This document is a proposal for a retirement fund scheme in India that targets lower income individuals. It proposes collecting small monthly contributions from a large number of people and investing the corpus in microfinance loans and bonds/funds to generate returns. The earnings would cover administrative costs and provide fixed pensions to contributors after retirement at age 55-58. As the majority of Indians have low incomes and lack retirement plans, the author argues more needs to be done to develop schemes catering to the masses before it can be said that India's retirement industry has "come of age".

1. SYMBIOSIS INSTITUTE OF INTERNATIONAL BUSINESS, PUNE
Has the retirement
industry come of an age?
CRISIL Young Thought Leader Competition
Rakesh Sancheti
+919923652323
rakeshsancheti@gmail.com
This document tries to explain that there is still a long way before we can say that the retirement
industry is come of an age.

2. Name of Author: Rakesh Ramesh Sancheti.
Address: Symbiosis InfoTech Campus, A- Hostel, Room No. 406, Rajiv Gandhi InfoTech Park,
Hinjewadi, MIDC, Pune. Maharashtra- 411057.
Name of Institution: Symbiosis Institute of International Business, Pune.
Roll Number: 08020241120
Mobile Number: 09923652323
Email Id: rakeshsancheti@gmail.com

3. Has the Indian Retirement Fund Industry come of age?
Executive summary:
The major population of India has a low per capita income. Hence having retirement fund sounds
like an impossible dream. But here we have discussed a scheme where a company will be
collecting an amount as low as Rs. 100 and its multiples from individuals belonging to the lower
income strata of the society. The corpus generated in the scheme can be used for the purpose of
giving Micro loans to these people only or can be invested by using a professional manager who
can manage their wealth. The high earnings available from the microfinance loans and the
returns will take care of the administrative expenses. The corpus generated can be given as a
pension to the people who had contributed to this particular scheme based on their proportions so
that he can live his life peacefully even after the retirement. This scheme will be useful in India
as it is lagging in social security scheme and also cannot afford to have one, as it is in its
developing stage and thus answering the most severe problem faced by India.
The present Indian population is relatively young and their savings as well as income is
increasing steadily. So in future it can be expected that they will be proactive in investing in
retirement fund. Also the amount invested will increase owing to higher life expectancy and
increasing life style related diseases. Hence there is still a long way to go before it can be said
that Indian Retirement Fund Industry has come of age.

4. Dissertation
Retirement fund Industry, what it is? It is nothing but industries which manage the fund of the
people while they are working so that when they grow old they can use that fund for future
tenure without depending on the others. Despite having the highest savings ratio in the world, 58
per cent Indians are clueless about how they are going to fund their retirement, says a recently
conducted survey, ‘The Future of Retirement’ by HSBC Life Insurance. In the absence of a
social security net, and the fact that only 13 per cent of the country’s population is covered under
any formal pension plan, this figure is quite worrisome. Moreover, with spiraling medical costs
and increasing life span, the absence of a retirement plan can wreck havoc during old age. At
present, almost 28.4 crore people are estimated to be without any pension coverage in the
country. The reason for such complacency could be the fact that the average age of a person in
India is 26.
Sources: UN Population Division
At such a young age, retirement might seem too far to be worried about. However, the high
percentage of a young population is unlikely to remain forever. By 2050, the number of
dependent adults in the country is expected to equal the number of dependent children for the
first time. This highlights the need for having a well thought retirement plan in place.

5. Even though only 42 per cent Indians have some plans for their retirement, the percentage is the
highest in the world. According to the survey, almost 87 per cent people think they are doing too
little to actively prepare for a comfortable retirement. The figure assumes importance in the
backdrop of the increase in the world’s aging population. Now when you consider one of the
most important factor that contribute to the saving or in terms of the pension fund is the income
of the household, When you see the data published by NCAER-Market Information survey of
household India is projected to grow at high growth level and the income of the family will be
growing very much in line with it. So we can very well say that there are a lot of things to be
done before we can say that the retirement industry is come of age.
Now second most important factor while deciding is that of life expectancy of the particular
individual and Health indicator. Though harsh to say, but the life expectancy of people is
increasing over the period of time. So the chances are very much high that they will need some
or the other kind of the retirement benefit plan. They have to think about their retirement and
therefore need to invest in some or the other kind of instrument so that they can secure their
financial in the future. Another crucial fact that can be observed is that though life expectancy is
increasing, incidences of lifestyle related disorders are also increasing. So it is inevitable for the
individual to plan for the retirement as early as possible, because they have to pay their medical
bills or other health related problem even after the retirement.

6. Hence considering the above one can say that there are still a lot of thing that needs to be done.
Also the majority of the population of India as discussed is young so they are the potential
untapped customers who are yet to be catered. We must take this kind of pension plans to the
masses.
When we talk about taking financial market to the masses, we have to very well consider target
population. Unless you understand your target population, how can you reach towards them?
Consider the Indian scenario; the household income in India is not that high. Nearly 75 percent
of the household income is below the $3000*Per Annum (Sources: http://www.mospi.gov.in/
). So the majority of the population is in lower income group of the India. Now to spread the
financial for these masses is not an easy task. The various reasons identified are: first of all many
of them are unable to find the decent job which can fulfill their basic needs and provide a
constant income over the period of time and very few of them have the capacity to invest the
money in any pension plans. Thus the challenge lies in developing a plan which can suit the
needs of the masses.
So to go to these masses we have to use the concept given by one of the great management guru
Mr. C. K. Pralhad.i.e. “Fortune is at the bottom of pyramid”. In economics, the bottom of the
pyramid is the largest, but poorest socio-economic group. The phrase “bottom of the pyramid” is
used in particular by people developing new models of doing business that deliberately target
that demography, often using new technology. This field is also often referred to as the "Base of

7. the Pyramid" or just the "BOP”. So targeting this particular population is not an easy task, as the
income of this population is very small, so we have to have a scheme which can cater to the
masses and can constitute all the sections of the society. Since these people have very low
disposable income, one of the foremost parameter of the scheme should be that, they must be
convinced about the scheme so that they can be a part of this particular scheme. Otherwise there
is no meaning of having a scheme which cannot understand the need of the masses.
Again one of the important parameter in case of India is that it lags the social security scheme. In
US if one is unemployed or has no income, the government will take care of the basic needs. So
here we want a scheme which can act as social security scheme cum pension scheme for our
Indian masses. This will ensure the high participation from number of people having lower
income.
Thus it can be said that the fortune is always there at the bottom of pyramid; the only thing is
that, we need to find it out. After the credit crunch that had taken place in the US, the financial
institutions have started realizing that they can’t rely any more on the default free history of the
handful consumers and have also started to think, that why can’t they distribute their risk with
the masses? Now when you consider all around the world, the first of it’s a kind of scheme was
started in the Bangladesh- for the people by the people, for which Mr. Mohamed Yunus got
Nobel prize also. No doubt this principle of the cooperation started long ago in the India but it is
not that successful in giving credit to the poor people.
Then came one of the country’s best ever plan for the poor by Unit Trust Of India (UTI)- UTI
mutual funds micro pension scheme. Under this scheme, UTI Mutual Fund has entered into a
customized arrangement with Shree Mahila Sewa Sahakari Bank (SEWA), Gujarat to provide its
members an investment opportunity through a micro-pension initiative under its UTI-Retirement
Benefit Pension Fund. Under this customized arrangement in Gujarat facilitated by SEWA Bank,
every month the members will contribute small amount towards UTI-Retirement Benefit Pension
Fund up to the age of 55 years so as to enable them to receive pension in the form of periodical
income or cash flow after they reach the age of 58. In Gujarat, SEWA Bank has more than
2,75,000 depositors out of which 25,000 members are initially joining the scheme and rest of the
25000 members will follow soon. The minimum amount of investment under this arrangement is

8. Rs. 50 and in multiples of it thereafter. This scheme is at very nascent stage now as it is catering
to only a small number of the people and secondly it is investing only in government securities
or debt instruments.
Let us see how the above scheme can be implemented to any other state, say Maharashtra. Let’s
consider that in the first stage out of the total number of people in state, say only 10 Lakh people
have put in their money into this particular scheme. Since the large chunk of the population is in
the lower income strata of the society they cannot contribute much to the scheme, may be they
will contribute Rs. 100 per month. So the total money available at the end of each month will be
rupees 10 crore which is good amount per month. Hence, we can generate a corpus of nearly
rupees 120 crore a year which is quite a good amount to go ahead with the idea of putting a
professional agency in place to manage this corpus. All the holders of this scheme will keep
contributing till the retirement age but the question that arises is – ‘What should be the retirement
age for the scheme holders?’ Since most of the people who are in this section are in an un-
organized sector, they don’t have any retirement age in particular and hence we need to define a
retirement age for these individuals. Here we can consider the retirement age as 55 or 58 because
major part of their income is derived from the physical work they do and as they grow old their
capability to do the work reduces. After the retirement their responsibility will be taken over by
the financial institution that is managing the fund. The fund will only cover the basic needs for
that particular client. It will not fulfill the extra needs that the person has, so as to reduce the
burden on the institution. i.e. they will give an individual fixed pension after the retirement.
Since the scheme involves very large number of people which are from the lower income section
of the society, it is possible that the people from the upper income strata may try to enter the
scheme and hence will influence it. So we must put a number of entry barriers for this particular
scheme like the person above certain income will not be allowed to enter the scheme. In this way
we can prevent the biasing of any of the individual.
Now we have talked about collecting money from a number of individuals and giving benefits
after the retirement to these individuals. But how can we do that? Here we need to make sure that
whatever corpus we are generating should be invested in a scheme which has a very low risk and
a good amount of return. The earning that is received can be utilized for the administrative and
other expenses as well as for giving the pensions. One of the better options could be to invest this

9. particular amount into the microfinance loans. i.e. giving loan to individuals from the lower
strata. The loan requirements for this particular section can be as low as Rs 5000 and they are
already paying the interest rate as high as 40 percent. So even if we give them this particular loan
at say 20 percent they will be more than happy and will be ready to pay the loan. But another
point that arises is whether these people are credit worthy with respect to this particular loan?
But when you consider the large section of society, they are very much concerned about the
society and their status there. Hence most of the individuals in the society will keep no stone
unturned for repaying their loans so as to maintain and preserve their self-respect, prestige and
status in the society. Also from the financial institution point of view, the amount - say Rs. 5000
is very small and hence the risk attached with the institution is also very less. Considering any of
the financial institutions, non performing asset is always a problem but still they are able to make
a good profit. Hence it can be inferred that the financial institution can also make some good
profit irrespective of some bad assets in their organization, provided that the bad assets are
reviewed at proper intervals. What we are doing here is that we are dividing the risk among the
number of small loan takers. We do expect some non performing assets but since the risk is
diversified to the large chunk of society, the risk will be low and the non performing assets will
not be that substantial. The institution can also invest some amount in the government bonds and
private good rated bonds and the number of mutual funds to earn a substantial amount of return.
The institution will also invest in T bills and other short term instruments to maintain the
liquidity in the institution. Hence any redemption that takes place in between, mainly due to
withdrawal of the person from the scheme can be taken care of.
It is thus very possible to have a scheme keeping in mind the income of masses and also their
retirement needs. What is required is an initiative to develop, and properly implement and
execute such schemes. Hence the above plan shows that there exists a lot of opportunity in the
field of Retirement Fund Industry before we can say that it has come of age.

10. Bibliography:
* (All the facts and figures are taken from the website of planning commission of India and
Ministry of statistical and programme implementation, Government of India)
http://planningcommission.gov.in/
http://www.mospi.gov.in/
http://www.indianexpress.com/
NCAER Market Survey Report
http://www.economictimes.com
UN Population Division