. 3(9)-PD/72 dated September 4, 1972, in the case of Public Provident Fund Scheme, 1968 (PPF) “when a subscriber makes a deposit by local cheque or demand draft, the date of tender of cheque or draft at the Accounting Office is treated as date of deposit, provided the related cheque is honoured on presentation for encashment.” However, in case of all other Small Savings Schemes of the Government of India (GoI), such as, Post Office Savings Schemes (POSS), as also Senior Citizens Savings Scheme, 2004 (SCSS), if the money is deposited in the account by means of a cheque (local or outstation),the date of encashment of the cheque is treated as the date of deposit.

(b) In order to bring uniformity in the reckoning of the date of deposit in the PPF vis-à-vis POSS and SCSS, the GoI, vide their letter F. No.7/7/2008/NS-II dated February 10, 2010, have decided that hereafter in modification of Ministry of Finance letter No.F.3(9)-PD/72 dated September 4, 1972 “when a deposit is made in the PPF account by means of a local cheque or demand draft by the subscriber, the date of realization of the amount will be the date of deposit.”

(kindly ensure that your cheque is cleared by the 5th of the month to earn interest for that month,

also do not wait for 31st March to make PPF deposits)

(c) You may bring this to the notice of your branches undertaking PPF business and ensure that the same is also incorporated in the computerized system. The information should also be duly displayed at the branches for awareness of the customers.

2. Opening of an account for a minor:

(a) In view of complaints being received about non-opening of accounts for minor by some Agency banks, it is reiterated that as per Rule 3 (1) of PPF Scheme, 1968, an individual may, on his own behalf or on behalf of a minor, of whom he is the guardian, subscribe to the Public Provident Fund. Further it is reiterated that as clarified, vide Ministry of Finance letter F.7/34/88/-NS II dated November 17, 1989, either father or mother can open a PPF account on behalf of his/her minor child but not both.

(b) You are advised to reiterate these instructions to your branches operating the PPF Scheme.

FinMin puts Sebi's Ulips order on hold

The government today said the two regulators Sebi and IRDA have agreed to maintain the status quo that existed before market regulator's ban on 14 life insurers from raising funds for unit-linked schemes.
The status quo will be maintained till a court decides who can regulate ULIP schemes, Finance Minister Pranab Mukherjee told reporters here.
ULIP is an insurance product in which a bulk of the premiums is invested in equities and bonds.
"To resolve any ambiguity and to ensure smooth functioning in the market, the regulators have agreed to jointly seek a binding legal mandate from an appropriate court," Mukherjee said.
"Meanwhile, status quo ante is being restored," he told reporters outside the finance ministry.
Mukherjee's comments came after a series of meeting between Finance Ministry officials and IRDA Chairman J Hari Narayan Sebi chief C B Bhave.
Sebi last Friday banned 14 life insurance companies from raising funds through unit-linked insurance policies.
A day later, insurance sector regulator IRDA asked the companies to ignore the Sebi order and do business as usual.
The ball had since gone into the Finance Ministry's court. Bhave and Hari Narayan held separate meetings with Finance Secretary Ashok Chawla on the ongoing tussle between the two regulators.
The life insurance companies against whom Sebi passed the order are SBI Life, ICICI Prudential, Tata AIG, Aegon Religare Life, Aviva Life, Bajaj Allianz, Bharti AXA, Birla Sunlife, HDFC Standard Life, ING Vysya Life, Kotak Mahindra Old Mutual Life, Max New York Life, Metlife India and Reliance Life.

Insurance houses present a united front; defy SEBI ban on ULIPs

The government today said the two regulators Sebi and IRDA have agreed to maintain the status quo that existed before market regulator's ban on 14 life insurers from raising funds for unit-linked schemes.
The status quo will be maintained till a court decides who can regulate ULIP schemes, Finance Minister Pranab Mukherjee told reporters here.
Several of these companies have been flooded by customer enquiries, with anxious policy holders desperate to know whether their policies are safe and operational. Even those that have not been named among the 14 companies are getting regular calls from nervy customers.

Following the insurance sector regulator Insurance Regulatory and Development Authority’s (IRDA) go-ahead to continue selling ULIPs, insurance companies have presented a united front in openly ignoring the SEBI diktat. When Moneylife contacted several companies under the pretext of customer enquiries, we were told that ULIP products would continue to be offered until further communication to the contrary is received from the company management. We were also informed that existing holders of ULIPs would face no difficulties and that they would continue collecting premiums as usual.

These companies include AEGON Religare, Aviva Life, Bajaj Allianz, Bharti AXA Life, Birla Sun Life, HDFC Standard Life, ICICI Prudential, Kotak Mahindra, Reliance Life, SBI Life, Tata AIG Life, Max New York Life. Officials from Metlife India and ING Vysya Life could not be reached.

An official from Bajaj Allianz said, “This ban will not affect our customers—existing or new. You can buy new plans or continue paying premiums on existing policies.”

Another official from Bharti AXA Life said, “We will continue to issue new ULIP policies till the time we get a directive to the contrary from our management. Existing policy holders need not be concerned about their policies.”
A representative from Reliance Life reiterated, “Our customers need not worry. ULIPs are regulated by IRDA and not SEBI. As such, we will continue to offer ULIPs to new customers.”

With IRDA firmly standing by insurance companies, the battle between the two financial regulators has taken an ugly turn. SEBI had on Saturday issued a startling order barring 14 insurers from selling ULIPs without its approval. The very next day, IRDA took the market watchdog head-on by challenging SEBI’s ban and stating in its directive, "Notwithstanding the SEBI order, these insurance companies can continue to do business as usual, including offering, marketing and servicing ULIPS." — Moneylife Digital Team

JM Financial Buys Out Partner SRS In $500M Real Estate JV

Kampani citing conflict of interest with the US partner launching independent PE play in India.

Infinite India Investment Management, an equal joint venture between JM Financial and US-based SRS Investments, managing real estate assets worth $500 million, has been called off. JM has acquired SRS stake in the four-year-old JV, which ceased to exist from April 1 this year.
SRS plans to start its independent private equity operations in India, while limiting its exposure to real estate. JM Financial will continue investing in realty and is expected to raise a new $100-million fund next year.
Infinite has been an active investor in the Indian real estate even though one of its portfolio firms Maytas Properties, promoted by the disgraced B Ramalinga Raju family of Satyam Computer, turned a risky asset.
"We have bought the stake of SRS in Infinite India Investment Management. They have decided that they want to set up a fund that does private equity in India. This would have been a conflict of interest for us since we already have a $225-million private equity fund. The separation was done in a very cooperative manner," Vishal Kampani, Managing Director, JM Financial Group, told VCCircle.
Without disclosing the amount, Kampani said, JM bought SRS' stake at a nominal value "since we were doing all the work on the ground in India". Infinite India Investment Chairman Karthik Sarma, who represented SRS, could not be contacted immediately for comments.
JM Financial will assist SRS in managing its real estate portfolio and work towards unlocking value from co-investments in the sector.
Infinite India was set up as a 50:50 JV between JM Financial and SRS Private Investment Management LLC in late 2006. It was initially managing India-focused real estate assets worth around $380 million, of which JM Financial raised around $170 million. The rest was contributed by SRS, which managed $260 million for real estate investments in India.
In 2008, it roped in third party investors for $150 million investment in Maytas Properties, which took the funds under management to $520-$530 million.
JM currently has an investible surplus of $50 million from its allocation towards the JV. SRS, on its part, may utilize the surplus for the PE play, though this could not be confirmed independently.
Besides Maytas, Infinite had invested in a host of projects across tier-I and tier-II cities, including $50 million infusion into the Kolkata-based Srachi Developers and almost a similar tranche into Heera Group in Thiruvanathapuram. Some of its other investments were into a 32-acre mixed-use development in Mumbai, a 1.8 million IT park in Chennai, a large retail space in Vishakapatnam and a few other entity level investments in real estate hospitality firms in Bangalore and Delhi.
The JV was one of the largest India-focused real estate funds behind HDFC Property Fund and IL&FS Realty Fund, both of which are in excess of $800 million, and Sun Apollo's $630-million operations. "We now believe that India's real estate market is very localised and there is no scope for international expertise there. If you look at most of large India-focused realty funds, they are all managed by local expertise," Kampani added.
This will not be the first time when JV partners in a real estate PE play have parted ways. ICICI Venture had a joint venture for real estate investments with US-based real estate developer and investor Tishman Speyer. In 2008, the JV fell apart with ICICI Venture exiting TSI Venture India Pvt Ltd, which has investments of $700 million.
Meanwhile, Kampani added that Infinite was trying to recover value from its investments in Maytas Properties. "We have won a stay order from the High Court in Andhra Pradesh directing Maytas not to sell assets. The arbitration proceedings have also gone in our favour till now," Kampani said.
Infinite India roped in third party investors to pump in $150 million into the company, which were routed into specfic projects across cities. The largest investor in that consortium was one of JM's realtions in the US, Kampani added. Months later, the promoter family at Satyam Computer, which also managed Maytas, was rocked by a Rs 7,000-crore financial scam.

India's first monthly income plan with Gold!

As an Indian investor, you have found comfort in two places traditionally, one is fixed income and the other is gold. Fixed income investors, whose investment objective over the years has been to grow their capital at a steady rate which can outdo inflation in the long run, have found equities as a necessary ally - however, the accompanied volatility at times may have given you sleepless nights. The question to be asked is whether there exists an asset class which can do the job of protecting portfolio from the impact of inflation, without overly relying on equities. Well, the answer is Gold. The shiny yellow metal has been regarded as an effective hedge against inflation, and is known to preserve the purchasing power over a long period of time. Religare MIP Plus fits the bill in this regard, by combining asset classes like debt, equity and gold (through Gold ETFs) in a portfolio, not only it lends a steady look, but also reduces the volatility of equities to a large extent.

Equity mutual funds record Rs2,016 crore in outflows 

After sailing in positive territory last month, equity mutual funds have again witnessed an outflow in March. Equity schemes recorded Rs2,016 crore of redemption in March compared to Rs1,514 crore net inflow in February while the BSE Sensex gained 7% during the same period. The assets under management (AUM) of equity schemes has increased 3% in March at Rs1,74,054 crore from Rs1,68,672 crore last month while the combined AUM of all schemes declined 20% in March (Rs63,979 crore), from Rs7,66,869crore in February 2010.

Redemptions of all combined schemes jumped 81% at Rs99,35,942 crore in FY09 compared to Rs54,54,650 last year. March witnessed Rs11,27,635 crore redemptions, up 50% from February which saw redemptions of Rs7,52,798 crore. There is a sharp increase of 51% redemption in March 2010 compared to the corresponding period last year.

“Markets are improving so there is some profit booking. Very restrictive NFOs were allowed during this year. There was also a pressure on commission paid to distributors,” said D Mohanty, country head (Retail), UTI Asset Management Company Ltd (UTI).—  Ravi Samalad

 

Back Capital-hungry Manipal may tap Kotak PE fund

Manipal Health Systems, the Bangalore-based healthcare chain, is close to raising around Rs 150 crore from Kotak Private Equity Fund in a structured transaction. The investment, if it comes through, is expected to give an exit to IDFC Private Equity Fund, which had invested Rs 90 crore during late 2006.
Industry sources indicate that Manipal Health Systems is looking at a holding company structure to draw in the investment from Kotak PE fund, which will then funnel the investment to consolidate its hospitals across South India. Manipal Health has been in the market for the past 18 months with a mandate to raise as much as $100 million.

The company was close to sealing deals with two large global PE players in addition to a global strategic player, but due to economic downturn and valuation differences the deal did not materialise," sources close to the deal said.
Manipal Health Systems, with a topline of around Rs 500 crore, offers tertiary, secondary and primary healthcare delivery services from 17 hospitals, nine primary care clinics and 55 community health programmes. The five-decade-old group has over 7,000 beds and 5,000 doctors and treats around 1.5 million out-patients and 400,000 inpatients annually. Manipal is also looking to expand its presence in Mumbai and Delhi markets. Manipal Health Systems and Kotak PE Fund officials could not be reached for comments.
The scenario of healthcare chains consolidating in India has come to fruition in the recent past with Fortis taking giant strides in the market. Flush with funds by exiting Ranbaxy, Fortis after acquiring Wockhardt Hospitals for around Rs 900 crore recently went on to acquire a significant position in Singapore-based Parkway Hospital for around $686 million.
The emergence of Fortis as a pan-India player in this segment is expected to be matched closely by the established Apollo Hospitals Group, which according to industry information is also readying for consolidation.

ELSS Funds emerge major gainers for week ended Apr. 9

ELSS Funds

NAVs of the ELSS funds category gained 1.91% in the week ended Apr.09, 2010.

Among the ELSS funds, SBI Tax Advantage Fund Series 1 gained 3.50%, IDFC Tax Saver (ELSS) Fund added 2.83%, Bharti AXA Tax Advantage Fund - Eco Plan rose 2.78%, Bharti AXA Tax Advantage Fund - Regular climbed 2.74% and L&T Tax Advantage Fund - Series I gained 2.63%.

Equity-Diversified Funds

NAVs of the Equity-Diversified funds category gained 1.73% in the week ended Apr.09, 2010.

Among the Equity-Diversified funds, JM Core 11 Fund - Series 1 gained 5.80%, HSBC Small Cap Fund added 5.34%, SBI Magnum Midcap Fund rose 5.11%, DSP BlackRock Micro Cap Fund - Regular climbed 4.96% and SBI Magnum Sector Funds Umbrella - Emerging Business Fund gained 4.90%.

Index Funds

NAVs of the Index funds category gained 1.31% in the week ended Apr.09, 2010.

Among the Index funds, SBI Magnum Index Fund gained 2.08%, Benchmark S&P CNX 500 Fund added 1.42%, LICMF Index Fund - Sensex Advantage Plan rose 1.36%, Tata Index Fund - Sensex Plan - B climbed 1.34% and UTI Master Index Fund gained 1.34%.

Balanced Funds

NAVs of the Balanced funds category gained 1.08% in the week ended Apr.09, 2010.

Among the Balanced funds, ICICI Prudential Child Care Gift Plan gained 3.94%, JM Balanced Fund added 3.80%, Canara Robeco Balance rose 2.72%, Principal Child Benefits Fund-Career Builder climbed 2.67% and HDFC Children`s Gift Investment Plan gained 2.48%.
Debt Funds

NAVs of the Debt funds category gained 0.13% in the week ended Apr.09, 2010.

Among the Debt funds, DWS Fixed Term Fund - Series 50 - Plan A gained 2.64%, ICICI Prudential S M A R T Fund - Series G - Retail added 2.25%, SBI Magnum NRI Investment Fund - FlexiAsset Plan rose 2.13%, Birla Sun Life Equity Linked FMP - Series A - Retail climbed 1.91% and DWS Fixed Term Fund - Series 43 - Regular gained 1.60%.

Sector Funds

All the sector fund categories gained during the week ended Apr.09, 2010. Among major gainers in the sector fund categories, were Media and Entertainment (2.76%), Auto (2.6%), Infrastructure (2.21%), Financial Services (2.19%), Bank (2.1%), Services (2.03%).

Cancellations, ceased accounts outstrip new SIP registrations in March

While stock markets are charting an upward course for several weeks now, mutual fund investments have exhibited a contrarian trend. The latest exhibit in this grim scenario is the rapidly declining investor interest in systematic investment plans (SIPs) of mutual fund schemes.

Here are the bare facts. Since December 2009, new SIP registrations have witnessed a steady downhill trend. New registrations in SIPs have gone down from about 280,000 in December 2009 to around 225,000 in March 2010.

Meanwhile, the number of SIP cancellations has increased from around 67,000 in January this year to around 83,000 for March. Between February and March, the number of ceased SIP transactions has gone up to around 108,000. Most alarmingly, cancellations and ceased transactions are more than the new SIP registrations for the month of March, a month when people make a lot of investments.

A SIP allows an investor to invest in a mutual fund by making smaller periodic investments (either monthly or quarterly) instead of a large one-time investment. This makes a SIP the preferred route for investing in funds for most investors.

All this while, the Sensex has been rising steadily and even touched 18,000, a 25-month high. Moneylife has previously written about how recent mutual fund outflows have defied stock market trends. (http://www.moneylife.in/article/8/3758.html).

Recently, we also revealed how redemptions from mutual funds have consistently outpaced subscriptions from August last year, when the Securities and Exchange Board of India (SEBI) introduced the no-entry load ban. (http://www.moneylife.in/article/8/4625.html).

Market players suspect that most of the current woes being experienced by this industry stem from the whirlwind initiatives taken up by SEBI to ‘fine-tune’ the industry practices. However, industry leaders have defended the new system by arguing that the industry would adjust to paying commissions, sooner than later. Their contention is that investors are pulling out money from MF schemes to book profits.

But, as pointed out by Moneylife, this is nothing but a veiled attempt to hide the fact that SEBI’s new rules regarding entry load and trail commissions do not help anybody, least of all investors because of the uneven playing field of the investment landscape. With commissions vaporising into thin air, distributors have lost incentive to sell mutual funds and are instead pushing heavy commission-earning products like unit-linked insurance plans (ULIPs) and corporate fixed deposits which are against investors’ interests in some cases.

An independent financial advisor (IFA) pointed out that apart from the lack of incentive to sell, distributors also face other hurdles in promoting SIPs. “Even banks and national distributors are not interested in selling SIPs as it is a very slow-earning option. Also, even if a distributor promotes a SIP, he is not assured of regular income anymore as some national distributor may poach his running SIP any time. Uncertainty of future trail (commission) and transfer of assets under management (AUM) is the main hurdle for brokers to promote SIPs.”

The IFA also pointed out that filling the SIP application form is very cumbersome and technical. There is no standard format across asset management companies (AMCs). Every AMC asks for data in different formats. — Sanket Dhanorkar