Thursday, June 27, 2013

Ten point agenda for India by Jim O' Neill

This article was originally published in Postnoon on June 27, 2013
http://postnoon.com/2013/06/27/ten-point-agenda-for-india-by-jim-o-neill/132436

The Rupee is falling, almost touching the Rs60 per dollar mark. The Sensex is falling, is at last two months lowest levels. Confidence in the economy and government is at the lowest. Even nature does not seem to be co-operating and continues to pour in Uttarakhand. The general atmosphere is that of pessimism.
Amidst this scenario, comments from Jim O' Neill, British economist and former Chairman of Goldman Sachs Asset Management, famous for coining the term BRICs, to denote Brazil, Russia, India and China, indicate his continuing confidence in the potential of India.

O' Neill revisits the 10 ten things that India must do (included in his original paper in 2008, and relevant even today) to achieve its potential in a recent article published by Bloomberg.com. The ten things that O' Neill writes about are:
1. Improve governance. This seems the most difficult as well as the most important. The corruption and lapses at all levels are reaching unprecedented levels.

2. Fix primary and secondary education. While the population of India is now looked as, as an asset, rather than a liability, it would not remain an asset if the majority of the workforce are not capable of doing even the most basic jobs. A lot of other social problems have their root in the lack of education.
3. Improve colleges and universities. Once considered a centre for learning, and home to the Indian Institute of Technologies and the Indian Institute of Managements, half the graduates in India are unemployable. The quality of faculty and infrastructure and the number of institutions of higher education needs to be beefed up.

4. Adopt an inflation target, and make it the center of a new macroeconomic policy framework. This is what RBI has been trying to do, though with little help from the government.
5. Introduce a medium to long-term fiscal-policy framework, perhaps with ceilings as in the Maastricht Treaty-  a deficit of less than 3 percent of GDP and debt of less than 60 percent of GDP. This is something the current UPA government would find impossible to achieve with its populist policies. But if not addressed soon, growing deficit and debt could go out of hand.

6. Increase trade with its neighbors. As O' Neill points out, this could also be a good way to promote peace with neighbors.
7. Liberalize financial markets. The financial markets in India are relatively more liberalized than a lot of other emerging nations. Though investor protection and awareness is something that needs to be worked on.

8. Innovate in farming. Another green revolution is required in India to improve productivity and yield. With increasing number of middle class families and people being able to afford better quality food, the demand for pulses, fruits and vegetables are on the rise.
9. Build more infrastructure. O' Neill suggests that India learn from China in this department. I totally agree.

10. Protect the environment. With the ongoing calamity at Uttarakhand, need this point be emphasized more?

Wednesday, June 26, 2013

Beware of Scam Messages

This article was originally published in Postnoon on June 20, 2013
http://postnoon.com/2013/06/20/beware-of-scam-messages/131361

Abhi, my cousin, had been going through a bad patch in his life. He lost his job last year as the company in which he was working was acquired by another firm. In the process, many employees were laid off. He was still unemployed and looking for ways to improve his financial situation. He called me excitedly one evening and told me that there is something he wants to show me. Since I did not have any other engagements, I agreed to see him at home.

He walked into my drawing room before time, with a piece of paper in his hands and a wide smile on his face.

Abhi: See! God is very kind. Look what I've got! This came into my mail box today morning. All my troubles will be resolved now.

Nicky: Really? Let me see.

I read the letter he was carrying.

Attention dear,

I am Mann Sylvester, barrister at law. A deceased client of mine who died as the result of a heart-related condition in March 12th 2005. His heart condition was due to the death of all the members of his family in the tsunami disaster on the 26th December 2004 in Sumatra Indonesia.


I have contacted you to assist in distributing the money left behind by my client before it is confiscated or declared unserviceable by the bank where this deposit valued at $19million dollars is lodged.

This bank has issued me a notice to contact the next of kin, or the account will be confiscated. My proposition to you is to seek your consent to present you as the next-of-kin and beneficiary of my late client, so that the proceeds of this account can be paid to you. Then we can share the amount on a mutually agreed-upon percentage.

All legal documents to back up your claim as my client's next of kin will be secured gradually and forwarded to you. All I require is your honest cooperation to enable us see this transaction through. This will be executed under a legitimate arrangement that will protect you from any breach of the law.

If this business proposition offends your moral values, do accept my apology. Please contact me at once to indicate your interest. Please note keep this proposal confidential between us only.

As I finished reading the letter, Abhi looked at me expectantly. I looked at him angrily.
Nicky: Abhi, have you completely lost your senses? Do you really believe that someone is waiting out there to share $19 million with you?

Abhi: I have no reason to not believe it. That's what the letter says.
Nicky: How about common sense? Don't you realize that this is just a way to fool you and get some money from you instead? As soon as you reply to this mail, this person will ask for your bank account details and then he will ask you to transfer some money to him to cover transaction costs. As soon as you do that, you will never hear from him again if you are lucky. In the worst case scenario, using your account details, they can withdraw money from your account.

This is a very common way to lure people into divulging details about their bank accounts. You must beware of such deals.
Abhi: I am glad I ran it through you first before accepting the deal.

Monday, June 24, 2013

Number crunching needs the human touch


This article was first published in the Financial Times on June 21, 2013; Co-author: Sanjay Fuloria (Cognizant Research Centre)
Companies must use a combination of data analytics and managerial experience
Is it advisable to let analytics replace human judgment or experience in business decision making? Not really. Given that there are several instances where complete reliance on analytics has resulted in faulty decisions, there is a clear case for business schools to highlight the relevance of human judgment in decision making.

Why has analytics acquired such prominence? Is it because of the vast amount of data that is now available? Or is it because of the ever-increasing computing power at the disposal of organisations? Both factors have contributed.

As complexity in the world of business grew, objective decision making became the need of the hour. Subsequently, several analytical models were developed by academia and industry experts.
For example, an important part of marketing analytics is churn analytics which helps organisations project customer attrition and retention rates. However, the effective application of this model depends on the judgment of the decision maker as well as proper communication within the organisation. This way other stakeholders within the organisation stand to gain from the experience of the decision maker, and the analytical model deployed can be understood holistically across the organisation.

Einstein once said: “Not everything that can be counted counts and not everything that counts can be counted.” The oft-quoted example of financial analytics going wrong before the 2007-08 recession substantiates this. The model was not faulty, but its deployment was. The models used by financial institutions clearly identified the subprime customers. Nevertheless, loans were given to them and the outcome was inevitable. By not paying much heed to what the numbers told them, top management at financial organisations faltered in their judgment and this led to a major global financial meltdown.
It is obvious that in putting all the ducks in a row, one cannot change some of the ducks that err and data can be chosen selectively or even fabricated to support a hypothesis. But if dishonest twisting of numbers is a concern while deploying analytics, rigidity in frameworks is another.

Take the plagiarism-check software used for school students, for example, where wrong implementation without sound judgment by the decision maker can lead to unfair punishment. The software looks for phrases with three or more words that are common across submissions. The similarity between submissions could be as innocuous as: “As per this reference . . . ” If two students start a sentence with this phrase, the software would brand them as cheats. Thus, if teachers do not read through all the submissions to elicit the finer nuances and blindly depend on analytics, they could jeopardise the future of their students.
To take quick decisions, managers often rely on real-time analytics. Whether the data comes in real time or not, it is the quality of judgment that is paramount.

From what we know, short-term data and information should not be the basis of critical decisions related to things such as budget reallocation. Since patterns and trends are better judged if studied over a longer period, models that use long-term data are typically better predictors. Thus, prudence demands that managers are cautious about the type of analytical models they use.
Business schools need to teach students that they must go beyond the hype of crunching numbers and understand the business problem first, because numbers may not tell the complete truth. Numbers are a drop in the bucket and will serve their purpose best when they are used in alliance with the depth of a business manager’s judgment and experience.

Tuesday, June 18, 2013

A Comparative Study on the Indian and Chinese VC/PE industry


This article was first published in the business section of www.rediff.com on June 18, 2013
http://www.rediff.com/business/slide-show/slide-show-1-special-why-india-china-are-hot-spots-for-vcpe-investors/20130618.htm

Benefits of VC/PE investments
Venture Capital investments are early-stage monetary investments made in new start-up firms that have a high growth potential. Not only do Venture Capital and Private Equity investments provide efficiency in business processes and ensure high level of corporate governance, they provide access to capital for business. The enhanced visibility that the company gains due to association with high profile investors, positively impacts its top and bottom lines.

VC/PE investments become a preferred source of funding for Indian firms
The Indian VC/PE industry made a slow start in the late 1980’s under the encouragement of financial institutions like Industrial Development Bank of India, Industrial Finance Corporation of India and Industrial Credit and Investment Corporation of India Ltd.
 
The Indian Government framed venture capital investment guidelines in 1988, followed with guidelines for foreign investments in 1995. Many international VC firms entered India during 1995-2000. Some of the early entrants were Technology Development and Investment Corporation of India Ltd (TDICI) and Gujarat Venture Finance.

Chinese firms follow suit in their preference for VC/PE investments
The Chinese VC/PE industry is almost as old as its Indian counterpart. Most of the VC/PE investments were made by foreign companies and institutions.
In the early 2000s, the Chinese government enforced foreign investment restrictions accompanied with regulations related to investment vehicles. This slowed down the growth of the VC industry.

In the subsequent years, the Chinese government amended some of the existing regulations. This led to gradual and significant developments in the industry.

 
Development of the VC/PE markets in both countries are broadly classified into three phases
 
VC/PE industry in Asia
Source: Private Equity in China 2012, PWC
In the “Early Years” (2000-2004) there were very few successful deals and transactions. Growth in the number of investments, exits and fund size was modest. The investment cycles became longer and M&A was the typical exit strategy.
The “Boom Years” (2005-2007) were characterized by a significant increase in the volume and number of transactions. Exit strategies evolved, with IPOs becoming the most preferred in China and Trade Sales in India. Short investment cycles became the order of the day.
The “Crisis Years” (2008-2010) witnessed a significant drop in the volume of investments from and a continuous decrease in the number of IPOs.

India and China have become attractive destinations for global VC/PE investors, but China has shown better returns

Source: KPMG Study on Indian PE industry
Despite growth in domestic investments, both India and China in recent times have attracted international investments. The Asian PE investors have been earning returns which have met or surpassed expectations.
Factors like overall consistent economic growth and macroeconomic conditions in the two countries have attracted many foreign investments. Other contributory factors were, increase in the number of experienced management teams, successful exits which made investors confident about the safety of their funds and returns, plus an increase in the volume of investments and number of transactions.
However, according to a KPMG study, returns from the Chinese PE industry have outshone returns from its Indian counterpart.
 
India is steadily competing with China to emerge as leader of the Asian VC/PE market
Annual VC/PE investments in India
Source: Bain India PE Report 2012
 
According to the Bain India PE Report 2012, India’s was the fastest growing market for VC and PE investments in the year 2011. Most Indian companies seeking VC investments are in the early stages of growth and belong to the low and medium market range. Most of the investments in the industry are through foreign endowment funds, sovereign funds and other wealthy investors. PE Investors brought in investments worth $14.8 Billion in 2011, which was a straight increase of 55 per cent compared to 2010. With a total of 531, the number of closed deals in 2011 was up by over 40 per cent.
 Breakup of deals in India during 2011
Source: Bain India PE Report 2012
 
VC/PE funded firms perform better than their non VC/PE funded peers in India
 
Impact on Profitability on PE backed companies in India over 10 years
 
Sales performance of PE backed companies in India over 10 years
Source: Venture Capital Intelligence Report 2012
 
When compared on different economic performance parameters such as sales, profitability, exports, labour wages, and R&D, VC/PE backed firms have consistently performed better than their non VC/PE funded peers. They registered a higher CAGR over a period of 10 years from 2000-10.
Given the better performance of VC/PE funded firms, not only did the total VC investments display an upward trend, the number of exits declined dramatically by 30 per cent in 2011.
 
Factors contributing to the success of VC investments in India
Firstly, given the volatile economic environment in India, promoters do not have much confidence in equity as a capital raising tool for businesses. Thus, VC investments have become a good substitute for equity.
 
Secondly, the increasing cost of funds, coupled with high cash reserve ratios, has led to high interest rates. This has made debt markets unattractive for promoters seeking funds.
 
The third factor, which has encouraged promoters seeking VC/PE funds, includes business challenges related to volatile supply and demand situations, pricing pressures, etc. The VC/PE investors not only infuse the requisite capital, they also bring to the table vast expertise and business networks, and help companies meet different business challenges.
 
Current environment prevalent in the Indian VC/PE market
The prospects of the Indian VC/PE industry have been brightened by considerable initiatives by the Indian government. Income tax announcements in the second quarter of 2012 included reduction in the capital gains tax and deferrals. The announcement also proposed rationalization of the General Anti Avoidance Rules (GAAR) and regulation of the Alternative Investment Funds (AIF) by SEBI.
However, the Indian VC/PE industry still has a long way to go. The number of large scale investment opportunities in India is only 500; opportunities available in China and USA are 1150 and 3500 respectively.
 
VC/PE industry in China is on a high growth trajectory
            No. of investment deals and volume of VC investments in China from 2001 to 2012
Source: China VC/PE Market Review, 2012 –Zero2IPO Research

 
Starting with a modest 100 transactions per year up till 2003, China has established itself as one of the premier players in the emerging VC/PE industry. By end 2007, the number of deals surged to 719. There are now more than 6,000 VC/PE firms in the country. China’s most popular financial districts, Beijing and Shanghai, account for over three-quarters of the total VC deals and a third of the invested value.
 
In a short span of about 15 years, the VC/PE industry in China has experienced an exponential increase in AUM, volume of investments in target companies, and also in the number of domestic and foreign investors.

 
Surge in domestic and international VC/PE fundraisers in China
 


Fundraising through PE funds in China
Source: China VC/PE Market Review, 2012 –Zero2IPO Research
 
Since 2006, Chinese PE/VC firms have invested approximately $126 billion in multiple small and medium sized companies from different business sectors and domains. During the same period, over $261 billion was raised through foreign and domestic investors, with majority funds being raised by domestic managers. Despite the growth, the number of foreign firms investing in the domestic currency, RMB, is still small. Most international groups, particularly from the US are increasingly managing both RMB and USD funds.
 

 
Current environment prevalent in the Chinese VC/PE market
 

 



VC Investments in China in 2012 by (a). no.of deals and (b) Investment Amount
Source: China VC/PE Market Review, 2012 –Zero2IPO Research

A significant development in the Chinese VC/PE industry was the launch of “ChiNext” in 2009, which like NASDAQ is a stock exchange for small and medium sized start-ups funded by VC investors. About 60 percent of the SMEs listed are backed by RMB funds, hence providing the investors with exit options like IPOs.

Another notable development is the Chinese government’s decision to allow institutions to invest in VC/PE funds. For example, the China Insurance Regulation Commission (CIRC) has allowed the Chinese Insurance Companies to invest up to 4 percent of their assets in domestic PE funds. This could potentially free assets worth $33 billion for PE funds.

PE Investments in China in 2012 by (a). no.of deals and (b) Investment Amount
Source: China VC/PE Market Review, 2012 –Zero2IPO Research
A significant development in the Chinese VC/PE market has been the growth in the number and amount of funds raised in the domestic currency (RMB). Of the total investments in 2010, the RMB denominated funds accounted for 60 percent of the total VC funds and 40 percent of the PE funds. A remarkable development in 2012 was that out of the total funds, about US$2.81 billion was raised through 74 RMB funds and US$567 million was raised through five foreign currency funds.
 
Exit by VC/PE firms in India
VC/PE exits in India during 2010-11
Source: Bain India PE Report 2012
 
Where 2010 witnessed 123 exits by PE investors, 2011 recorded only 88 such exits. This trend continued in Q2 of 2012 as there were only 11 closure announcements which to $0.8 billion.
The dull environment in the exit market can be attributed to weak public markets. The primary reason for this was the premium valuation of deals done during the recessionary period of 2008-09. Such high valuations made it difficult to achieve attractive exit IRRs.
 
Exit strategies prevalent in India
 
  Exits in India in 2011
Source: Bain India PE Report 2012
 
 

Non-IPO Exits during 2011-12 in India
Source: E&Y PE Round up India, 2012
 
Exit options mostly preferred include buy back, IPO, M&A, open market and secondary sales. Considering that the PE investors have a minority stake, the funds are dependent on how they agree to the timing and terms of exits. When there is a phase of less investments and successful exits prevalent in the market, most managers seem to be anxious about the liquidity of their investments.
Attributing to the weak public markets, the number of exits through the IPO route reduced, leading the way to secondary sales and buybacks. Open market exits became the most preferred non-IPO exit route in the Q1 and Q2 of 2012. However, a strong Indian PE industry requires an active and strong IPO market.
Exit scenario in China
 
No. and modes of Exits in China during 2007-12
Source: PwC Report on China’s VC/PE Industry, 2012
The exit scenario in China was very limited and slow until 2003. The period between 2003 and 2005 recorded several PE exits with a surge in exits reported in the first phase of the investments. The reason for this was attributed to the persisting bull phase in the market.
The first peak in the exit activity was recorded in 2007. The reported 167 exits in 2007 were 6.5 times the exits in 2003. From then on, IPOs became the most preferred exit route. Out of the total exits, 94 exits were through IPOs. M&A has also emerged as an attractive exit option.
 
 
Exit strategies prevalent in China
 
No. of VC/PE deals and VC/PE backed IPOs in China during 2002-12
Source: PwC Report on China’s VC/PE Industry, 2012



Listing of PE backed firms in different exchanges
Source: Zero2IPO Research Report, 2012

The trend of choosing IPO as an exit option continued in 2012. IPOs accounted for 77.34 percent of the total 128 exits in the year. The largest PE backed IPO in 2011 raised over $855 million and was achieved by NYSE listed Renren, which was backed by the PE investors General Atlantic and DCM.

Secondary sales and M&As are non-IPO exit channels that have become prominent in China.
Most PE backed companies are considering listing themselves on the domestic “ChiNext” stock exchange rather than going abroad. This trend can be attributed to the Chinese Government’s efforts at strengthening their VC/PE industry through undertaking many investor friendly measures such as improving governance and transparency.

Friday, June 14, 2013

The Falling Rupee

This article was first published in the business section of www.rediff.com on June 14, 2013

http://www.rediff.com/business/slide-show/slide-show-1-special-the-falling-rupee/20130614.htm#1

Slowdown in the Economy
The issue of the relationship between development of financial systems (including currency markets) and economic fundamentals has been a much studied topic. The numerous studies on the topic confirm a positive and significant relationship between them. Successful financial sector reforms should translate into higher GDP for a country.

Dr. Manmohan Singh, the architect of India's liberalization policies and the person credited with ending the license raj, had slipped into oblivion in the last few years. He has been often criticized of being a puppet at the hands of Mrs. Sonia Gandhi, increasingly so in the past couple of years when the Indian Economy has experienced a slowdown and loss of investors' confidence. Lack of reforms has pushed the GDP down to 4.8 percent in the last quarter.

Last two years
 
In the last two years, Indian Rupee has depreciated by 25 percent, Brazilian Real by 33 percent, Russian Rouble by 15 percent and South African Rand by 47 percent. We are not considering the Chinese Yuan as the value of the Yuan is not market determined.
The global economic crisis caused a slowdown and period of uncertainty amongst most of the BRICS nations, as also the developed and the other emerging nations. In the financial year 2011-2012, the events in the EURO region were widely blamed for the depreciating currencies against the US dollar. Though rupee had fallen much more than the other currencies in fiscal year 2012. It clearly indicated that the domestic woes of high trade and fiscal deficits, high inflation, low confidence, lack of will for reforms, were adding to the fall of rupee.

Half-Hearted Reforms
 
Concerns about the falling rupee and constant threat of downgrade by the rating agencies, forced the government to make some noise regarding reforms. Inflation was also tamed to some extent by keeping interest rates high, following which RBI cut interest rates. These measures cheered the markets and stabilized the exchange rate for about three quarters between June 2012 and April 2013, as something was better than nothing.

But now, with poor corporate earnings, continued bad news in terms of the economic numbers, and flight of foreign financial investments to safer assets, both the rupee and the markets have been sliding.

The Impact
While talking to a seasoned investor from Kolkata, he told me, "I have a bad feeling about this. My son is happy as he works in the US and for him a depreciating Rupee means more money in his Indian bank account. But what about the value of our currency? If our currency is not valued, if there is no demand for it, how will the economy and the stock market grow? Who would want to invest in an economy whose currency is not valued? I would feel much more confident if our currency was strong."

The conversation explains the impact that the falling rupee has. While non-residential Indians who send back money home may be happy about it, people who study abroad or who want to travel abroad for medical or tourism purposes, will not be happy about it. Similarly, firms who are net importers, their costs will go up many folds, while firms who are net exporters, may be able to capture more market by giving discounts or offering better prices.

Revival
If we look at the data for the last week alone, most of the currencies have depreciated heavily against the dollar owing to the better than expected US jobs data and the improved outlook for the US economy. While it is easy to blame the global economic cues once again (like many other times in the past), the fact of the matter is that if our economy was sound and the investor confidence intact, it would have been easier to revive the Rupee. It may not be so easy now due to the lack of these.

Rupee Fall Explained

This article was originally published in Postnoon on June 13, 2013

http://postnoon.com/2013/06/13/rupees-fall-explained/130153
Prices are determined by demand and supply. And it is true for Exchange rates as well. Exchange rate is nothing but the price of a currency in terms of another currency. If the exchange rate between US dollars and Indian rupee is Rs58 per dollar, what it means is that you need Rs58 to buy one dollar. In other words, the price of a dollar is Rs58. So as the dollar becomes more expensive, or appreciates in value, one would need more and more rupees to buy one dollar. It means, the value of rupee is falling with respect to the dollar, that is, it is depreciating.

The exchange rate was Rs45.26 per dollar on June 12, 2011, compared with Rs56.75 per dollar on June 12th, 2013. The rupee has depreciated more than 25 percent in the last two years. It implies that the importers need to pay 25 percent more in rupee terms for the same quantity of goods, everything else remaining same; oil imports, gold imports, electronics, cars, foreign travels, education in US, everything for which one needs to pay in US dollars!
The depreciating rupee also implies improved revenues and good news for companies which charge for their products and services in US dollars, or for non residential Indians who send back money home.

But largely, people are worried. The stock market is worried and the worry is reflected in the falling indices. The central bank is worried as they fear that the falling rupee will result in an increase in inflation which has been tamed after maintaining high interest rates for a very long time. An increase in inflation would mean that any hopes of a reduction in interest rates by the Reserve Bank of India would be lost.

But why is the rupee falling? As mentioned earlier, it is all a play between demand and supply. The demand for rupee is falling, and the demand for dollar is increasing. Both resulting in a falling rupee. A few main reasons for the falling demand for rupee and the rising demand for dollars are:

·         Change in outlook for US by credit rating agency Standard and Poors from negative to stable and better than expected jobs data has increased the demand for dollar.

·         Decline in capital inflows and heavy outflow of funds due to foreign institutional investors pulling out their investments from the slowing Indian economy.

·         Falling gold prices lead to a surge in gold imports, resulting in an increase in demand for dollars.

·         Surge in oil imports, resulting in further widening of the current account deficit.
A strong exchange rate is what any country wishes for. For it is a reflection of the sound economy. The falling rupee does not boost the confidence of an already struggling Indian economy. Measures by the Reserve Bank of India and the Securities and Exchange Board of India to put a brake to the fall would be highly appreciated at this time.

Thursday, June 6, 2013

What is NPS


This article was originally published in Postnoon on June 6, 2013; Co-Author: Anuj Hetamsaria
http://postnoon.com/2013/06/06/what-is-nps/129119

The New Pension Scheme is a scheme launched by the Government of India in 2009, to enable all citizens of India between the age of 18 to 55 to save for their retirement. The minimum amount to be invested is Rs500 per month, while there is no upper limit for the maximum amount that can be invested. Payment can be made by cash, cheque, demand draft or electronic clearing system.

A Permanent Retirement Account Number (PRAN) is issued to the subscribers. The PRAN card looks like the Permanent Account Number (PAN) card as the issuer of both is National Securities Depository Limited (NSDL). The PRAN is a 12 digit unique number and it is useful to track the status of the NPS account like balance, NAV units, transfer of funds etc, online.

One of the most attractive features of the NPS is the flexibility that it offers. It can be operated from anywhere in the country, irrespective of employment and geography. The safety of funds, returns and tax benefits are of course the primary benefits.  Its currently has ETT exempt status, that is it will be exempt from taxation at the investment and accumulation or earning stage, but will be taxed at the withdrawal stage. However, in the proposed Direct tax code it will have EEE status, which means that there will be no taxation at the time of withdrawal as well.

NPS also has the flexibility to chose the risk level that the investor wants to take. The investor can invest in one of the three schemes available as per the risk appetite. Asset class E scheme invests in Equities, Asset class C scheme in Fixed Income and Asset class G in Government securities.

There are two types of accounts, Tier I and  Tier 2. Tier 1 is for retirement and non-withdrawal account where as Tier 2 can be withdrawn as per the wishes of the investor. There are different schemes for withdrawal. One is premature withdrawal in which 20 percent will be given as lumpsum and remaining 80 percent as annuity. In case of retirement withdrawal, 60 percent will be given as lumpsum and 40 percent as annuity.

The point to be noted is the strictness in the premature withdrawal of only 20 percent. So a huge amount is blocked for a long period of time ensuring financial freedom at the time of retirement.