Thursday, May 13, 2010
Saturday, May 8, 2010
Saturday, May 1, 2010
Monday, May 4, 2009
New pension scheme launched
Ashish Gupta explains the terms and conditions of this new scheme extended to all by the pension fund regulator
The pension fund regulator has extended a new pension scheme (NPS) from May 1. The NPS is already mandatory for all government employees who have joined service after January 1, 2004. While the scheme is already operational for the central government employees, it opened for the others from May 1. Unlike the traditional retirement solutions such as PPF and EPF, the NPS is not a defined benefit, but rather a defined contribution plan. Thus, while investments in PPF and EPF attract a fixed rate of interest, returns from the NPS will be marketdetermined.
The market here, however, is not confined to equity alone. It includes corporate bonds and government securities. Investments in these papers are to be actively managed by fund managers. The Pension Fund Regulatory and Development Authority (PFRDA) has designated six asset management companies (AMCs) for the purpose.
Though the NPS will be managed by fund houses, the autonomy lies with the PFRDA. While AMCs take investment decisions for the NPS, their operational freedom will be confined to the guidelines issued by PFRDA from time to time. Again, while a mutual fund investor can enter and exit a scheme at free will, the NPS will bind them till the retirement age of 58 years. The current guidelines do not permit a premature withdrawal or any loan against investments in NPS.
The onus of choosing the structure of investments and selecting the fund house has however, been left to the investor. The investor is free to choose the mix of equity (E), corporate bonds (C) and government securities (G) in his portfolio.
The PFRDA has stipulated that only half of an individual's savings can go into equities even if he opts for a high-risk high-return investment. The auto (default) choice for persons who do not make an investment choice also caps the equity exposure at half of the savings.
The investment norms allow subscribers to invest their entire savings in government securities or corporate, state and municipal bonds, which are not as risky as equity. As per the revised 'auto choice', half of the investments of subscribers up to an age of 35 years will go into equities, one-fifth into central and state government bonds, and the rest into corporate bonds and select other instruments, including fixed deposits. At the age of 60, these investments will gradually be adjusted so that only one-tenth remains in equities, another one-tenth in corporate bonds and 80 percent in central and state government bonds.
According to PFRDA, the equity exposure limit was reduced based on the recommendations of the board of trustees of the NPS and the advice of the government. This cap would be reviewed after a year. The Deepak Parekh panel has also recommended a review of the investment pattern after one year. Worldover, pension plans do not allow 100 percent equity investments. In the US, equity exposure is allowed in the range of 50-70 percent.
PFRDA has reclassified liquid funds of SEBI-regulated asset management companies and fixed deposits of banks as instruments of medium returns for credit risk. Accordingly, these instruments can account for 30 percent of the investments in the auto choice for those up to 35 years.
PFRDA has also recommended to the government that the scheme be exempt from tax when money is withdrawn. While contributions, returns and withdrawals under the PPF, EPF and General Provident Fund (GPF) are exempt from tax, in the case of the NPS, only contributions and returns are exempt from tax.
The NPS requires maintenance of all records and this will be done by the NSDL, which will act as the central record keeping agency (CAR). Each investor will thus be required to pay NSDL an account opening charge of Rs 50. Besides, there will be a maintenance charge of Rs 350 per year and an additional charge of Rs 10 per transaction.
PFRDA has also appointed some banks as points of presence (POP) to facilitate quick and hasslefree transactions. However, these services are not free either. According to an industry source, a POP will also charge an investor an account opening fee of Rs 20 and an additional charge of Rs 20 per transaction. This implies that an investor seeking to invest Rs 500 per month will actually end up paying around Rs 560 per month. That is nearly 11 percent as transaction costs, considerably higher than the eight percent returns offered by PPF.
Courtesy: Economic Times, 3rd May 2009, Bangalore
Ashish Gupta explains the terms and conditions of this new scheme extended to all by the pension fund regulator
The pension fund regulator has extended a new pension scheme (NPS) from May 1. The NPS is already mandatory for all government employees who have joined service after January 1, 2004. While the scheme is already operational for the central government employees, it opened for the others from May 1. Unlike the traditional retirement solutions such as PPF and EPF, the NPS is not a defined benefit, but rather a defined contribution plan. Thus, while investments in PPF and EPF attract a fixed rate of interest, returns from the NPS will be marketdetermined.
The market here, however, is not confined to equity alone. It includes corporate bonds and government securities. Investments in these papers are to be actively managed by fund managers. The Pension Fund Regulatory and Development Authority (PFRDA) has designated six asset management companies (AMCs) for the purpose.
Though the NPS will be managed by fund houses, the autonomy lies with the PFRDA. While AMCs take investment decisions for the NPS, their operational freedom will be confined to the guidelines issued by PFRDA from time to time. Again, while a mutual fund investor can enter and exit a scheme at free will, the NPS will bind them till the retirement age of 58 years. The current guidelines do not permit a premature withdrawal or any loan against investments in NPS.
The onus of choosing the structure of investments and selecting the fund house has however, been left to the investor. The investor is free to choose the mix of equity (E), corporate bonds (C) and government securities (G) in his portfolio.
The PFRDA has stipulated that only half of an individual's savings can go into equities even if he opts for a high-risk high-return investment. The auto (default) choice for persons who do not make an investment choice also caps the equity exposure at half of the savings.
The investment norms allow subscribers to invest their entire savings in government securities or corporate, state and municipal bonds, which are not as risky as equity. As per the revised 'auto choice', half of the investments of subscribers up to an age of 35 years will go into equities, one-fifth into central and state government bonds, and the rest into corporate bonds and select other instruments, including fixed deposits. At the age of 60, these investments will gradually be adjusted so that only one-tenth remains in equities, another one-tenth in corporate bonds and 80 percent in central and state government bonds.
According to PFRDA, the equity exposure limit was reduced based on the recommendations of the board of trustees of the NPS and the advice of the government. This cap would be reviewed after a year. The Deepak Parekh panel has also recommended a review of the investment pattern after one year. Worldover, pension plans do not allow 100 percent equity investments. In the US, equity exposure is allowed in the range of 50-70 percent.
PFRDA has reclassified liquid funds of SEBI-regulated asset management companies and fixed deposits of banks as instruments of medium returns for credit risk. Accordingly, these instruments can account for 30 percent of the investments in the auto choice for those up to 35 years.
PFRDA has also recommended to the government that the scheme be exempt from tax when money is withdrawn. While contributions, returns and withdrawals under the PPF, EPF and General Provident Fund (GPF) are exempt from tax, in the case of the NPS, only contributions and returns are exempt from tax.
The NPS requires maintenance of all records and this will be done by the NSDL, which will act as the central record keeping agency (CAR). Each investor will thus be required to pay NSDL an account opening charge of Rs 50. Besides, there will be a maintenance charge of Rs 350 per year and an additional charge of Rs 10 per transaction.
PFRDA has also appointed some banks as points of presence (POP) to facilitate quick and hasslefree transactions. However, these services are not free either. According to an industry source, a POP will also charge an investor an account opening fee of Rs 20 and an additional charge of Rs 20 per transaction. This implies that an investor seeking to invest Rs 500 per month will actually end up paying around Rs 560 per month. That is nearly 11 percent as transaction costs, considerably higher than the eight percent returns offered by PPF.
Courtesy: Economic Times, 3rd May 2009, Bangalore
New pension scheme yet to offer clarity on tax sops
Courtesy: Economic Times, 3rd May 2009, Bangalore
Plan fails to spell out liability on withdrawals THE NEW Pension Scheme (NPS) — the longawaited voluntary pension scheme thrown open to all Indians on Friday — may not be a big draw because the offer document does not explain how much an individual will be taxed, tax experts say. As per current provisions, withdrawals from the scheme would be taxed. “I am shocked. The common man won’t hire a tax consultant to evaluate the merits and demerits of investing in the scheme. Compared to other savings products, there is hardly any information on the tax benefits the product will offer,” says Amitabh Singh, partner — tax and regulatory services at Ernst & Young. All that the offer document offers is, “tax benefits would be applicable as per the Income-Tax Act, 1961, as amended from time to time”. Even the initial print advertisements for the scheme have remained silent on the tax treatment of the income earned via investing in the scheme. An email query to the Pension Fund Regulatory and Development Authority (PFRDA), the pension regulator that oversees the scheme, remained unanswered till late on Saturday. Vikas Vasal, executive director at KPMG who tracks personal finance trends, feels the regulator could have helped the common man by explaining how the income would accrue and taxed year-onyear by way of simple examples. “It lacks clarity. The taxability of the withdrawal amount must not come as a shock later,” he said. The NPS, which was in the pipeline for more than five years now, will provide all Indians an option to manage their own pension. Unlike existing pension funds that offer assured benefits, NPS has defined contribution and individuals can decide where to invest their money. But, of course, the returns depend on market conditions.As per current provisions, withdrawals under the NPS attract tax under the EET (exempt-exempt-taxable) system, which means that while contributions and returns to the NPS are exempt, withdrawals attract tax. GLOBALLY, pension schemes generally follow this model. But, considering the risk involved, plus the fact that this scheme is meant for the common man in a country where there is no comprehensive social welfare scheme for the unorganised sector, the government should have granted complete tax exemption for the scheme, it is felt.“One must not forget that an individual by investing in this product runs a far greater risk, as the output is driven by the market conditions,” said Mr Vasal. He pointed out that there is no government assurance as to the security of capital fund and interest income, unlike other savings and retirement schemes like provident fund and National Saving Certificates (NSCs).PFRDA had been lobbying with the government for sometime for a EEE (exempt-exempt-exempt) tax status for NPS. But the government’s failure to take a decision on time forced the regulator to start the scheme under the EET system.Even PFRDA chairman D Swarup said the regulator would have liked a EEE system for the scheme. “While NPS is perhaps the longest term savings product and thus deserves the most preferential tax treatment, we would be happy if at least NPS is treated at par with Public Provident Fund (PPF), General Provident Fund (GPF) and Employees Provident Fund (EPF),” he said. PPF, GPF and EPF are completely exempt from tax. As a general trend, tax experts believe investments in savings and retirement schemes in India are more tax driven and less driven by any perceived need to secure one’s future and old age. To that extent, they feel as long as NPS remains voluntary for the unorganised sector, it will merely compete with the other insurance or savings cum investment products already available in the market that have similar or better tax treatment. “To some extent, it is unfair that the organised sector continues to have the benefit of EEE basis of taxation under provident fund while similar tax treatment has not been made available to the unorganised sector under NPS,” Mr Singh of E&Y said.
Plan fails to spell out liability on withdrawals THE NEW Pension Scheme (NPS) — the longawaited voluntary pension scheme thrown open to all Indians on Friday — may not be a big draw because the offer document does not explain how much an individual will be taxed, tax experts say. As per current provisions, withdrawals from the scheme would be taxed. “I am shocked. The common man won’t hire a tax consultant to evaluate the merits and demerits of investing in the scheme. Compared to other savings products, there is hardly any information on the tax benefits the product will offer,” says Amitabh Singh, partner — tax and regulatory services at Ernst & Young. All that the offer document offers is, “tax benefits would be applicable as per the Income-Tax Act, 1961, as amended from time to time”. Even the initial print advertisements for the scheme have remained silent on the tax treatment of the income earned via investing in the scheme. An email query to the Pension Fund Regulatory and Development Authority (PFRDA), the pension regulator that oversees the scheme, remained unanswered till late on Saturday. Vikas Vasal, executive director at KPMG who tracks personal finance trends, feels the regulator could have helped the common man by explaining how the income would accrue and taxed year-onyear by way of simple examples. “It lacks clarity. The taxability of the withdrawal amount must not come as a shock later,” he said. The NPS, which was in the pipeline for more than five years now, will provide all Indians an option to manage their own pension. Unlike existing pension funds that offer assured benefits, NPS has defined contribution and individuals can decide where to invest their money. But, of course, the returns depend on market conditions.As per current provisions, withdrawals under the NPS attract tax under the EET (exempt-exempt-taxable) system, which means that while contributions and returns to the NPS are exempt, withdrawals attract tax. GLOBALLY, pension schemes generally follow this model. But, considering the risk involved, plus the fact that this scheme is meant for the common man in a country where there is no comprehensive social welfare scheme for the unorganised sector, the government should have granted complete tax exemption for the scheme, it is felt.“One must not forget that an individual by investing in this product runs a far greater risk, as the output is driven by the market conditions,” said Mr Vasal. He pointed out that there is no government assurance as to the security of capital fund and interest income, unlike other savings and retirement schemes like provident fund and National Saving Certificates (NSCs).PFRDA had been lobbying with the government for sometime for a EEE (exempt-exempt-exempt) tax status for NPS. But the government’s failure to take a decision on time forced the regulator to start the scheme under the EET system.Even PFRDA chairman D Swarup said the regulator would have liked a EEE system for the scheme. “While NPS is perhaps the longest term savings product and thus deserves the most preferential tax treatment, we would be happy if at least NPS is treated at par with Public Provident Fund (PPF), General Provident Fund (GPF) and Employees Provident Fund (EPF),” he said. PPF, GPF and EPF are completely exempt from tax. As a general trend, tax experts believe investments in savings and retirement schemes in India are more tax driven and less driven by any perceived need to secure one’s future and old age. To that extent, they feel as long as NPS remains voluntary for the unorganised sector, it will merely compete with the other insurance or savings cum investment products already available in the market that have similar or better tax treatment. “To some extent, it is unfair that the organised sector continues to have the benefit of EEE basis of taxation under provident fund while similar tax treatment has not been made available to the unorganised sector under NPS,” Mr Singh of E&Y said.
Saturday, April 25, 2009
Sharebrary
I was recently reading a novel called "Angels and Demons" by Dan Brown at my brother's place. Before i could complete the book i had to leave chennai. I am desperate to finish the book but i dont want to buy the book. Instead i would prefer a lending library. Unfortunately there arent any lending libraries around my area for that matter in cosmoplitan bangalore finding a lending library is almost difficult. This mere problem gave rise to a new idea called "Share-brary". I live in an apartment complex of around 300 residents and most of them buy books. Once a book is read, i am not sure how many will read it again unless its so tempting. In my opinion "read once" books are non value add assets and with the concept of share-brary you can generate revenue from these non value add assets. The concept is to compile a database of books within the complex and post them in the website. Interested people order the books through email or intercom facilities. Books will be door delivered on "pay-as-you-go" basis per week. The moderator does a revenue share with the shareholders. The only investment from the residents are their own books.No hefty investments but a good part time business for homemakers or retired people.
What do you think of this idea ? Would love to hear your opinion and comments..
What do you think of this idea ? Would love to hear your opinion and comments..
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