Saturday, June 27, 2009

New Pension Scheme ( NPS ) - will I invest?

This post is only applicable to private-sector employees since all govt. employees ( who joined in or after 2004 ) are compulsorily part of the NPS.

Although this is old news, NPS is now open for all to invest in it. Being a private sector employee, I have done an analysis whether I will invest in it or not. Hopefully it would be useful to all the readers of my blog as well.

My verdict is I will not invest in it right now. The reasons are explained below:
1. Charges are high: As explained in this livemint article although the fund management charges are very low, the other charges are very high atleast for the initial years. As the number of subscribers grow these fixed charges will also come down and then it will a right opportunity to enter. It is better to invest your retirement money in other avenues until you decide to open a NPS account and later on you can deposit this accumulated sum into your NPS account if you wish. You can check out the NPS welcome kit found here to see the fixed and other charges.

2. No clarity on tax benefits: An explained in this Value Research article, there are no tax-benefits of investing in the NPS. Let the govt come up with proposals on what tax-breaks it is ready to offer to NPS investors. Hopefully they would do it in the budget being presented in July, 2009.

3. The equity part stands limited to Nifty: They should have either allowed the fund manager's discretion in choosing the stocks for equity investments or chosen a broader index like S&P CNX 500. This I suggest for the following 3 reasons:
a) I'm afraid large amounts of NPS money flowing into just 50 stocks would surely create a bubble of sorts for the Nifty stocks ( which will burst one day!).
b) Secondly, the broader indices like S&P CNX 500 although being more volatile over shorter terms have always beaten the Nifty/Nifty junior when compared over a time-period of 10 years or more. Retirement money being (very-)long term money should surely benefit from it.
c) Thirdly, they have appointed several different fund management companies but if all have to invest in the same Nifty-50 stocks in the same proportion ( i.e. follow the index ) then what is the point of having several different fund management companies.

4. Relying on the rating agencies: Remember the rating agencies who had rated the sub-prime CDOs as AAA? As explained by Deepak in this article, the original proposal drafted by committee headed by Deepak Parekh had sought to make the rating agencies irrelevant by putting the onus on the fund manager. But PFRDA decided to reverse it and now atleast 75% of the investments done in corporate bonds must be rated by one of the rating agencies. Is it a wise move considering the present economic crisis, the world is going through, is partly caused by trusting these ratings? Also the rated company pays the rating agency, so if one rating agency refuses to give them a good rating, the company takes their business to another rating agency whoever offers them a better rating for their bonds. This is a conflict which must be resolved before relying on ratings for making investment decisions.

5. EPS 1995: And lastly the most important reason why I will not contribute to NPS is because I ( being a private-sector employee ) am already contributing to this scam known as EPS 1995 ( full details in this article ). The government must scrap the EPS 1995 scheme and all of employee's ( and employer's contribution also ) retirement money ( irrespective of govt. or private-sector ) must go into NPS. All the existing money being held by EPS 1995 scheme should also be transferred to the respective employee's NPS account.

I have adopted a wait-and-watch policy. What about you?

Customer (dis-)service?

Here I list down the kind of customer experience that me and my friends had with different organisations. This list is not comprehensive, do comment about your own experience with different banks/insurance companies and other organisations.

Computer/network is down: The most common excuse in public-sector banks. Many times when you are in a hurry, this excuse pops-up. I'm not saying that the bank personnel are lying or are being lazy. My point is what's the point of computerisation, if they can't get it working? This is a recurring problem. They should better get back to hand-written ledgers if their computers/networks don't work when needed.

You will receive it within stipulated time: This mostly comes from private banks. Say you had requested a cheque book or DD to be delivered to your home address. Usually it arrives in your home with 4 days of submitting the request, but this time has not arrived even after 7 days. If you try to complain to the bank personnel/phone banking, they will give you a blunt reply that you should wait for 15 working days. They won't bother to check with their central processing centre if your request has been processed and the item despatched by courier/post.

Something similar has been my experience with one of the movie rental service. Their customer service desk works from 10 AM to 7 PM. And their official movie delivery timings are from 10 AM to 10 PM, but the delivery boy usually comes to my apartment around 12 PM. Some day when the delivery boy hasn't come even by 2 PM and you try to enquire with the customer care they will give you a blunt reply that the delivery timings are from 10 AM to 10 PM. If you try to complain around 6:30 PM, they give the same 10 AM to 10 PM excuse. But their customer care closes at 7 PM and if you try to complain about the non-delivery of movie the next day they would reply that the door was locked when the delivery boy arrived. Given the fact that movie rental's customer care closes at 7 PM, then how is the customer supposed to prove that the delivery boy infact did not come.

SBI-specific complaints: I believe if we do a survey SBI( plus its associates ) may top the list of number of customer complaints. This may also be due to the fact that it is the largest bank in the country.

State Bank complaint no. 1: If you ever try to open an account in SBI or its associate banks, they would compulsorily give you a Debit card whether you apply for it in the account opening form or not. I mean if somebody has specifically marked in the account opening form that he/she does not need an ATM/Debit card then why is a card issued at all? Does the branch has some targets to achieve regarding the number of debit cards issued? Anyway SBI debit card is not a free service then why is it forced on everyone even though they may not need it.

State Bank complaint no. 2: Fine, you will say it does not matter if you got the card, you can always get it cancelled. Thats what the second complaint is about. You get the SBI debit card cancelled but the charges for the card will continue to be deducted from your account every year. You have to request the branch every year to reverse the debit card charges. If you ask the manager why are the charges being levied inspite of cancellation of card, he would blame it on the software. Being a software engineer myself, I am ashamed of such computer/software engineer who can't configure the system to stop deducting charges for cancelled debit cards. Or is it a ploy by the SBI ( & associates ) management to increase their fee income while taking shelter in the excuse of software limitation.

IOB-specific complaint: Indian Overseas Bank have a partnership with Oriental Insurance for offering personal accident insurance to their customers for which they deduct premium from the customer's account. By default they have made all their customers part of the scheme without the customer's consent. They don't care if the customer already has a personal accident insurance policy and does not need any additional insurance cover. And if you ask the branch personnel to stop this insurance facility and reverse the charges, they would smilingly reply "Its just Rs. 10/-". Rs. 10/- or Rs. 10 Lac whatever it is, it my hard-earned money and if I don't need the facility I don't pay for it. This is another trick by the bank's management to increase their fee income.