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PROJECT REPORT ON PROVIDENT FUND MANAGEMENT FOR “GUJARAT CO-OPERATIVE MILK MARKETING FEDERATION LIMITED” Submitted to: Submitted by: MR. AJAY SHETH TAUSEEF SHAIKH Assistant Manager (Accts.) MBA (1ST YEAR) “GCMMF Ltd.” NRIBM, AHMEDABAD

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PROJECT REPORT

ON

PROVIDENT FUND MANAGEMENT

FOR

“GUJARAT CO-OPERATIVE MILK MARKETING FEDERATION LIMITED”

Submitted to: Submitted by:

MR. AJAY SHETH TAUSEEF SHAIKHAssistant Manager (Accts.) MBA (1ST YEAR)“GCMMF Ltd.” NRIBM, AHMEDABAD

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CONTENTS

1. EXECUTIVE SUMMARY

2. OBJECTIVE

3. BRIEF PROFILE OF AMUL (GCMMF)

4. INVESTMENT BRIEF

5. RATINGS

6. PROJECTED INTEREST INCOME AND EXPENSE OF PF (2004-05)

7. IMMEDIATE ACTION

8. FUTURE IMPLICATIONS

9. INFERENCES

10. RECOMMENDATIONS

11. CONCLUSION

12. BIBLIOGRAPHY

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1. EXECUTIVE SUMMARY

Name of the student : Mr.Tauseef Shaikh

Name of the institution : NRIBM, Ahmedabad

Name of the reporting officer : Mr. Ajay Sheth

Name of the organization : Gujarat Co-operative Milk Marketing

Federation Limited

Purpose of the Project : Management of Provident Fund

Objectives : To study market investment pattern and analysis of

the investment pattern of GCMMF based on the available securities in the market. To study PF investment pattern of the industries. To prepare estimated interest income and

estimated interest expense account for PF investment of

GCMMF trust for the year 2004-2005. To study rate of return for different securities and from that analyze total rate of return on investment. Steps to be taken which are in best interest of the company.

Methodology : All the data were gathered through Information System of GCMMF known as Enterprise wide Application System prepared by Tata Consultancy.

Finding : Gained knowledge about PF Investment and securities available for investment according

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to govt. pattern. Also come to know about how to tackle the situation where return on investment is very less.

Conclusion : The project has been completed successfully and the objectives were met.

2. OBJECTIVES

To study market investment pattern and analysis of the investment pattern of GCMMF based on the available securities in the market.

To study PF investment pattern of the industries.

To prepare estimated interest income and estimated interest expense account for PF investment of GCMMF trust for the year 2004-2005.

To study rate of return for different securities and from that analyze total rate of return on investment.

Steps to be taken which are in best interest of the company.

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3. Brief Profile Of Amul(GCMMF)

“AMUL” – GCMMF is an apex Co-operative Organization owned by 2.1 million milk

producers of Gujarat (India). GCMMF (Amul) comprising of 12 affiliated member dairies/District

Unions and it has its own one Manufacturing unit called Mother Dairy at Gandhinagar, India.

GCMMF Amul is the single largest organization in food industry engaged in marketing &

distribution of the Liquid Milk and the Milk Products processed and manufactured by the member

dairies under brand name of “Amul “and “sagar”. GCMMF also coordinates with manufacturing

dairy units for production planning and raw material procurement and handles the distribution of

milk from surplus unions to deficit unions .The total sales Turnover of the GCMMF exceeding

Rs.23 billion(US$ 500 million) per annum.

Milk Producing Members (2.1 million) called Farmers, who are giving milk twice a day to

respective Village Cooperative Societies. The Amul has taken initiative in installing around 3000

Automatic Milk Collection System Units (AMCUS) at Village Societies so as to Automatically

Capture Member Information, FAT content of the milk, volume of the Milk and Amount Payable

to the Member.

The Milk Collection data will be transferred to the respective Member Union with the

help of Information Technology Innovation, in a span of one hour in the morning as well as

evening. Amul is in position to collect milk of around 5 to 6 million liters per day from around 2

million Members. This has increased the trust & transparency regarding Amul in the rural areas.

There are 10,395 organized village Cooperative societies in Gujarat which are affiliated to the

respective District Union/Member Dairy who is preserving the milk in cold storage, processing it

and producing several products such as, Processed Milk Butter, Cheese, Milk Powder, Ghee, Ice-

Cream etc.These products have limited shelf life and are distributed timely through out the

country as well as abroad through GCMMF Sales Offices (50) and its Wholesale Distributor

(WD) Network of around 3600 WDs.

History

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The birth of Amul is linked to the freedom movement of India. It has founded in 1946 to

stop the exploitation of milk producers at the hands of middleman.

The cooperative movement began with a milk strike.

The first Amul cooperative was the result of a meeting of farmers in Samarkha (Kaira District,

Gujarat) on January 4,1946, called by Shri Morarji Desai under the advice of Sardar Vallabhbhai

Patel, to fight the

rapacious milk contractors. They took a decision that milk producers’ unions in villages,

federated into a district union, alone should handle the sale of milk from kaira to the

government-run Bombay Milkscheme. The government then British resisted the move. The

farmers called a milk strike. After fifteen days, the government capitulated.

This was the beginning of Kaira District Co-operative Milk Producers’ Union Ltd.,

Anand registered on December 14, 1946, which had 2 village societies & 247 liters of milk to

start with. Similar Milk unions came up in other district of Gujarat too. They formed the Gujarat

Cooperative Milk Marketing Federation Limited, (GCMMF) in 1973.

In the early days of kaira union, there was no dearth of cynics. Could “natives” handle

sophisticated dairy equipment? Could Western- style milk products be processed from buffalo

milk? Could farmers’ cooperative market these to sophisticated consumers in cities? The Amul

people confounded the scoffers by processing a variety of high-grade dairy products, several of

them for the first time from buffalo milk, and marketing them nationally against tough

competition.

Amul, an Indian name is now a much-applauded brand.

Amul proved marketers who believed that only English–sounding brand names would

succeed in post-British India wrong. Its production - networking and advertising are now much

admired.

The current Amul Butter advertising campaign (“utterly butterly delicious Amul”) with

its topical one-liners, and preference for outdoor media. Has now run for 36 years- the longest

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running campaign in India and winner of large number of awards. The popular “Amul Butter

Girl” of the ads quickly found a place on the

A quality control expert in Anand in 1955 Variants suggested the brand name “Amul”

from the Sanskrit “Amoolya”. All meaning “priceless” are found in several Indian languages.

”Amul” is also the acronym for Anand Milk Union Limited.

Amul products have been in use in millions of homes since 1955. Amul Butter, Amul

Milk Powder, Amul Ghee, Amulspray Infant milk food, Amul Cheese, Amul Chocolates, Amul

Shrikhand, Nutramul, Amulya Dairy Whitener, Amul Ice-cream and Amul Pizzas have made

Amul the largest food brand in India today.

Using IT innovation, Amul has preferred the supply chain management system

effectively and efficiently over several decades. As our CEO has highlighted “GCMMF” is not a

food company, it is an IT company in food business”. The main task of GCMMF (Amul) is to

build direct link between milk producers and consumers so as to provide good return to farmer

members and value for money to the consumers. We firmly believe that this task can be achieved

only through IT innovation and building organization culture to manage the change.

Today, Amul is a symbol of many things. Of high quality products sold at reasonable

prices, of the genesis of a vast cooperative network, of the triumph of technology of the

marketing savvy of a farmers’ organization, And of a proven model for dairy development.

The ultimate tribute to Amul was paid by late Prime Minister Shri Lal Bahadur Shastri.

He advised Dr.V.Kurien to replicate Amul model all over India during his visit to Anand in

1964.The National Dairy Development Board Under the Operation Flood programs did this.

India now has 96,000 and more village milk cooperatives with 110 lac farmer members. These

concerted efforts in dairy development have made India the largest producer of milk in the world

today.

Hope and confidence beyond belief to farmers. Quality beyond price to consumers. The True

Taste Of India!

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Amul, a Priceless brand name. Whichever way you look at it.

ITS “STAFF PROVIDENT FUND” COLLECTION PROCEDURE

Employee’s contribution

Each employee under the establishment, “Gujarat cooperative milk marketing

federation”, contributes to the fund the amount in percentage of his basic salary.

Every member shall subscribe to the fund amount equal to 12% of the total of his

monthly basic pay. DA, and remaining allowance if any, from the date of joining of the

establishment.

Every member contributing to the provident fund can voluntarily contribute the amount

exceeding the compulsory contribution.

Employer’s contribution

The employer shall contribute to the fund, the amount equal to the total of member’s

compulsory contribution. The employer’s contribution shall be credited to the member’s

individual account.

The trust

A trust is created for the same constituting of the no. of the trustees, so that representing

the workers in branches/department of the establishment. The no. of trustees in the board varies

between 4 to 12. the board of trustees shall have the full control of the fund and hence delegate

the powers to the trustees or officials, for the proper functioning of the fund.

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The investment of the fund

The board of trustees invests the money of the fund within two weeks of the receipt of the

contribution in the pattern described by the government of India.

The interest earned from the investments shall be credited to the members account on the

monthly running balance.

The account shall be audited yearly by the auditors appointed by the board of trustees for

this fund.

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THE GOVERNMENT REGULATION PATTERN

THE TOTAL FUND AMOUNT

100%

40% 15% 25% 20%

The securities obtained and the conversion and recon version shall be made in the name of the

fund as per directions of the regional provident fund commissioner. The government of India

under its revised pattern has formalized the pattern for the investments of the fund in the

following manner.

The investment of the 40% of the fund amount will be made in either the bonds or the public

sector units or the banks or the other financial institution.

The investment of the 15% of the fund amount should be made in the state government or the

government guaranteed securities.

The investments of the 25% of the fund amount should be made only in the central government

securities.

The remaining of the 20% of the fund amount can be invested in any of the above categories

depending on the decision of the board of trustees.

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Sale of the securities

The board of trustees can also sale the securities and raise the money, as required for the purpose

of the fund, only to make the obligatory payments to the employees, with the prior approval of

the regional provident fund commissioner.

Withdrawal of the amount by the employees

Employees are provided loan by the trust as per their demand. Also the employees can

withdraw 90% of their amount from the fund anytime after the age of 54 years or one year prior

to the retirement, (Other terms applicable).

Tax exemption

PF trust is exempted of tax under section 10(25)(11).

PRESENT INVESTMENT PATTERN IN GUJARAT COOPERATIVE

MILK MARKETING FEDARATION

The total money collected averages out to Rs. 1,80,00,000 in the year of both mother

dairy and federation put together; every month collection amounting to rs.15,00,000, to earn the

best return on investment so that it can be provided to the employees and at the same time

following the government investment pattern the investment made till date is here mentioned.

The federation does not follow any particular pattern as such. Every month as the amount

is collected and ready for investment the fund calls for the different rates from the different

brokers in the market. The one providing the best return falling in any category. The investment

is made accordingly. And as the year ending comes the last month’s investment is made in the

categories so that the total annual investment is according to the prescribed pattern of the RPFC.

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4. INVESTMENT BRIEF

DEBT MARKET

Distribution of the Indian Debt Market

Dated Securities

State Govt. Securities

FI bonds

CB

PSU bonds

others

The present market securities availability and their percentage contribution to the total

debt market is as follows

The 57% of the debt market is dominated by the dated securities available in the market.

The 11% constitution of the state government securities.

The 12% of the market is occupied by fixed income bonds.

The 8% of the market is of the corporate bonds.

The public sector units and the other’s own the rest 12%.

GOVERNMENT OF INDIA SECURITIES

The Government borrows funds through the issue of long term-dated securities, the

lowest risk category instrument in the economy. These securities are issued through auctions

conducted by RBI, where the central bank decides the coupon or discounted rate based on the

response received. Most of these securities are issued as fixed interest bearing securities, though

the government sometimes issues zero coupon instruments and floating rate securities also.

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The investors in government securities are mainly banks, FIs, insurance companies,

provident funds and trusts. These investors are required to hold a certain part of their investments

or liabilities in government paper.

Government security market consists of central government and state government

securities. It is the most dominating category in the debt market.

Features

RBI, as an agent of the Government, manages and services these securities through its

Public Debt Officers (PDO) located at various places.

At present, there are dated securities with a toner up to 20 years in the market. These

securities are open to all types of investors including individuals and there is an active secondary

market.

There are 12000 government securities listed in the market. The maximum trading being

done in about 300.

The list of securities highly traded at present is provided hereunder.

There are generally three methods of issuing govt. securities

1. Auction procedure: RBI announces the maturity date of the security and the notified

amount through an auction announcement. The coupon is determined through a multiple

price auction process.

2. On-top issue: RBI announces only the maturity date and the coupon of the security being

auctioned and not its notified amount. Interested buyers have to purchase the GOI

security at the prespecified coupon.

3. Private Placement: RBI directly purchases from the Govt. of India the security at a

prespecified coupon and maturity date.

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BOND MARKET

BOND MARKET

FI BONDS PSU BONDS CORPORATE BONDS

The 40% of the PF investment is to be made in the bonds according to the government

regulation pattern.

Public sector undertaking bonds (PSU bonds) are the long-term debt instrument issued by the

public sector undertaking. Typically they are the maturities ranging between 4-10 years and are

issued on the face value of Rs. 1000.

Bonds of public financial institutins are also allowed to issue bonds at a high quantum. They

issue bonds in two ways- through public issues targeted at retail investors and trusts and also

through private placement to large institutional investors. Former are exempted from stamp duty

while only part of bonds issued privately have this facility.

They have also been offering bonds with different features to meet differing needs of

investors eg.monthly return bonds, cumulative interest bonds, sets up coupon bonds etc.

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Corporate debentures are long term debt instruments issued by private sectors companies. They

have the maturities ranging from 1-10 years; long maturity debentures are rarely issued.

The key features hat distinguished debentures from bonds is the stamp duty payment.

There are two kinds of stamp duty levied on debentures issuance and transfer. The high tax

duties in states acts as the biggest deterrent for trading in debentures resulting in lack of liquidity.

MUTUAL FUNDS

Mutual funds are the special funds made, which invest in the particular predefined

segments only. They can be broadly classified under two heads i.e. equity and debt.

MUTUAL FUNDS

Debt

Gilt MMF debt liquid specialized

Equity

FMCG fund Pharma fund IT fund, etc

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When you invest in mutual funds, there is no guarantee that your investment will

appreciate. Loss of value in your investment is what is considered risk in investing. At the

cornerstone of investing is the basic principal that the greater the risk you take, the greater the

potential for reward.

Different types of mutual funds have different levels of volatility or potential price

change, and those with the greater chance of losing value are also the funds that can produce the

greater returns for you over time. When you invest in one mutual fund, you instantly spread your

risk over a number of different kinds of securities by investing in different mutual funds, further

reducing your potential risk.

Equity & debt

On the equity (stock) side, asset classes are delineated by market capitalization, which is

the number of shares outstanding (that is, publicly available) multiplied by the stock’s current

market price. The benchmarks tend to change over time as the market increases in size, but at

this point the equity asset can be generally defines as follows:

Dividend paying & growth companies

Debt side consists of the gilt; which are government paper and the issue is brought in the

market on the money needs of the mutual fund category. The gilt fund is fully government

garneted and fetches the interest rate accordingly. This is the future of the investment; long-term

investment made in this sector is profitable on this point of time.

There are also various sectors in debt class other than gilt, they are liquid, specialized,

fixed maturity plan etc.

PRIMARY MARKET

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Primary Trading in Securities is defined as the offer made by the issuer, or intermediary

of public trading in securities acting in the name of the issuer or in its own name but on behalf of

the issuer, to acquire the securities at the time of their issue and their transfer to investors.

The government, PSU’s or the corporate bring in the market the issue of the bonds and

the securities. Most of the government securities are issued by the auction conducted by the RBI,

and they are normally the fixed interest bearing securities.

The past scenario of only a few domestic players taking part in the market has changed

with a good number of banks setting up active treasuries to trade in these securities. Perhaps the

most liquid of the long term instruments, liquidity in gilts is also aided by the primary dealer

network set up by RBI and RBI’s own open market operations.

SECONDARY MARKET

Secondary Trading in Securities is defined as an offer by an investor or any other person

to acquire securities already issued or a transfer of these securities to other investors.

The major institutions like banks and the big corporate houses do the trading of the

security in the secondary market.

The government as per the requirement brings the issues in the primary market and hence

there is no particular time, for the issue of the securities and the government of India bonds. Also

upon issue the entire issue is of crores and the big bidders like financial institutions and banks

play the major role, and hence the investors like GCMMF does not hold a chance and also not

the time to wait for the approval, coz’ as early they invest the early interest are earned on the

securities.

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These institutions and banks then do the trading of these securities in the open market.

The only difference of the investment in the secondary market as compared to the primary one is

that the seller earns the money from the buyer in the form of the premium on the sale of

securities in the secondary market.

The margin on the sale and purchase in the secondary market

The commission charged or the margin for the sale of securities in the secondary market

basically depends on the quantum of sale and purchase. There is a general rule-“the higher the

amount of securities under transaction the less the margin of dealing, lesser the commission

charged; the less the amount of the securities under transit more the margin charged, more the

commission charged” - because the higher the amount, the risk gets distributed and the

commitment to the consumer is made, keeping the low margin.

An example of the sale of securities in the secondary market is quoted to explain the

pattern governing the sale of securities.

The amount of securities sold margin kept on the same by the broker

5 crore or more 1 paisa or less approximately

Between 5 crore and 50 lacs 5 paisa approximately

Less than 50 lacs 10 paisa approximately

The procedure of sale and purchase

DEMATE SECURITIES

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SGL ACCOUNT

SGL stands for ‘Subsidiary General Ledger’ account. It is a facility provided by RBI to

large banks and financial institutions to hold their investments in government securities and

Treasury bills in the electronic book-entry form. Such institutions can settle their trades for

securities held in SGL through a Delivery-versus-Payments (DVP) mechanism, which ensures

movement of funds and securities simultaneously. And hence it eliminates settlement risk.

Banks are allowed to maintain two SGL accounts for Government Securities (G-Secs)

with the public debt office (PDO) and two accounts for Treasury Bills (T-Bills) with the public

accounts department (PAD). The first account in each case is for the bank’s holdings of G-Secs

and T-Bills on its own account. The second account in each case is for G-Secs and T-Bills,

which the bank holds on behalf of its constituents and is termed the Constituent SGL account.

The bank in turn maintains sub-accounts, which have a record of the holdings of G-Secs and T-

Bills by each of its constituents.

Coupon/Redemption Proceeds

The RBI credits the Coupon and Redemption proceeds for a G-Sec/T-Bill to the bank’s

Current account with the RBI. The constituent will receive a credit advice for the amount

credited to its Current/Savings account immediately on receipt of the funds from RBI.

Advantages of SGL account over physical script:

When the trust buys securities via the constituent SGL account, the securities are

transferred to the name of the trust immediately on confirmation of a valid delivery-versus-

payment transaction.

When the trust’s bid is successful at a RBI auction, RBI may directly credit the securities

allotted into the SGL account. Any refund amount will be directly credited into the trust’s bank

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account. Thus the trust will be spared the bother of collecting refund and securities from the

Reserve Bank.

Since all transactions are by book entry, consolidation, transfer or splitting of a security

between various trusts can be affected easily and quickly.

If securities are maintained in a Constituent SGL account it is not necessary to have a

safe custody account for government securities and Treasury Bills, thereby saving the safe

custody charges.

The bank will collect interest on SGL holdings on behalf of the constituent and will credit

the constituent’s bank account at no extra cost. As the recent budget has removed tax deduction

at source on government securities, the full amount of interest as paid by the RBI will be credited

to the constituent’s bank account.

Interest payments, redemption/sales proceeds are paid out relatively quickly in

comparison to the normal procedure for physical scripts that may take several days.

Liquidity in the market for Govt. securities in SGL form is markedly higher than that in

the physical form. This would also enable the customers to obtain better rates for Govt.

securities, implying better return on their investments.

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GILT FUND

Government Securities or gilts as they are commonly called are the debt obligations of

the Government of India or of State Government. Gilts are issued to finance the fiscal deficit and

the expenditure programmer of govt.

Gilt funds were launched in India in 1999 and now provide an avenue for retail

participation.

Gilt Fund

Treasury plan Investment plan

Open-ended short-term gilt fund open-ended medium term gilt fund

The RBI acts as the issuing agent for gilts of both the Central Government/Government

of India (GOI) and State Government. Bulk of the gilts is issued by the GOI, generally called

GOI Securities.

GOI Dated Securities is issued for a minimum amount of Rs. 10,000 and in multiples of

Rs. 10,000 thereafter.

Gilts are exempt from stamp duty for both primary issuance and secondary trading.

The RBI for issues uses both the price-based and yield-based options.

Primary dealers for gilts are

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SBI gilt

RBI has permitted corporate / entities to place funds in the Call / Notice Money market

and Bills Rediscounting Market through a Primary Dealer.

Corporate / entities are required to indicate likely invest able surpluses in approved

format.

SBI Gilts Limited as a Primary Dealer would forward the request to RBI with its

recommendation for grant of permission.

PNB gilt

PNB gilt with its branch office at Ahmedabad is a division of the “Punjab national bank”

and deals in government securities and bonds. They are the primary market makers in the

government securities. The head office of PNB gilt is at Delhi.

The branch has the monthly PF investment made of around Rs. 15-20 crore.

The turnover in the secondary market amounts to Rs. 300 crore daily.

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5. RATINGS

The various agencies have provided ratings to the companies. On these ratings depends

the working of the primary and the secondary market.

The rating agencies are

CRISIL

ICRA

CARE

FITCH

CRISIL

Credibility First, a division of CRISIL, provides rating and evaluation servies across the

cross-section of companies in the Indian economy. CF provides its service to banks, financial

institutions, b2b exchanges, yellow page directories and business counterparts.

The market considers these ratings much reliable.

ICRA

These ratings are based on the objective analysis of the information’s and the

clarifications obtained from the concerns as also other sources, which are considered by the

ICRA to be reliable.

ICRA rates long term, medium term & short-term debt instruments. The rating symbols

of ICRA and there implications are as follows.

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Long term (including debentures) medium term (including fixed deposits)

LAAA – highest safety MAAA – highest safety

LAA – high safety MAA – high safety

LA – adequate safety MA – adequate safety

LBBB – moderate safety MB – inadequate safety

LBB – inadequate safety MC – risk prone

LB – risk prone MD – default

LC – substantial risk

LD – default

Short term (including commercial paper)

A1 – highest safety, A2 – high safety, A3 – adequate safety, A4 – risk prone, A5 –

default.

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6. PROJECTED INTEREST INCOME AND EXPENSE OF PF FOR YEAR 2004-2005

To estimate projected interest income and interest expense of employees’ provident fund

for the year 2004-2005, we should first consider the securities which we have purchased and on

which we are getting interest. On the other hand, we have to pay simple interest of 9.5% per

annum to the employees’ provident fund.

ESTIMATION OF INTEREST INCOME

There are two types of interest income on our investment namely Interest on Special

Deposit Scheme and Interest on Securities.

Special Deposit Scheme

According to government law, we have to keep some amount of our total investment to

government. This amount is fixed, government gives interest at the rate of 8% per annum on this

amount. This amount is known as Special Deposit. Currently GCMMF has invested Rs.

68096690 to the Special Deposit Scheme on which it gets an interest of Rs. 5447352.

Here, we get return on our investment at the rate of 8% per annum. But at the same time

our expense on investment is 9.5% per annum. Hence, we are at loss by this Special Deposit

Scheme. So, we have to purchase securities such that interest income on that securities

compensate this loss.

Interest on Securities

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We have already discussed about Securities previously. So, we will direct go to calculate

interest on Securities. To calculate interest on Securities we have to partition our existing

securities into three parts.

1. Long Term Investment Securities

2. Securities Redeem during the year 2004-2005

3. Securities Redeem partially during the year 2004-2005

In Long Term Investment Securities, the securities are not redeemed wholly or partially

during this year. For these securities, it is very easy to calculate interest. We have to multiply

interest rate to face value of the security to get an interest income of this type of security. By

taking weighted average of face value of the security and interest rate for the same, we can get

average rate of interest of all the securities. We get average rate of interest of this kind of

security is 10.7% per annum.

For the Securities Redeem during the year 2004-2005, it is somewhat difficult to get

interest amount on these securities. We have to keep Redemption date in mind while calculating

interest income. It is also difficult to get average rate of interest of all the securities. For this kind

of security, we get average rate of interest as 13.5% per annum.

There are many securities which are not redeemed wholly. For example a security of face

value Rs. 10 lacs is redeemed as under:

Rs. 3 lacs for the year 2003-2004 (1/1/2004)

Rs. 3 lacs for the year 2004-2005 (1/1/2005)

Rs. 4 lacs for the year 2005-2006 (1/1/2006)

For this example, we have a security of amount Rs. 7 lacs at beginning of 2004-2005, but

at the end of the year 2004-2005 security of amount Rs. 4 lacs will remain and security of Rs. 3

lacs is going to redeem. Now to calculate the interest on such security, we have to calculate

interest of Rs. 3 lacs for 275 days (days between 1/4/2004 and 1/1/2005) and interest of Rs. 7

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lacs for whole year to get total interest income on this security during this year. To get average

rate of interest on this kind of security is very tedious. For this kind of security, we get average

rate of interest as 14.01% per annum.

A sheet that is attached to this document shows securities which are redeemed partially.

Now, after redemption of securities during the year 2004-2005 we get amount equals to

face value of these securities. This amount is to be invested to purchase new securities. As

interest rates are getting lower and lower our rate of return also declines, so in this situation we

are assuming rate of return for our future investment as 7% per annum.

Summary shows the amount of each kind of security as discussed above and interest

received on them. After summarizing all of our investment the average rate of return on our total

investment comes to 10.0319% per annum. This rate of return is higher than required rate of

return i.e. 9.5% which is to be given to employees. Total interest income on this investment is

estimated as Rs. 20899716

ESTIMATION OF INTEREST EXPENSE

As per the government’s rules and regulations we have to pay interest at the rate of 9.5%

to the employees. Previously it was 9% per annum but because of year 2003-2004 was jubilee

year for PF trust 0.5% interest was given as a bonus. Hence, there was a total rate of interest was

9.5% per annum. For the year 2004-2005, the rate of interest remains unchanged.

Currently trust has a balance of employees’ provident fund is Rs. 2142.55 lacs and it is

expected to add Rs. 22.15 lacs per month. Hence trust has to pay simple interest at the rate of

9.5% interest rate on above stated amount. Our estimated interest expense for the year 2004-2005

is Rs. 204.22 lacs.

ESTIMATED INCOME AND EXPENSE ACCOUNT

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As we know our rate of return is 10.0319% per annum and our interest expense is at the

rate of 9.5% per annum. From this it looks like above stated investment is profitable but in actual

case it is not profitable. There are several reasons stated as below:

We are not investing the funds at the time of receiving funds. We have to spend some

time to analyze the situation and invest the fund. Government rules and regulations

says that the fund should be invested within 15 days of receiving it. The duration

between receiving fund and investing it is almost 10 days for which we do not get any

interest on this fund.

In most of the cases, face value and purchase value of securities are different in which

mostly purchase values are higher than face values. At the time of redemption of

securities, we get amount equals to its face value. Hence, we are at loss of difference

between purchase value and face value at the time of redemption of security. This

loss is known as amortization of premium.

Average rate of return for securities which are going to redeem in this year is 13.5%

per annum, while average rate of return for future investment is estimated as 7% per

annum which is very less as compared to previous one.

The sheets attached along with this document are:

ESTIMATED INTEREST INCOME 2004-2005

PARTIALLY REDEEMED SECURITIES

SUMMARY OF INTEREST INCOME 2004-2005

PROJECTED INTEREST TO BE CREDITED TO MEMBER’S ACCOUNT :

2004-2005

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PROJECTED INCOME AND EXPENSE ACCOUNT FOR THE YEAR 2004-

2005

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7. IMMEDIATE ACTION

As discussed previously PF trust of GCMMF Ltd. Is estimated to be at loss of Rs. 2.20

lacs. The reasons are also stated previously. Now what should be done in this situation? What

should be immediate action of PF trust of GCMMF Ltd. at time when trust is estimated to make

a loss?

When you are at loss by investing your fund it is better not to invest it. Same thing is true

for PF trust of GCMMF Ltd. As trust is estimated to have a loss, trust decides to reduce its

investment. Moreover, the securities which will redeem during this year has an average rate of

interest is 13.5% per annum while all securities purchased after 30 May 2002, have a rate of

return less than 13.5%. The last security purchased has a rate of return more than 13.5% was on

18 March 2002. The rate of return in this case was 14.15% per annum.

It is not so easy to reduce investment by trust because there are some rules and

regulations regarding employees’ provident fund. The following states the contribution from the

employee’s as well as employer’s side.

Employee’s contribution

Each employee under the establishment, “Gujarat cooperative milk marketing

federation”, contributes to the fund the amount in percentage of his basic salary.

Every member shall subscribe to the fund amount equal to 12% of the total of his

monthly basic pay. DA, and remaining allowance if any, from the date of joining of the

establishment.

Every member contributing to the provident fund can voluntarily contribute the amount

exceeding the compulsory contribution.

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Employer’s contribution

The employer shall contribute to the fund, the amount equal to the total of member’s

compulsory contribution. The employer’s contribution shall be credited to the member’s

individual account.

PF trust cannot force our employees to get their provident fund back. Even if an

employee wants to get its provident fund back, there are some criteria only in which particular

employee is liable to get his/her provident fund back. As for example, PF withdrawal shall be

granted for purchasing a property or constructing house individually but no withdrawal shall be

granted for purchasing share in joint property or constructing a house on a site owned jointly

except on a site own jointly with the spouse.

Thinking about Ex-employees

Considering another fact of PF trust of GCMMF Ltd. tabulated as below:

Category of Employee No. of Employees

Existing Employees (GCMMF +

MDG)

1487

Ex-employees (GCMMF + MDG) 463

Total 1950

Currently 1950 employees have provident fund with the trust of GCMMF Ltd. out of

which 463 are ex-employees. One way to reduce our investment is to return provident fund to

these 463 ex-employees. Hence, GCMMF trust decides to return this fund to ex-employees. This

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fund amounts to Rs. 228.67 lacs for GCMMF and Rs. 29.58 lacs for MDG (Mother Dairy

Gandhinagar). Total amount reaches to Rs. 258.25 lacs.

Trust has also decided not to give any interest on provident fund of ex-employees who

have left the job more than three years ago. This rule is to be implemented with immediate effect

from July 1 2004.

To return this amount trust has a provision of Rs. 15 lacs per month from July 2004 to

March 2005. The total provision for the financial year 2004-2005 is Rs. 193.4 lacs. By providing

this amount, trust targets to return 65% of the total amount payable.

There are many difficulties in returning the provident fund to ex-employees described as

under:

There was not any data made on this basis. So no one knew what kind of information

should be gathered to achieve above stated target. After taking a lot of time it was

decided that the data should consist of employee’s address, relieving date, amount to be

left with provident fund and reason for leaving.

To have an address of each ex-employee was a very difficult task as the system has

upgraded recently there were almost 50% addresses of total ex-employees. Moreover in

past times there was no such information system. Hence, in this information system there

is no record of many employees who joined the company before 90s. The addresses

which are readily available are also ambiguous because these addresses were at the time

of employee leaving the job. Nowadays, it is common to migrate to other place to get

another job. This might be the case of ex-employees. In short we are not sure whether

these ex-employees still reside at the same addresses as we have. Some of the employees

have more than one address. In this situation we have to proceed more than once to

contact particular ex-employee.

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The other obstacle was of relieving date. This is a great example that shows how a minor

mistake creates a major problem. In information system, there is a date of resigning of

each and every ex-employee. But PF rules are applicable to the employees until the date

of relieving. In most cases, administration department does not care about date of

relieving of employee once he/she get resigned. So we cannot have a perfect relieving

date of ex-employee. Relieving dates are necessary as trust decided not to give any

interest to ex-employees who left the job more than three years ago.

The most important point we have to keep in mind is about ex-employees who are left but

not relieved by the company. These are the employees who have left the job before

committed time period or are involved in illegal working activities. There is strict

warning from company not to relieve these employees. Even though these employees are

liable to get interest on that provident fund.

Once the data is prepared for above mentioned objective the letter of settlement of PF

claim is to be made. The letter comprising guidelines for withdrawal of PF balance is attached

along with it. The letter of settlement of PF claim consists of employee name, address, PF no.

and date of relieving of particular employee. The letter also states that employee is not liable to

get interest on his amount with trust after three years of date of relieving with immediate effect

and his fund will be transferred to “Unclaimed Deposits Account”.

One such letter of settlement of PF claim along with letter of guidelines for withdrawal of

PF balance is attached hereafter. Till this date, this letter is sent to 129 ex-employees of GCMMF

and 135 ex-employees of MDG. Till today there is an inquiry of almost Rs. 25 lacs regarding

claim of PF by ex-employees from which Rs. 8 lacs have already been paid. Following is

attached a list of ex-employees of GCMFF as well as MDG to whom these letters are sent.

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Gujarat Co-operative Milk Marketing Federation LimitedStaff Provident Fund

AMUL DAIRY ROAD, P.B.NO.10, ANAND – 388 001, INDIAPHONES : 258506, 258507, 258508, 258509 • FAX (02692) 240185

Email : [email protected]

Ref : MDG/PF/7286 Date : 11April, 2023

To,Sh/Smt.«NAME»«ADD1»,«ADD2»,«ADD3»,«ADD4»,«ADD5»

. Subject :- Settlement of PF claimReference :- PF Account No. «PFNo»

Sir,

It has been observed from the records maintained by us that you left the services of Gujarat Co- operative Milk Marketing Federation Ltd (i.e. GCMMF) on _«RELIEVEDATE»__but the claim for PF has not been preferred.

In case, you have joined the services of other establishment after leaving GCMMF than according to the GCMMF Staff Provident Fund Rules, the amount standing to the credit of a PF member is required to be transferred to new establishment if it is covered under the EPF & MP Act –52. In case the establishment is not covered under the EPF & MP Act – 52, than you should apply immediately for final settlement of your PF account. The PF Trust is considering a proposal to discontinue the payment of interest on such PF accounts with immediate effect.

Further, as per the rules of GCMMF Staff Provident Fund, the PF accumulations that is not claimed for three years from the date it becomes due, is required to be transferred to an account called “Unclaimed Deposits Account”.

As the PF Trust is considering a proposal to discontinue the payment of interest on the amount transferred to Unclaimed Deposits Account, you are requested in your own interest to submit immediately your claim for settlement / transfer of PF. In case the claim is not preferred the PF amount standing to your credit will be transferred to Unclaimed Deposits Account.

The guideline & format of PF withdrawal claim are attached herewith for your ready reference.

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Thanking you,

Yours Sincerely,

(TRUSTEES)GCMMF Staff P.F. Trust, Anand

Encl: a/a

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Gujarat Co-operative Milk Marketing Federation LimitedStaff Provident Fund

AMUL DAIRY ROAD, P.B.NO.10, ANAND – 388 001, INDIAPHONES : 258506, 258507, 258508, 258509 • FAX (02692) 240185

Date : 26/06/2004

A Guideline for withdrawal of PF Balance :

In case you are employed in any other organisation where the Employees’ Provident Fund Act and Rules, 1952 are applicable, you shall have to send us your application for transfer of your Provident Fund in Form No.13 through your present employer.

If you are not in the services of any organisation, please forward us your PF withdrawal application alongwith declaration on a non-judicial stamp paper of requisite value (presently Rs.20/-), stating that you are not serving, at present, in any factory / organisation where the Employees’ Provident Fund Act and Rules, 1952 apply. The draft of the said affidavit is enclosed for your ready reference. In this case, a member can withdraw his PF after two months of leaving services.

Please note that either transfer of the balance or withdrawal of the same is permitted only as per rules. Hence, you are requested to either send us the statutory Form No.13 alongwith your application for transfer of your Provident Fund through your present employer or the affidavit as above for withdrawal of your Provident Fund, failing which it will not be possible for us to take any action with respect to your PF balance lying with our PF Trust. Pl mention your full resident address to unable us to send your payment at right place.

B Format of declaration to be submitted on a non-judicial stamp paper of Rs.20/- :

A F F I D A V I T

I, Shri/Smt. _____________________________ aged ________ years, Son/Daughter/Wife of _____________________________________________________________,resident address ____________________________________________________________________________________________________________________________________(write your complete address with pin code) do hereby solemnly affirm and swear as under :

1. That I was in the services of the Gujarat Co-operative Milk Marketing Federation Ltd. (GCMMF Ltd) from ___________ to ____________ my PF A/c no. was GJ/7286/___________.

2. That I have not worked as an employee of any organisation whatsoever since the date of my disassociation from the GCMMF Ltd., i.e.___________.

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3. That now I am not a paid employee of any organisation / establishment to which the Employees Provident Fund Act/Scheme, 1952 applies.

4. That this affidavit is being sworn by me for the sole purpose of making an application for withdrawal of my Provident Fund dues payable to me by the GCMMF Ltd. PF Trust.

5. That the facts stated above are true to the best of my knowledge and belief.

Dated this _________ day of ____________, 200__.

(DEPONENT)

<DEPONENT – Signature of applicant>

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Gujarat Co-operative Milk Marketing Federation LimitedStaff Provident Fund

AMUL DAIRY ROAD, P.B.NO.10, ANAND – 388 001, INDIAPHONES : 258506, 258507, 258508, 258509 • FAX (02692) 240185

Email : [email protected]

Ref : MDG/PF/7286 Date : 11April, 2023

To,Sh/Smt.C N PRAJAPATIBLOCK NO. 2 D/5,NANDANVAN APT.,VALLABHPARK D CABIN,SABARMATI,AHMEDABAD

. Subject :- Settlement of PF claimReference :- PF Account No. 1046

Sir,

It has been observed from the records maintained by us that you left the services of Gujarat Co- operative Milk Marketing Federation Ltd (i.e. GCMMF) on _23-Nov-95__but the claim for PF has not been preferred.

In case, you have joined the services of other establishment after leaving GCMMF than according to the GCMMF Staff Provident Fund Rules, the amount standing to the credit of a PF member is required to be transferred to new establishment if it is covered under the EPF & MP Act –52. In case the establishment is not covered under the EPF & MP Act – 52, than you should apply immediately for final settlement of your PF account. The PF Trust is considering a proposal to discontinue the payment of interest on such PF accounts with immediate effect.

Further, as per the rules of GCMMF Staff Provident Fund, the PF accumulations that is not claimed for three years from the date it becomes due, is required to be transferred to an account called “Unclaimed Deposits Account”.

As the PF Trust is considering a proposal to discontinue the payment of interest on the amount transferred to Unclaimed Deposits Account, you are requested in your own interest to submit immediately your claim for settlement / transfer of PF. In case the claim is not preferred the PF amount standing to your credit will be transferred to Unclaimed Deposits Account.

The guideline & format of PF withdrawal claim are attached herewith for your ready reference.

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Thanking you,

Yours Sincerely,

(TRUSTEES)GCMMF Staff P.F. Trust, Anand

Encl: a/a

8. FUTURE IMPLICATIONS

The future of the market is uncertain as it is a fluctuating market, hence nothing can be

predicted out of it.

But one thing is sure that there will be lot of new changes will take place in the market

and which will ultimately set the trend of the market.

The interest rates have been brought down to approximately near 5 to 6 percent which is

very less as compare to previous interest rates

With the lowering of the interest rates the pension schemes and the gilt fund will become

the trend in the market; they may be at present the upcoming things, but they will soon be well

adapted in the market.

The investment made today in long term securities will fetch better returns for the coming

period, which the market in running may or may not be able to provide.

In the time of new government of UPA, it seems like that the interest rate may arise up

to .25 to .5 percent. So the fund should be invested keeping this in mind.

At this time, government has not change any interest rate on employees’ provident fund.

At this time, the interest on employees’ provident fund is 9% and 0.5% interest rate is given as

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an additional benefit because of Jubilee Year of PF Trust. But the allies of existing government

(Left) are insisting on 12% interest rate to be there which is very high. If government will

commit 12% interest rate on EPF, then it will become very difficult to get profit by investing the

fund which we get from employees. In this situation we have to keep in mind that less the

investment less the loss. Hence in this condition we should try to invest as low as possible.

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9. INFERENCES

The investment in the long-term securities is profitable, because more the duration with

the good return on investment and for the longer period of time. Also the assumptions are made

that the rate of interest will further be decreased and hence for the longer period you invest, for

the longer period you will fetch better returns. How ever in the era of new government the

interest rate may hike.

The future of the market will notice many changes i.e. dematerialization of the securities

in the coming period, the lowering of the interest rates and the debt rate. Online transactions,

boom in the debt market with the investment in the upcoming sectors like gilt fund, more

investment in the pension fund etc.

Interest receivable is more for the coming year as compare to the declared 9.5% rate of

interest to the employees. So at first sight it seems like that the declared interest will be mat. But

here we have to remember that the fund on which we get the return is always less than the fund

on which we have to pay interest.

Government securities gave less rate of return on our investment so we should invest in

these securities only up to Government Regulation.

Many of the securities are redeemed partially i.e. many securities do not redeem wholly

at a single time but instead redeem in two or three times. E.g. Suppose there is a security of Rs.

10 lacs. Now it will redeem as Rs. 3 lacs in first year, Rs. 3 lacs in second year and Rs. 4 lacs in

third year.

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10. RECOMMENDATIONS

The investment of the fund should be done in the manner so as to provide the highest

return, which can be then transferred to the employees. For that few strategies can be adopted

The investment should be made as far as possible in the long-term securities providing

higher return. The long-term investment in the securities will fetch good returns when in the

future the market does not allow high rate of return.

The investment should be made in the financial year such that the highest return giving

categories should be invested in first. The investment in the categories such as central

government securities which do not provide as good returns but are compulsory to invest in, the

investment in such category should be done in the months of January & February and in the

securities which have near about maturity dates so that the money is not blocked for the long

time in the low interest securities.

At time, when estimated interest expense exceeds estimated interest income as is the case

for 2004-2005, we have to invest as low as possible. This will be done by reimbursing the fund

to respective ex-employees. This will reduce our total fund for investment.

We should invest our fund in safe hands. There is a general rule that high risk high return.

But in order to get high return we should not invest in securities which are of high risk. If

investment is to be made in secondary market priority should be given to IDBI bonds, State

Electricity bonds, etc. To reduce our risk further we can also diversify our securities by investing

in different mutual fund.

The ratings prevailing in the market are not very much reliable, but the market functions

on these ratings, so they should also be considered while dealing in the sale and purchase of the

securities. Crisil rating is considered to be the best in the market.

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11. CONCLUSION

THE MARKET

The market for the investment has been studied along with the sources available for the

investment.

New market developments have been tapped and analyzed their use and importance

under the GCMMF scenario.

Analysis based on the investment pattern, the collection and payment system predicted for the

year 2004-05 and also analyzed the feasibility of the declared interest rates is on the basis of the

present investment patter and analysis of the future investment is based on the past analysis

The PF analysis of the other industries could not be conducted because of the

unavailability of the required data.

Face value and purchase value of almost all the securities are different in which most of

the securities have higher purchase value than face value.

THE PATTERN

The pattern to be followed and the strategies to be adopted by the federation to achieve

the high interest rates have been recommended as per the market information received.

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12. BIBLIOGRAPHY

The annual report (Gujarat Co-operative Milk Marketing Federation)

Rule book of GCMMF for the staff provident fund.

Guide to employees provident fund law.

Information system of GCMMF (Enterprise Wide Application System) prepared by Tata

Consultancy.

www.amul.com