A portion of your income goes into the employee’s provident fund and the employee’s pension scheme every month. Both these schemes are maintained by the Employees Provident Fund Organisation (EPFO). A recent Supreme Court ruling says that for the employee provident fund and pension scheme, the employee is a “consumer” and the EPFO authority concerned, a “service” provider.
Stipulation: EPFO needs to clear an employee’s dues within 30 days of receiving all necessary documents. In the case of delay, the individual can initiate action against the organization by writing to the EPFO and following it up with the consumer courts, if need be.
Crux of the matter: The case that triggered this was Bhavani’s, an ex-employee of a cashew factory owned and managed by the Kerala State Cashew Development Corp. She retired on 31 December 1995 when she turned 60. Being a member of the Employees’ Provident Fund and Family Pension Scheme, 1971, she had been making her contribution to the scheme. However, on retirement, the regional Provident Fund (RPF) commissioner did not order her pension. The State and National Consumer Disputes Redressal Commission ruled in her favour. The Supreme Court upheld the orders. According to its judgment, “a perusal of the scheme clearly and unambiguously indicates that it is a ‘service’ within the meaning of section 2(1)(o) and the member a ‘consumer’ within the meaning of section 2(1)(d) of the Act.”
The bench said: “The RPF commissioner responsible for the working of the 1995 pension scheme must be held to be a “service giver” under the CP Act.
Seeking managers: EPFO, which manages the funds, is contemplating appointing managers to deploy funds efficiently and improve the returns. Around 15 financial institutions, including big players such as ICICI Prudential AMC, HDFC AMC, Sundaram BNP Paribas AMC and UTI AMC, have given in applications.
A. Viswanathan, chairman, EPFO says: “We need fund managers even though we invest in debt products. Debt products, like bonds, are tradable and we require expertise to trade intelligently to maximize returns.”
However, these fund managers will manage only the incremental contributions year on year. At present, the State Bank of India manages these funds, which are to the tune of Rs2 trillion. Every year, these funds increase by around Rs20,000 crore. “We still have to decide on the number of fund managers, but my expectation is three fund managers,” says Viswanathan.
For the financial year 2007-08, EPFO has declared a return of 8.5%. This should be reason enough to stick with EPF. It may be a good idea to remain invested and reap the benefits from an evolving pension system.
A dearer drive
Last fortnight, ICICI Bank Ltd, India’s largest lender of auto loans, raised interest rates on advances for vehicles by as much as 75 basis points (bps). “Rates have increased between 50-75bps for certain segments of auto loans from the first week of April,” says N.R. Narayanan, group business head (vehicle loans), ICICI Bank. The effective rate that the customers will be paying has cruised to 13-13.25%.
Other lenders may also increase their rates. An HDFC Bank Ltd spokesperson says, “Though we have no immediate plans to do it, we are watching developments closely.” Similar thoughts come from Mahindra Finance’s chief financial officer V. Ravi. “We could consider a hike in interest rates in the near future,” he says.
Minimal effect: Narayanan says: “A 50bps increase in interest rates adds Rs25 per lakh to the EMI on a three-year loan term. Hence, even if an average car loan was Rs4 lakh, the change in EMI would not even be Rs100 per month. These costs are such that they will not change a decision from “buy” to “not to buy”. At most, it can change the decision from buying a higher variant to a lower one in the same category.”
On top of this, two-wheeler companies have raised their product prices. India’s largest two-wheeler manufacturer, Hero Honda Motors Ltd, has hiked prices by Rs500 to Rs1,000. “Rising input costs have led to a rise in prices of some products. We’ve tried to absorb the bulk of this increase, and pass on only a small portion to customers,” say a Hero Honda spokesperson. TVS Motors Co. has also increased the price of its star models and for Scooty.