1. Investor
Benefit to Investor is by means of getting inflation protection. One gets in a sample case of 20 years pension scheme with
10% pa rate of interest and with 10% inflation protection the order of 6.7% return in first year and over 25% in twentieth year.
2. Investment Company
Investment company is benefited with increased holding amount, that is run balance of pricipal and unpaid interest amounts.
For example in the case mentioned in previous paragraph, the investment company has accrual of Rs.154184.75 in 13th year which is
more than 150% of the present method of Equal instalment.
3.Investment Company as a financier
Even if one assumes the investor is more benefited, the investment company becomes an investor when it comes to
money lending/financing. It gets increased return of income from the amount financed.
4. Borrower
Borrower gets the convenience of low repayment as compared to Equated Monthly Instalment of the present day situation. Of course
he sheds down more interest in later years for this convenience. It is essential to note that borrower's income/repayment capcity
increases because of inflation. The situation is very much identical to the situation changed from
diminishing balance method to the present day EMI method.
5. Government/RBI
RBI will not need to increase the prime lending rate to curb inflation as there is increased repayment of loan
by the borrower. (refer para 4 above.)
Special note on benefit to investment company
Assured increase
There is assured increase in balance which means assured increase in Business/Turnover
during the first half of the period (say 10 or 20 years).
To explain this in a typical case of 100000 rupees investment in case of pension payout with 10% inflation and 10%
rate of interest, the run balance (worked out for the case considered in page 5) increases to 105317 and so on upto Rs. 154184 in 13th year of the 20 year plan which
means average business increase is at 5% without having the need of fresh customer/deposit. For any investment
company 10 years is a quite a long and comfortable time to increase their business activity to nullify the decrease
in holding in subsequent years of the term.
The ultimate beneficiary is the investor. The investment company also become the investor when it comes to the
business of money lending. The investment company becomes the investor in this case. The investment company will not
keep the customer deposit money idle. It has to lend/invest in short term/long term projects. The lending rate is
always higher compared to deposit rate. Therefore the investment company gets much more
benefit compared to simple depositor.
Investor is motivated to go in for long term deposits as it attracts more return. This aspect is extremely
beneficial to the investment company.
In case of deposits/pension plan if the investor prematurely closes the account, the investor
will be the heavy loser of future returns. The investor will be the heavy loser. Here again investment company is benefited.
contd.
In the case of loan repayment scheme, by premature closure, the investment company recovers the outstanding
loan amount which is higher than the original loan amount. The investment company will be benefited.
The investment company pays much less rate of interest in initial years and certainly will be
welcomed by the investment company
In case of borrowings, the borrower (say investment company/business house) looks for
moratorium from lender which may not be agreeable to lender. But to pay low return in a systematic manner
at initial periods
must be agreeable to both borrower and lender
Flexibility:
Flexibility is a valuable point with Inflapro system. Flexibility means
that one can opt for -ve inflation or zero inflation or +ve inflation that the system is applicable for all the system of
method of calculation viz. diminishing balance method, Equal uniform rate and +ve inflation protection method.