Month: July 2021

How motor insurance deductibles work

Personal Finance

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For every vehicle owner, a third-party liability insurance under motor insurance is mandatory in India. However, for an inclusive coverage, that offers protection for damages other than third party damage such as theft, fire, floods and the like, an all-comprehensive coverage policy is highly recommended. The first thing that comes to mind is the “premium” for this transition of only liability insurance to a comprehensive insurance for your vehicle. But here’s one way how you can control the premium, i.e voluntary deductible.

What is

Simply put, a deductible is the expense you pay out of your pocket at the time of claim. There are two components of a motor insurance deductible: compulsory and voluntary deductible. As is apparent from the category names, the compulsory deductible, is the one which is mandated in every claim as per regulation. For four wheelers with less than or equal to 1500 cubic capacity this amount is ₹1,000, whereas for vehicles greater than 1500 cubic capacity, it is ₹2,000. Over and above this, you can choose to pay a voluntary deductible, depending upon your own assessment of risk or confidence as a driver.

The need

As vehicle owner you may wonder the need of a voluntary deductible, when there is already a compulsory deductible as stipulated by the regulator, IRDAI. Firstly, opting a voluntary deductible serves as an incentive to the policyholder to be more vigilant about the upkeep and handling of the car, as there is higher financial onus involved. Secondly, it discourages policyholder for filing small claims thus helping them save on the overhead expenses involved in claim.

Claim, premium impact

Let’s say, your vehicle is below 1500 cubic capacity and you choose to set the voluntary deductible amount at ₹5,000, and the damages are evaluated to be ₹25,000, the insurer will pay you only ₹19,000 (₹25,000 minus ₹1,000 compulsory deductible minus ₹5,000 voluntary deductible). It is important for a policyholder to bear in mind, that the deductible amount is applicable each time you make a claim on your vehicle and should not be confused as a one-time payment. It is thus evident, that the higher the voluntary quotient of motor insurance the lesser will be your premium. This is because you are agreeing to make a higher financial commitment in the event of a claim.

How to decide

A higher deductible means higher-out of pocket expenses in case of a claim. Thus, it is prudent to opt for a higher voluntary deductible only if you think you have the financial buffer to account for such costs and are looking to save money on premium. However, discount on premiums should not be the only factor to be considered while choosing a voluntary deductible, but it is important. .

The author is Head – Underwriting, SBI General Insurance

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Tax Query: Will unlinked NRI PAN cards become inoperative?

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The Central Board of Direct Taxes has announced that all unlinked PAN cards by June 30, 2021 will be declared as “inoperative”. Does this apply to Non-Resident Indian (NRI) PAN cards? NRI’s were made eligible to get their Aadhaar cards only recently and a lot of them have not visited India since then due to Covid restrictions etc. Please clarify the situation because if NRI’s PAN cards are made inoperative from 1/7/21 they will not be able to file their tax returns and do other financial transactions.

A. Venkat.

Section 139AA of the Income-tax Act. 1961 (‘the Act’) provides for linking of Aadhaar with PAN. As per the provisions of section 139AA(1) and 139AA(2), every person who is eligible to obtain Aadhaar number, shall quote / link Aadhaar, as may be applicable to him. In case of a failure to do so, the PAN allotted to such person shall be made inoperative. Vide notification dated March 31, 2021, the Central Board of Direct Taxes (‘CBDT’) had extended the date for such till June 30, 2021. This date has now been extended to September 30, 2021 vide notification no S.O. 2508(E) dated June 25, 2021.

Under section 139AA(3), the Government may exempt certain class or classes of persons from the applicability of above requirement. In this relation, the Government had issued a notification dated 11 May 2017, vide which certain categories of person who do not possess Aadhaar or have not applied for Aadhaar, have been exempted from the requirement of linking their Aadhaar with PAN, which includes, but not limited to:

– a non-resident (as per the provisions of the Act);

– Foreign citizen.

Thus, a non-resident shall not be required to obtain Aadhaar and the PAN shall continue to hold valid. However, for cases where the non-resident individual already holds Aadhaar, then the PAN is required to be linked by September 30, 2021, else the PAN may be rendered inoperative.

The writer is a practising chartered accountant

Send your queries to taxtalk@thehindu.co.in

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New-age IPOs: All those 3-letter words decoded

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An interesting feature of the IPO rush this time around is the number of consumer focussed tech-driven start-ups that are lining up for going public. While Indian IPO investors have tasted Zomato, public issues of Mobikwik, Paytm, Nykaa, Policybazaar, Ixigo, Delhivery, Flipkart etc. are said to be in the pipeline. While reading offer documents of IPOs, you will come across terms such as GMV, AOV, cash burn, MAU, DAU, CAC, churn etc. As many of these new-fangled IPO-bound firms are yet to make profit, operational metrics are focussed upon. Learning these new terms becomes central to understanding the business model, prospects and multi-billion dollar valuations.

Volume measures

Volumes and transaction size are among the most important dynamics in marketplace businesses. GMV or Gross Merchandise Value is a popular metric used. GMV is the total transaction volume of merchandise transacted through the marketplace in a specific period. GMV can include taxes, fees and services, and gross of all discount. Often the most recent month or the recent quarter’s GMV is annualised. In case of Paytm, FY21 GMV is Rs 4 lakh crore.

GMV is a useful measure of the size of the marketplace. For instance, during Covid-ravaged festival season of October-November 2020, Flipkart and Amazon led the $8.3 billion festive GMV pie, indicating their massive size.

Actual revenues are only a portion of GMVs, for instance, Mobikwik’s FY21 GMV was about ₹15,000 crore but revenue from operations is ₹290 crore. Revenue consists of the various fees charged by such a company. In case of Paytm, the revenue from operations is around Rs 2,800 crore, less than 1 per cent of reported GMV. GMV is also referred to Gross Transaction Value, or GTV.

The ticket size in a business matters. Tech-driven start-ups work on volumes. Each time someone places an order, the company gets a certain sum. So, if the company can do an order by spending ₹200 and make ₹210 via fees, then it has positive unit economics.

To understand positive unit economics, you have to look at a metric called Average Order Value (AOV) which is calculated by dividing GMV by the number of orders during a given period. The higher the AOV, the better the chance of breaking-even and clearer is the path to profitability, provided the take rate is not reduced. Take rate is the percentage fee charged by a marketplace on a transaction.

Burn, churn

Cash burn for IPO-bound start-ups is an important metric. Loss-making companies fail when they run out of cash and don’t have enough time left to raise funds. Cash burn is computed by subtracting cash balance at the beginning of the year from cash balance at the end of the year. Start-ups are known to burn high cash amounts by chasing growth. When Google was burning cash in 1999-2001, money was going into building high-tech Internet products. Ditto for Facebook and Amazon in respective periods. However, many Indian start-ups burn cash to sustain businesses. And, now they are getting listed. Hence, investors must be able to identify whether the fund-raise is aimed to just meet expenses..

Once a company with high cash burn is listed on the bourses, it would have to raise money by diluting equity or get merged/acquired by a bigger business. This can impact public shareholders. When they are unlisted, firms can tap venture capital funds etc. to get cash and consequently get valued higher in each funding round to get more cash. But, this is why founders of some hyper-growth firms end up with very small equity ownership. But when they are listed, long periods of cash burn can push the company towards insolvency.

Rhyming with burn, is another important metric called churn. Businesses are successful when they do repeat business. The churn rate is the percentage of existing customers who stop doing business with an organisation over a specific time period. Successful software companies report annual churn rates less than 5-7 per cent. Check for high churn rates in companies.

High churn rates are not good, neither are higher CAC (Customer/Consumer Acquisition Cost). CAC is the cost of winning a customer to purchase a product/service and is expressed in per user terms. For instance, Mobikwik’s new registered user CAC was just ₹11.51 in FY21. Some firms such as Paytm have brought different verticals under one umbrella to lower CAC. Do note that ed-tech firms such as Byju’s may have much higher CAC, which they partially recover when customer buys a course.

Since product and engagement metrics are important for new tech-enabled start-ups, user count is very important. IPO-bound companies will like to wow investors with user engagement and growth. But the focus should be on active users, or even better, monetisable users. For example, Paytm uses a metric called MTU (monthly transacting users), which is defined as unique users with at least one successful transaction in a particular calendar month.

Users are counted as monthly active users (MAU) or daily active users (DAU). Facebook, for instance, defines a daily active user as a registered and logged-in Facebook user who visited Facebook through its website or a mobile device, or used Messenger application, on a given day. Twitter uses Monetisable Daily Active Usage or Users (mDAU) as those who logged in or were otherwise authenticated and accessed Twitter on any given day through twitter.com or Twitter applications that are able to show ads.



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All you wanted to know about 54EC bonds

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A popular option for saving long-term capital gains tax on sale of property is section 54EC bonds. Investing in these bonds can help you make gains of up to ₹50 lakh per financial year from capital gains tax. However, there is a lock-in period of five years. This used to be three years earlier. These bonds carry interest, which is currently at 5 per cent and is taxable.

While these bonds are effective in saving tax, there is another option to consider. You have two choices: (a) save long-term capital gains tax by investing in 54EC bonds and lock in your money for five years or (b) pay the tax, keep your money liquid, and invest it in avenues yielding higher than 5 per cent.

Let us compare the returns from these two options.

Assume, for instance, that there is long-term capital gains of ₹50 lakh that is taxable, after indexation benefit as applicable. A sum of ₹50 lakh invested in 54EC bonds would fetch a defined return of 5 per cent per year. This coupon/interest is taxable at, say, 30 per cent (your marginal slab rate), ignoring surcharge and cess for simplicity. Hence your return, net of tax, is approximately 3.5 per cent. As against this, if you go for option (b), you pay tax on capital gains, which is taxable at 20 per cent if we ignore surcharge and cess, for simplicity. Subsequent to paying the tax of ₹10 lakh, what remains with you for investment is ₹40 lakh. Let us now look at a few options for investing ₹40 lakh.

Tax-free PSU bonds

Since there are no fresh issuances of tax-free PSU bonds and interest rates have eased, the yields available in the secondary market are lower than earlier. For our comparison, we assume a yield (i.e. annualised return) of 4.25 per cent for investing in tax-free PSU bonds. ₹50 lakh invested in 54EC bonds, compounding at approximately 3.5 per cent per year, grows to ₹59.38 lakh after five years. ₹40 lakh, which is the net amount that remains in case of option (b), invested at 4.25 per cent tax-free, grows to ₹49.25 lakh after five years. Hence, investing in 54EC bonds at 5 per cent (pre-tax) is a better option than paying the LTCG tax and investing the remaining amount.

Bank AT1 perpetual bonds

There is a negative perception about perpetual bonds after the YES Bank fiasco. The risk factors that got highlighted after the YES Bank AT1 write-off have always existed, but came into action and hit investors. Having said that, there are front line banks such as SBI, HDFC Bank and the like that are worth investing in.

The range of yields in bank AT1 perpetual bonds is wide. We assume 7.5 per cent to strike a balance between risk (higher yield but higher risk) and reward (lower yield but lower risk). Taxation at 30 per cent means a net return of approximately 5.25 per cent. Against ₹59.38 lakh in case of 54EC bonds, ₹40 lakh invested at 5.25 per cent grows to ₹51.6 lakh after five years. Though somewhat higher than the ₹49.25 lakh from tax-free bonds, this is lower than the ₹59 lakh from 54EC, bonds making the latter a better option.

Equity

It is not fair to compare investments in bonds with equity. However, to get a perspective we will do a comparison. We will talk of the break-even rate now. Let us say, equity gives X per cent return over five years, and that is taxable at 10 per cent, which is the LTCG rate for equity for a holding period of more than one year. If ₹40 lakh invested in equity yields a return of 9.15 per cent per year pre-tax, which is 8.24 per cent net of tax per year, it grows to ₹59.4 lakh after five years. Hence the break-even rate for ₹40 lakh to outperform ₹50 lakh over five years, at 3.5 per cent net of tax, is 8.24 per cent net of tax.

Conclusion

Equity returns are non-defined and the break-even rate calculated for this asset class to outperform 54EC bonds is 8.24 per cent net of tax. It is difficult for bonds as it will be possible only for a bond with inferior credit quality against a AAA rated PSU one. Equity or a riskier bond not being a fair comparison, it is advisable to save the tax and settle for 5 per cent by investing in 54EC bonds. However, liquidity is one aspect you may keep in mind — investment in 54EC bonds is locked in for five years.

The author is a corporate trainer (debt markets) and author

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How LIC’s Saral Pension Yojana stacks up

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To make insurance products easier to understand and choose from, the insurance regulator has been asking insurers to launch no-frills versions of their popular products. LIC launched its Saral Pension Yojana, a simplified version of immediate annuity plans earlier this month. How does it compare to alternatives in the market?

What it offers

Immediate annuity plans from insurers promise to pay you a lifelong pension in return for an upfront investment, which is called the ‘purchase price’. LIC’s Saral Pension Yojana guarantees pension at a fixed rate throughout your lifetime. This should be distinguished from the bonuses paid on LIC’s participating plans, which can vary based on its surpluses each year.

You can choose to receive your pension from this plan on a monthly, quarterly, half-yearly or annual basis. The pension starts in the immediate period after your purchase. If you opt for a monthly payout, you’ll receive your first pension one month after you make the initial investment.

Any investor between the ages of 40 and 80 can buy LIC’s Saral Pension Yojana. This is a slightly narrower range than allowed by LIC’s older immediate annuity plan Jeevan Akshay VII, which allows investments until the age of 100.

Saral Pension Yojana allows surrender after completing six months, at 95 per cent of the original investment, but only if the policyholder, spouse or children are diagnosed with specific critical illnesses.

While Jeevan Akshay offers the choice of 10 different options, Saral Pension Yojana limits its options to just two. You can opt for a single life plan, where you receive lifelong pension with your initial investment (purchase price) paid back to nominees after your death. Or you can choose a joint life plan, where after your passing your spouse or other dependant receives a lifelong pension. After the death of both annuitants, your nominees get your purchase price.

In offering just two options, the Saral Pension Yojana leaves out some useful features from Jeevan Akshay. In Jeevan Akshay VII, you can lock into joint pensions for a minimum guaranteed period of 5, 10, 15 or 20 years irrespective of whether you survive this period (your spouse/dependant will receive it in case of your death). Jeevan Akshay also offers a pension plan without any return of purchase price.

These additional options help you earn higher monthly income from the same purchase price. For instance, if you choose for option E of Jeevan Akshay with a 20-year pension guarantee, you can expect 19 per cent higher pension than with the joint annuity. Option A – annuity for life without any return of purchase price – helps you earn 20 per cent higher pension than that with return of purchase price. This can be useful for folks who aren’t keen to leave a legacy.

Returns

Your returns from LIC Saral Pension Yojana depend mainly on your age of entry and the option you choose. LIC offers rebates based on the size of your upfront investment.

Returns on annuity plans get better with a higher age of entry. Presently, a 60-year-old buying Saral Pension Yojana will get pension at ₹51650 a year (single life), for a ₹10 lakh investment. For 40 or 50-year olds, this pension drops to ₹50650 and ₹51050 respectively. A 70-year old can expect ₹52500 a year. A 60-year-old would receive only ₹51250 under the joint life option compared to ₹51650 under the single life option.

While agents like to plug annuity plans based on the annuity rate which is at simple interest, it is best to use the IRR (Internal Rate of Return) to judge the true returns from such plans. After considering 1.8 per cent GST on your purchase price, the IRR for a 60-year-old investing in Saral Pension Yojana, who lives until the age of 85 works out to about 5.04 per cent per annum on the single life plan and 5 per cent on joint life, considering the return of purchase price.

Annuity income is taxable at your slab rate, lowering effective returns. Annuity rates on LIC Saral Pension Yojana are lower than those on Jeevan Akshay VII, which offers ₹53950 and ₹53650 for a ₹10 lakh purchase price on comparable single life and joint life options.

On the plus side, immediate annuity plans offer a guaranteed income without longevity risk. They may be suitable options for folks who aren’t good at money management or seek certainty above everything else. While choosing such plans, it is safer to go for insurers who are sure to stick around for as long as you live, even if their annuity rates are on the lower side, as LIC’s are.

But such plans offer far lower returns than other regular income alternatives available to seniors, such as the post office senior citizens scheme (current return 7.4 per cent), monthly income account (current rate 6.7 per cent) and GOI Floating Rate Savings Bonds (7.15 per cent). Once you lock into a certain rate in immediate annuity plans, your pension does not rise with inflation or upswings in rates throughout your life.

If predictable income is your main ask and you are 60, you should maximise your investment in Pradhan Mantri Vaya Vandana Yojana from LIC, upto its ceiling of ₹15 lakh, as it offers a 7.4 per cent return with a shorter 10-year lock-in.

Surpluses can be parked in small savings or bank deposits. Given that we are at the bottom of a rate cycle, waiting for an uptick in rates may fetch you better annuity rates even from immediate annuity plans.

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4 Best High-Rated Multi Cap Mutual Funds To Start SIP In 2021

Personal Finance

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Quant Active Fund Direct Growth

Among the multi-cap fund category, Quant Active fund is the only mutual fund that has generated huge returns in the last 1 year. In January 2013, this fund was launched by the fund house Quant Mutual Fund. When it comes to returns, the Quant Active Fund Direct-Growth returns over the past year have been 100.83 percent. It has returned an average of 21.46 percent per year since its inception.

The fund has equity allocation across the financial, FMCG, healthcare, metals, and construction industries. ITC Ltd., Fortis Healthcare (India) Ltd., ICICI Bank Ltd., State Bank of India, and Coal India Ltd. are the fund’s top five holdings. The fund has an expense ratio of 0.50% and one can start SIP in this fund by a minimum amount of Rs 1000. The fund presently has Rs 736 crore in assets under management (AUM) and a NAV of Rs 387.65 as of July 16, 2021. There is no exit load on this fund and returns from one to five years are higher than the average rate in the category.

Mahindra Manulife Multi Cap Badhat Yojana

Mahindra Manulife Multi Cap Badhat Yojana

Mahindra Manulife Multi Cap Badhat Yojana Direct-Growth is a mutual fund scheme that was established in April 2017 by Mahindra Manulife Mutual Fund house. Mahindra Manulife Multi-Cap Badhat Yojana Direct has a growth rate of 75.27 percent during the last year. It has returned an average of 18.33 percent per year since its inception. The fund has its equity asset allocation across financial, technology, engineering, construction, and healthcare industries.

Infosys Ltd., State Bank of India, ICICI Bank Ltd., Reliance Industries Ltd., and Sun Pharmaceutical Inds. Ltd. are the fund’s top five holdings. The fund has an expense ratio of 0.77 percent, and it is possible to start a SIP with a minimum of Rs 500. As of July 16, 2021, the fund has Rs 597 crore in assets under management (AUM) and a NAV of Rs 20.22. If units are redeemed within one year of initial investment, the fund levies a 1% exit load.

Baroda Multi Cap Fund Direct Growth

Baroda Multi Cap Fund Direct Growth

The 1-year returns for the Baroda Multi Cap Fund Direct-Growth are 67.96 percent. It has returned an average of 14.67 percent per year since its debut. The fund house Baroda Mutual Fund introduced this fund in January 2013. The fund’s investments are mostly in the financial, technology, chemical, construction, and energy industries. Infosys Ltd., ICICI Bank Ltd., HDFC Bank Ltd., Reliance Industries Ltd – PPE, and Radico Khaitan Ltd. are the fund’s top five holdings.

The fund has a 1.41 percent expense ratio, and you can start a SIP with as little as Rs 500. The fund has Rs 1,044 crore in assets under management (AUM) and a NAV of Rs 163.93 as of July 16, 2021. The fund charges a 1% exit load if units are withdrawn within one year of the initial investment.

Invesco India Multi Cap Fund Direct Growth

Invesco India Multi Cap Fund Direct Growth

The 1-year returns for Invesco India Multicap Fund Direct-Growth are 75.40 percent. It has returned an average of 20.14 percent each year since its launch. Invesco India Multicap Fund Direct-Growth is a multi-cap mutual fund scheme that was established in January 2013 by Invesco Mutual Fund. The fund has its equity sector allocation across financial, automobile, healthcare, engineering, and construction industries.

ICICI Bank Ltd., Axis Bank Ltd., State Bank of India, Bharat Electronics Ltd., and KPIT Technologies Ltd. are the fund’s top five holdings. The fund’s AUM is Rs 1,409 crore, and its current NAV is Rs 85.70 as of July 16, 2021. One can start SIP in this fund with a minimum amount of Rs 500, and the fund charges an exit load of 0.98% if units are redeemed within 12 months.

Should you invest?

Should you invest?

According to SEBI, multi-cap funds invest at least 25% of their capital in each of the three market segments: large-cap, mid-cap, and small-cap. These funds are well suited for investors having a 5-year investment horizon and who are ready to begin investing in mutual funds using a systematic investment plan (SIP). Multi-Cap funds invest in equity stocks, therefore they might be unstable in the short term and less risky in the long run.

You can optimize your portfolio with a corporate of any sector and a blend of different sectors with multi-cap funds, where the fund manager can diversify the funds across different industry sectors based on the market condition. These funds have generated an average SIP return of 32.13% in the last 3 years and 20.20% in the last 5 years, according to the data of Value Research. This purely implies that, for aggressive investors, investing in multi-cap funds can be a wise move as a substitute for mid-cap or small-cap funds in the long term.

Disclaimer

Disclaimer

The views and investment tips expressed by authors or employees of Greynium Information Technologies, should not be construed as investment advise to buy or sell stocks, gold, currency or other commodities. Investors should certainly not take any trading and investment decision based only on information discussed on GoodReturns.in We are not a qualified financial advisor and any information herein is not investment advice. It is informational in nature. All readers and investors should note that neither Greynium nor the author of the articles, would be responsible for any decision taken based on these articles. Please do consult a professional advisor. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and authors do not accept culpability for losses and/or damages arising based on information in GoodReturns.in



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Getting LPG Cylinder Without Address Proof: Indane’s Chhotu Cylinder Is Loaded With Benefits

Personal Finance

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Planning

oi-Roshni Agarwal

|

As do the tag line for the Chhotu cooking cylinder product says, consumers can get this cylinder gas without any address proof. On its website, the USP or the unique selling proposition listed out for the 5kg cooking gas cylinder is ” Pick me without any address proof’.

Getting LPG Cylinder Without Address Proof: Chhotu Cylinder Offer Huge Benefits

The Indian Oil’s cooking gas brand Indane is a household name now for ages and after making its mark in the category, it is gearing ahead to provide world class service in line with international services. Now catering to the customer demand, the company has also come up with Chhotu, 5 Kg FTL (Free trade LPG) cylinder, thereby spearheading to become the first PSU Oil Company replicating the international model wherein cooking gas cylinders are made available from corner stores for the customers convenience.

Chhotu typically services migrant population who travel to a different city for work purposes. Further it is useful for those with lesser consumption and also commercial establishment that have space constraints.Also, this cylinder is BIS verified.

How to get Indane 5kg Chhotu cylinder?

Chhotu cylinder of Indane can be sourced from the company’s extensive network of Indane distributorship as well as other Point of sales including Indian Oil Retail Outlets, select Kirana stores, and select local supermarkets.

Further this can be got by simply providing the government of India recognized ID proof. Refill can be obtained by visiting any Point of Sale or Distributorships across the country. The website of the company stated, “If the cylinders are bought from the point of sales, customers will also have the option to buy back with a fixed amount of Rs 500/- per cylinder, irrespective of duration of use”. Additionally no security is to be deposited to get this Chhotu cylinder.

Can Chhotu cylinder be also be obtained via home delivery?

Yes. Customers can avail home delivery of Chhotu gas cylinder refill through point of sales by paying additional delivery charge of Rs. 25/refill (as on 01.05.21) said the company’s website in the Frequently Asked Q&A section.

How to book Chhotu Gas Cylinder By Missed Call Using Phone And WhatsApp?

For booking refill for Indane 5kg Chhotu cylinder, the company has released a special number 8454955555. So by just giving a missed call on this number one can book the Chhotu Gas cylinder. Also, the same can be done via Whatsapp by typing Refill you need to send the message to 7588888824. Also, you can call on 7718955555 for booking the cylinder.

Chhotu Cylinder can also be returned for a cost

In a case if you have found an alternative for this Chhotu gas cylinder or are leaving the city you may also the return the same to the sales point. In case of return within 5 years of use, the user will get a value equal to 50% of the cylinder value and in case if it is returned after 5 years the return value will get reduced to just Rs. 100.

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PFRDA throws FDI door wide open for Pension Funds

Banking & Finance

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The legal decks have now been cleared for foreign companies to hold — directly or indirectly — up to 74 per cent stake in pension funds with the pension regulator PFRDA notifying the new revised limit. Foreign investment limit in pension funds was earlier capped at 49 per cent.

The Pension Fund Regulatory and Development Authority (PFRDA) has for this purpose amended the Pension Fund regulations. This latest move comes on the heels of the pension regulator opening from June 30 an “on tap” window for grant of licences for pension fund managers. Such a window allows applicants to seek licence at any time, thereby quickening the entire process on setting up business.

In India, pension funds would have to necessarily operate as corporate entities.

With the latest move, the FDI limit in pension funds are aligned with that of insurance sector. In March this year, Parliament had given its approval for raising FDI limit in insurance sector to 74 per cent from 49 per cent. Finance Minister Nirmala Sitharaman had, in her Budget speech this year, announced an increase in FDI limit in insurance sector to 74 per cent from 49 per cent earlier.

It maybe recalled that the PFRDA Act links the FDI ceiling for the pension sector to the ceiling level prescribed for the insurance sector.

Prior to the latest PFRDA move, the regulations stipulated in the eligibility criteria mentioned that an applicant, for being a sponsor of a pension fund, cannot hold more than 49 per cent stake in the pension fund.

The FDI limit hike in pension funds comes at a time when India’s pension assets under management (AUM) are growing at a frenetic pace and touched ₹6.2-lakh crore, as of July 10 this year.

PFRDA Chairman Supratim Bandyopadhyay had in May this year said that PFRDA was now looking at an AUM target of ₹7.5-lakh crore by the end of March 2022.

In the last two years, PFRDA has been taking several steps to enhance the number of players in the pension sector. It had revamped the fee structure for pension fund managers and revised the capital requirement criteria for sponsors so that both of them are strong enough to ride the current growth wave in the pension sector.

A sponsor — individually or jointly — should now have atleast ₹25 crore in paid-up capital on the date of making application as a sponsor and positive tangible net worth of atleast ₹50 crore on the last date of each of the preceding five financial years.

There are now eight Pension Fund managers for the National Pension System in the country — SBI Pension Fund, LIC Pension Fund, UTI Retirement Solutions, HDFC Pension Management, ICICI Prudential Pension Fund, Kotak Mahindra Pension Fund Aditya Birla Sun Life Pension Management and Axis asset management (the most recent entrant and whose pension fund is yet to be operationalised).

PFRDA expects India’s pension sector assets to grow to ₹30 lakh crore by 2030 and this could be a good reason why more foreign pension fund management players could look “more seriously” at entering India in next few years, say pension industry observers. Also the fact that foreign companies can now have controlling interest in the pension funds in India will encourage them to enter this market, they added.

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Authum Investment to buy Reliance Commercial Fin in ₹1,629-cr deal

Banking & Finance

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Authum Investment and Infrastructure is set to acquire Anil Ambani-led Reliance Commercial Finance (RCFL) on completion of the resolution process under the Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019.

Lenders have approved the ₹1,629 crore bid placed by Authum in the meeting held on Thursday and letter of intent was issued in favour of the company’s bid.

The resolution will result in overall debt reduction of Reliance Capital by over Rs 9,000 crore.

Authum’s RP chosen for Reliance Commercial Finance

RCFL offers a wide range of products including loan against property, MSME/SME loans, infrastructure financing, education loans and micro financing.

Authum Investment and Infrastructure, a Non-Banking Finance Company has over 15 years of presence and net worth of about ₹2,360 crore as of June-end.

Authum is currently managed by a team of professionals with significant investment experience in domestic, public and private equity. Authum’s investment strategy is long term value creation through investments in listed companies, providing growth capital to unlisted companies, acquisition of financial assets, real estate investments and debt investments.

Further, the proposed acquisition of Reliance Commercial Finance strengthens business portfolio and enables to develop a single platform across multiple financial products and services in the NBFC sector, it said.

The acquisitions offer a growth opportunity with a blend of commercial finance, MSME/SME, affordable housing, loan against properties, retail and consumer finance along with strong digital and technology play to generate higher yields.

Voting on Reliance Commercial Finance’s debt resolution underway

These segments are major drivers of the economy with significant unfulfilled demand, it said.

Authum is geared up to meet its financial commitment to the lenders of RCFL under the LoI.

The company will leverage on RCFL customer base, employees, processes, licenses, branch network and digital platform with an aim to create a niche lending platform, it said.

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