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When saving sucks!

Despite people wanting to save, the system does nothing to help make their life easier. There are millions and millions of Indians who do not have a PAN card and this will hinder their ability to invest in funds.

There's a domestic help named Sunita who has been working at my home for some years. She lives a couple of kilometres away in a rented house with her 7 year old son and a husband who doesn't manage to earn much. Naturally, Sunita has no savings worth the name. She's not educated and her idea of savings are limited to traditional ones likebuying land, which is out of her reach in any practical sense.

A few weeks back my wife and I convinced her to start saving Rs 500 a month, which is something she can afford. I thought we could get her started on a monthly SIP in a balanced fund. Over the long run, this could grow to an amount that would be truly meaningful for someone in her position. I introduced her in neighbourhood branch of Punjab National Bank, asked a mutual fund salesman whom I know to get her SIP started and thought that that was that. There was, off course, the problem of putting down a thousand rupees for a savings bank account but there was no way around it. A few days later my wife checked with the agent whether the SIP had started and was surprised to find that it hadn't. It turned out that actually getting a cheque book from the bank for an account with no history and just the minimum balance wasn't actually possible. Now the whole point of the bank account was to get a cheque book, this was a show-stopper. And the worst part was that it took Sunita many visits to the bank and no small amount of time to be actually told that she won't get a cheque book till she built up a 'transaction history'. I then checked with UTI Bank, where my company does most of its banking, but was told that one needs a PAN card to open an account there.

And then we turned to the post office, whose savings account has a lower minimum balance and issues cheque books which are treated at par with those of banks. The account got opened easily enough but Sunita's struggles weren't quite over. Just as she was ready to finally start her investment, a rule was enforced that to invest in a mutual fund, one has to have a PAN card. What this means is that if even if Sunitasomehow gets herself a PAN card, eight months from now, she'll have to file an income tax return. Off course, with her Rs 40,000 a year income she will not be paying any taxes, but does anyone in their right minds actually think that someone like her should be made to file tax returns as entry-price for being able to save in a way that she could get some decent returns on her money?

The interesting part is that statistically, Sunita is not poor. Her 40,000 rupees a year puts her way above the poverty line and almost certainly above India's per capita income as well as median income. She actually belongs to the 'richer' half of our country. However, the passionate persecution of 'money-laundering' that our government is now conducting puts her, for all practical purposes, outside the ambit of the officially-sanctioned savings. I thought mutual funds were supposed to about democratising investments. People are complaining about fund companies chasing only corporate customers but large parts of the countries' population now have no practical way of investing in funds.

There has to be some room at the bottom of the pyramid for people to invest meaningfully without having to prove that they aren't laundering anything. There are now around perhaps five to six crore PAN card holders in this country. Look at it another way, there are 105 crore Indians who do not have a PAN card. This number is unlikely to drop much under 100 crore for quite a while. That's a billion Indians with whom increasingly large sections of our financial services industry cannot or will not do business. A billion people whose savings can't enter the mainstream because they don't have the resources to deal with a tax system that seems to run entirely on the principal of guilty-until-proven-innocent.