Put part of retirement fund in safe products instead of relying on PFs

  • Arnab Mitra and Ramsurya Mamidenna, Hindustan Times, Mumbai
  • Updated: Dec 26, 2014 08:53 IST

The current market volatility may discourage small investors, but building an equity component into one’s investment portfolio is vital as it would accrue higher benefits when salaried people retire and start dipping into their savings.

In such instances, it helps to have safe products such as an exchange-traded fund (ETF), so that after retirement, one is able to enjoy a lifestyle close to what one had while working, according to National Stock Exchange (NSE) managing director and CEO Chitra Ramakrishna.

“We all know that the retail (investor) record in India is abysmal,” Ramakrishna told HT in an interview. “There’s a big disconnect in the way you live when you retire and that’s because most people rely only on the provident fund which is not advisable. Having at least an ETF is vital.”

An ETF is a security that tracks an index or a basket of assets, but trades like a stock on an exchange. It is typically considered to be steadier than individual stocks and investors also get to enjoy the diversification of an index fund.

Retail investors in India are typically reluctant to enter the equities market due to perceived risks and a traditional reliance on gold and real estate as safe investment avenues. NSE, which was conceived by the Narasimha Rao government in 1992 as an alternative to the then closely-held BSE, has been leveraging on its professional management to widen investor base.

Due to its ownership by financial institutions that is separated from management, the NSE’s Nifty index is widely-perceived to be more representative as it is managed by a separate index management company and constitutes companies that have to meet strict criteria to stay in the index.

A recent finance ministry report said that while Australia and Malaysia have nearly 40% of their population participating in capital markets and China has more than 10%,the figure for India is just 1.3%.

Ramakrishna said that even in the case of corporate bonds, people are hesitant to part with their savings as it is not tax-efficient. “People still look at post office savings or Kisan Vikas Patras as reliable options because they are tax-efficient,” she added.

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