NEW DELHI: THE few thousand citizens who have opted for equities under the New Pension Scheme (NPS) have earned an impressive average return of 19.5% in its 13 months of existence, lending credence to the finance ministry’s pitch for routing some provident fund money to the stock market.
Four of the six fund managers in charge of citizens’ pension savings have, in fact, delivered more than 20% returns. UTI delivered the best returns on the equity scheme at 24.6% by June 30 this year. The NPS equity scheme allows up to 50% exposure to stocks.
The New Pension Scheme was kicked off for new civil servants in 2004 and opened to all citizens in May 2009. Citizens have a choice of six fund managers — each offering three schemes: E (equities), C (corporate bonds) and G (government securities).
Average returns in the first 13 months from the corporate bonds scheme were 9.93%, while the zero-risk G option returned an average 6.75%. The equity market bellwether, BSE Sensex rose 45% in the same period — May 1, 2009 to June 30 this year. Just about 12,000 citizens have joined the NPS so far.
The NPS trust, led by former Rajya Sabha secretary general Yogendra Narain, has also reviewed fund managers’ performance with regard to civil servants’ pensions. State government employees have earned an average return of 10.3% in their first full year under the NPS. Their corpus was transferred to the fund managers on June 25 last year.
Central government servants, whose funds have been invested since April 2008, have earned an average of 12% on their corpus till June 30, 2010. Civil servants’ pension money is invested as per an investment pattern spelt out for non-government provident funds by the finance ministry in 2008, which allows up to 15% investment in equities.
NPS has, so far, not seen too many takers. However, the scenario is likely to change once the direct taxes code (DTC) comes into effect. NPS has been included in the list of investments that are eligible for tax deduction under Section 80C.
Though equity investments by provident funds were first allowed in 2005, dissent from the Employees’ Provident Fund Organisation (EPFO) board has prevented the labour ministry from accepting the new investment norms. EPFO is the mandatory social security provider for 5 crore formal sector workers and regulates thousands of company-run PF trusts.
Tired of the impasse over equity investments after years of listless debates in the EPFO board, finance secretary Ashok Chawla recently sent a strongly worded missive to the labour ministry asserting its right to regulate provident fund investments. Mr Chawla also invoked workers’ interest to say that a small beginning could be made towards stock market investments to earn better returns.
EPFO has been paying 8.5% interest on workers’ retirement savings since 2005-06. Mr Chawla’s missive pointed out that new civil servants under the NPS earned 14.82% in 2008-09 by following the finance ministry’s investment diktat. Citizens’ earnings under the NPS may prove to be an even better argument for tapping India’s equity premium.
The labour ministry could use its powers to circumvent the board in the interest of workers, the finance secretary had suggested. But the labour ministry has refused to yield and will discuss Mr Chawla’s missive with the EPFO board on September 15. The board’s finance committee is open to the idea of kickstarting stock market investments with top-rated public sector firms’ shares.
Four of the six fund managers in charge of citizens’ pension savings have, in fact, delivered more than 20% returns. UTI delivered the best returns on the equity scheme at 24.6% by June 30 this year. The NPS equity scheme allows up to 50% exposure to stocks.
The New Pension Scheme was kicked off for new civil servants in 2004 and opened to all citizens in May 2009. Citizens have a choice of six fund managers — each offering three schemes: E (equities), C (corporate bonds) and G (government securities).
Average returns in the first 13 months from the corporate bonds scheme were 9.93%, while the zero-risk G option returned an average 6.75%. The equity market bellwether, BSE Sensex rose 45% in the same period — May 1, 2009 to June 30 this year. Just about 12,000 citizens have joined the NPS so far.
The NPS trust, led by former Rajya Sabha secretary general Yogendra Narain, has also reviewed fund managers’ performance with regard to civil servants’ pensions. State government employees have earned an average return of 10.3% in their first full year under the NPS. Their corpus was transferred to the fund managers on June 25 last year.
Central government servants, whose funds have been invested since April 2008, have earned an average of 12% on their corpus till June 30, 2010. Civil servants’ pension money is invested as per an investment pattern spelt out for non-government provident funds by the finance ministry in 2008, which allows up to 15% investment in equities.
NPS has, so far, not seen too many takers. However, the scenario is likely to change once the direct taxes code (DTC) comes into effect. NPS has been included in the list of investments that are eligible for tax deduction under Section 80C.
Though equity investments by provident funds were first allowed in 2005, dissent from the Employees’ Provident Fund Organisation (EPFO) board has prevented the labour ministry from accepting the new investment norms. EPFO is the mandatory social security provider for 5 crore formal sector workers and regulates thousands of company-run PF trusts.
Tired of the impasse over equity investments after years of listless debates in the EPFO board, finance secretary Ashok Chawla recently sent a strongly worded missive to the labour ministry asserting its right to regulate provident fund investments. Mr Chawla also invoked workers’ interest to say that a small beginning could be made towards stock market investments to earn better returns.
EPFO has been paying 8.5% interest on workers’ retirement savings since 2005-06. Mr Chawla’s missive pointed out that new civil servants under the NPS earned 14.82% in 2008-09 by following the finance ministry’s investment diktat. Citizens’ earnings under the NPS may prove to be an even better argument for tapping India’s equity premium.
The labour ministry could use its powers to circumvent the board in the interest of workers, the finance secretary had suggested. But the labour ministry has refused to yield and will discuss Mr Chawla’s missive with the EPFO board on September 15. The board’s finance committee is open to the idea of kickstarting stock market investments with top-rated public sector firms’ shares.
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