Saturday, May 02, 2009
* Who shall be responsible for protecting my interests as a NPS subscriber?
A) The Pension Fund Regulatory and Development Authority, the regulator, will protect your interest.
* What is the process for enrolling in NPS?
A) Eligibility: 18-55 years of age. Upon registration, you will receive a permanent retirement account number. Minimum annual contribution is Rs.6,000. The minimum number of instalments per year is four. There is no upper limit on the contribution per instalment or on the number of instalments.
*Would my personal information be confidential?
*Under what circumstances can my account be closed before attaining retirement age?
A) The account would be closed under following circumstances: death, account value reduces to zero and change in citizenship status.
*Can I exit before attaining the age of 60 years?
A) Yes, provided you annuitise at least 80 percent of your pension corpus.
*What if I do not exit the system at or before 70 years?
A) In that case, on attaining 70 years, your account would be closed with the benefits transferred to you.
*Can someone else make contributions on my behalf?
*What would be the penalty in case I am unable to contribute the minimum annual contribution?
A) You would have to bear a default penalty of Rs.100 per year of default and the account would become dormant. In order to re-activate the account, pay the minimum contributions, along with penalty due. A dormant account will be closed when the account value falls to zero.
*Are there any investment returns guarantees?
A) No. NPS is a defined contribution scheme and the benefits would depend upon the amounts contributed and the investment growth up to the point of exit from NPS.
* Will I be permitted to select more than one pension fund to manage my savings?
A) You have to select only one fund. However, the regulator may allow the subscribers to choose more than one fund in future.
* What if I do not select any investment option?
A) All your contributions would be channeled into a life-cycle fund.
* What are the risks of investing in NPS?
A) As with every investment, there is a degree of risk under NPS also. The value of your investment in NPS may rise or fall.
* I am 30 years old and would like to retire at 60. I want a pension of Rs.2,000 per month at today's prices when I retire. How much do I need to contribute?
A) You would need a pension wealth of Rs.319,000 (at today's prices) at the age of 60 to get a pension of Rs.2,000 per month. To realise this, you would need to contribute approximately Rs.16,600 every year.
* What will happen to my savings after I retire at 60?
A) You will have to compulsorily invest a minimum of 40 percent of your pension wealth to purchase a life annuity from an IRDA-regulated life insurer. The remaining pension can be withdrawn in lump sum or in a phased manner.
* What will happen to my savings if I decide to exit NPS before the age of 60?
A) You would be required to invest at least 80 percent of your pension wealth to purchase a life annuity from any IRDA-regulated life insurer. The remaining 20 percent may be withdrawn as a lump sum.
* Will the annuity also provide for a family (survivor) pension?
A) Yes, you will have an option of selecting an annuity which will pay a survivor pension to your spouse.
* On my death, can my nominee continue to operate the account in my name?
A) No, the balance standing to the subscriber's account may be transferred to the nominee's account after following regulator KYC procedure.
* Can I opt not to exit in case of disability?
What is the New Pension System (NPS)?
It is a system where individuals fund, during their work life, their financial security for old age when they no longer work. All those who join up would get a Permanent Retirement Account (PRA), which can be accessed online and through so-called points of presence (PoPs).
A central record keeping agency will maintain all the accounts, just like a depository maintains demat accounts for shares. Six different pension fund managers (PFMs) would share this common CRA infrastructure. The PFMs would invest the savings people put into their PRAs, investing them in three asset classes, equity (E), government securities (G)and debt instruments that entail credit risk (C), including corporate bonds and fixed deposits.
These contributions would grow and accumulate over the years, depending on the efficiency of the fund manager. The NPS in this form has been availed of by civil servants for the past one year. Subscribers can retain their PRAs when they change jobs or residence, and even change their fund managers and the allocation of investments among the different asset classes, although exposure to equity has been capped at 50%.
Where can people sign up for the NPS?
People can subscribe to the scheme from any of 285 PoPs across the country. These are run by 17 banks — SBI and its associates, ICICI, Axis, Kotak Mahindra, Allahabad Bank, Citibank, IDBI, Oriental Bank of Commerce, South Indian Bank, Union Bank of India — and four other financial entities, LIC, IL&FS, UTI Asset Management and Reliance Capital. A subscriber can shift his pension account from one PoP to another. Subscribers can choose from six fund managers — ICICI Prudential, IDFC, Kotak Mahindra, Reliance Capital, SBI and UTI.
Is the scheme open to all?
NPS is available for people aged between 18 years and 55 years.
How often should a subscriber contribute to NPS?
The minimum amount per contribution is Rs 500, to be paid at least four times in a year. The minimum amount to be contributed in a year is Rs 6,000.
How will the subscribers get the money back?
If the subscriber exits the scheme before the age of 60, s/he may keep one fifth of the accumulated saving and invest the rest in annuities offered by insurance companies. An annuity transforms a lump sum spent on buying the annuity into a steady stream of payments for the rest of the annuity holder’s life. Now, how long an annuity buyer would live is something that takes a life insurance company’s expertise to compute and that is how they come into the picture. Insurance companies offer flexible investment and payment options on annuities. A person who exits NPS when his age is between 60 and 70 has to use 40% of the corpus to buy an annuity and can take the rest of the money out in one go or in instalments. If a subscriber dies, the nominee has the option to receive the entire pension wealth as a lump sum.
Is the scheme tax free?
Long term savings have three stages: contribution, accumulation and withdrawal. The NPS was devised when the government was planning to move all long term savings to a tax regime called exempt-exempt-taxed (EET), standing for exempt at the time of contribution, exempt during the period when the investment accumulates and taxed at the time of withdrawal. So, NPS comes under the tax regime EET. However, the government could not muster the political courage to change the taxation regime of EET on several saving schemes. So, the pension fund regulator has taken up with the finance ministry the need to remove the asymmetry in tax treatment between the NPS and other schemes such as the PPF. In any case, the amount spent on buying an annuity would be exempt from tax.
What is the default allocation of savings towards different asset classes for those who do not make an active choice?
For a saver not yet 35 years of age, half the investments will go into asset class E, one-fifth into asset class G, and the rest into asset class C. Above the age of 35, the default proportion going to equities would come down and the proportion going to government securities, go up. By 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% in central and state government bonds.
How does the NPS compare with mutual funds?
Since the NPS is meant for post-retirement financial security, it does not permit flexible withdrawals as are possible in the case of mutual funds. Fund management charges are ridiculously low (0.0009% a year), as compared with mutual funds. The cost of opening and maintaining a permanent retirement account, and the transaction charge on changing address, pension fund manager, etc are around Rs 400 now.
What kind of returns would the NPS generate?
The NPS generated an average return in excess of 14% in the last financial year, the first one in which it operated, handling the corpus of civil service pensions.
India`s exports during March, 2008-09 were valued at USD 11.52 billion which was 33.3% lower than the level of USD 17.25 billion during March, 2008. In rupee terms, exports touched Rs 589.97 billion, which was 15.3% lower than the value of exports during March, 2007-08.
Country`s imports during March, 2008-09 were valued at USD 15.56 billion representing a decrease of 34.0% over the level of imports valued at USD 23.57 billion in March, 2007-08. In Rupee terms, imports decreased by 16.2%.
Cumulative value of imports for the period April- March, 2008-09 was USD 287.76 billion (Rs 13,055.03 billion) as against USD 251.65 billion (Rs 10,123.12 billion) registering a growth of 14.3% in Dollar terms and 29.0% in rupee terms over the same period last year.
India`s cumulative value of exports for the period April-March, 2008-09 was USD 168.70 billion (Rs 7,669.35 billion) as against USD 163.13 billion (Rs 6,558.63 billion) registering a growth of 3.4% in dollar terms and 16.9% in rupee terms over the same period last year.
Oil imports during March, 2008-09 were valued at USD 3.81 billion which was 58.1% lower than oil imports valued at USD 9.07 billion in the corresponding period last year. Oil imports during April-March, 2008-09 were valued at USD 93.18 billion which was 16.9% higher than the oil imports of USD 79.71 billion in the corresponding period last year.
Non-oil imports during March, 2008-09 were estimated at USD 11.75 billion which was 18.92% lower than non-oil imports of USD 14.49 billion in March, 2007-08. Non-oil imports during April- March, 2009 were valued at USD 194.58 billion which was 13.2% higher than the level of such imports valued at USD 171.94 billion in April- March, 2007-08.
The trade deficit for April- March, 2008-09 was estimated at USD 119.05 billion which was higher than the deficit at USD 88.52 billion during April- March, 2007-08.
Ultimately, all Ponzi schemes come to an end.The fourth-quarter results of DLF, the country's largest real estate company, prove just that.
The company's net profit fell 93% to Rs 159 crore from Rs 2,177 crore in the same period last year. This was primarily on account of sales falling 69% to Rs 1,351 crore from Rs 4,372 crore in the same period last year.
And why did sales fall? Primarily because the company's main "business model" has come undone.
Since it got re-listed on the exchanges in July 2007, DLF had been essentially boosting sales and profits by making a substantial portion of its sales to DLF Assets (DAL).
This would have been a good business strategy if DAL paid for the sales, which it did not.
For the quarter ended September 2008, the company reported total sales of Rs 3,744 crore, of which nearly 39%, or Rs 1,470 crore, were to DAL. At the same time, the receivables from DAL increased by Rs 1,446 crore, almost equal to the sales.
For the quarter ended June 30, 2008, as much as Rs 1,560 crore, or 40% of its sales were again to DAL. Interestingly, the quarter-on-quarter increase in receivables from DAL was Rs 1,450 crore, a number very close to the sales to DAL during the quarter.
Evidently, even though sales were being made to DAL, hardly any sales were actually being paid for by DAL.
In other words, the company was using aggressive accounting to boost its sales as well as profit numbers. As long as these "paper" sales to DAL kept going, the net sales and profit numbers of DLF kept growing quarter on quarter. But profit is not always cash, as any accountant will tell you.
The "business model" was akin to a Ponzi scheme, where an illusion of a successful investment scheme is created by using money being brought in by new investors to pay off the older investors.
In this instance, as long as sales to DAL kept going up, DLF kept showing increasing profits and sales. But at the same time, receivables kept going up as well.
For a Ponzi scheme to keep going, the money new investors get into the scheme should be more than the money being paid to the older investors. Similarly, for DLF revenues and profits to keep growing, the company needed to book more and more sales to DAL, which couldn't have gone on forever.
Sales to DAL fell to Rs 655 crore for the quarter ended December 31, 2008, down from Rs 2,057 crore for the quarter ended December 31, 2007. This dramatic fall led to the total income of DLF falling 59% to Rs 1,503 crore. Profit fell even more dramatically by 68% to Rs 682 crore.
And for the quarter ended March 31, 2009, sales to DAL have fallen even more dramatically to Rs 322 crore, as against Rs 1,845 crore in quarter ended March 31, 2008. This has pulled down sales and profits of DLF big time.
Clearly, accounting gimmickry to boost sales cannot continue forever.
In the March quarter, DAL paid around Rs 800 crore of the nearly Rs 5,400 crore it owed DLF as on December 31, 2008. But even after this, DAL owes around Rs 4,900 crore (Rs 5,400 crore outstanding in the last quarter - Rs 800 crore paid by DAL + Rs 323 crore of sales made to DAL during the quarter) to DLF, which is not a good sign.
DLF has suspended further sales to DAL.
The stock has rallied 66.5% since March 9, 2009, despite there being no fundamental improvement in the company's situation. Further complicating the scenario is the fact that for the first six months of this financial year, DLF has outstanding land bank payments of Rs 5,000 crore and debt refinancing needs of Rs 4,500 crore, say analysts.
In order to reduce debt, the company is trying to sell its non-core assets like its wind power business. The non-core businesses --- DLF Pramerica Life Insurance, Hotels and Power, etc --- posted a loss of Rs 163 crore for the quarter.
The downtrend in real estate prices only makes the situation even more difficult. The company, which like most real estate companies, had been holding on to prices, recently sold its Capital Greens project located at Shivaji Marg, Delhi, at Rs 4,500-5,500 per sq ft, 30-40% lower than prices of existing projects. Even though the booking amount paid by the customers will help the company improve its cash position, it may not be good enough to solve the funding problems of DLF.
Analysts say the company may also see cancellations of bookings made previously, given the state of the economy. Other than this, in the March quarter, the company gave price reset and other benefits to customers, which led to Rs 688 crore of lower revenue and a profit-before-tax impact of Rs 302 crore.
The company's situation sure does not look good.
For those who still have the stock, it might be a good time to sell before the bears come in.
by Vivek Kaul, DNA