The Hindu : Business : Do not hype

Online edition of India's National Newspaper
Monday, Jan 10, 2005

Business

Business

Do not hype

THE PFDRA has been given a promotional role as well. Clearly the opened up pension sector needs to be suitably popularised. Having a transparent regulatory set up is of course a precondition for the eventual success and acceptance of the market oriented pension schemes.

The regulator will license new pension funds and other intermediaries will lay down capital adequacy as well as investment norms.

The acceptability of the market oriented schemes will to a large extent be determined by the initial success of the scheme.

Therein lies one major shortcoming of the scheme. Over the short term — judging by the experiences with mutual funds — pension fund subscribers ought to be conditioned not to expect spectacularly high returns.

Closely related is the fact that intermediation costs in the mutual funds business remain high despite growing competition.

Even over time there will be far fewer pension funds than mutual funds.

Persuading subscribers to join a particular scheme — growth, balanced or debt — is another job that calls for enlightened self-interest on the part of the pension funds and other regulators. Added to the usual risks of investing in the share market, pension funds with their long term view and socio economic goals need to be carefully popularised and "marketed."

In any case managers of these funds will be doing the greatest disserve to the nascent pension business and to its subscribers, if they start hyping a product even before it has stabilised. Unfortunately exaggerated claims have spoiled the reputation of several capital market products, including mutual funds.

C. R. L

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