The rules governing some schemes can be pretty thoughtless too

Did you know that funds launched under the Rajiv Gandhi Equity Savings Scheme (RGESS) last year, over half-a-dozen in all, have proved immensely successful delivering 20 per cent gains in just a year? The government’s new divestment vehicle — Central Public Sector Enterprise ETF — which has appreciated by 45 per cent in barely three months since its launch in March, is another example of a successful financial product from the government.

Did you know that a government-guaranteed bond linked to the consumer price index gave you 11 per cent interest? Called inflation-indexed savings certificate, the product found hardly any takers when launched last year and managed to collect just about Rs.100 crore, according to some reports.

Other products

There are other similar examples such as the National Pension Scheme, which is a far superior alternative to any pension product from a private mutual fund, but yet has not attracted much patronage. The examples listed above are perfectly good financial products from the government that have lost out to private sector alternatives simply because they lack the appeal, slick packaging and aggressive marketing that private sector financial firms are able to so effortlessly manage. This is a loss not just for the government, which could do with more capital flowing into its coffers, but also for retail investors who are missing out on good money-making opportunities.

The problems with the government investment schemes are three-fold. They start with something as basic as the naming of these products. When each new scheme is flagged off, a lot of effort goes into structuring it, with Ministry mandarins, the regulators and a couple of expert working groups all chipping in. But very little effort goes into branding the product so that it connects with the common man.

Thanks to the official obsession with acronyms, for instance, something as appealing as an inflation-beating bond has been named as the ‘Inflation Indexed National Savings Securities-Cumulative’, and abbreviated into the unpronounceable IINSS-C. A mutual fund that invests in public sector stocks is termed as Central Public Sector Enterprise Exchange Traded Fund (CPSE-ETF). A tax saving demat account is called the Rajiv Gandhi Equity Savings Scheme (RGESS), coming across more as a social welfare scheme than an investment product.

Speaking official-ese

If such acronyms are daunting , the marketing literature (if you can call it that) is unimaginative. Where a private sector issuer would have highlighted the high returns from the inflation bond in bold font, government ads for the IINSS-C talked obscurely of a ‘real interest rate of 1.5 per cent’ plus a ‘final combined Consumer Price Index’. Investors probably got no clue of the returns.

The NPS prospectus describes the scheme thus — ‘NPS is a defined contribution-based retirement investment product. It offers two types of accounts to its subscribers, namely Tier-I and Tier-II. While Tier-I account is mandatory for opening of an NPS account, opening of Tier-II account is optional and to be decided by the subscriber basing on his requirements.’ Most retail investors would have been knocked for a loop by the term ‘defined contribution’ and stopped reading it right there.

When selling financial products to lay investors, the government needs to cut out the legalese and talk plain English (and local languages too). Just look at the television ads of insurance companies. They play mainly on the consumer’s emotions and seldom talk of the ‘sum assured’ or the ‘death benefit’.

Then there is the red tape, which manifests in the needless procedures and conditions that these products impose.

Filling the NPS form, for instance, may well remind you of your younger days when you tackled the CAT exam, with its array of multiple-choice questions. You are first asked to choose whether you want a Tier-I or Tier-II account; then you have to select the ‘Point of Purchase’ for transactions, then you are faced with the choices between fund managers, schemes, the types of annuity, allocation — the list seems never-ending.

The rules governing some schemes can be pretty thoughtless too. In the RGESS, a scheme meant to grant tax concessions to first-time equity investors, any investment you make in the scheme is locked in for three years. But you are allowed to sell some shares after the first year, provided you ‘refill’ the account so that your ‘average’ balance is maintained.

In the IINSS-C, you are allowed to sell the bonds after a one-year lock-in period. But to exit early, you have to keep track of the ‘coupon dates’ when the scheme pays interest.

If the government is keen to enhance the appeal of its financial products to retail investors, it needs to think less like a bureaucrat and more like a salesman. Have as few conditions as possible and keep them simple.

Where to get them

Even where an investor is willing to ignore all this and wants to buy a government scheme for its good returns, he would come up against problems of access. Despite the product’s appeal to the middle-class, the inflation bonds, for instance, were available at only select branches of SBI, nationalised banks and three private sector banks. If investors weren’t put off by the form-filling and the need to issue cheques and DDs, they would surely have been discouraged by the apathy of the selling banks. Opening an RGESS or an NPS account too is no cakewalk. While the first requires documentation to prove that you are indeed a first-time investor, the latter kills you with KYC norms — so you need to fill out half-a-dozen forms, proof of identity, proof of address and a PAN card, even if you are a seasoned investor.

Low incentives

Extremely low distributor incentives also curb the distribution reach of these schemes. Your financial advisor or local agent is quite eager to plug the latest mutual fund or endowment plan; but he is loath to help you with the paperwork for a State-sponsored scheme because he stands to make very little from it. Here, the fixes are relatively easy. While products targeted at affluent investors must be made available through online platforms, those aimed at the middle-class need a field force to handle the paperwork.

In the final analysis, the government, unlike private sector firms, need not pay sky-high commissions or splurge on emotional TV ads to sell its schemes. The Indian saver has an abiding and deep-rooted suspicion of the private sector and is all too willing to park his hard earned money with the government.

So, all the government needs to do is simplify its schemes, run awareness campaigns and make the products widely available. Then investors may automatically throng to inflation bonds or small savings schemes the way they do to private FDs or tax-free bonds.

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