India is any marketeer's dream come true. The vast majority of the population is young, with over 60 per cent below the age of 30. This demographic segment is the biggest spender on consumer electronics, garments, FMCG products, consumer durables as well as a whole range of services. But while most companies urge them to spend, a handful of firms see a business opportunity in getting them to save.

PICTURE SPEAK

SLOW, STEADY & SMART: A comparison of two new long-term investment schemes with India's only private-sector pension plan

It may seem very far today, but 20 years hence, 13.3 per cent (or 179 million) of Indians will be over the age of 60. Once they retire, today's free-spending yuppies will need a decent corpus to maintain their current standard of living. According to a 2000 report by oasis, only 11 per cent of India's working population participate in a formal means to save for old age.

Till recently, savings were driven more by tax compulsions than future goals. But this year's budget has freed investors from directed savings. Since the state does not decide where individuals should invest, financial services companies are tailoring long-term instruments that can help provide for the golden years if investors start early and save judiciously.

Two such new schemes are DSP Merrill Lynch Fund Managers' Super SIP and ICICI Prudential Life Insurance's Golden Years. These are primarily retirement products which will help investors overcome short-term volatility and take advantage of the superior returns from equities. Another such low-key product which has been helping investors achieve good returns through this strategy is Franklin Templeton's Pension Plan, which has given a yield of 24 per cent over three years while the benchmark return is around 21 per cent.

GOLDEN YEARS: Anyone between 18 and 65 years can take the policy. The minimum annual premium is Rs 1 lakh for a three-year term and Rs 60,000 for five years and above. Investment can grow till you turn 75. It is eligible for Section 80 C tax benefits. SUPER SIP: Systematic investment plan with free insurance. Minimum investment Rs 2,000 a month. Choice of plans range from 6 to 21 years. If investor dies before the end of the savings period, his family will get up to 240 times the monthly instalment. PENSION PLAN: Investment locked in for three years. You can withdraw the money only when you turn 58, or else must pay an exit load of 3 per cent. On retirement, money can be withdrawn as lump sum or in instalments. Eligible for Section 80 C tax benefits.

To convince investors to take a long-term view, DSP Merrill Lynch is offering a unique incentive for systematic investment plans (SIPs) in five select funds. The fund house is offering free term insurance cover to investors who commit a monthly investment for periods ranging from six to 21 years. In case an investor dies before the end of the savings period, his family will get up to 240 times the monthly investment amount. Saurabh Sonthalia, head of strategy and business development, DSP Merrill Lynch, explains the logic behind this product: "Often people take an SIP for a year or two and then stop. To encourage people to invest for the long-term we have added a benefit."

The same logic made private insurer ICICI Prudential Life Insurance launch Golden Years, an insurance policy aimed at building long-term wealth along with an insurance cover. Golden Years is a retirement solution designed to meet one's financial planning and protection needs in a flexible, tax-effective manner. Says V. Rajagopalan, chief of actuary at ICICI Prudential: "Golden Years allows people to invest in a flexible manner. The premium can be paid over a period of time which is convenient and in instruments which give a hedge against inflation."

Golden Years allows investors to invest for 3 to 10 years, but the corpus remains locked in longer than the investment period. Lock in is an important feature if the wealth has to multiply. According to Rajagopalan, it is important not to give in to temptation and dip into the savings.

A fine example of how money can multiply if left alone is the Templeton India Pension Plan. Launched in March 1997, it is the only government-notified pension scheme from the private sector and is meant for investors who are looking to save for their retirement years and get tax benefit. The fund has over 60 per cent of the corpus invested in debt instruments and up to 40 per cent in equities. While the investments in debt lend stability to the portfolio, the equity component gives the Pension Plan the potential to deliver capital appreciation over the long term. In the past five years, it has given a compounded yield of more than 16 per cent. Thus, in comparison with traditional tax-saving instruments which are purely debt-oriented, the Pension Plan with its balanced portfolio can help investors get the benefit of growth in their investment.

Investors have the flexibility of investing in the fund through SIPs, with a monthly investment as low as Rs 500. Says Sivasubramanian K.N., senior portfolio manager, equity, Franklin Templeton: "People often postpone planning for retirement. But that can leave them under-prepared. And they will have to make sacrifices to catch up later in life." Clearly, the earlier one starts, the better one's chances of reaching the retirement goals.

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