Tag: Financial Inclusion

Delivery contracts in the Capital market refer to agreements where the actual delivery of securities or commodities takes place upon the settlement of a trade. Unlike cash-settled contracts where only the price difference is exchanged, delivery contracts require the seller to deliver the underlying asset to the buyer on a specified date. These are common in futures and derivatives trading, especially when participants intend to physically take or give delivery of shares or commodities. In the stock market, settlement usually occurs on a T+1 or T+2 basis, where trades are executed and then settled through delivery. Delivery contracts add credibility and discipline to the market, ensuring genuine transactions and helping in accurate price discovery by discouraging excessive speculation.

Features of Delivery Contracts in Capital Market:

• Actual Delivery

Delivery contracts require the actual transfer of the underlying asset—either in physical form or through a dematerialized account—on the settlement date. These are not speculative in nature; instead, they focus on real asset possession. This feature distinguishes delivery contracts from intraday or derivative trading, where no actual transfer of assets occurs. Investors opting for such contracts aim to hold ownership for a period beyond the trade date. It ensures that both parties honor their obligations by completing the delivery, making these contracts suitable for genuine buyers and long-term investors rather than short-term traders.

• Ownership Transfer

One of the core features of delivery contracts is the legal transfer of ownership. When a delivery contract is executed, the buyer receives full ownership rights over the securities, such as shares or bonds. This legal ownership includes voting rights, dividends, and any other benefits arising from holding the asset. The change of ownership is recorded in the depository system, usually via platforms like NSDL or CDSL in India. It ensures transparency and security in transactions, offering peace of mind to investors looking for tangible returns and long-term value rather than speculative profits.

• Long-Term Investment

Delivery contracts are ideal for long-term investors who want to build a portfolio of securities to hold over an extended period. Unlike speculative trades aimed at quick gains, delivery-based transactions focus on sustained growth through dividends, bonuses, and capital appreciation. Investors who engage in delivery contracts typically conduct thorough research before investing, with an eye on future company performance. Such investments are often part of broader financial planning strategies like retirement savings or wealth accumulation. As they promote disciplined investing, delivery contracts support market stability and are fundamental to value-based investment practices.

• Settlement Period

Delivery contracts follow a fixed settlement cycle, most commonly the T+2 format—meaning the transaction is settled two business days after the trade date. This timeline allows for proper processing of trade verification, fund transfers, and securities movement. A defined settlement period reduces counterparty risk and adds to the reliability of delivery-based trading. The buyer needs to ensure sufficient funds, while the seller must have the stocks ready in their demat account. Exchanges like NSE and BSE ensure timely and efficient settlement through clearing corporations like NSCCL or ICCL, enhancing investor confidence.

• Market Transparency

Delivery contracts are conducted on regulated exchanges such as NSE or BSE, which ensures a high level of market transparency. Every transaction is monitored by a governing body like SEBI, which enforces rules to protect investors and maintain market integrity. Trade confirmations, price disclosures, and contract notes are standardized and easily accessible, offering participants clarity and accountability. This transparency builds trust among retail and institutional investors alike. It minimizes the scope for manipulation, insider trading, or fraudulent practices, thereby reinforcing the foundational role of delivery contracts in maintaining a fair capital market ecosystem.

• Lower Speculation

Unlike intraday or derivatives trading, delivery contracts discourage speculation due to the requirement of actual asset transfer. Investors need to pay the full amount for buying securities and are obligated to hold them until settlement. This reduces leverage-based transactions and impulsive trading behavior. Delivery trading promotes informed decision-making, as investors typically analyze company fundamentals and industry trends before investing. The reduced scope for margin trading under delivery contracts also lowers systemic risk. Hence, it attracts serious, long-term investors who contribute to market depth and stability rather than short-term price fluctuations caused by speculative activity.

Non-Delivery Contracts in Capital market

Non-delivery contracts in the capital market are agreements where the actual delivery of the underlying asset (such as stocks or commodities) does not take place. Instead, these contracts are settled in cash based on the price difference between the contract price and the market price on the settlement date. These are widely used in derivatives trading, including index futures, options, and speculative trades, where investors aim to profit from price movements without owning the underlying asset. Non-delivery contracts are popular for their flexibility, lower capital requirements, and ability to hedge risks. However, they may also encourage speculation and volatility in the market. These contracts are settled before expiry or squared off on or before the final trading session, avoiding physical delivery.

Features of Non-Delivery Contracts in Capital Market:

• No Ownership Transfer

In non-delivery contracts, there is no actual transfer of ownership of the securities. These contracts are settled without delivering the underlying asset, often through squaring off the position within the same trading day. Traders book profits or losses based on price movements rather than acquiring real ownership. Since the contract is not meant for investment but for speculation, the trader does not gain rights like dividends or voting powers. This makes non-delivery contracts ideal for short-term strategies where the objective is to earn from price volatility rather than build a long-term asset portfolio.

• Intraday Settlement

Non-delivery contracts are typically settled within the same trading day, commonly referred to as intraday trading. This feature allows traders to buy and sell securities on the same day without holding them overnight. Positions are squared off before the market closes, and any profit or loss is realized immediately. Intraday trading reduces overnight risk and capital requirement since margin trading is allowed. However, it demands constant market monitoring and quick decision-making. Intraday traders usually rely on technical analysis, price trends, and market news to make swift, high-frequency trades based on short-term price fluctuations.

• Speculative in Nature

These contracts are primarily used by traders who aim to profit from short-term price movements rather than investing for the long haul. They do not involve the transfer of securities and are often executed with borrowed funds (leverage), amplifying both gains and losses. Speculative trading through non-delivery contracts can be highly risky, especially in volatile markets. It requires a keen understanding of technical charts, indicators, and market sentiment. Traders engage in buying low and selling high (or vice versa) within short timeframes, hoping to benefit from intraday price swings rather than asset appreciation or dividends.

• Margin Trading

One of the defining features of non-delivery contracts is the use of margins, where traders are only required to deposit a fraction of the total trade value. This allows higher exposure to market positions with limited capital, increasing the potential for gains—and losses. Margins vary depending on the broker and market volatility, and positions must be squared off by the end of the trading session. If losses exceed the margin, the trader must make additional payments. While margin trading boosts buying power, it introduces significant risk, especially in unpredictable markets or during sharp price reversals.

• No Dividends or Rights

Since non-delivery contracts do not result in ownership of the securities, traders are not entitled to corporate benefits such as dividends, bonus issues, rights issues, or voting rights. The primary aim is capital gain from rapid price movements. This limits the investor’s long-term value creation, unlike delivery-based contracts that provide residual benefits of holding equity. Traders focusing on non-delivery contracts must rely solely on price appreciation within a short span and cannot participate in company-related decisions or profits. This makes such contracts more relevant to speculative traders than long-term investors.

• High Liquidity and Volatility

Non-delivery contracts are popular in highly liquid and volatile stocks, offering numerous trading opportunities during a single day. Stocks with large trading volumes allow traders to quickly enter and exit positions, reducing the risk of price slippage. Volatility creates frequent price swings that can be capitalized upon for short-term gains. However, this also increases the level of risk and demands active monitoring. High liquidity ensures narrow bid-ask spreads, enabling better execution of trades. Traders engaging in such contracts thrive in dynamic environments, where price trends can be anticipated and acted upon quickly.

Key differences between Delivery Contracts and Non-Delivery Contracts in Capital Market

Bima Sugam is a unified digital insurance platform initiated by the Insurance Regulatory and Development Authority of India (IRDAI) to streamline the entire insurance lifecycle—buying, servicing, and settling claims—on a single portal. Designed as a one-stop marketplace, it aims to integrate insurers, policyholders, intermediaries, and regulators through a transparent, paperless system. The platform will allow customers to compare, purchase, and manage life, health, motor, and general insurance policies directly. It seeks to increase insurance penetration, reduce mis-selling, and enhance customer experience with quicker grievance redressal and claim settlements. Bima Sugam is part of IRDAI’s broader vision to create a digitally inclusive, efficient, and customer-centric insurance ecosystem across India, leveraging technology for greater trust and ease of access.

Features of Bima Sugam:

• Unified Digital Platform

Bima Sugam brings all insurance services—life, health, motor, and general—under one digital roof. This eliminates the need to visit multiple websites or agents. Users can compare policies, buy insurance, and manage claims in one place. It also integrates insurers, agents, policyholders, and regulators. The platform is expected to simplify the insurance process, reduce paperwork, and improve operational efficiency for both customers and providers, thereby transforming the traditional approach to insurance in India.

• Seamless Policy Comparison and Purchase

One of Bima Sugam’s standout features is its ability to offer side-by-side comparisons of insurance policies across various providers. This transparency empowers customers to make informed choices based on premiums, features, claim ratios, and benefits. After comparison, users can directly purchase the selected policy without relying on intermediaries. This feature fosters competition among insurers, drives better product innovation, and helps customers secure policies that best meet their financial and risk protection needs.

• Direct Access to Insurers and Products

Bima Sugam eliminates the dependency on brokers or agents by enabling customers to interact directly with insurance companies. This not only reduces commission-related costs but also limits the risks of mis-selling or biased recommendations. Consumers can browse insurer profiles, access policy documents, and even consult digital advisors. The direct-to-consumer model enhances transparency, accountability, and trust between policyholders and insurers, aligning with IRDAI’s goal to build a more efficient and fair insurance ecosystem.

• Integrated Grievance Redressal and Claim Settlement

The platform includes a robust grievance redressal system that allows users to register complaints and track their status. It also facilitates faster and more transparent claim settlements by digitizing document submissions and verification processes. This drastically reduces turnaround time, minimizes human error, and ensures fair claim evaluations. Policyholders will no longer need to chase different departments or agents, making Bima Sugam a user-friendly and empowering tool for managing insurance-related issues efficiently.

• e-BIMA Account and Digital Locker

Bima Sugam introduces an e-BIMA account for each policyholder, serving as a digital locker for all insurance-related documents. This centralized storage makes it easier to access, update, or retrieve policy details at any time. The account supports secure logins and is linked with Aadhaar and PAN for identity verification. It also enables auto-renewals and real-time notifications. This feature promotes paperless management and improves continuity in tracking and managing various insurance policies across life stages.

• Inclusive and Accessible Design

Designed with inclusivity in mind, Bima Sugam supports multiple Indian languages and is optimized for smartphones and low-bandwidth internet users. It is intended to reach underserved and rural populations, helping increase insurance penetration. The user interface is simple, and assisted modes will be available for those who need help. This accessibility ensures that Bima Sugam contributes meaningfully to financial inclusion by bringing formal risk protection within reach of every Indian citizen.

Working of Bima Sugam:

• Centralized Digital Infrastructure

Bima Sugam functions as a unified digital platform where all insurance stakeholders—insurers, agents, policyholders, brokers, and the regulator—are interconnected. It acts as a central repository, enabling users to search, compare, buy, and manage insurance policies online. The platform is powered by advanced data integration tools and secure cloud-based systems, ensuring seamless real-time access and policy servicing. By consolidating diverse insurance services in one place, it reduces operational friction and supports faster processing across the entire insurance value chain.

• Policy Purchase and Comparison

Customers visiting Bima Sugam can input their requirements—such as coverage type, budget, age, and location—to receive a list of matching policies from multiple insurers. They can then compare features like premium, benefits, tenure, claim settlement ratio, and exclusions side-by-side. Once a suitable policy is selected, users can purchase it directly on the platform using digital payment modes. This disintermediation lowers costs, improves product transparency, and enables users to make well-informed, personalized insurance decisions with minimal effort.

• Digital KYC and e-BIMA Account Creation

To streamline onboarding, Bima Sugam integrates digital KYC using Aadhaar, PAN, or other verified IDs. Upon registration, every user gets an e-BIMA account—an online insurance locker that stores policy documents, receipts, and correspondence. The e-BIMA account links all policies purchased across categories and insurers, giving users a consolidated dashboard view. This digitized record-keeping reduces paper dependency, enhances policy tracking, and ensures continuity even if users switch devices or relocate. It also enables automatic renewals and timely reminders.

• Claim Settlement Workflow

When a claim is initiated, Bima Sugam provides a guided, digital claim filing process. Users upload required documents (like discharge summaries, death certificates, or bills), and the system verifies them using insurer APIs and third-party data sources (like hospitals or municipal records). Real-time tracking and updates reduce uncertainty. The integrated model ensures faster resolution by routing claims directly to the concerned insurer. This setup enhances trust and reduces fraud, delays, and unnecessary red tape in the claim process.

• Grievance Redressal and Regulatory Oversight

Bima Sugam features an in-built grievance redressal module where users can file complaints against insurers, agents, or services. These complaints are tracked via ticketing systems and escalated as needed. IRDAI, the regulatory authority, also uses the platform to monitor complaints, compliance, and resolution timelines. This embedded oversight improves accountability, enforces fair practices, and ensures consumer protection. The regulator can also issue updates or policy circulars through Bima Sugam, making it a dynamic interface between the regulator and insured public.

Hindrance of Bima Sugam:

• Digital Literacy and Accessibility

One major hindrance to Bima Sugam’s success is the lack of digital literacy, especially in rural and semi-urban regions. Many potential users are unfamiliar with online platforms, smartphones, or digital payments, making it difficult for them to navigate and benefit from the portal. In addition, inconsistent internet connectivity and lack of digital infrastructure can further exclude large segments of the population. Without targeted awareness and education campaigns, the platform may remain underutilized by those who need affordable insurance the most.

• Resistance from Traditional Intermediaries

Insurance agents, brokers, and intermediaries may view Bima Sugam as a threat to their roles. Since the platform enables direct purchase and service of policies, intermediaries could fear loss of commissions and customer relationships. Their resistance could impact onboarding of insurers or hinder the smooth transition of services. Unless stakeholders are reoriented and incentivized to work with the platform, Bima Sugam might face operational resistance that limits its adoption and undermines the intended transparency and efficiency.

• Data Privacy and Security Concerns

Bima Sugam will store sensitive customer data such as Aadhaar numbers, medical histories, financial details, and policy documents. Any data breach or misuse could severely damage public trust. Given increasing cyber threats and vulnerabilities in digital ecosystems, ensuring end-to-end encryption, secure authentication, and regulatory compliance with data protection laws is crucial. Even the perception of weak cybersecurity could deter customers and insurers alike from fully embracing the platform, slowing down its reach and effectiveness in the insurance sector.

• Integration with Legacy Systems

Most insurance companies in India still use varied legacy IT systems that may not be fully compatible with Bima Sugam’s centralized infrastructure. Integrating these older systems with the new platform can lead to technical delays, data inconsistencies, and operational inefficiencies. Seamless data flow, real-time updates, and cross-platform communication are critical for customer satisfaction. However, without a strong and standardized integration framework, Bima Sugam may struggle to offer uniform services across different insurers, leading to frustration among users.

• Trust Deficit Among Users

Many individuals, especially in rural India, are still wary of online financial services due to past experiences with fraud, technical errors, or lack of human assistance. A new digital platform like Bima Sugam may face skepticism about its reliability, authenticity, or customer support. Convincing users to switch from agent-based, face-to-face transactions to an entirely digital ecosystem requires building trust through consistent service quality, responsive help desks, and positive word of mouth. Otherwise, adoption rates may remain low despite robust infrastructure.

Disinvestment refers to the process of selling or liquidating assets by the government, typically in public sector enterprises (PSEs). In India, disinvestment primarily involves the sale of the government’s equity stake in public sector undertakings (PSUs) to private players or institutional investors. The disinvestment policy of India is an important fiscal tool aimed at raising revenues, improving public sector efficiency, and promoting wider ownership in the economy. Over the years, the disinvestment strategy has evolved, reflecting changes in economic thinking and the need for better public resource management.

Historical Background:

The concept of disinvestment in India began in the early 1990s, during the era of liberalization. The economic crisis of 1991, marked by fiscal deficits and a balance of payments crisis, forced the government to open up the economy. As part of broader economic reforms, the government recognized the need to reduce its role in running commercial enterprises and to focus more on governance and regulation.

In 1991, the Government of India began selling minority stakes in PSUs to raise non-tax revenue. This marked the beginning of a structured disinvestment policy. In 1996, the Department of Disinvestment was set up, which was later renamed as the Department of Investment and Public Asset Management (DIPAM) in 2016 under the Ministry of Finance.

Objectives of Disinvestment Policy:

• Revenue Generation for Fiscal Needs

One of the primary objectives of disinvestment is to raise non-tax revenue for the government. Funds raised through disinvestment help bridge the fiscal deficit, reduce public debt, and finance social and infrastructure programs. By monetizing idle or underperforming government assets, the state can allocate resources more efficiently toward welfare and development. This fiscal support becomes crucial, especially during periods of economic slowdown, pandemic relief, or to meet budgetary expenditure without increasing borrowing or tax burden.

• Enhancing Efficiency and Competitiveness of PSUs

Disinvestment enables public sector enterprises (PSUs) to operate with greater autonomy, accountability, and professional management. When private investors or strategic partners enter, they bring in market-driven practices, innovation, and performance-linked incentives. This reduces bureaucratic inefficiencies and political interference, improving productivity and profitability. Competitive pressures also force PSUs to deliver better services and optimize costs. Ultimately, this transformation makes these enterprises more dynamic, efficient, and aligned with global standards, benefiting consumers and contributing to economic growth.

• Promoting Wider Share Ownership

Disinvestment facilitates broader public participation in wealth creation by allowing retail investors and institutions to invest in formerly state-owned enterprises. This widens the ownership base of Indian companies, strengthens the equity culture, and deepens domestic capital markets. By listing PSUs and selling shares to the public, the policy helps democratize ownership and reduce concentration of wealth. It also increases transparency, as listed entities must follow strict disclosure norms, benefiting shareholders and enhancing corporate governance standards.

• Reducing Government’s Role in Business

Another key objective is to redefine the government’s role from business ownership to regulation and policymaking. The state should ideally not be involved in running commercial ventures, especially in non-strategic sectors. Through disinvestment, the government can exit industries where private sector participation is strong, allowing it to focus on core responsibilities like infrastructure, healthcare, education, and defense. This aligns with the principle of “Minimum Government, Maximum Governance,” fostering a more liberalized and efficient economy.

• Encouraging Strategic Partnerships and Foreign Investment

Disinvestment opens avenues for strategic partnerships by allowing private and foreign investors to acquire stakes in Indian PSUs. Such partnerships bring in fresh capital, advanced technology, and global best practices. It also boosts investor confidence and enhances India’s image as a market-friendly destination. Strategic disinvestment, involving transfer of control, can revive struggling PSUs, create jobs, and promote long-term sustainability. Foreign direct investment (FDI) inflows through this route contribute to overall economic development and modernization.

Types of Disinvestment:

1. Minority Stake Sale: The government sells a portion of its shareholding but retains management control. This is the most common method.

2. Strategic Disinvestment: The government sells a major stake (typically more than 50%), along with transfer of management control, to private entities. For example, the sale of Air India to Tata Group.

3. Exchange Traded Funds (ETFs): PSU shares are bundled into ETFs like CPSE ETF or Bharat 22 ETF and sold to investors.

4. Offer for Sale (OFS): Government stakes are sold directly on stock exchanges to retail and institutional investors.

5. Initial Public Offering (IPO): Unlisted PSUs are listed on stock exchanges through public offerings. For instance, LIC’s IPO in 2022.

Major Disinvestment Milestones:

• 1991–2000: Initial disinvestments were modest, often under 10% stake sales.

• 2000–2010: Strategic sales began with disinvestment in firms like BALCO and VSNL.

• 2010–2014: Use of ETFs began; stake sales in listed companies became common.

• 2014–Present: Focus shifted toward strategic disinvestment, monetization of assets, and using disinvestment to promote fiscal discipline.

Major disinvestment examples:

• Air India (strategic sale to Tata Group in 2021)

• BPCL, Shipping Corporation of India, and Concor (approved for strategic disinvestment)

• LIC IPO in 2022 (₹21,000 crore raised)

Policy Framework and Role of DIPAM:

The disinvestment process in India is overseen by DIPAM. Its responsibilities include:

• Identifying PSUs for disinvestment.

• Preparing and approving disinvestment strategies.

• Coordinating with NITI Aayog and other ministries.

• Appointing merchant bankers and valuers.

• Managing ETFs and the sale process.

The government has categorized PSUs into strategic and non-strategic sectors:

• Strategic sectors include defense, atomic energy, and space.

• In strategic sectors, only a “bare minimum” presence of public sector units is allowed.

• In non-strategic sectors, all CPSEs are to be considered for privatization or closure.

This classification was announced in the New Public Sector Enterprise Policy 2021, emphasizing a move towards “minimum government, maximum governance.”

Challenges in Disinvestment:

1. Political Resistance: Trade unions and political parties often oppose privatization moves, citing job losses and national interest.

2. Market Volatility: Disinvestment plans can be delayed due to weak stock market conditions.

3. Valuation Concerns: Accurately valuing large PSUs, especially in regulated sectors, is complex.

4. Legal and Regulatory Hurdles: Compliance, litigations, and lack of stakeholder consensus can delay sales.

5. Operational Inefficiencies: Some PSUs are loss-making, making them unattractive to buyers.

Impact of Disinvestment:

• Improved Efficiency of PSUs

Disinvestment introduces professional management, private investment, and performance-based accountability into Public Sector Undertakings (PSUs). With reduced government interference, these entities can operate with greater autonomy and market orientation. This often leads to enhanced productivity, cost efficiency, and better service delivery. Over time, competition from the private sector fosters innovation and operational discipline. As PSUs become profit-driven rather than subsidy-dependent, they contribute more meaningfully to the economy while reducing the burden on government finances.

• Fiscal Consolidation for Government

By selling stakes in PSUs, the government mobilizes substantial non-tax revenue, helping bridge the fiscal deficit without increasing taxes or borrowing. This supports public expenditure on infrastructure, social welfare schemes, and development projects. A healthier fiscal position also improves investor confidence and sovereign credit ratings. Regular disinvestment reduces the need for government bailouts of underperforming enterprises, freeing up capital for priority areas. It supports macroeconomic stability and aligns with prudent fiscal management strategies.

• Boost to Capital Markets

Disinvestment promotes capital market development by increasing the number of listed companies, enhancing market depth, and broadening investor participation. When government companies go public, they attract institutional and retail investors, leading to more vibrant trading activity. Transparent listing also improves corporate governance and disclosure standards. The flow of quality public issues strengthens the equity culture in India, encouraging long-term savings through stock markets. Overall, disinvestment helps deepen and stabilize India’s financial ecosystem.

• Strategic Sector Rebalancing

Disinvestment allows the government to withdraw from non-strategic sectors while retaining control over strategic ones like defense, railways, and atomic energy. This policy shift encourages private sector investment in areas previously monopolized by the state, enhancing competition and consumer choice. The rebalancing frees up administrative resources and improves governance focus. It helps restructure public enterprises for better alignment with national priorities, while still maintaining essential services in key areas of national interest and security.

• Social and Employment Impacts

While disinvestment may initially raise concerns about job security, it often leads to long-term employment generation through expansion and modernization of PSUs. Improved efficiency and private investment can create new roles, better working conditions, and skill development opportunities. However, in some cases, strategic sales may involve downsizing or voluntary retirement schemes, causing short-term disruptions. The overall social impact depends on how transitions are managed. If done inclusively, disinvestment can drive sustainable employment and better social outcomes.

Life Insurance Corporation (LIC) of India IPO was one of the most awaited and significant public offerings in India’s capital market history. As the country’s largest life insurer, LIC has been a household name for decades. Its Initial Public Offering, launched in May 2022, marked a major milestone for the Indian government’s disinvestment strategy and for deepening public participation in capital markets. The IPO not only attracted investor interest domestically but also drew attention from global market watchers due to its size, scale, and strategic importance.

Background and Rationale:

LIC, established in 1956 through the nationalization of 245 private insurers, had long remained a fully government-owned entity. Over the years, it grew to become the largest insurer in India, controlling over 60% of the life insurance market share in terms of premiums. The government’s decision to divest a part of its holding in LIC was driven by its broader fiscal management goals, including reducing the fiscal deficit and raising funds through disinvestment.

In the Union Budget 2021-22, Finance Minister Nirmala Sitharaman announced the government’s plan to bring LIC to the public market. This was in line with India’s aim to raise ₹1.75 lakh crore through disinvestments. Given LIC’s size and public trust, its IPO was expected to significantly contribute to the government’s capital raising objectives.

IPO Details

The LIC IPO was launched in May 2022 and aimed to raise approximately ₹21,000 crore, making it India’s largest-ever IPO at the time, though smaller than originally anticipated. The government offered a 3.5% stake in LIC, out of its 100% ownership. The issue price was set at ₹949 per share, with a discount of ₹45 for retail investors and ₹60 for policyholders. It received strong demand, particularly from retail investors and LIC policyholders, with the issue being oversubscribed nearly 3 times.

The IPO had a reserved quota for policyholders (10%), retail investors (35%), and employees (5%). The public listing took place on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).

Valuation and Market Response

While LIC had immense brand equity and a vast policyholder base, its valuation became a subject of intense debate. Some analysts believed that the valuation was conservative given LIC’s scale and reach. The LIC IPO valued the company at ₹6 lakh crore, which was lower than earlier expectations of ₹10-12 lakh crore. This cautious pricing was likely aimed at ensuring successful subscription amid global market volatility and investor caution.

Despite a stellar subscription, LIC shares listed at a discount of nearly 8% to the issue price, reflecting market sentiment and global uncertainties. The stock struggled to maintain its listing price in the months following the IPO, though it remained a widely held stock, especially among retail investors and policyholders.

Strategic Importance

The LIC IPO was strategically significant for several reasons. Firstly, it showcased the Indian government’s commitment to disinvestment reforms. Secondly, it was a step towards greater transparency and accountability, as LIC now had to adhere to SEBI regulations, publish quarterly results, and follow corporate governance norms.

Thirdly, the IPO deepened financial inclusion and market participation. With many retail investors and policyholders becoming shareholders for the first time, it created a new class of retail investors. LIC’s listing also enhanced the depth of India’s insurance and financial sector stocks in the market.

Challenges and Concerns

Despite its historic nature, the LIC IPO was not without challenges. The timing coincided with geopolitical tensions, particularly the Russia-Ukraine war, rising interest rates, and inflation concerns globally. Market volatility affected investor sentiment.

Additionally, LIC operates under a social mandate, often investing in government schemes or rescue acts like IDBI Bank, which some analysts argue may not always align with commercial interests. There are also concerns about competition from private insurers, who are faster and more agile in leveraging technology and customer service.

Post-IPO Developments

Since the IPO, LIC has been under constant scrutiny from investors and analysts. Its financial results, investment strategy, market share, and digital transformation efforts are closely watched. LIC has been working to modernize its operations, improve customer experience, and stay competitive in a rapidly changing insurance landscape.

The listing also brought more visibility to LIC’s massive investment portfolio, which makes it one of the largest institutional investors in India. With increased scrutiny, LIC now operates in a more accountable and performance-driven environment.

Atal Pension Yojana (APY) is a government-backed pension scheme launched in 2015, primarily aimed at providing old-age income security to workers in the unorganized sector. Administered by the Pension Fund Regulatory and Development Authority (PFRDA), APY encourages individuals aged 18 to 40 to make regular monthly contributions based on their chosen pension amount (₹1,000 to ₹5,000). Upon reaching 60 years of age, subscribers receive a guaranteed monthly pension. In case of the subscriber’s death, the spouse is entitled to the pension, and the accumulated corpus is paid to the nominee. APY also offers government co-contribution for eligible low-income subscribers to boost long-term savings.

Functions of Atal Pension Yojana:

• Ensuring Old Age Security

Atal Pension Yojana functions as a safety net by ensuring financial stability for individuals during their retirement years. It provides a fixed, guaranteed pension ranging from ₹1,000 to ₹5,000 per month after the age of 60. This helps individuals, especially from the unorganized sector, maintain a basic standard of living in old age. By promoting long-term savings, APY reduces dependence on others and offers social security, which is crucial for individuals who do not have access to employer-provided pension schemes or formal retirement benefits.

• Promoting Financial Inclusion

APY plays a key role in expanding financial inclusion by bringing low-income and informal sector workers into the fold of the pension system. It encourages individuals to open bank accounts and make regular contributions through auto-debit from savings accounts. This helps in building a culture of financial discipline and long-term savings among the underprivileged. APY’s easy accessibility and minimal entry barriers ensure that economically weaker sections, who are often excluded from mainstream financial services, can secure their future and participate in the national pension framework effectively.

• Government Co-Contribution Incentive

One of APY’s key functions is to provide a government-backed incentive to encourage participation. For eligible subscribers (who joined between 2015–2016 and were not part of any statutory social security scheme or income taxpayers), the government co-contributed 50% of the total contribution or ₹1,000 per annum (whichever was lower) for five years. This support incentivized early enrollment and ensured that individuals in the unorganized sector started investing in their retirement early. This also highlighted the government’s commitment to broadening the social security net across all economic groups.

• Automatic Contribution and Management

APY simplifies pension contribution by enabling an auto-debit mechanism from the subscriber’s bank account. This ensures timely monthly, quarterly, or half-yearly contributions without manual intervention. The scheme is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), which manages funds securely and transparently. This automation builds trust and reduces the chances of missed payments. Additionally, subscribers receive periodic statements and alerts, promoting accountability and clarity about their pension corpus. This function improves operational efficiency and ensures hassle-free participation, especially for financially less-literate individuals.

Challenges of Atal Pension Yojana:

• Low Awareness Among Informal Sector Workers

Despite APY targeting the unorganized sector, a significant portion of the intended beneficiaries remain unaware of the scheme’s existence or benefits. Limited financial literacy and weak communication channels in rural and informal workspaces hinder effective outreach. Many potential subscribers are unsure how to enroll, what the returns are, or how the contribution system works. This awareness gap prevents optimal scheme penetration and weakens the objective of universal pension coverage, especially in regions where social security is most needed.

• Irregular Income and Payment Defaults

Many workers in the unorganized sector, such as daily wage earners or seasonal laborers, have fluctuating or unpredictable incomes. As a result, maintaining consistent contributions becomes difficult, leading to skipped payments or dormant accounts. Even though the scheme allows auto-debit, insufficient bank balances during debit dates result in penalties or disqualification. This irregularity poses a challenge to sustaining participation in APY and achieving long-term pension accumulation. Additionally, a lack of flexibility in contribution patterns further discourages financially unstable workers.

• Limited Pension Corpus and Inflation Risk

The fixed pension slabs offered under APY (ranging from ₹1,000 to ₹5,000 per month) may not be sufficient to meet future living expenses, especially with rising inflation. The pension amount is pre-defined and not inflation-indexed, meaning the real value of the payout may decline over time. This reduces the scheme’s attractiveness for young earners who may consider the returns inadequate compared to other financial products. The fixed payout model fails to address the long-term needs of aging subscribers in a dynamic economy.

• Dependency on Bank Infrastructure

The success of APY heavily relies on access to formal banking services. Many target users, especially in rural and remote areas, face challenges such as lack of nearby bank branches, poor digital connectivity, and limited banking literacy. Although India has made significant strides in financial inclusion, these infrastructural gaps still prevent seamless enrollment, contribution, and account maintenance. Without robust and accessible banking infrastructure, APY’s implementation becomes inconsistent, undermining the vision of inclusive pension coverage across all economic segments.

• Lack of Portability and Customization

The APY scheme offers limited flexibility in terms of modifying contribution frequency or pension slabs after initial selection. This rigidity doesn’t cater well to workers with changing income levels or life situations. Additionally, portability across banks or financial institutions is still not seamless for migrant workers. The inability to adjust the plan dynamically to suit evolving financial needs discourages continued participation. A more adaptable, user-friendly model would make the scheme more appealing, especially to India’s large and mobile informal workforce.

National Pension System (NPS) is a government-sponsored voluntary retirement savings scheme launched in 2004 for government employees and later extended to all citizens in 2009. It aims to provide financial security after retirement by encouraging individuals to save regularly during their working years. Under NPS, subscribers contribute to a pension account, which is invested in market-linked instruments such as equities, government bonds, and corporate debt. On retirement, subscribers can withdraw a part of the corpus as a lump sum and use the remaining to buy an annuity, which provides regular income. Regulated by Pension Fund Regulatory and Development Authority (PFRDA), NPS offers tax benefits, flexibility, and low cost, making it an attractive long-term investment for retirement planning.

Regulations of NPS:

National Pension System (NPS) is regulated and administered by the Pension Fund Regulatory and Development Authority (PFRDA), which was established under the PFRDA Act, 2013. The primary responsibility of the PFRDA is to promote, develop, and regulate the pension industry in India, ensuring transparency and protecting the interests of subscribers. It frames guidelines for the registration and functioning of Pension Fund Managers (PFMs), Point of Presence (PoPs), Trustees, and other intermediaries. All transactions and operations of NPS are subject to detailed procedural regulations and periodic audits to ensure efficiency, security, and compliance with national laws. NPS accounts are managed through the Central Recordkeeping Agency (CRA), currently operated by NSDL and KFintech.

NPS regulations cover various aspects such as investment norms, withdrawal procedures, account portability, contribution limits, and asset allocation rules. The PFRDA mandates that PFMs maintain a balanced risk exposure by investing subscriber contributions in a mix of equity, corporate bonds, and government securities. There are also specific guidelines for premature withdrawal, partial exits, and annuity purchases. Regulations also ensure that subscribers receive timely disclosures, grievance redressal mechanisms, and proper record maintenance, thus enhancing the credibility, trust, and long-term sustainability of the pension system in India.

Scope of NPS:

• Retirement Planning for All Citizens

NPS provides a structured platform for all Indian citizens aged 18–70 to build a retirement corpus. It offers long-term savings with tax benefits and regulated investment options. Initially aimed at government employees, it now includes private sector workers and self-employed individuals, making retirement planning accessible to a wider population. With low management fees and transparent operations, NPS ensures a secure post-retirement income through annuity purchases, fulfilling a crucial role in India’s evolving pension landscape.

• Financial Inclusion for the Unorganised Sector

NPS has broadened its scope to include workers from the unorganised sector, such as small traders, farmers, and daily wage earners. Through initiatives like Atal Pension Yojana (APY), NPS brings social security to individuals with irregular income patterns. The system ensures that even those without access to formal employment can systematically contribute and benefit from a pension. This inclusivity supports the government’s broader agenda of financial literacy, social welfare, and long-term economic stability.

• Tax-Efficient Investment Avenue

NPS serves as a tax-efficient retirement investment under Sections 80C and 80CCD of the Income Tax Act. Subscribers can claim deductions up to ₹2 lakh annually, making it attractive to both salaried and self-employed individuals. Additionally, partial withdrawals for specific purposes (like education, marriage, or medical needs) are allowed after certain conditions are met. With EEE (Exempt-Exempt-Exempt) status for Tier-I accounts, it provides a long-term savings tool with substantial tax savings, promoting disciplined investing for retirement goals.

• Institutional Pension for Government & Corporate Employees

NPS is the mandated pension scheme for new entrants into central and most state government services post-2004. It is also adopted by many private companies for employee retirement benefits. The Corporate NPS Model allows employers to contribute toward employees’ retirement savings, reducing the burden of post-retirement benefits. This institutional coverage promotes a shift from defined-benefit to defined-contribution pension models, offering portability, transparency, and professional fund management, strengthening the pension system across both public and private sectors.

Challenges of NPS:

• Low Public Awareness

Despite being a long-term financial product with tax benefits, NPS suffers from limited public awareness. Many individuals, especially in the unorganized sector, are unaware of its advantages and procedures. Inadequate outreach, limited marketing, and lack of personal financial education have restricted its adoption. This leads to under-enrollment and prevents the scheme from achieving its goal of widespread retirement coverage across demographics.

• Mandatory Annuity Purchase

A major concern with NPS is the compulsory purchase of an annuity with at least 40% of the corpus at retirement. Annuity products in India often offer low returns (around 5–6%) and are taxable, reducing post-retirement income. Investors prefer flexibility and higher yield options, and this requirement is seen as limiting. It discourages many from opting for NPS despite its other long-term benefits.

• Limited Liquidity

NPS Tier-I accounts are designed for long-term retirement savings and offer restricted withdrawal options. Subscribers face limitations on partial withdrawals, especially during emergencies or life transitions. Although some partial withdrawals are allowed after 3 years for specific purposes, the lack of easy liquidity makes the scheme unattractive for people seeking flexibility and short-term financial support.

• Complex Structure for Laypersons

The NPS structure involves multiple choices – fund managers, investment options (equity, government, corporate bonds), and account types (Tier I and II) – which can confuse average investors. The lack of financial literacy and personalized advisory services further complicates participation, especially among those in rural or informal sectors. Simplification and guidance are needed to boost enrollment.

• Voluntary Nature in Unorganised Sector

Unlike government employees, participation in NPS is voluntary for private and informal sector workers. Without employer mandates or strong incentives, subscription remains low. Many workers lack steady income to contribute regularly. Moreover, irregular employment and migration make it hard to maintain consistent contributions, limiting the system’s effectiveness in covering the majority workforce.

• Pension Adequacy

Given the modest contributions by many users and the uncertain returns from market-linked investments, the final pension corpus may not be sufficient to ensure financial security post-retirement. For low-income earners especially, even disciplined NPS participation might result in inadequate annuity payments. This raises concerns about whether NPS alone can deliver meaningful social security for India’s aging population.