The Tribune, Chandigarh, India

Govt’s package falls short of expectations
Manoj Kumar
Tribune News Service

CHANDIGARH: The Finance Minister, Mr Yashwant Sinha’s decision to bail out the Unit Trust of India (UTI), announced on August 31, has met the investors expectations half way. Though initially it raised hopes among the investors and the capital market, but the final picture that has emerged so far, say market experts and investors, has only provided a short term relief. Later, the Centre’s decision to postpone the disinvestment of HPCL and BPCL has sent a wrong signal to the market, thus affecting the chances of any substantial increase in the Net Asset Value ( NAV), of the UTI schemes, in near future.

Package meets expectations half way
The market analysts agree that by providing a package of Rs 14,561crore for US-64 and monthly income plans (MIPs), the government has tried to fulfill its commitment. However, they say its has given only a temporary relief to about 20 million investors and the UTI. Mr Tarvinder Dhingra, a leading market expert at the Ludhiana Stock Exchange, feels, “The Finance Minister has kept his word, but the proposed exemptions in dividend and capital tax gains for UTI investors are not sufficient to keep investors with the UTI in the long term. Unless the government further provides incentives or market improves, which are not likely to happen in the near future, the best option for the investors would be to quit as soon as possible.”

The investors lament that these decisions would not ensure the expected returns, as promised by the fund managers of government guaranteed scheme. Mr Puran Chand Wadhwa, former DGP Haryana, who had invested huge amount along with his family members, blames the fund managers and inadequate measures taken by the government for the present crisis. He says, “Despite government’s package to the UTI, we would not be able even to get what we had invested years ago. The government has not fixed any responsibility for the financial losses to the investors and the government. Somebody should be punished for playing with our future.”

A keen observer of the UTI performance, Mr Wadhwa claims that he had written letters to the PM, Finance Minister and other officials concerned alleging that the UTI had simply turned in to ‘Union of Thugs of India,’ as the investors had completely lost faith in the Centre Government. Still welcoming the government package, he said, “It falls short of our expectations as we would not able even to recover our investments. The next generation should not invest blindly in the government institutions after our bad experience.”

Tax incentives
The market experts claim the exemption from tax on dividends received from US-64 is applicable only for this fiscal. The benefit is likely to be restricted to 10-20 per cent. Thus the investors may stay on till July 2003, to get the dividend and then exit. The government has also announced capital gains tax exemption for US-64 investors, but most of them would not be able to gain anything out of it, as they would rather register capital losses. However, the buyers of the units from the secondary market may benefit from capital gains tax exemption, if the NAV rises substantially in future. There is little scope for this to happen as neither the unit holders would like to sell at Rs 6.50 or Rs 7 when they can get Rs 12 or Rs 10 in May, 2003 onwards, nor the market likely to improve after the ‘accident of disinvestment move.’

Implications for small investors
The market experts say in July last year, the UTI — the country’s largest mutual fund — shocked lakhs of small investors, when it froze redemptions in US-64. The crisis has been now averted with the government’s bailout package. They say for investors holding unit holdings up to 5,000 units, it makes sense to stay with the fund for some time, as they are assured with the repurchase price. In September 2002, the investors can sell up to 5,000 units to UTI at Rs 11.20. The price would continue to increase 10 paise every month till May 2003, when its final repurchase price will be Rs 12. Mr Wadhwa feels that though government’s package has provided a relief to small investors, since the Net Asset Value (NAV) of the scheme is hovering around Rs 6.50, but they would still lose substantial money. It is unlikely that NAV would increase above Rs 12 in the meantime.

Investors holding more than 5,000 units
Lieut Col. J.C. Malik (retd.), a leading broker with the UTI here, says, “The small and large investors should wait for some time as the NAV is currently very low. The units will be redeemed at an assured price of Rs 10 in May 2003 for investors holding more than 5,000 units. In case the NAV crosses Rs 10, which is highly unlikely, they should sell it.”

Mr Dhingra reminds with the current scenario prevailing in the market, the NAV value could not be expected to rise dramatically in the next few months. At the most, the government may provide bonds to the investors with 7-8 per cent rate of interest to keep a section of them with the fund. Warning the investors, he says, “The investors should be sceptical about the future of the fund which is tilted in favour of equity based investment. For regular and secured income, they should look some elsewhere.” However, some other brokers feel that with government’s backing and improvement in the industrial scenario and capital market, some miracle may happen, the best thing is to be on alert, and off-load the units, once NAV crosses Rs 10. They point out with the bifurcation of the UTI, the mutual fund may perform better, like other MFs in the market.

MIP investors
Mr L.M. Negi, local branch manager with the UTI claims that new package has build up confidence of the investors. The investors with the UTI-I, that would cover US- 64 and other MIPs scheme, can look for better era. He says. “We are witnessing a positive response from the investors. The government has resumed to responsibility to clear all the payments assured commitments. The other schemes, that would come under UTI-II are doing well in the market.”

However, Mr Wadhwa laments that all the MIPs launched during 1997-98 used to provide a secured monthly income, with an assured rate of interest, which declined over the years. He claims, “Since the share of companies, in which UTI had invested blindly fell sharply, their value has come down. Now we would have to learn to live with the uncertainty as the government may not bail out next time.”

PREPARING FOR RETIREMENT

Explore your options
Naveen S.Garewal
Tribune News Service

Retirement planning requires a lot of research, based on personal needs. One question that bothers most people is how much should they save? This question has no clear-cut answer and several factors have to be taken into consideration. But more important than how much to save is how and where to save. There are several options available, but the one recommended most is the one that offers to cover your life and at the same time is flexible so that you get back or at least borrow your own money in case required before your actual retirement.

Healthier life styles and improved medical care has increased the life span of most Indian. This has also led the challenge of saving enough to coupe up with retirement. In the recent past falling interest rates coupled with inflation has made managing funds or retirement tougher.

While on the one hand things have become difficult, on the other hand several options have been thrown open with the opening of the life insurance sector to about a dozen players offering endowment or annuity options. ICICI bank has tied up with Prudential Corporation of USA in the form of ICICI Prudential Life Insurance that offers four retirement plans that provide meaningful and comprehensive insurance solutions to plan your retirement. These policies like others promise safety, liquidity, tax benefits, health cover and life protection and thus ensure that you are comprehensively covered.

The ICICI Pru ForeverLife is a deferred annuity plan that helps you save for retirement while providing you life insurance protection. The company claims it to be a comprehensive retirement solution that is developed keeping in mind your various capabilities and needs, with respect to your retirement planning. ICICI Prudential suggests that the ideal age to start on the ICICI Pru ForeverLife is between 30-35 years of age for seeking maximum benefit of this plan as early planning gives you a longer period for your retirement plan, thus giving you the advantage of compounding over a long period of time to create a sizeable retirement kitty.

This plan provides a regular income for life after a stipulated date. The amount you receive depends on the premium you pay till the stipulated date and the annuity option you choose. It also offers life cover during the deferment phase. The plan has two phases- The Deferment Period (Policy Term) and the Annuity Period. Premiums are paid in the deferment period till the time of vesting. From the vesting date annuity is paid for the lifetime of the annuitant. The premiums depend upon the age of the person and also the term of the product, which the deferment period. The Sum Assured under the policy offers a Guaranteed Additions (@3.5 per cent compounded for the first seven years of the policy

Another policy of the ICICI Prudential is the ICICI Pru LifeLink Pension — it is a single premium that is then invested in the market-linked funds and at the retirement date. It provides regular income for your life. The amount you receive depends upon the premiums you pay, the market value of your investment and the option of the annuity chosen. This plan offers choice between a Growth Plan, Income Plan or Balanced Plan. There is an option to switch between the plans coupled with a number of annuity options like Life Annuity, Life Annuity with Return of Purchase Price, Life Annuity Guaranteed for 5, 10, 15 years and Joint Life, Last Survivor with Return of Purchase Price:

The ICICI Pru LifeTime Pension is a plan that gives you the twin benefit of market-linked annuity and life insurance cover. It is a pension plan that provides the benefit to you to invest your money in market-linked funds. During the deferment period when you pay the premiums, a part of the premium is used to pay for the death benefit (if any) opted by you and the rest would be invested in the plan of your choice.

Under this plan In case of the unfortunate event of death, your spouse would get the higher of the death benefit chosen by you or the value of your units as on that date. Your spouse would have the option to either take the higher of the death benefit or the value of units or opt for an annuity.

On the date of vesting (retirement), you start receiving a regular income for life. This amount would depend upon the annuity option chosen by you and the value of units as on the vesting date. However, the annuity would also depend upon the annuity rates offered by the company as on that date and are not guaranteed.

Under the fourth ICICIPrudential policy called the ICICI Pru ReAssure, a one-time premium of Rs 50,000 is charged and the term of the policy is 5 or 7 years.

Survival benefits are based on the term and the premium amount. On maturity the entire amount of single premium is paid back to you. However, in case of death within the first year of buying the policy, the nominee will receive the premium. If death occurs after first year, the nominee will receive 110 per cent of the premium paid. In the event of death due to accident at any time, 110 per cent of single premium will be payable

Before you go in for any particular retirement policy, you must look at the various options available in the market before committing yourself to any one-pension plan.

MARKET SCAN

by J.C. Anand

Investment in tax-free bonds is good

The stock market is like “Lajwanti Plant”: it is sensitive to a little touch or adverse wind. Even a rumour can unsettle it. On last Friday (September, 6), when the stock market closed, the Sensex was down by 40 points. It is believed that the report of bombing of Iraq by the US/UK aeroplanes has ruffled the stock market. Another factor responsible for depressed market sentiment was uncertainty about the Government of India’s Investment Policy in BPCL and HPCL. The announcement that the Central Government would provide funds to the UTI to Salvage US-64 and to prevent the UTI from selling its investment in panic in the market did not lend any bullish flavour in the stock market. Considering that during the next 3 to 4 months, there will be contentious Vidhan Sabha elections in J&K and Gujarat, it is unlikely that the market would move up. It is also possible that USA may attack Iraq on September 11 or later.

It appears to me that delivery-based investment in equity shares does not promise good returns. Even though, the dividend yield of Sensex is at its highest in ten years. The average yield is just 2.5 per cent or little more and this yield is calculated on the basis of investment in equity shares in companies which are well-managed and have good liquidity. In fact, a major part of the stock market business today is of a speculator nature. You ask any stock broker about the fate of speculators in recent years and he will tell you that more than 95 per cent of this speculators are losers.

For those investors (tax-payer) who want to have both safety and reasonably good return in their long-term investment, the recent announcement of tax-free bonds is an excellent opportunity. At present, the Reserve Bank of India’s tax-free bonds carrying an interest of 8 per cent are available. Any individual can invest in these bonds up to Rs 2 lakh. Interest is payable on a half-years basis. The redemption period for these bonds is six years from the date of investment.

The Government of India has announced that 7 per cent tax-free bonds would be issued w.e.f. October 1. They will be not only tax-free but also exempt from wealth-tax. There will be no upper ceiling on the amount that can be invested in these bonds. Interest will be paid on a half-yearly basis, though there will be a provision for cumulative return. The redemption period is six years from the date of investment.

It appears that the only other investment which is in some ways better than investment in these shares is contribution to Public Provident Fund (PPF) which has a higher rate of interest and is tax-free but the redemption period is 15 years. In the case of those investors who have PPF account and which has completed 10 years or so, it is an ideal investment. Investment in PPF provides a rebate in income tax under Section 88 of the Income Tax Law. But investment limit in PPF has a ceiling of Rs 60,000.

Investment in tax-free bonds has another plus-point for those who are in high tax-bracket. This investment would bring-down the size of their taxable income.

For senior citizens and for those who have no acquaintance with stock market investment, these tax-free bonds are proper investment. It is a better investment than involvement in mutual funds schemes.

In respect of equity shares, there is some scope for long-term appreciation in the pharma shares of multinational companies after April 1, 2005 for it is likely that the government would provide both “process patent” and “product patent” as per commitment to the WTO. But the government is so vacillating in its decision making that it may postpone the passage of new patent law.

Larsen & Toubro and Nalco also offer some promise of appreciation in terms of the price level as on September 6. Nalco was quoting at Rs 105 and L&T around Rs 180.

CHECKOUT

by Pushpa Girimaji

Bitter experience of shopping through TV

Last week I wrote on the need for specific regulations to protect consumers who shop from home through the TV, telephone, mail order or the Internet. Here is a case that reinforces it and highlights the problems that a consumer faced in getting back his money paid towards one such deal. Fortunately for him, the consumer court compensated him adequately.

Mr L.K.Pandya , in response to an advertisement on television, placed an order for jewellery with Asian Sky Shop and sent a demand draft for Rs 8,200 towards it. However, when he received the three parcels dispatched through post, he was shocked to find that the first packet contained very tiny ear rings worth Rs 601 and a silver coin. The second parcel contained an empty jewel box with two coins of Re 1 and 50 paise denominations and a bill of C.M. Jewellers. On seeing this, Mr Pandya did not open the third parcel and immediately sent a fax to the jeweller, bringing this to his notice. He also wrote to Asian Sky Shop and on failing to get any response, sought the help of the District Consumer Disputes Redressal Forum for the refund of Rs 8,200 paid by him. He also asked for Rs 26,000 towards compensation and Rs 1,500 towards legal expenses.

On receipt of the notice sent by the district forum, Asian Sky Shop (the opposite party) said in its written rejoinder that it could not be held liable for the non-receipt of goods as it was neither supplier nor manufacturer of the goods (or jewellery as in this case). And there was no contract of service between the shop and Mr Pandya as no payment or consideration had been received by it. And on the day of the hearing, none appeared for the opposite party.

The district forum, after perusing the points raised by the opposite party in its reply and on hearing the complainant, held the Asian Sky Shop liable. It pointed out that the consumer, on seeing the advertisement on television, had sent a demand draft for Rs 8,200 to the opposite party, which, on receipt of it, had sent a letter on November 20, 1995, stating that the delivery would be made only after clearance of the draft. The letter, signed by the senior manager of the shop had also stated that if the consumer wanted more than one item, it was likely to be delivered on separate days as manufacturers were different for different products.

The letter had also urged the consumer not to hesitate to contact the shop for any queries or clarifications. In view of this, the opposite party cannot take the plea that there was no contract of service with the complainant and that it had not received any consideration or payment for the service, the district forum said.

The district forum also observed that through its advertisement, the opposite party had shown its ability to provide the jewellery on receipt of certain amount and on the basis of this the consumer had booked the order from his home in Chandrapur and this amounted to an agreement and it was accepted by the opposite party when it sent a letter to the consumer about delivery of the article. However, the opposite party had failed to act as per the agreement of service with the complainant and ensure delivery of the promised jewellery.

The opposite party was thus guilty of deficiency in service and unfair trade practice, the district forum said and directed it to pay Rs 34,700 along with interest of 18 per cent per annum , calculated from November 10, 1995, till the date of payment. It also said in its order that the amount should be paid within a month of the date of the Order.

Aggrieved by it, the opposite party filed an appeal before the state commission, which dismissed it. While doing so, it agreed with the view of the district forum that the shop could not escape liability for non-receipt of goods. The state commission pointed out that the consumer, on finding the empty box, had immediately contacted the jeweller. He, however, did not bother to respond. Since it was the appellant (the sky shop) which had acted for and on behalf of the jeweller and offered the product through its advertisement on television, the district forum was justified in directing the shop to compensate the consumer, the state commission said.

The apex consumer court or the National Consumer Disputes Redressal Commission, before which the Asian Sky Shop filed a revision petition also expressed the same sentiments while dismissing it. The commission also observed that the shop should have immediately acted on the consumer’s complaint about the non-receipt of the goods. However, despite the insurance cover, it had failed to provide any remedy, forcing the customer to approach the consumer forum for justice. This not only amounted to deficiency in service, but also an unfair trade practice, the commission said.

Small units post higher growth
Tribune News Service

New Delhi, September 8
Sick units in the small scale industry have declined from 3 lakh units to around 2.5 lakh units within a year. The small scale industry, which accounts for 95 per cent of the industrial units in the country, witnessed a higher annual growth compared to growth of overall industrial sector during the last decade.

Statistics show that compared to a 5 per cent growth in the industrial sector in 2000-01, the growth in the SSI sector was 8.23 per cent. In 1999-2000, this figure was 8.16 per cent for the SSI sector whereas for the industrial sector it was 6.5 per cent. During 1991-92, while the industrial sector grew by 0.6 per cent, the SSI sector recorded a growth of 3.1 per cent.

Industrial sickness in the SSI sector has also been low compared to the non-SSI sector. According to Minister of State for Small Scale Industries Vasundhara Raje, out of the total outstandings of banks in the sick units, which is nearly Rs 27,500 crore, the share of SSI is only 17.5 per cent.