Saturday, November 27, 2010
SOCH VICHAR: Traveller cheques are now outdated ..................: "I approached my bank for traveller’s cheques (TCs) as I am going abroad on a holiday. Instead, it advised that I should carry a prepaid card..."
SOCH VICHAR: Explore NPS for good returns on retirement: "Explore NPS for good returns on retirement For the unorganized sector, retirement plans are even more difficult and hence you need to com..."
Explore NPS for good returns on retirement
For the unorganized sector, retirement plans are even more difficult and hence you need to come up with a good strategy to ensure you have your retirement funds in place. This article touches upon the impact of new pension schemes (NPS) introduced by the government and the latest developments that have taken place in retirement plans.
New Pension Scheme (NPS)
What is a NPS? NPS is similar to Mutual funds. You keep aside some money for your retirement and this money is put into the capital market. Hence, the sum which you will get post retirement will be dependent on the performance of capital market. These are managed by fund managers.
Currently 6 fund houses appointed by the government are available under NPS. These are SBI Pension Funds Private Limited, UTI Retirement Solutions Limited, ICICI Prudential Pension Funds Management Company Limited, Religare Pension Fund Limited, IDFC Pension Funds Management Company Limited, and Kotak Mahindra Pension Fund Limited. There are 3 schemes available under NPS which is:
Fund E: If you invest in this fund, then a portion of not more than 50% of your invested money will be put into equity. You should consider investing in this retirement plan only if your risk appetite is high as up to 50% of your money will be linked to the performance of equity.
Fund C: if you invest in this fund, then all of the money will be put into fixed income instruments like corporate bonds and government securities. You should consider investing in this fund if your risk appetite is medium as corporate bonds are not that risky.
Fund G: In this fund, all of your money will be invested in government securities. Hence, this is suited for you if you want it to be an almost risk free investment.
You can choose to invest in any of these funds or you can invest in a mix of these funds. If you are not able to choose between these funds then your contributions will be invested in a fund with 15% in equity, 45% in corporate bonds and 40% in government bonds.
However with increase in age after 35 years, the government bond exposure will increase with a maximum limit of 80% and 10% each in equity and corporate bonds. To ensure you avail the scheme you should compulsorily contribute at least Rs 500 per month.
Amendments Proposed For Workers In Unorganized Sector
The government has proposed to roll out a ‘fixed income pension’ plan to the workers in the unorganized sector. This will be done in three steps. Firstly, the monthly contributions you make will be invested as per NPS guidelines. Secondly, state funds for old age savings scheme will be added to this.
Thirdly, if any gap exists between the sum guaranteed and sum generated from the above two steps then the central government will provide the requisite fund. The new plan will be started off initially in states like Haryana, Karnataka and Andhra Pradesh which are known to be quick in implementing government schemes. However this amendment is only meant for workers in the unorganized sector. Central and State government employees will continue to get pension through NPS.
Tips for Employees
If you are planning to save for your retirement then you should avail NPS as the fund management charges are very low which is 0.0009% compared to 1.5% – 2.5% for mutual fund or insurance products.
Currently, NPS does not offer any tax exemptions unlike other retirement plans. It falls under the category EET (exempt-exempt-tax) system which means that maturity benefits you receive post retirement will be taxable. However, with DTC replacing the current tax code, NPS will be tax exempted upon withdrawal too. Therefore, you should avail this scheme when DTC comes into place.
You can also make weekly contributions in NPS. But for every contribution, your transaction cost will increase. Hence, it is better to keep some money from your monthly compensation and contribute it to NPS once in a month.
As compared to other retirement plans like (Employee provident fund) EPF, the returns are better. Currently, EPF gives 8% interest rate. However, investing in NPS will earn you much better returns because of the equity portfolio of the scheme.
To conclude, NPS should be given serious consideration as a possible scheme for accumulating your retirement funds as it is comparatively a much better scheme in the market currently. It has earned an impressive average return of 19.5% which makes sense of ploughing back some money in the capital market. For the unorganized sector, amendment proposed by the government will ensure you get an assured sum post retirement.
I’m C2 and Fat-free
Several years ago I heard about a fellow who returned a phone call and when the phone was answered the response was, “286-7495.” The gentleman replied, “Yes, I’m returning Mr. Anderson’s call,” and the operator said, “Who is this?” He responded, “233-9191.”
It seems to be true that many people have become mere numbers in our non-caring, technological world. This was brought home to me recently when I checked in at the gate for one of my numerous flights. When I showed my ticket with the boarding pass to the gate agent, he picked up his microphone and said to the flight attendant aboard, “C2 is here.” What he meant was simply that I had seat C2 and was now aboard. I kind of laughed and said to the fellow, “Well, that’s the first time I’ve been identified as a seat number.” He smiled as I walked aboard the airplane where I sat down and we took off. When meal-time came, the flight attendant began listing the menu choices for the passengers. When he got to me I said, “I believe I have a special meal.” He turned to another attendant and said, “Fat-free is here.” Since I prefer to be called Zig, I’m glad the names C2 and fat-free did not stick.
I find it to be amusing and yet, in a strange way, a little sad that we’ve reached that point in life when we can so casually deal with each other as a number or a letter. That’s especially true at this time in our history when mergers, downsizing, rightsizing, buy-outs, early retirement and bankruptcy have created stress and fear in the marketplace. Today, people need hope and encouragement, combined with genuine care and concern from those with whom we deal on a regular basis. When we pay our bills with a check or credit card, we like to be called by name. I’m not “C-2? and “fat-free,” I’m a human being – and so are you. So let’s treat each other that way
Keys to Being a Top Performer
There are three things essential for becoming an outstanding performer:
1) You have to remain technically competent. The half-life of knowledge gets shorter every day. Become a lifelong learner to remain technically competent throughout your career.
2) You need to set and achieve high goals. Set milestones to help you keep on track with your goals. Focus on your goals every day. Do at least one thing every day that moves you closer to accomplishing each of your goals.
3) You need to be well organized. Manage your time, stress, workspace and lifestyle well.
What about corruption in corporate deals?
Around the time allegations poured thick and fast at A Raja for selling spectrum cheap to a horde of telecom companies, Ratan Tata created quite a stir at Dehra Dun when he alleged that he was asked to pay a bribe of Rs 15 crore to a minister some years ago when he wanted to set up an airline. In short, corruption thrives in India. The Licence Raj may have been dismantled but there is still a lot of clout that ministers and bureaucrats wield — and there’s a price attached to it.
What is perhaps not reported in the media is the corruption that happens when corporations deal with each other. Contracts are handed out, orders are placed, purchases are made, and money often changes hands here as well. In the past, most promoters kept the “purchase” function with themselves — either a family member or a confidante. Why? The reason is obvious. Punitive tax rates, combined with low shareholding, meant there was not much money to be made legally. The real rewards, though in black, came from kickbacks. Little, it seems, has changed.
How deep does the rot run? In January 2008, PricewaterhouseCoopers (PwC) had come out with a report called Confronting Corruption. As many as 390 senior executives across the world were surveyed by the Economist Intelligence Unit for the report, and this was supplemented with in-depth interviews with 36 senior executives and anti-corruption experts from 14 countries. It was an eye-opener. Sixty-three per cent indicated that they had experienced some form of actual or attempted corruption; 39 per cent said they had lost a bid because of corrupt officials; 45 per cent said they have not entered a market or pursued an opportunity because of corruption risks; and 52 per cent believed their rivals bribe their way to business.
Clearly, people were aware that unethical practices are not uncommon in the world of business. If it comes to light, any incident of corruption can blow a company’s reputation to smithereens. Still, corporations pay only lip service to curb such practices. The PwC report said while 80 per cent respondents said that they have some sort of an anti-corruption programme in place, only 22 per cent were confident of their effectiveness; less than half said these programmes are clearly communicated to all and rigorously enforced; and only 40 per cent said the current controls are effective at identifying high-risk business partners or suspect disbursements.
This, mind you, was a global report. The situation in India, if the country’s score in the various corruption indices is anything to go by, could be far worse. KPMG, earlier this year, had come out with the India Fraud Survey 2010. It spoke to CEOs, CFOs, heads of audit and compliance, fraud risk managers and other senior managers across industry verticals. “The mistrust of employees towards their senior management is unmistakable,” it concluded. “Despite this, control mechanisms are not in place in most organisations, and hence the need for risk-mitigating strategies is unquestionable. It is time that India Inc stood up and ended its tolerance of unethical behaviour, bribery and corruption.”
Seventy-five per cent of the respondents said that fraud in the corporate world is on the rise; 54 per cent said fraud is on the rise in their industry; and 45 per cent said fraud (actual or suspected) has risen in their organisation. Eighty-one per cent said fraud in financial statements is a huge issue; 63 per cent said the desire to meet or exceed market expectations is the main factor behind such frauds; and 62 per cent disagreed that strict action is taken when such a fraud comes to light. Prepare yourself for more alarming stuff: 41 per cent said they do not have in place a formal fraud-risk management framework; 60 per cent said usage of technology in detecting trends and anomalies in data is average to poor; and 58 per cent said data analytics are either not used or used partially.
Some bits of the survey didn’t come as a surprise. Thus, the supply chain (procurement, distribution and revenue leakage) is the function most exposed to fraud, internal controls are weak, ethical values have eroded and line managers are reluctant to take action against perpetrators. This, in turn, encourages fraudsters. The link between the financial earnings of the company and the remuneration of the senior management has its own perils. Precious little is done to encourage and protect whistleblowers. And few companies have the forensic skills to detect frauds. Nothing shows it better than the Satyam fraud. Till Ramalinga Raju confessed to his monumental fraud in early 2009, nobody was aware that he had been cooking the books of the company for seven long years! The company had over 50,000 employees, topnotch people on its board of directors and high-profile auditors. Evidence that has been collected so far shows that apart from a handful of people nobody had a clue of what Raju was up to. There may have been some tightening of controls and screening of business partners, especially of clients by auditors, since the scam broke out, but there is nothing to suggest that corruption is on the decline. It is just a way of life in India.