To,
WHOMSOERVER IT MAY CONCERN
Subject: Investment Plan for Employee Gratuity Fund
Dear Sir,
Introduction
Organizations today face the dual challenge of retaining talent and providing meaningful retirement benefits to their employees. At Balaji Investments, we have worked with numerous educational institutions over the years to design a comprehensive range of products and services aimed at addressing pension and gratuity needs for retiring employees.
Depending on whether the Gratuity Fund is exempt or non-exempt, we can tailor specific investment plans to achieve the desired corpus, aligned with the institution’s cash flow requirements. In the case of exempted gratuity funds, we follow the Government of India's prescribed investment patterns to generate the necessary returns. For non-exempt funds, or when gratuity is treated as a liability of the institution, we offer customized plans to meet specific requirements.
We are pleased to inform you that, through collaboration with asset management companies, we now provide SEBI-compliant retirement schemes that offer distinct advantages over other available options. These schemes are flexible, allowing for contributory percentages that can be adjusted according to the institution's needs.
Key Highlights
Every institution is looking to build a corpus to meet its future gratuity commitments, payable to employees upon retirement, in accordance with government norms.
- Employees become eligible for gratuity after five years of continuous service, and the gratuity is payable only upon reaching the age of superannuation or taking early retirement, as defined by government rules.
- In the event of an employee’s resignation or termination before completing five years of service, the accumulated gratuity fund remains with the institution.
- The gratuity amount will be determined based on either government regulations or the specific policies of the institution.
We use the institution’s data to assess the total liability annually and match it with the required cash flows for gratuity payments. The actuarial value helps determine the present liability and guide our investment strategy, allowing us to achieve the required corpus with minimal investment.
Proposal
Based on our understanding of your institution’s needs, we suggest earmarking an initial corpus, aligned with the actuarial value, to be invested in long-term bonds from reputable organizations such as PSU banks or Government of India securities. Currently, such investments yield an average return of 7.5% to 8% annually. The interest earned from this investment can fund initial gratuity payments, while simultaneously building the corpus.
Additionally, based on the provided data, we can calculate the monthly contributions needed to reach the target corpus over time. The first year’s contribution will need to be funded by the institution’s internal resources. Employees set to retire within the next 1 to 5 years will be covered by the corpus and the interest generated.
Our recommendations are based on a systematic investment plan (SIP) in equity-oriented funds, which historically align with economic growth. Given that the Indian economy has achieved nominal growth of around 15% per annum, we estimate returns of 10% to 12% per annum for these investments.
We would be happy to provide additional information or address any queries you may have regarding this proposal or any related schemes that can help your institution optimize its corpus and returns.
Disclaimer:
The calculations will be illustrative, in nature, once the actual Data is provided to us, assuming inflation at 6% and market returns of 12% to 15%, based on historical performance. Please note, Balaji Investments and Consultants, AMC, and Mutual Funds do not guarantee, promise, or forecast any specific returns.