Kochi: Viable investment options are in focus following the spate of Voluntary Retirement Schemes (VRS) announced by public sector units.
If the lump sum from VRS is not properly invested, the purpose of seeking an early retirement gets defeated, financial experts say.
Last year, BSNL and MTNL rolled out Voluntary Retirement Schemes and over 90,000 staffers from both the companies opted for it, making it one of the largest such exercises in the corporate history.
BPCL also followed suit and recently SBI announced its plan to go for VRS to cut costs.
Majority of those who have taken VRS still rely on fixed deposits given the uncertainty of other investment choices.
On the flip side, bank fixed deposit with around 6 per cent interest is woefully inadequate to cover inflation.
“Most of those who opted for VRS deposited money in nationalised banks, staff cooperative societies, KSFE etc.,’’ says Pavitran, an office superintendent in BSNL who took VRS.
A leading chartered accountant-based in Kochi points out that there are other good and safe government schemes available like senior citizens saving scheme, PM Vaya Vandana Yojana, which offer annual interest of 7.4 per cent and 8 per cent respectively, with a maximum cap of Rs 15 lakh.
Post office deposit scheme offers 7.6 per cent annual interest. Then there are LIC schemes, government bonds, state treasury deposits (7.5 to 8.5 per cent), deposits with KSFE (7 to 8.25 per cent) and other government undertakings and tax-free bonds of government infrastructure companies.
Many VRS seekers in BSNL had to settle for a lower amount after clearing their loans, says Pavithran.
“On an average, a person in the lower job category got Rs 15 Lakh-Rs 20 lakh from VRS. The amount went up to Rs 1 crore or more for a high-grade officer.’’
Closing of loans except perhaps those taken for education is a right decision as VRS signals the end of a fixed monthly income, says investment advisor T V Jinesh.
“Pension plans supported by government, investment in annuities of LIC, bank deposits and systematic plans of mutual funds are alternatives available to have a fixed monthly income after VRS,’’ he points out.
Jinesh calls for wise planning with the help of a financial consultant sans which people may lose the benefit of the bulk money they get from VRS.
“They should think about investment only after setting apart funds for meeting future requirement like children’s education and marriage, unforeseen medical emergencies not covered by insurance and for leisure purpose like travel.’’
If the future requirement is within five years, he advocates putting the money in bank deposits or fixed income securities. Bank deposit is also the safe choice for contingency medical fund as it can be withdrawn easily.
Those who have opted for VRS are not easily lured by the stock market, which is fraught with risk, more so, in these days of Covid pandemic. However, several financial experts view equity investment either directly or through mutual funds as one of the methods to cover inflation in future.
“Right now we are not certain about the prospects of many companies that are faring well in the stock market, after COVID-19 declines. Some could collapse. So, people should be careful and plan long term while investing in the stock market,’’ says Giby Mathew, director of Acumen Capital Market.
Jinesh backs investment in equities and bonds. Regular re-balancing of portfolios is also needed, which may be possible to many only with help of a broker. He warns that maximum allocation of your total funds to equity investment should not cross 60 per cent.
Many who opt for VRS are wary of investing in private NBFCs as well. The fear has been accentuated by the recent crisis in Popular Finance in Pathanamthitta, which duped investors of Rs 2,000 crore.
Large PSUs such as BSNL and BPCL have advisory sessions for those going on VRS on where to invest money.
“Such sessions generally discourage investment in private NBFCs,’’ Pavithran says.
Non-convertible debentures (NCDs) of NBFCs and other corporate deposits offer anywhere from 8 to 10 per cent interest, which is more than what a bank provides.
Gold as an investment option, though, carries an element of unpredictability, says Giby Mathew. “It is a safe investment as exchange traded fund (ETF).’’ The staggering increase in the gold price by as much as 40 per cent in the last few months has drawn the attention of many. But the takers among those going on VRS are few. Apart from gold ETF, sovereign gold bond issued by RBI through banks and gold bonds, a mutual fund that invests in various forms of gold including the shares of companies engaged in gold mining, are other options available.
Jinesh backs earmarking 5 per cent of the total funds for gold investment.
Real estate investment also holds no charm for the VRS takers though prospects are currently looking up, with Gulf-returnees investing in land for farming.
Absence of liquidity is one factor that turns off the investor from real estate. Real estate linked mutual funds that invest in securities of real estate companies is an option for small investors, who cannot invest directly in real estate.
Farming is an activity that seems to hold an interest for VRS takers.
“After getting VRS, many have got together to invest in land for farming,’’ says Pavithran.
Starting new ventures is also an option explored by those who sought early retirement, though the pandemic has put a temporary halt to their plan, he adds.
Jinesh says it is better to avoid capital-intensive ventures and tedious jobs after taking VRS.
(P K Krishnakumar is an independent journalist based in Kochi)
