Allow Systemetcic Withdrawal Plan of Mutual Fund ,NPS or EPF for Creating Pensionable Society

Govt has taxed ( now stands taken back)withdrawal of EPF just to help Insurance Compnies who might have given just 6% taxable returns with no return of capital on death to Subscribers. It was just a Big Plan to Loot of EPF money of private sector employees .If govt realy want to create a Pensionable Society,(which Govt and its friends falsly claim)then why govt don't give option of 60 % of EPF money after retirment to be invested in Balanced Mutual Funds with systemetic withdrawal plans (which will be naturally tax free due to long term capital gain )or allow members to remain invested in NPS and EPF and allow them systematic withdrawal plan after retirement.But I doubt Govt will do this as it don't help their Foreign Insurance friends in looting EPF money.But if Govt is still serious(under influnce of insurance compnies) to hunt EPF subscribers, these three options may work.These will also create huge domestic funds flow to Indian Equities to counter balance FII.

 

The draconian proposal is withdrawn but if you go by the wordings of FAQ released by govt prior to withdrawal,its just waiting for an opportune time to impose it again. FM indicated he would think more about it. FAQ clearly says that this propasal was only going to affect the "70 lakh members of EPFO who are richly paid employees of private companies...".
PS: They just decreased rated in other fixed schemes eg; PPF,FD,Sukanya Samridhi,etc. ..

 

@kharb

Are you suprised at the rate reductions?

And kindly share some logical non-emotional reasons why rates should not have been reduced on PPF etc

 

Yes I do have logic.At what Intrest bank give money to industry AAA rated or individual. So why govt should not pay same cost as Small saving Intrest to public .Why cost of borrowing of Govt should be less than industry or individual which still stands in double digits.. Why govt want subsidy from poor middle class.

 

I do not know if there really is a co-relation between small savings rate and interest rate. But as far as I understand interest rate affect people who take loans eg home loan,however small saving rate affect all he salaried class who invest in EPF,PPF,FD ..etc, basically people who do not have trust or skills to deal with share market(which should be significant percentage) would invest in them for retirement planning.

 

Please do not compare apples with oranges.

Bank lending covers not just funding costs but also credit risk premium, other costs like reserve costs, liquidity costs, operating expenses to name a few

Funding costs of banks vs govt not comparable - for its always higher for banks given the embedded sovreign guarantee in funds raised by government.

Now - how come you werent complaining when RBI kept reducing the bank rate - with a resultant lowering of lending rate to corporates? And how come no reaction to a linked reduction in bank deposit rates?

My friend we are now in a low inflation scenario which means a lower interest regime - in the economy as a whole.

There is no subsidy extracted from anybody.

What would you rather have - a high inflation with a negative real interest rate on PPF etc ( wouldnt be suprised if this wasnt the case until recently) or a low inflation with a positive real interest rate as should the case currently

 

When International crude prices fall, OMC can not reduce petrol / diesel prices to that extent because Govt. increases excise on petrol / diesel. But when international crude prices rise, omc have to increase oil/ diesel prices because Govt. does not decrease excise.

Darth said "My friend we are now in a low inflation scenario which means a lower interest regime - in the economy as a whole."

Darth should visit the various markets (fruit market, vegetable market, fish market, clothes market and other such markets where ordinary people purchase items for their daily needs.) and check whether the claim of low inflation is actually correct or just figures to fool people.

 

Actually i dont need to visit the markets you mention to know the prevailing prices and the veracity or otherwise of the "official government data". Have an economist as a colleague who tells me how much and to what extent such data is accurate.

But can you prove that inflation isnt down in India? If yes why dont you represent to the GOI and RBI to not just reverse the "bank rate" cuts effected but also hastily increase them steeply. Lets see what the economists and the corporate world has to say then.

I suppose the AAA company that my friend @kharb works for and the stock markets will welcome such a move with open arms

 

You struck the nail on the head .Clearly you agree that it is the corporates who benefit from interest rate cuts.As far as I remember ,last few times when interest rate was cut market actually went down (instead of logical expectation of it going up)
Economists can always come with one data or other,but common man (who has no lobby) is the one worst hit by this moves. I would definitely won't believe a economist when I do planning for my retirement,education ,etc big ticket items which normal salaried person plans for. There has been and always would be good economists but still economic crisis come,they don't save world from economic crisis and sure they won't save common man.
CPI /WPI are some numbers and I do not exactly know how they are calculated but what I know for sure is this:
The schemes (along with FDs)are used by common people for retirement planning,education of children,household savings. Inflation numbers do not account for inflation in education eg; If my kid is 1 year old and I want to find out how much would it cost me for providing a good eduction over a period of 20-22 years,I certainly won't go by inflation numbers floating today.
Also I would not plan my retirement corpus based on inflation number today.
But definitly after this move I will have to rethink about it since a major component of my planning was based on this fixed income sources(of course equities also for a substantial portion) but these saving schemes are backbone .Now there returns have become questionable
I could go on and on but let me stop by saying that , there seems to be a mismatch between the understanding of common man and govt. insofar as these schemes purpose is concerned.

 

good to see you are a fast learner though this risk (call it interest rate risk or reinvestment risk) was quite apparent when the govt way back in 2010 ( a good 6 years ago) declared that the return would be linked to the 10yr benchmark rate.

who benefits from lower or higher notional interest rates I dont really care. What's important for me is the real interest rate and me ensuring that it remains in positive territory.

Upto you whether you wish to rely on inflation numbers published. Maybe you have some other concoted alternative basis to arrive at the CPI/WPI.

And would have expected something better from you if planning eduction and /or other specific future needs were based by you on a composite CPI

 

Just some knowledge of interest rates. Don't be modest. With your ocean of knowledge you ought to be at the helm of economic advisory to GoI

Formula to denote what real interest rate would be.... With my poor knowledge must admit never heard of this before. And also see no reason why small saving schemes should be linked to a SBI LT deposit rate. Why SBI and not Citi or scam tainted Mumbai Bank?

Maybe the inefficient private sector is willing to pay substantially more on their borrowing than what market expects. As I see it if the TTM 10yr gsec yield is about 7.6%, then a similar borrowing program (ppf) @ 8.1% isn't out of wack

 

Govt just want to take benefit of temporary lower Intrest rates without comitting to any formule. From formulae I mean Govt can say that Govt will pay PPF at CP Inflation plus 3% or alternatively govt can link it with SBI long term deposit as long term deposit rates are decided considering demand , supply and inflation etc.Govt never discuss linking of small saving scheme Intrest to market when they are high.You know what I am saying and can come out with more arguments against govt action .Why govt dont make triple AAA compnies long term deposit comparable in tax treatment to PPF and then Govt should compete for funds .At those competitive rates I don't have objection if Govt ends up getting at lower rate.

 

tough luck to us all that interest rates are softening on the back of lower inflation. Thankfully inflation adjusted the return should should positive. A big relief it that is the case.

2010 was when govt committed to revised methodology of linking rates to Govies. You liked it then is it? Why the noise when rates come down as Govies yields come off? You don't like the product - walk away. Nobody is asking you or the lakhs of so called hard working honest salaried middle class to subscribe to PPF which has and is a bonanza ( with tax break on principle, tax free interest and withdrawal leverage)

why shd govt discuss when rates are already benchmarked? If GoI yields spike up, rates on such schemes will spike too.

re : linking rates to sbi deposit rates : won't waste my breath on this.

Re: linking to inflation : invest in inflation index bonds and cry harder with low inflation regime. Surely I dont have to tell you the perils of high inflation and how all well managed economies ensure inflation remains on check.

Re: tax parity of AAA bonds : why just AAA bonds? Can you check up yields of corp paper and tell me how they compare with pre-tax ppf rate. and hey what do you have to say about the thriving, vibrant Indian corp bond market

 

Mark Tully, ex BBC Correspondent in his Book No Full Stops in India, while discussing about change writes ; “In India change takes some time, the birth will be slow and perhaps painful. I believe it could be the birth of a new order which is not held up by the crumbling colonial pillars left behind by the Raj but is GENUINELY Indian ; a modern order, but not a slavish imitation of other modern orders”.
He goes on to say that – “For all its great achievements, the Nehru dynasty has stood like a banyan tree overshadowing the people and the institutions of India, and all Indians know that nothing grows under the Banyan tree”.
As Mark said , Change will be slow and painful, therefore for someone who doesn’t read and makes judgement based on perception will for quite some time not be able to see the change taking place or will pretend as if nothing is changing. The way changes are coming in Railways, Power sector, Defense Production and in governance and at the same time accompanied by the resentment of the old forces indicate that the process of change has begun albeit slowly and is going to be painful.
Let us not undermine the capabilities of this termite ridden old Banyan tree which will still try its best to stop any one growing to the extent that it may even turn the soil upside down before falling down.
For a year or so we may witness more of Dadris, more of Kaniyahas, more of Owaisi style shouting but finally if the Society keeps its cool, acts maturely and continues to perform we will sail through and the old forces will die a natural death.