Investors withdraw Rs43bn from NSS: Falling returns
By Shahid Iqbal
KARACHI, Nov 11: The National Savings Scheme (NSS) witnessed massive outflow in the last six months up to July 2005 mainly because of erosion of profitability due to 100 per cent increase in inflation last year and large cut in returns to the savers.
Latest data showed that over Rs43 billion slipped away from the scheme from February to July 2005.
The heavy withdrawals accelerated in the second half of the fiscal 2005 but it had started with the beginning of the year. Experts said that the main reason was the unexpected sharp increase in the inflation which was almost double in 2005 compared to 2004.
The inflation, which is still hovering around 8.6 per cent, practically eroded the margin of profits for the investors who were getting maximum 10.5 per cent return per annum.
“After payment of withholding tax, the investors are not getting money with positive value, in fact, they are still getting negative return,” said an analyst.
The scheme has been a main instrument of borrowing but the government started to discourage investment in the NSS when the interest rates fell sharply and at one point they touched the historic low of 1.5 to 2 per cent. The government has been paying as much as 18 per cent on NSS before this sharp decline in the interest rates.
However, despite discouraging returns, the NSS attracted Rs178 billion in the last four years. Analysts said that returns on bank deposits had fallen to 2 and 2.5 per cent as against up to 10 per cent return from the NSS.
Some analysts said that low interest rates played negative role for the general savers as they borrowed money for home appliances and automobiles partially at floating rates. Now the rates again had gone up and they were liquidating their investments in the NSS to payback to banks or leasing companies.
Another important factor was the hike in inflation which forced investors to withdraw their savings from the NSS and invest them somewhere else for higher returns.
“Stocks were most attractive avenue for the investors for making windfall and a sizeable amount channelled into the share business from the NSS,” said Salman Jaffery, an analyst at JS Research.
He said that despite risks associated with stock business, investors made heavy investment in stocks as the return was too high compared to what they were getting from NSS. Also, there was no withholding tax on income from share business.
Banks are also paying low returns but the mobility of the money deposited in banks is easier than NSS where withdrawal before maturity costs the investors negatively, he said.
The previous fiscal year witnessed a boom in the real estate and investors found it low-risk with high returns. Analysts said that real estate had been one of the major factors which triggered heavy withdrawals from the NSS.
