Boost Savings

The value of the excellent editorial Provident reforms (February 17) on investments and direction of provident and pension funds could have been meaningfully improved by inclusion of the following points:

Linking of investments in bonds to credit ratings (say top two ratings) and listing of bonds on a stock exchange. Also publication of all credit ratings obtained by the company and updating of ratings at intervals of say 24 months.

The financial soundness of a company is far more important than the ownership. As such, investments should be permitted in secured bonds/debentures of any company in public, joint and/or private sector that meets credit rating requirements.

Prudential norms with limits on amount that may be invested in secured bonds or debentures of any one company and a separate higher limit for a group of companies.

Transparency of investments and operations of funds through quarterly disclosure of the portfolio that includes current and redemption yields and changes in the portfolio during the redemption yields and changes in during the quarter. Also, well documented annual report to members.

The reported proposals to increase the rates of contributions and to remove the wage ceiling may be attributable to a desire to continue worthwhile flow of funds to government securities.

The absence of a wage ceiling in a legislated social security measure that may be called a provident and/or pension fund is almost unknown. Both the suggested actions would result in one (rigid) model approach and substantially contain flexibility and innovation that are so necessary to meet different and changing needs of different segments of employees.