March 28, 2006	Tuesday	Safar 27, 1427

KARACHI, March 27: Low return on National Saving Schemes has widely discouraged investors as they have started withdrawing their savings from most of the schemes except the widows’ Bahbood scheme.

Latest official data showed that out of nine important counters of the investment schemes under the NSS, eight schemes showed outflow of investments during the seven months of the current fiscal 2005-06.

The outflow was the direct impact of the government’s policy to discourage mobilization of money at a higher rate through NSS. However, the prevailing rates ranging from 8 to 10 per cent were just close to the returns being paid by the private banks.

The highest outflow was noted in Special Saving Certificates as Rs38.238 billion were withdrawn by the investors during the seven months.

Bahbood scheme designed for the widows was the only significant investment in the NSS as Rs40.486 billion were injected through this scheme.

Interest rates on NSS were reduced in the wake of lower interest rates in the market during 2003-04. Despite a sharp jump in inflation to double digits in 2004 the rates were not increased. The current inflation rate is 8.5 per cent and the return on NSS is almost zero.

The interest rates of NSS had been linked with the yields on Pakistan Investment Bonds but the PIBs were not sold at least for the last two years. With the beginning of the year 2006, the investors were hopeful to get some increase in rate of returns due to higher inflation, but the rates did not show any improvement.

Service charges on Regular Income Certificates, Bahbood Savings Certificates and Pensioners’ Benefit Account had been reduced through a notification in last week of January this year. Earlier, the service charges were deducted on encashment before maturity of certificates and schemes.

Experts said that the benefit of reduction of service charges was simply ignorable as the reduction had been made on the schemes which belong to widows and pensioners who solely depend on the income of their investment.

The profit on the scheme was fixed at 11.4 per cent, however, the income was taxable and 10 per cent withholding tax was deducted on the profits.

Analysts said that the money withdrawn from the NSS diverted towards the booming share market but it was much more risky for retired persons who have no other source of income.

“Stock market is a most attractive venue for investors nowadays and I believe a sizeable amount withdrawn from the NSS lands into the share business,” said an analyst at JS Research.

He said that a number of risks were associated with the share business and despite that investors were putting their savings in the booming stocks for getting high returns. Also there was no withholding tax on share income.

He further said that banks were also paying low return but the mobility of the money deposited in banks was easier than the NSS where withdrawal before maturity costs the investors negatively.

It was also observed that the withdrawn money diverted to real estate business which brought some fortunes for the investors.

“But only those who invested earlier in 2004 were getting benefit as the real estate prices have gone far beyond the reach of middle class investors,” said analysts.

They said that the year which ended on June 2005 witnessed boom in the real estate prices and the return on it was the most attractive for investors. It was considered one of the major factors that triggered massive withdrawals from the NSS.