NPS – To Be a Big Business in Coming Time
What are the new areas on which you are working and how would these help Indian investors and corporate?
The new area that we are focusing on is pension which is yet to pick up in the market. There are roughly six million subscribers of the pension scheme today. Once the new scheme comes into the picture, corporates would need to restructure their salary component on the basis of which their employees can save additional amount on the new pension system. Then there is the investor class. Earlier the foreign investors had to come via the promissory note route or through FII to invest in India, but now they can come directly into the market and trade in like a normal investor and invest into specified equity stocks as QFIs (qualified foreign investors) through QDPs (qualified depository participants). We are hopeful that we will get a large number of accounts for QDPs and QFIs.
Could you throw light on the Alankit’s pension plan initiative in association with NSDL? What are the services you intend to provide through this initiative?
With the pension plan we get associated with NSDL, we want to have maximum number of corporate accounts so that the employees can get the tax benefits. Apart from that there are companies which already have superannuation system in place. For those companies retirement benefits are not particularly important, but they need tax benefits. So, we are looking at both investors – who want to save and who want to derive pension. This is the only product that has such a long duration of investment of say more than 30 years or 45 years depending on the age of the subscriber. Generally, all your insurance products are based on odds of your death, whereas this product works on odds of your survival. So, we have high hopes from this segment of business.
How do you intend to popularise the NPS among corporates?
Among the corporates we are planning to host more of subscriber awareness programs so that they can actually look at the tax benefits of their employees. This is not a particular scheme where all the employees of the corporates have to join, so even if it’s one employee they can also join in the scheme and avail its benefits. We will be doing subscriber awareness programs in the offices of the corporates wishing to join the scheme. For this, we have tried to partner with the pay-roll management companies. Because these pay-roll management companies manage the pay rolls of a large number of companies. Their suggestions would be of great use to convert the maximum number of accounts into pension fund account. It is also possible that if the subscriber has opened the individual account, they can migrate this account to Alankit and have the tax benefits.
What are the major roadblocks in popularising the NPS in the country?
The major roadblock in popularising the NPS is the lack of awareness among the people. If there is proper communication, the scheme can become more popular and the pension fund would pick up well. As of now, there are close to 1500 corporates who have joined the scheme. Through these 1500 corporates, six million employees have already joined the scheme. But, a much larger number needs to be associated with this plan.
What are the main ingredients of a right retirement plan and how does NPS address them?
Major ingredients of a right retirement plan are that you should get a regular source of income throughout your life. So, this particular product has been built up with the expectation that an individual would survive until 70. The current generation would not want to work till 60; they would like to work till 50 or 55. So, ideally a product should be wherein you can contribute till the time you are earning. So, the most important ingredient is the right age to enter.
So, if you enter at the right age, interest on investment would give you the remarkable result and would beat any other factor, be it inflation or currency pricing. So, probably a six lakhs rupees invested at the age of 30 years would be Rs 1.80 crores at the time of retirement.
This can then be broken into monthly annuities or certain amount can be drawn. So, in the old age you would see the reverse mortgage trend being there. A right ingredient should give you continued source of income until you survive.
The NPS addresses this issue as it has been designed with a life expectancy of 70 years. So, with this product, the regular source of income to maintain the household expense can be taken care of. This scheme also gives you leverage of withdrawing 60 per cent of amount at the age of 60 years. When the subscriber passes away the nominee gets the entire amount.
There is a common allegation that NPS is too complex and not flexible. What is your comment on this?
NPS is not at all complex, it is a very simple scheme with very low cost. It’s a no brainer scheme as you need not divide yourself into selecting the right mix of equity, corporate debt and government securities. There is a built in life-cycle in the fund as the age changes.
Until the age of 35, you get 50 per cent of your investment in equity, 30 per cent in corporate debt and 20 per cent in government securities. With every passing year, two per cent is reduced from equity and one per cent is reduced from corporate debt and three per cent is parked in to the government securities. So, by the time you are 55 years old most of your investment is in the government securities which gives you a good return over a period of time.
Why should one go for NPS instead of pension plans or retirement plans of mutual funds such as UTI or Franklin Templeton?
See, NPS is a government-sponsored product. When you talk about other mutual fund or pension products, these are primarily market-linked. NPS is partially linked with market wherein at no point of time more than 50 per cent of your money goes into the equity.
It is always better to go with NPS as other retirement plans, it is completely invested in the market. No other plan offers flexible investment plan which changes with age. In them, your investment faces same risk despite the changing age but with NPS, you have the age life-cycle and you can manage the retirement and every other planning perspective.