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.

ATM usage is free, so now we charge you for Fund transfer

As I had blogged earlier, thanks to a RBI notification transactions done at all ATMs across India are free of charges ( i.e. no charges for using other bank ATMs within India )

But now HDFC Bank has decided to charge for NEFT ( National Electronic Fund Transfer ) henceforth at the rate of Rs. 5 plus taxes for every transaction. This may have something to do with RBI's decision not to waive off charges after March 31,2009. Also Rs. 5 was the upper limit for charges specified by the RBI for transactions not exceeding Rs. 1 Lakh.

Similarly Axis Bank has introduced some security features to use NEFT facility online for which they will charge an annual fees. But most of these security features like code on SMS are offered free of cost by other banks like ICICI & Citibank. Then why does Axis Bank has to charge for a security feature which is provided free of cost by other private banks which have similar AQB requirements? And you can't use NEFT online with Axis Bank without having these security features so there is no other option to the customer than to pay.

Also HDFC Bank by levying charges for NEFT fails to understand that Indian customers are very price sensitive and even if 25% of the transactions which happen on NEFT presently shift to cheques then their work will increase manifold. Since processing of cheques requires human intervention & lot of paper work but NEFT processing is almost completely done by computers.

I believe HDFC Bank is taking a chance here, they are waiting to see the response of their competitors and customers. If their competitor ( read ICICI Bank ) also decides to levy charges for NEFT then all other banks will also follow suite. ICICI Bank also charges for NEFT now i.e. Rs. 5+ tax for less than Rs. 1 lac and Rs. 25 + tax for more than Rs. 1 Lac.The days of no-charges NEFT for bank customers are over :(

Coincidence...???

Have a look at the following screen-shots taken from official websites of 4 private airlines in India ( Indigo, JetLite, Kingfisher Red & SpiceJet) . Noticed something similar in all of them?




All four private airlines which have a direct flight from Delhi to Guwahati on May 5, 2009 have tickets priced at Rs. 5629/- inclusive of all "taxes". Is it just coincidence or shall we call it price fixing? Is MRTPC ( Monopolies and Restrictive Trade Practices Commission ) sleeping?

To know why I have written taxes in quotes above, read this economic times article.
Just some more news related to one of the airlines mentioned above here in this article.

Online transactions now even safer

Traditionally, to transact with a credit card ( either online or over the phone ) all the info required for processing the payment is present on the card.
The info that is usually needed for transacting is:
1. The 16-digit card number
2. Expiry date of the card
3. The CVV ( Credit Verfification Value ) found on the back of the card
4. The card holder's name

Since, all this info is present on the card, the customers always had security concerns related to credit card usage online. To address customers' security concerns Visa and MasterCard came up with initiatives like Verified by Visa and MasterCard SecureCode. Basically both of them worked on the same principle.A separate password, apart from the info already found on the card is required to complete a credit card transaction.

The diagram below will help you understand the "Verified by Visa" or "MasterCard SecureCode" better.


But there are 2 limitations to "Verified by Visa" or "MasterCard SecureCode" which might have hampered its popularity in India.
1. The merchant ( i.e. merchant's payment gateway ) must support these features.
2. Also, the credit card issuing bank must support these security features. Although most large private banks ( like ICICI, HDFC ) support these security features, most of the PSU Banks still do not support "Verified by Visa" or "MasterCard SecureCode" for online transactions.

If either the payment gateway or the bank does not support them, the customer cannot use "Verified by Visa" or "MasterCard SecureCode" for online transactions.

Now RBI has made such authentication, based on info not found on the card( i.e. with a separate password ), mandatory for all online transactions. Also it is mandatory to send SMS and online alerts for online transactions exceeding Rs. 5000. What this means is that all payment gateways and card-issuing banks will have to support authentication by a separate password. Please note that these regulations are applicable only from August 2009.

As per this report, RBI is also working on security features to be employed for credit card transactions over the telephone. These regulations will go a long way in ensuring the safety of your online & IVR transactions. Thanks, RBI.

Why I will continue to invest in equity even at 8K?

Warning: This post is more of personal rant, so that some time in future I can boast of "I-told-you-so". This post contains less of facts and more of personal opinion about the current economic ( and political! ) scenario. Take it all with a pinch of salt.


The Sensex is below the 9K mark and everyday I keep hearing predictions of even lower levels for the Sensex from friends and stock analysts. The US Dow Jones Index is at an 12-year low. All hell has broken loose. The newspapers are busy questioning the very survival of the Tata group companies. Gold is touching new highs and investors are being advised to buy Gold.

I don't care about these stock analysts who were predicting 25K for the Sensex in January 2008 and are now asking investors to stay away. Honestly speaking I don't care about Sensex at all, since I feel that Nifty is much better indicator of the market. I will continue to invest in equity via SIP, since I have been investing since the 18K level. If I was foolish to invest at 18K, I could only be a lesser fool if I invest at 8K. The downside is even lesser!

To quote Warren Buffet: "Be fearful when others are greedy and to be greedy only when others are fearful." Right now everyone is fleeing from the equity markets. MFs are showing a net outflow from equity schemes. All the bloggers I follow are advising people to stay safe ( Gold, debt instruments, cash ). If I ask my friends, whether they are investing in the equity market all I see is a grim face ( and sometimes a frown as well! ). People are frustated about their losses, even I am to a certain extent. But I haven't stopped my SIPs. I put in a small amount every month, in the hope that someday when the market recovers I will get back this invested amount along with good returns. When will the market recover? I don't know! But history tells me that recovery will happen.

Lok Sabha elections will happen in India in the near future, and I expect a sensible Govt to be formed in the Centre which will work to reduce the budget deficit. The present UPA govt has missed the FRBMA targets, and I expect the next government to put in more efforts to control it. But if the left parties come to power any time in future with absolute majority at the Centre, I am selling off all my equity investments ( even at enormous loss ) since I don't see any hopes for the Indian economy then.

Your credit score, CIBIL & getting your credit report

First let's try and understand what's a credit score. Wikipedia has a very technical definition for it:

A credit score is a numerical expression based on a statistical analysis of a person's credit files, to represent the creditworthiness of that person. A credit score is primarily based on credit report information, typically sourced from credit bureaus.

Confused?
In simple terms, the credit score is calculated based upon your history of availing debt/loans/credit from various sources ( like Banks, finance companies, lease companies ), and your history of repaying that debt. The better your credit score, it means less tarnished is your credit history.

In USA if your credit score is very good you can get loans at 1-1.5% lesser than the usual rates. I don't know if that's the case in India as well. I have heard that even telecom companies check your credit score before providing you with an post-paid connection.

Presently there is only one CIC ( Credit Information company ) in India i.e. CIBIL. CRISIL also has plans to enter this business.

All members of a CIC ( like Banks, finance & credit card companies ) submit reports relating to their customers to the CIC. Now when the same subscriber applies for a new loan or credit card to the same or a different bank, they can access his credit report from the CIC and decide whether to issue him a loan or not. Main points they lookout for is amount of credit already availed, plus any history of defaults.

This is just a brief introduction to credit score. You can search on Google to find out more about credit score and its importance. Also another thing you will be interested in is improving your credit score.

Who can access your credit report?
All members of the CIC ( like Banks, finance & credit card companies ) can access your credit report. But RBI has also mandated that an individual must be able to access his/her credit report ( this info sourced from the RTI advocacy group Hum Janenge and this press release found on the CIBIL website ).

But I could not find the exact procedure to get the credit report on the CIBIL website. I believe we have to write to CIBIL to know the exact procedure for obtaining our own credit report.

Here are their contact details:

Email : info@cibil.com

CREDIT INFORMATION BUREAU (INDIA) LIMITED
Hoechst House, 6th Floor,
193 Backbay Reclamation,
Nariman Point,
Mumbai 400 021

Do write to them, and let me and others readers of this blog know, the procedure to obtain the credit report.