X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Time to take charge! - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Sep 2, 2003

    Time to take charge!

    In the fortnight when the government has tried to introduce the much-needed reforms in the Indian pension system, we had asked our audience their views regarding the same. In our last week's poll, we had asked our audience whether they would like to invest their pension monies in the stock markets. The result of this poll may not have surprised many. However, we would like to point out that investor preferences might be changing after all.

    Our poll indicated that nearly 53% of our respondents are against investing in the stock markets, however a significant 43% did not mind the same. While the number for investing in the stock markets are enthusing, we would like to point out that this may be because of the current bullish trend on the stock markets. However, we cannot rule out the fact that the Indian investor is running out of investment options that offer a normal rate of return (post inflation).

    The traditional investment options included PPF (EPF being mandatory), post office savings schemes, fixed deposits, NSS and perhaps bond issues by entities like IDBI or ICICI. In a soft interest rate scenario, investors are finding themselves in a position where returns are declining year after year. For example, fixed deposits are offered at as low as 5.75%, which would have been unthinkable of just a few years ago. On the other hand, administered interest rates are being slowly linked to the market rates, and hence the cut in PPF brought about recently.

    The point being that it will just be a while before the government would have to link the administered rates fully to the market and in such a scenario, EPF and PPF would also cease to be attractive investment options. This is where pension reforms comes in. Currently, the government has announced a scheme for central government employees, wherein their pension scheme would change to a defined contribution scheme from the earlier defined returns one. That apart, the government has also proposed the involvement of private fund managers to manage pension funds in the country, apart from an independent regulatory authority to regulate these private entities. In our earlier article we had highlighted the benefits regarding the same for the government.

    While currently the process is set in motion, it will be a while before there is more clarity regarding this issue. However one factor is clear. Initially while this scheme will be offered to central government employees, private sector employees too will also have similar options in the future. This reforms process is designed to ensure a gradual exit of the government from the management of pension. For example, there are already talks of dissolving the PPF scheme, so that the new pension system may have enough subscribers. One may also not rule out the possibility of the government exiting the EPF and central pension schemes totally at a latter stage.

    While these possibilities may seem a long way away, one must realise that for overall economic betterment of the country, the government needs to remove itself from the administration of pensions as well as refrain from offering administered rates that are putting a strain on the country' fiscal situation. We also need to understand that we are not the only ones to have initiated the pension reforms process. In fact, Latin American countries had initiated this process in the mid 1990s. Any change brings about discomfort in the beginning. However, pension reforms (read: a proper pension system) are a must in the country, where there is no proper social security net for the citizens.

    As far as the common man is concerned, he needs to realise that fact that we are looking at a scenario of soft interest rates to come and stay for the long term. The days of guaranteed schemes are over and unsustainable in the long-term. In this scenario, investors need to chart their own investment objectives in order to get returns that are better than the market and factors in inflation as well. Accepting the risk averse nature of the Indian investor (with regards to the stock markets), we would only like to point out this fact that despite the dotcom bust in 2000, US investors have been investing more of their pension monies as compared to 1992. Its time Indians wake up to realities and chart their own future without relying on the government, which increasingly may not be able to do the same for you.

     

     

    Equitymaster requests your view! Post a comment on "Time to take charge!". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Why Hasn't Warren Buffett Rung the Bell Yet? (The 5 Minute Wrapup)

    Aug 22, 2017

    It's surprising Warren Buffett hasn't warned investors about the expensive stock market? Let us know why.

    Think Twice Before You Keep Money In A Savings Bank Account (Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    A Darkness Is Spreading Across the US (Vivek Kaul's Diary)

    Aug 22, 2017

    Today, we are attacked by one preposterous thing after another, each of them even more absurd than the last.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 22, 2017 01:41 PM

    MARKET STATS