CAN PROVIDENT, PENSION AND GRATUITY FUNDS NOW INVEST IN NATIONAL SAVING SCHEMES? CLARIFICATION BY CENTRAL DIRECTORATE OF NATIONAL SAVINGS

The Central Directorate of National Savings (CDNS) issued a press note on 1 Oct 2006, which said that from 2 Oct 2006 all National Savings Schemes (NSS), except Pensioners' and Bahbood, have been re-opened for new investment by "institutions". This was reported in A & H Letter No 78 of Oct 06. But Provident, Pension and Gratuity Funds (Retirement Funds) were not specifically mentioned. To clear up this point, we corresponded with the CDNS. We warmly appreciate their responses to our letters. The correspondence is on our web-site www.akhasan.com (Please CLick here). Important extracts are:

From CDNS letter of November 14, 2006:

"It is further clarified that all funds of an institution, irrespective of their nature, can be invested in the selective National Savings Schemes subject to the condition that the institution, to which these funds relate to, fulfills the eligibility criteria governing the institutional investment. The notifications shall be furnished shortly."

From our letter of November 27, 2006:

"The inference from your above letter is that despite the absence of an explicit reference to Provident, Superannuation and Gratuity Funds, such Funds set up by any of the institutions listed
in your Press Note/administrative instructions can now invest in DSC's, SSC's, RIC's etc."

From CDNS letter December 6, 2006:

"the inference drawn in your letter .. is reflective of our clarification referred to in the [CDNS letter of November 14, 2006]."

As we understand it now, if an "institution" is permitted to invest in NSS, then Retirement
Funds set up by it can also invest in NSS. But if the "institution" itself is not permitted
to invest in NSS, then its Retirement Funds are also de-barred. As at December 21, 2006, the Notifications were not available. But the CDNS web-site listed the institutions permitted to invest in NSS as:

a. Registered Charities (Non-profit bodies).
b. Public Sector Enterprises excl Banks.
c. Private Educational & Health Institutions.
d. EOBI.
e. Private Corporate Sector registered with the SECP excluding Banks.
f. Non-Bank Financial Institutions (NBFIs) excluding Insurance Companies.

 

ANOMALIES NOW CREATED

The 1966 DSC Rules specifically permitted Recognised Provident Funds, and Approved Superannuation and Gratuity Funds, to invest in NSS, regardless of which enterprise or body sponsored or set up such Funds. But they did not permit a business enterprise itself to invest in NSS, regardless of its form, or the nature of its business. This was logical and coherent.

But now a limited company engaged in commerce or industry can itself invest in NSS, and so can a Retirement Fund set up by it. However, a Retirement Fund set up by a partnership, a bank or an insurance company cannot invest in NSS. This is anomalous. As advocated in our Letter No 78, it would be wiser and fairer to revert to the 1966 position.