The Hindu Business Line : Options for investors

This is with reference to the news item "MF captains suggest 401K-type option for salaried class" (Business Line, June 21), where investors can choose to divert part of their salaries for investments in MFs. This suggestion raises more questions than it answers.

If the idea is to provide a decent corpus to the salaried class after retirement what is the guarantee that the amount of capital invested will be preserved without any erosion in its value — as the MF schemes are NAV-oriented and there are no guaranteed returns?

Even if the employer contributes an equal amount to the fund as the employee there is no assurance that the employee will benefit in the absence any assured return on the scheme. As the equity/debt markets are by their very nature risky (price risk and interest rate risk) the funds may or may not appreciate over a period of time.

The reason for government not allowing pension funds/PF trustees in the capital market is that there are risks inherent in such investments. This is particularly true of entities that are risk-averse. Under the circumstances the proposal should be carefully weighed before the Government gives its approval.

Gangadharan Mani

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Options for investors