SIPs - A disciplined approach to wealth creation

Time and Again we try keeping every one aware on the importance of Sip Investment in equity market, its working and benefit.

Nowadays we come across many new Investors who have either No Experience or have very Bad Experience in equity market. When we try explaining about the Importance of SIP. They just say that they do not want to park their money in Equity , it is very risky and they are okay with Fixed Deposit.

I recently got an opportunity to interact with an U.S Citizen, located in Dallas. When I was interacting with him, I got to know that he was some much equipped on equity market and told me that he wants to invest in India for Long Term . I casually asked ... What do you mean by Long Term , How many years you are looking out? He immediately said 25 years. I was speech less. Till date I have never met any Investor with such a longterm view on equity. 

On the same week I met two Indian Investor. One being a Doctor by Profession & other was a salaried person. Both the them were so skeptical on equity . Infact one Investor told me that he has not made any money even in SIP route, so he avoids equity investment.

When I asked, how long you have been doing investment via Sip route and how many funds he has been investing so far.

His replied 2 Mutual funds (Sector Specific fund) and for a period of 6 months. The other Investor (Doctor) who had investment in Fixed Deposit to the tune of 85 lacs was yielding a return of 6%, which was far less than inflation. He said his friends have lost enough money in shares & Mutual fund, so he is not taking any risk of Investing money in Equity .

What I could understand after meeting both the investor is one thing. Inspite of Media & AMC taking so much steps to create awareness among the public about the equity investment. The basic awareness level is very poor. Moreover Investor looses their patience very easily and has very short term view for their investments. That's why In India "FII make more money than Domestic Investor". 

I could not digest their views on equity market and started back testing equity performance on Different parameters. To make them realize that Equity is one of the Best asset class, that Investor should have in their kitty. While Analyzing, I found out one interesting facts about Equity Market and thought it would share it with every one.

Please check the below tables to find out the Importance of Monthly Investment in equity and Power of Compounding  

Table 1:  Illustrates the benefits of SIPs over the long term. If an investor had invested Rs 1,000 every month through a SIP in a Diversified Equity Fund(I have taken example of HDFC top 200 Fund )  

Period	Total Amount Invested	Value as of 30th Nov 2011	Annualised SIP Returns (%)
10 Years	1,20,000	4,30,150	24.21%

Extending this analysis over a 15- and 25-year period on a hypothetical Basis (assuming the same Annualised returns of 24.21%) would result in a terminal value of over Rs 13.87 lakhs (principal of Rs 1.80 lakhs) and Rs 1.25 cr (principal of Rs 3 lakhs) over these periods respectively.

Continuing SIP investments in a bear phase delivers superior results

A big mistake that investors make is exiting SIP investments when markets start falling which can impact portfolio returns sizeable. Let's assume an investor discontinued his SIP in December 2008 (during the credit cum liquidity crisis), the returns would have been less (24%) vis-à-vis if the SIP had been continued (24.21%) (See Table 2). In value terms, the difference of Rs 36,000 invested post December 30, 2008 would have returned Rs 2,34,456 mainly on account of power of compounding and higher market returns during the upturn.

Table 2 Continuing SIP investment across market cycles

SIP of Rs 1,000 per month in a Diversified Equity Scheme from January 1, 2002

Period	Amount Invested	Redemption Amount	Annualised Returns
IF SIP Discontinued after 7 years on Dec 30 2008	84000	1,95,694	23.89%
IF Sip Continued till Nov  2011	120000	4,30,150	24.21
Difference	36000	2,34,456

In a nutshell, SIPs are a good medium for retail investors to create wealth via equity mutual funds in a disciplined manner owing to its key advantages and simplicity.

Bonus Tip : All market-linked investments go through ups and downs. To create wealth over the long run, a disciplined, far-sighted approach is critical and wins over a short-term one. For those investing in mutual funds, Systematic Investment Plans (SIPs) offer to create long term wealth. SIPs offer a simple and disciplined way to generate higher risk adjusted returns and meet the desired goals. The concept is similar to recurring bank deposits wherein investors contribute a fixed sum of money at regular intervals.

 - Article by Nishith.B , Financial Doctor

Jittery investors selling flats below market rate

Investors who spoiled the real estate market for the buyer by blindly buying new homes are now spoiling the builder's prospects by selling apartments at values lower than what the builder is selling them for. If you are a buyer, look out for the investor, who is desperate to get out of a sluggish market.

Manisha had been looking for an apartment in Noida  for almost a year and was worried about the pace at which developers were raising property prices. She had also read about the stress real estate developers have been under for the last few quarters.


So, when a broker  told her about an apartment on resale in Noida, which came at a 30% discount from what the developer, 3C, was offering for a similar flat  in the same project, she jumped at it. The investor who was selling had bought the flat in 3C's Lotus Panache in 2010 at a significantly lower price of around Rs 3,000 per sq ft. Manisha got it for Rs 4,300 per sq ft, while the basic selling price offered by the developer is Rs 5,500 per sq ft.


In a market full of uncertainties, both investors and buyers are jittery. "The apartment complex  is already half way through and the risk is lower for us," says Manisha, who will now get the flat in two years compared to at least 3-4 years if she had bought it from the primary market.


"Buyers today are concerned about delivery timelines and of course high prices," says Sumit Joshi, director of Noida-based Real Credit Consultancy . The steep hike in home loan rates in the last one-year hasn't helped either.


The concerns of buyers are not unfounded. The debt level of real estate companies has risen considerably in the last few years and input costs have gone up. Delivery timelines for a number of projects have been pushed back because developers are finding it difficult to fund projects.


According to property research firm PropEquity , nearly half of the 930,000 under-construction residential units in the country, scheduled for delivery between 2011 and 2013, are likely to be delayed by up to 18 months. In recent months, secondary market property sales have been higher than primary sales by developers.


"This is especially true for projects where a considerable portion of construction work is already complete," says Prashant Kaura, director, GenReal Property Advisers. There has been a rise in secondary sales because many investors are looking at cashing out of projects. The reasons for wanting to exit might differ- while some are facing a cash crunch themselves, others are unsure about the developer they are invested with.

Some others want to exit to invest in other projects. "Some investors had gone overboard in 2009-10 and had bought multiple apartments. They have paid over 50% of the price but some of them are now are feeling the pinch," says Abhay Khemka of Khemka Investments and Properties in Gurgaon.

A Mumbai-based wealth manager with a multinational bank had bought an apartment in Unitech's Vistas project in late 2009 for around Rs 3,000 per sq ft. This was around the time real estate prices were looking up and jobs were secure. She is looking at exiting the project now and is getting offers for a price of around Rs 4,500 per sq ft, while the developer is selling atRs 5,600 per sq ft.

Source: ET

Details of NHAI Tax Free Bonds

NHAI (National Highway Authority of India), a wholly owned Government of India enterprise formed under an Act of Parliament under the Ministry of Roads, Transport & Highways. An autonomous organization of Government of India under the Ministry of Road Transport & Highways, which was constituted on June 15, 1989 by an act of Parliament - The National Highways Authority of India Act, 1988. NHAI commenced operations in February, 1995.

Achievements

• NHAI is, responsible for the development, maintenance and management of National Highways having a total length of 70,548 kms, serving as the arterial network of the country.

• It was constituted mainly to survey, develop, maintain and manage National Highways, to construct offices or workshops, to establish and maintain hotels, restaurants and rest rooms at or near the highways vested in or entrusted to it, to regulate and control plying of vehicles, to develop and promote consultancy and construction services and to collect fees for services and benefits rendered.

• Mandated to implement National Highways Development Project (NHDP) which is India's largest ever highways project and comprises of world-class roads with uninterrupted traffic flow.

• Cess of 50 paisa per litre on petrol and diesel levied for utilizing exclusively for development and maintenance of National Highways

 

  

Issue Program

Issue Opening Date:  28th December, 2011

Issue Closing Date: 11th January, 2012

Deemed Date of Allotment : The Deemed Date of Allotment shall be the date as may be determined by the Board or Committee and notified to the BSE and NSE.

 

 

Issue Size (Rs in Crs)

Tax Free Secured Redeemable Non-convertible Bonds aggregating up to Rs 5,000 crs with an option to retain oversubscription upto the Shelf Limit (i.e. upto Rs 10,000 crs).

Who Can Apply

Category I:

• Public Financial Institutions, Statutory Corporations, Commercial Banks, Co-  

  Operative Banks and Regional Rural Banks, which are authorized to invest in the

  Bonds; Provident Funds, Pension Funds, Superannuation Funds and Gratuity Fund,

  which are Authorized to invest in the Bonds, Insurance companies registered with

  the IRDA

• National Investment Fund, Mutual Funds, Foreign Institutional Investors (Including 

   Sub accounts)

 

• Companies; bodies corporate and societies registered under the applicable laws in

   India and authorised to invest in the Bonds, Public/private charitable/religious

   trusts which are authorised to invest in the Bonds, Scientific and/or industrial

   research Organisation, which are authorised to invest in the Bonds;

 

• Partnership firms in the name of the partners, Limited liability partnerships formed

  and registered under the provisions of the Limited Liability Partnership Act, 2008

  (No. 6 of 2009)

 

Category II

 

The following investors applying for an amount aggregating to above Rs.5 lakhs across all Series in each tranche

 

• Resident Indian individuals;

• Hindu Undivided Families through the Karta and

• Non Resident Indians on repatriation as well as non-repatriation basis.

 

Category III

The following investors applying for an amount aggregating to upto and including Rs.5 lakhs across all Series in each tranche

 

• Resident Indian individuals;

• Hindu Undivided Families through the Karta and

• Non Resident Indians on repatriation as well as non-repatriation basis.

Applications cannot be made by:

 

• Minors without a guardian name
• Foreign nationals
• Persons resident outside India other than NRIs
• Overseas Corporate Bodies

Bond Rating:

 

 “CRISIL AAA/Stable” by CRISIL, “CARE AAA” by CARE and “Fitch AAA (India)” by FITCH

My View:

These Bonds are very Ideal for the Investor who is looking out for Safe & Steady Returns in Debt Market. These bonds will suit well for the High Income category who are in 20% to 30% Tax Bracket. Investors who predominately invest in Fixed Deposit or Company deposit should ideally invest in such type of bonds. The opportunity of earning such high returns comes once in 4 to 5 years.   The Bonds are offering 8.30%*P.A TAX FREE Returns. If you fall under 30% Tax Bracket, then your Effective Return would be 11.85% (Before Tax). The Best part of this bonds are that they are Tradeable in NSE &BSE, so their will be an easy liquidity too. Investor can also opt for Physical bond if they do not have demat account. Investor who wants to invest, should submit their application on the first day itself , because the allotment will be done on first come first serve basis

 

ULIPs' Changing Faces - Since the ULIPs won't save any tax under the DTC, insurance companies should allow customers to withdraw without suffering losses…

Assuming that the new tax law gets passed in the current session of the parliament, the Direct Tax Code will come into effect from April 1, 2012. The new tax law completely changes the kind of tax-break investments that are available to individual investors, the biggest change being that ELSS mutual funds, ULIPs and the NSC will no longer save you any tax.Of these three, ELSS funds and NSC are not a problem because investors can simply cease investing in them, but ULIPs are a different animal altogether.

From April 1, 2012 your ULIP installments will no longer get you a tax break. Unlike ELSS mutual funds and NSC, there could be a certain cost to ceasing your ULIP policy. For many, if not most ULIP investors, the tax-breaks were one of the motivations for investing in a ULIP. Now, that premise will no longer hold.

You have two options--either you will suffer some kind of loss for stopping your ULIP right away, or you will continue to pay your ULIP installments and dig out extra money for the tax saving investments that are permissible under the new law.
While these options may be OK by the country’s tax laws and the terms under which you were sold the ULIP policy, they are decidedly unfair from a consumer-protection perspective. These policies were sold with tax-breaks as a major characteristic, and now that will vanish. In all fairness, insurance companies should give investors an option to withdraw without suffering any sort of loss. That is something that IRDA should look into.

 There is one more problem, and that is of information flow. It is very likely that a certain proportion of ULIP customers will not discover the change in the tax scenario till it’s the end of the tax year. All customers who are invested in a product that was formerly, but any more, tax-exempt should be informed of this change in status and be given an option to opt-out.
Artcile by Dhirendra Kumar

Commodities lose more than equities globally

While the recent downward spiral in assets such as equities and commodities started around the end of July, globally the fall has been much sharper in the latter. In the five months since the US rating downgrade, commodities have lost 11.27 per cent (on the all commodity index of S&P GSCI).

The metals index was the worst performer, losing 23.4 per cent, while agri commodities lost 16.8 per cent globally. In comparison, major equity indices such as the Dow and FTSE lost only 5.6 and eight per cent, respectively. The Brazil equity market was down just over five per cent and Mexico two per cent up. The Hang Seng was down 17 per cent in the aforesaid period, reflecting concerns in China. The rise in the dollar has changed many equations.
Globally, funds’ investment portfolios have around 15 per cent share of commodities while the equities base is nearly 30 per cent.


In equities, investors make money by taking long positions and long-only funds don’t sell in wholesale when problems are short- to medium-term in nature. That has happened.

ASSET PERFORMANCE SINCE US RATING CUT
	20-Jul	19-Dec	% chg
Commodity indices
S&P GSCI Ind Metal Spot	476.64	364.91	-23.44
S&P GSCI Agric Indx Spot	483.38	401.97	-16.84
S&P GSCI Index Spot Indx	696.40	617.90	-11.27
MCX Spot Metals	4640.75	4647.81	0.15
NCDEX Dhanya	1237.42	1418.41	14.63
Equity indices
Hang Seng	22003.69	18070.21	-17.88
Sensex	18502.38	15379.34	-16.88
FTSE 100 (IST 1830 Hrs)	5853.82	5383.02	-8.04
Dow Jones (Dec 16)	12571.91	11866.39	-5.61
Brazil BOVESPA (Dec 16)	59119.71	56096.93	-5.11
Mexico IPC (Dec 16)	35341.67	36054.63	2.02
Currency
US $/Rupee	44.46	52.89	-18.96
Dollar index (IST 1830 Hrs)	74.79	80.30	7.36
Compiled by BS Research Bureau                                               Source: Bloomberg

“In commodities, positions include both sides. There is less physical investment and more positions are created in derivative products. In times of uncertainty, funds reduce commodities positions first and, hence, they fall first,” said T Gnanasekar, Director, Comm Trendz Research & Fund Management.

There were some fundamental reasons for the fall in commodities. When the US was downgraded, the dollar index started going up, mostly due to weakness in currencies.

“When the dollar strengthens, commodity prices generally fall because non-American countries’ currencies come under pressure and their demand is affected,” said Jayant Manglik, President, Retail Distribution, Religare Securities.

Apart from issues in the euro zone, another major concern that ruled commodities was of a hard landing in China, which has not subsided yet.

According to Sudakshina Unnikrishnan, vice -president, Commodities Research, Barclays Capital, “Fears over the euro zone debt crisis, concerns over a hard landing in China and risk aversion have been weighing on commodity prices recently. While the focus is on Europe, in our view a Chinese hard landing is the biggest threat to commodity markets in 2012.”

The Indian scene is different. In India, metal prices are flat due to high import costs on a weaker rupee. The equity market has lost about 15 per cent due to domestic factors in addition to global issues.

“For metals and bullion, India tracks global prices and as the rupee fell the prices of these commodities also fell,” said Manglik. India’s metal prices, as reflected in the MCX spot price metal index, are almost flat. Prices have not shown a fall due to rupee depreciation of 19.09 per cent during the period.
Agricultural commodity prices, according to the NCDEX Dhanya Index, are up 14.6 per cent, mostly due to high prices of black pepper, guarseed, rapeseed and chana. The index doesn’t have higher weights for commodities that are consumed most. Prices of most major commodities such as wheat (down 5.5 per cent) and rice have remained subdued due to higher production.

“Better agricultural performance is keeping the prices of major commodities under control,” he said. Sugar prices have gone up recently after permission for exports.

The India, Hong Kong and Japan markets have remained lower. “The Indian market remained low because of shrinking growth and governance issues,” said Motilal Oswal, CMD of Motilal Oswal Financial Services.

The Hong Kong market has reflected concerns over China and emerging markets in general.

Most analysts have a pessimistic outlook for Indian equities while the prices of metals will depend on how the rupee and global prices move. According to Barclays’ Unnikrishnan, “We don’t see much downside for commodities as compared with 2008, when commodities kept rising even as global growth began to slow sharply. This time around, commodity markets appear to have adjusted much earlier to potential risks. We are positive about the price prospects for the next quarter and don’t advise going short on commodities as the fundamentals are supportive.”

Her logic is the recessionary impact, if at all, will be less severe than in 2008, when retailers and manufacturers magnified the overall extent of the demand fall by rapidly compressing inventory pipelines.

Source: BS

Make your current tax plan Direct Tax Code-ready

For many salaried tax-payers, December 31 is not just the much-awaited New Year's eve. It has another significance: it's also the deadline set for them by many companies to submit their investment declaration for the financial year to help them save tax. This year, tax-payers should be careful due to the possible implementation of the Direct Tax Code  from April 2012.

After all, its applicability is not restricted to investments made only after April 1 next year, unless the government issues a clarification to the contrary. Remember, however, that the code is yet to take the shape of a formal legislation. It may see see changes before it becomes a law.

Nevertheless, it wouldn't hurt to factor in the possible impact DTC may have on tax-saving investments done in this financial year. Here's a guide to DTC's impact on some popular tax-saving avenues:

Home Loan Repayment

At present, home loan repayment is eligible for deductions under sections 80C and 24. Under Section 80C, principal repayment of up to Rs 1 lakh qualifies for deductions.

Section 24 offers tax benefit on interest of up to Rs 1.5 lakh paid on the loan. "DTC provisions will hurt persons servicing home loans now, as repayment of the principal amount will no longer feature as a tax-saving tool, although, interestingly, deductions on the interest paid will continue to be allowed," says Mayur Shah, tax director, Ernst & Young.

If the tax relief on the principal repaid is removed, "the individual may consider diversifying his investments through other taxsaver options", says Parizaad Sirwalla, executive director, Tax, KPMG. "However, before making any investment decision, the individual should evaluate his personal financial plan in addition to the tax impact."

Equity-Linked Saving Scheme

Equity-linked Saving Scheme, or ELSS, is a tax-saving mutual fund that finds favour with most financial planners as it offers equity exposure and comes with nominal exit barriers. Equities are known to have the potential to offer higher returns than other asset classes.

Investments in ELSS funds are locked in for only three years, unlike with other tax-saving avenues such as unit-linked insurance policies and PPF where withdrawals before five and 15 years, respectively, come at the cost of some benefits. Also, dividends and redemption proceeds from ELSS, too, are not taxable.

The DTC, however, seeks to deprive ELSS of its place in the tax-saving basket. But, this financial year, you can avail of deduction under section 80C for ELSS investments, since it does not entail recurring payments like with insurance premiums.

"Once your overall asset allocation strategy has been created, it would really not matter whether your equity allocation is in pure equity mutual funds or tax-saving funds," says Prerana Salaskar-Apte, chartered accountant and certified financial planner with The Tipping Point. "The overall limit for investing in PPF has been raised now. Hence, it makes more sense to rebalance your debt-equity allocation (for tax-savings) to PPF, given the attractive risk-free rates."

Insurance

Some of the key changes to the current tax-saving instruments envisaged under DTC relate to the insurance space. For one, deductions for life and health insurance premium, unlike in the current scenario, will be clubbed together. If the DTC is implemented in its existing form, total savings-related deduction will be Rs 1.5 lakh. And, of this, deduction on life as well as health insurance premium and children's tuition fees will be restricted to Rs 50,000 per financial year.

Under the current laws, life insurance premium qualifies for deduction under 80C, subject to the overall cap, while health insurance premium of up to Rs 15,000 is eligible for tax benefits under section 80D. Further, if you pay your parents' health premium, too, you can get an additional deduction of Rs 15,000 (Rs 20,000 if parents are senior citizens).

Life Insurance: Under DTC, Ulips may lose their lustre as a tax-saving instrument. Not only will the amount eligible for tax rebate reduce under the proposed DTC, you will not be eligible for any deduction if the annual premium exceeds 5% of the policy's sum assured. In other words, for tax benefits, the cover should be at least 20 times the annual premium.

If your policy does not meet this requirement in any of the policy years, then the maturity proceeds will be taxed. The proceeds will be exempt from tax only if they are received upon completion of the original period of contract of the insurance.

Worse, the DTC's provisions will apply to all policies, regardless of whether they were bought before or after the code came into effect. "There are no provisions in the current version of the DTC to protect the existing policies," says Shah of E&Y.

So, if you intend to buy an investment-cum-insurance policy this year, exercise caution. "First, calculate the amount of cover you would need to protect your family. Though tax-planning also needs to be considered, go shopping for the right plan only after you have realised the actual cover you would need. Remember, insuring your family deserves a higher priority than saving tax," says Salaskar-Apte of The Tipping Point.

Most pure term policies available today already satisfy the proposed DTC's condition regarding the premium to the sum assured ratio. Also, the current premium amounts will not exceed the reduced cap on the amount that will be eligible for tax benefits.

"For a 35-year-old individual looking for a 25-year policy and a Rs 50,00,000 cover, the annual premium would work out to nearly Rs 25,000. Thus, in such cases, the DTC will not make any difference," says Salaskar-Apte.

Health Insurance: If you buy a term plan, chances are your annual life premium may not exceed the Rs 50,000 ceiling on insurance premium for saving tax under DTC. This will leave ample scope for you to fully utilise the total limit by adding a health policy to your portfolio. Thus, you would be ensuring prudent financial planning besides covering your health.

Leave Travel Allowance

An individual is allowed to claim exemption on the leave travel allowance, or LTA, twice in a block of four calendar years (the current block runs from January 2010 to December 2013). DTC, however, threatens to play spoilsport here. "The exemption for leave travel concessions (LTC) is not envisaged in the DTC 2010.

Hence, an individual entitled to it may consider availing of the concession before the DTC is implemented and avoid carrying over the entitlement," advises Sirwalla of KPMG. If you have not claimed it already, it is best to do so this year itself.

 

Source:ET

EPF rate may be slashed to 8.25%; single largest rate cut in a decade

About 6 crore employees could get lower returns on their retirement savings this year, with the government considering a 1.25 percentage point reduction in the Employees' Provident Fund (EPF) rate, the single largest rate cut in a decade.

An official with direct knowledge of the development said the board of the Employees' Provident Fund Organisation (EPFO), which manages the PF accounts of most employees, would meet on December 23 to consider a proposal to reduce the EPF rate from 9.5% for 2010-11 to 8.25% for 2011-12.

The government had kept the interest rate on retirement savings constant at around 8.5% for several years, but raised it last year after it discovered that 'hidden' reserves' of around Rs 1,700 crore had accumulated in provident fund coffers over the years.

The official said this largesse had now come to bite the government as these reserves proved to be insufficient to support the 1 percentage point rate hike, forcing it to dip into this year's EPFO income to honour its commitment of a 9.5% rate for 2010-11. "This leaves us with little choice but to provide less returns this year," he said.

Over the last decade, all reserves have been emptied in pursuit of a politically palatable EPF rate, the official added.

The proposed rate cut could prove to be unpopular for an already besieged government as it comes amid rising prices and high interest rates. The government has from December 1 hiked interest rates on instruments like the Public Provident Fund (PPF) and National Savings Certificates to 8.6% and 8.7%, respectively, in a bid to shore up small savings. Risk-free bank fixed deposits are paying close to 9%.

Initially, the government had sought to manage expectations by announcing that last year's higher-than-normal rate was a 'one-off ' phenomenon, but Labour minister Mallikarjun Kharge earlier this year promised that the Centre would try to raise the EPF rate for 2011-12 even beyond the 9.5% paid last year.

Opposition MPs were quick to slam the proposed rate cut. "There can be no justification to reduce the EPF rate when general interest rates are on the rise. Workers cannot be discriminated against. We will fight this tooth and nail in Parliament and outside," said CPM Rajya Sabha MP Tapan Sen.

Experts, too, were critical of the government's move to use this year's income to fund previous year's commitments. "No pension fund in the world can work like a credit card business, where future expected earnings are used to dole out higher current returns," said an alarmed social security expert, who refused to be quoted.

This effectively means that employees who joined the workforce this year would end up subsidising older employees by sacrificing their current year's earnings for previous year's payments, he added.

Said Amit Gopal, senior vicepresident of India Life Capital, a firm that advises corporate PF trusts, "The proposed rate cut is quite surprising. Most independently-managed PF trusts are expecting to earn between 8.5% and 9% in 2011-12, thanks to the upward trend in interest rates."

The EPFO directly manages the retirement savings accounts of around 5 crore employees with a total corpus of around Rs 4,00,000 crore. The remaining retirements saving accounts are managed by PF trusts of individual companies, but regulated by the EPFO. Private trusts have to compulsorily match the EPF rate for their members though they have the option of offering higher returns.

The EPF net is mandatory for every company employing over 20 workers. Employees have to contribute 12% of their basic salaries to their EPF accounts with the employer making a matching contribution.

As per the provident fund scheme rules, the labour ministry is bound to table its annual accounts in Parliament by December 20 every year. Typically, the EPFO board meets before December 10 to clear the accounts. But this time, the board meeting will take place on December 23, after the winter session of Parliament concludes.

The official quoted earlier said the only way the government could offer an EPF rate of about 8.5% was by revising the 8% interest rate paid on a little-known Special Deposit Scheme (SDS), where over Rs 55,000 crore of EPF funds are parked.

Interest on the SDS is paid out on the first day of January and its quantum is traditionally aligned with the PPF rate. Trade unions and members of Parliament have asked Kharge to prod Finance Minister Pranab Mukherjee for an urgent hike in the SDS payouts. If Mukherjee relents to the demand on time, it could still be possible to pay an EPF rate of 8.5% for 2011-12, said the official.

Source: ET