The Hindu : National : "Small investors should get re-investment option"

Online edition of India's National Newspaper
Monday, May 29, 2006

National

National

"Small investors should get re-investment option"

Special Correspondent

This will help the Government reduce interest liability, says Assocham

NEW DELHI: The Associated Chambers of Commerce and Industry has suggested that those who have invested in small savings schemes be allowed to convert investments on maturity into equity of public sector companies. This will ensure that the funds will remain with the Government, helping it to reduce interest liability and contain the fiscal deficit. This option will provide the investors with a better avenue for re-investment and help the Government unlock funds before maturity.

In a study released here on Sunday, the Assocham said the return on investment in specific securities, permitted under the Employees Provident Fund Act, was not generating enough resources to meet the liabilities of the fund. Hence, the Government should amend the Act to allow investment of certain percentage of EPF money in equity. In this context, the Assocham has welcomed the proposal of the Department of Posts to invest its surpluses in the capital market. The total investments in small savings till date is estimated at Rs. 2,10,184 crore, according to the study.

It suggested that there be a ceiling of Rs. three lakh on public investments in government-promoted savings schemes such as Kisan Vikas Patra, the monthly income schemes of post offices, bonds and senior citizens savings schemes so that funds above the upper limit can be invested in mutual funds. An upper limit would refrain investors from parking all their savings in these instruments.

The Assocham said if the households were encouraged to invest in mutual funds, it would ensure higher returns, as mutual funds schemes carried higher returns and brought higher liquidity in the stock market. Assocham president Anil K. Agarwal said that since the households continued to invest two-five per cent of their savings in capital market instruments, the retail sector should be given some incentives to invest in the markets through mutual funds.

The study asked the Government to allow commercial banks to invest 20 per cent of their excess Statutory Liquidity Ratio, which now stands at Rs. 40,000 crore, for buying equities of leading public sector units.

It urged the Government to divest its stake in public sector companies, offering their shares to banks and retail investors.

Printer friendly page
Send this article to Friends by E-Mail