How much does the household staff that works for you earn per month? What are their liabilities and are they prepared to shoulder them? Are they conversant with even basic banking? Try asking them and the answers may baffle you, to say the least.
Part of the growing unorganized sector in the country and largely out of any kind of social security network, for most of them the idea of saving, let along investing and securing their future, would be unthinkable. And here’s where you can step into the picture. With the government and the industry coming up with small initiatives, it may need a little nudge from you to get them on a basic financial track.
However, this can be done only if your household staff has some kind of identity proof. If he/she has been with you for some time, chances are some proof will be in place: a ration card or a voter’s identity card. Your driver will definitely have a driving licence.
Photo: Shyamal Banerjee/Mint
It may be a challenge to convince them, but it’s worth a try. Says Gaurav Mashruwala, a Mumbai-based financial planner, “I have worked with several people around me and they are not averse to saving and investment.” Here is what they can look at.
Savings account: To step on the financial road, one would need a savings bank account. Most banks cater to this section through no-frills accounts, if an address and identity proof is provided. Even those who cannot provide these documents can open a small account, but with some restriction, as per the Reserve Bank of India mandate.
Says Ajay Desai, executive vice-president and chief financial inclusion officer, development banking, Yes Bank Ltd, “The no-frills account is a basic zero-balance facility. Usually, banks do not issue a chequebook with this. But a debit card is provided at a standard charge of about Rs 150 per year on demand.” You could pitch in that Rs 150 and teach your household staff how to use an automated teller machine (ATM). Nowadays most ATMs have local language options.
Alternately, if you share a good relationship with your bank, you can help them open a savings account.
One way to encourage them to use it is transferring their salary into the account instead of paying in cash.
Recurring deposit (RD): The bank can be the place to start their first savings through an RD. Says Desai, “Today most banks allow you to begin with an amount as less as Rs 50-100, so it is not beyond their reach.”
The maturity duration is short and RDs help cultivate the habit of saving regularly. Says Mashruwala, “To someone who has never parted with his or her cash, investments with a short lock-in period work because they see the results quickly and hence begin to trust the system.”
Fixed deposits (FDs): Once the RD matures, help them convert it into an FD.
Retirement is an important milestone and that is true for your household staff, too. Diya Thonni, 27, who has seen M.A. Mathew, now in his 60s, ever since she was born recognized this need and is helping him build a retirement corpus through mutual funds and post office savings schemes.
To initiate them into long-term products, you need to inculcate in them trust in the financial system and discipline for saving regularly.
NPS Lite: This is especially meant for those in lower income group. A NPS (National Pension System) account can be opened through aggregators appointed by the Pension Fund Regulatory and Development Authority (PFRDA). Find full list at http://tinyurl.com/3paon3q
To open an account, one needs to comply with know-your-client (KYC) norms, which would require address and identity proofs.
The initial cost would include Rs 35 for a permanent retirement account number card. Apart from that, every year Rs 70 will be deducted from the account as administrative expenses. Your contribution per month could be as low as Rs 100. What’s more, under the Swavalamban scheme, for annual contributions between Rs 1,000 and Rs 12,000, the government of India will contribute Rs 1,000. The government has extended the benefit from three years to five years and will also include accounts that open in FY12. The aim is to encourage the unorganized sector to invest in NPS.
Says Rajeev Arora, director, FINO, a PFRDA aggregator, “This is definitely a good product given the fact that the informal sector has never had an avenue to save with such a long-term horizon.”
There is a lock-in period of 20 years or 55 years of age, whichever is later. At the age of 55, the subscriber would be able to withdraw 60% lump sum of the maturity value; the remaining 40% will go into buying an annuity, a pension product. The product discourages premature withdrawals.
Micro SIPs: You can help your household staff even put their money into equities through the micro systematic investment plan (SIP) route. The two main features of micro SIPs are your total annual investment across funds should not exceed Rs 50,000 and you do not need a permanent account number. However, KYC compliance is mandatory.
Typically, MFs do not have a separate micro SIP form; you need to fill the standard SIP form and give an acknowledgement that your cumulative micro SIP instalments won’t cross Rs 50,000 a year.
Most fund houses allow micro SIPs but do not promote them. “Micro SIPs are not profitable either for the fund house or distributors. Hence, nobody is really pushing them,” says Amit Trivedi, CEO, Karmayog Knowledge Academy, a Mumbai-based mutual fund training institute.
Know that and ask your agent to get your household staff a micro SIP.
It may be difficult to convince them to buy insurance, but it is critical for them, especially if your household staff is sole breadwinner of the family and has dependant children.
Says Pankaj Mathpal, managing director, Optima Money Managers Pvt. Ltd, a financial planning firm: “Begin with a personal accident policy that covers all risks of death or disability on account of an accident. It will pay a lump sum on death and also provide income during disability. You should also buy a health cover and a life insurance policy.”
An accident plan will cost you around Rs 50-200 for every Rs 1 lakh sum assured. If you are unable to convince them, you can shell out this amount yourself. Says Amarnath Ananthanarayanan, managing director and CEO, Bharti AXA General Insurance Co. Ltd: “You can buy a policy on behalf of your housekeeping staff since you have an insurable interest in their lives. However, ensure that the cover is in sync with the income.”
These basic savings and investments can help them in a big way in the long run.