REDEEM YOUR PLEDGE

There are two things the Central Board of Trustees of the Employees Provident Fund Organisation (EPFO) must do at its meeting on Saturday. One, it must give its goahead to the idea of extending the coverage of the Provident Fund Act to establishments with 10 or more employees as against the current norm of 20. And two, it must follow through on the bidding process initiated by it in April this year when it called for bids to manage its corpus. In a scenario where services account for the largest share of GDP, and within the services sector small, rather than large, establishments dominate, adherence to the limit of 20 workers leaves a growing number of workers outside the safety net. It is imperative, therefore, that the Act is amended to cover smaller establishments as well. The rationale behind omitting smaller establishments — that they would find it difficult to comply with all the paper work — is no longer valid in a progressively paperless world where software packages can take out a great deal of the grind. The EPFO, on its part, can make life easier for small units by reducing the demands on establishments under its jurisdiction and by reducing the interface with its (often corrupt) staff.

The trustees must also move fast on selecting new fund managers. After a preliminary weeding out process, a shortlist of 17 fund managers (including some from the private sector) has been drawn up. The final selection must be made from among those shortlisted, and in a transparent manner. The guiding philosophy must be, ‘Let the best man (read fund manager) win’. The animosity towards the private sector, which has long informed the EPFO’s trustees, must give way to a more enlightened, less dogmatic style of decision-making where employee welfare is the only consideration. For too long have hapless employees suffered on account of the EPFO’s inefficiencies: remember, PF deductions are mandatory. Sub-par returns, poor service, low accountability and so on have been the rule, not the exception, all these years. ‘Re-inventing EPF India’, a programme launched by the organisation to provide ‘world-class’ service some years ago has made little difference to actual subscriber experience. Saturday’s meeting could set the ball rolling in that much-needed process of change.

Source: The Economic Times (Editorial)

RISING RATES SPELL GOOD NEWS FOR PFs

Mumbai: The Reserve Bank of India’s (RBI) move to hike interest rates may have spelt doom for bankers and borrowers, but for pension fund managers, this could prove as a windfall.

Most corporates, who were considering to shift their employees’ pension fund management to the Employees Provident Fund Organisation (EPFO), are now showing greater inclination to manage it themselves.

The reason being that they are able to pocket returns in excess of the mandatory 8.5% that the EPFO offers by investing in short-term securities during a rising interest-rate scenario. These include investments in treasury bills, gilt funds and bank fixed deposits.

In the case of corporates, even if they earn a yield in excess of 8.5%, they are not mandated to pay their employees a higher yield. In most cases, they may choose to park these surplus funds in the form of reserves, which may serve as a back-up as and when yields begin to dip.

Thus, the conservative provident fund manager is slowly displaying a touch of dynamism. Fund managers are realising the need to tap short-term securities to make the most of a rising interest-rate scenario, leaving plans to scout for long-tenure options for the later part of the year. More passive of the lot, few managers are also parking funds in oil and food bonds instead of dated government bonds, to avail of a higher yield.

Officials from the industry point out that since this is still the beginning of the financial year, PF managers feel that there is lot of opportunity to churn portfolios now and realign them in line with the mandatory norms. The recent rate hike moves made by RBI have caused short-term yields to supersede the yields on longer-tenure bonds.

Given the upward pressure on short-term interest rates, coupons payable on commercial papers and certificates of deposits have also turned into double-digits. This has prompted several gilt funds to shift to these instruments, in a bid to maximise returns.

When government bond yields begin to fall, these short-term gilt funds begin to invest in other short-tenure options to prevent their returns from turning negative. Fixed deposit schemes of banks also shot into the limelight much recently, wherein too rates have crossed the 10% level.

A senior industry official says that it will be more worthwhile for fund managers to invest in a fixed deposit scheme offered by a bank, yielding around 9-10% rather than locking funds in a bond issued by a public sector entity offering a yield of 9.4% for a longer duration.

Given the bearish sentiment in the market, it could well be that corporate bond yields may cross the 10% level after a few months, which is when the PF could reinvest funds in similar securities. Much of this action, say sources, is being driven by firms acting as advisors to retirement funds or else, fund managers who are well-aware of the rate situation.

According to a senior official from an advisory firm, most PF managers are now also wary about the EPFO coming under pressure to hike rates beyond the traditional 8.5%-mark. This could come on the back of political compulsions, in the wake of spiralling price levels.

PFs are mandated to invest 25% of the net accretion of funds in a year in central government securities. They could alternately invest this portion of funds in gilt funds also. Further, 15% of the funds need to be invested in state government bonds or bonds guaranteed by the state government.

Source: Economic Times

BHARTI AXA GENERAL INSURANCE GETS REGULATORY NOD

Bharti AXA General Insurance, on Thursday said it has received the certificate of registration by the Insurance Regulatory Development Authority to commence operations.

Following this, the company would shortly commence its business operations, Bharti AXA General Insurance, Chief Executive Officer, Milind Chalisgaonkar, said.

"We are confident of serving customers with our innovative products, strong distribution, personalised service and efficient claims settlement," Chalisgaonkar said.

Headquartered in Bangalore, Bharti holds 74 per cent stake in the insurance JV while AXA has a 26 per cent.

Both companies had entered into a life insurance joint venture in 2006 and has another JV partnership in asset management--Bharti AXA Investment Managers.

Source: The Financial Express, The Hindu, The Statesman, The Tribune, Deccan Chronicle

ICICI PRUDENTIAL IN PACT WITH SUVIDHA INFOSERVE

Private Life insurer ICICI Prudential on Thursday entered into an agreement with Suvidha Infoserve to enable its customers pay their insurance premiums through Suvidha outlets.

The policy holders can make payments through Suvidha oulets ranging from kirana stores, mobile stores, medical stores, STD booths, cyber cafes and travel agencies, reports PTI from Mumbai. “The tie-up will enhance the customer convenience through increased touch-points and will also help to increase penetration nationally,” ICICI Prudential Life Executive Vice-President Anita Pai said. The agreement would also help the company to enhance its footprint in Tier-II and III cities across the country.

Source: The Hindu Business Life, Deccan Chronicle

STUDYING ABROAD? BUY INSURANCE IN INDIA

Mumbai: It’s that time of the year when the spring semester commences at various universities abroad. For those who have bagged admission offers, therefore, these must be really hectic times, what with all that packing, ticketing and paperwork to be done.

Just make sure you don’t forget to pack a travel insurance cover along with all the knickknacks. Believe it or not, it makes better sense to buy a cover in India.

Medical insurance is mandatory for students heading for most foreign universities. A few educational institutes insist on you getting an insurance policy on the campus. But the lucky ones, whose university allows them to select their own insurance policies, can put their money to better use by carefully selecting an insurance scheme in India.

Policies issued at home equip you with essential tools to manage your ever-bulging expenditure when you are out. Domestic student insurance policies would help prune the policy cost by over a third of the investment required by foreign insurance companies.

Moreover, foreign insurance policies would offer coverage merely for your medical expenses.

Even if a foreign policy offers other add-on benefits, they would not be in line with the expenses an Indian student would usually incur. For instance, a foreign student policy would offer coverage for expenditure on drug addiction rehabilitation and pregnancy, while a domestic policy would help you manage more relevant costs such as an emergency visit by either the student or the relative back home, loss of passport, an interruption in studies on medical grounds or loss of checked in baggage.

Various Indian insurance companies, such as Reliance General Insurance, Bajaj Allianz, Tata AIG, ICICI Lombard and New India Assurance, offer student travel packages designed after considering several unforeseen expenses that a student may have to incur in the foreign land.

Besides offering medical expenses coverage of up to $500,000, Indian policies offer coverage for personal accident, lost baggage (checked), bail bond, personal liability and two-way tickets in case of medical emergency. Some others offer minimal stay facility charges along with two-way tickets for a relative to be with a student who has been hospitalised for more than seven days. Also, to battle out a financial crunch caused by the death of the person sponsoring your education abroad, the insurance company would reimburse the tuition fees, to a maximum limit of $10,000.

The coverage period for student overseas insurance policies ranges from 30 days to a maximum of 365 days, which can be extended once for an additional period of 30-365 days. The travel care insurance policy for students offered by Reliance General Insurance provides protection for a maximum of two years.

The policy premium, which is a one-time payment, is based on whether the student has opted for a university in the US and Canada or any other country. Medical costs in the US and Canada are higher than those in other countries and so are the premiums of policies tailor-made for the respective regions. You would need to invest less if your university is in, say, London.

The cost of getting a high-end plan for education in the US is at least 100% more than the policy meant for a student pursuing education in a non-US destination. Almost all policies offer four plans, differing in the medical expenses coverage and add-on facilities offered.

The low-cost plan would offer fewer facilities at a lesser premium. Few insurance companies offer plans for non-medical expenses. Such plans are meant for students whose universities insist on an in-house insurance policy.

Students planning to study abroad should make sure that the insurance company they are opting for has collaborations with international organisations. It makes sense to take a policy that offers cashless service, meaning that a third party administrator (TPA) would take care of the hospital bills, and the student can avoid the running around for reimbursement of bills.

TPAs are overseas partners of Indian insurers and they would have your policy details to settle the bills. The policyholder has to inform the TPA using an international helpline number provided by the insurance company in case of an eventuality.

Insurance players can register a policy in your name only when your student visa has been issued and the foreign university has confirmed your application. The overseas student insurance procedure takes 24 hours. However, make sure you start looking out for a suitable plan at least a month ahead of your departure. The coverage clock starts only from the day you take off.

Source: DNA India