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How your bank account gets hacked
Why FMPs are more lucrative than Bank FDs?
What is an FMP?
FMP stands for Fixed Maturity Plan. These are essentially close-ended income schemes with a fixed maturity date i.e. that run for a fixed period of time. This period could range from one month to as long as two years or more. When the fixed period comes to an end, the scheme matures, and your money is paid back to you.
FMPs do not invest in equity. The portfolio is generally invested in debt and money market instruments maturing in line with the tenure of the scheme. The objective is to lock-in the investment at a specified rate of return thereby immunizing the scheme against market fluctuations.
Liquidity
In most open-ended mutual fund schemes, one can redeem one's units anytime. However, the structure of the FMP does not lend itself to this kind of liquidity. Invest money you are more or less sure you are not going to need during the tenure of the plan. If you withdraw before the scheme closes, generally a steep exit load is imposed.
The reason for this steep load is to deter investors treating the FMP like a normal income scheme. Though income schemes invest in similar instruments as an FMP, being open-ended and not having a specific tenure based investment strategy, these are subject to interest rate risk leading to fluctuations in the NAV.
What is better --- A Bank Deposit or a FMP?
Lately the interest rates on bank deposits have increased leading many investors to wonder whether a simple Bank Fixed Deposit (FD) would serve better than having to go through the process of investing in an FMP. Though Bank FDs and FMPs currently offer a similar rate of return; the tax impact tilts the scales in favour of the FMP.
Interest on Bank FDs is fully taxable whereas the return from FMPs is either subject to the Dividend Distribution Tax (for the dividend option) or the capital gains tax rate (for the growth option). The Distribution Tax rate @14.16% or the capital gains tax rate @10% are lower than the income tax rate, especially in the case of investors in the higher tax bracket. Tax directly eats into returns, which is why FMPs have the edge over Bank FDs.
Are FMPs for you?
As I write this, markets are extremely choppy. Depending upon whom you talk to, either a severe correction is round the corner or the market is going to go up by a couple of thousand points more. Though no one has seen what tomorrow will bring, common sense indicates that a post tax yield of almost 9% is too good to ignore.
If you are looking for a fixed income avenue that yields a reasonable return with minimum risk, adequate liquidity and tax efficiency, FMPs will provide you with an effective shelter.
This article was about how short-term FMPs (of duration less than one year) can benefit investors. Next time, we shall examine how longer term FMPs (of over one year) which yield capital gains benefits instead of dividend income can also be used for investments that have a longer time horizon.
Are FMPs for you?
Well, FMPs are for everyone. In fact, you can look upon FMPs as fixed deposits offered by mutual funds. Just like bank fixed deposits, FMPs too are of differing periods such as 30 days, 90 days, 180 days, 366 days and so on. Tax incidence differs as explained in these articles.
Also FMPs are extremely safe since the underlying investments are either money market instruments or rated paper. They have nothing to do with the Sensex movement and everything to do with interest rate movements. Before investing, the MF indicates the yield that you can expect from the scheme. The word used is "indicates" as against "assures" as SEBI rules do not allow mutual funds to assure returns. In any case, just like in the case of a bank fixed deposit, in an FMP too, investors would know beforehand what the return is going to be. And lastly, to choose an FMP, you should do just what you would do while choosing a fixed deposit......invest with a fund house with pedigree and reputation.
Cash-for-trash or paradox of deleveraging
Deleverating is a money-term which means the reduction of financial instruments or borrowed capital previously used to increase the potential return of an investment. It is the opposite of leverage. The paradox discussed here refers to the fact that the US Treasury will be left holding worthless investments or investments which will potentially yield only poor returns in the future. The band-aid measures being discussed such as $700 billion bail-out to buy 'loan' instruments from troubled financial institutions because of ill-thought-out house mortgages are likely to result in the reduction in the value of the 'assets' themselves [that is, the mortgage loans (which are assets in the money-jargon) are of lesser worth than what appears as net present value of the asset].
The problem with capitalism is well articulated by the following quote from a professor: "If you reduce their debt payments, they will start spending again," said Mr. Roubini, a professor at New York University. "It's not going to help us avoid a recession, but it could make it shorter."
American citizens are encouraged to spend and spend again through a credit card payment system which promotes financial irresponsibility. How can anyone be asked to cash the family jewels and keep spending, by borrowing in perpetuity? Isn't there something called 'savings' to cope with the rainy-day for the family and to provide for future obligations of the family, for e.g., college tuition fees for the growing children? The financial system has made a mockery of the concept of 'savings' and the concept of time in economics. Time is treated only as a discounting mechanism and not as a framework for responsible financial management of one's EARNINGS, earnings made the hard, old-fashioned way, through work. We have seen how fetishism of money works. Money has become a commodity and the citizens are made to believe that the commodity is only to be spent and will be produced by the Treasury or the Central Bank by printing currencies.
This is problem number one with American capitalism, the cancer which has engulfed the world financial system: fetishism of money.
The second problem is the discounting of savings as a measure of financial responsibility of the wage-earner(s) of the family.
The dangers for India in this ongoing melt-down in USA is that Indian financial system -- together with other financial systems of other nations -- will be asked to bail out the beleaguered American financial system. In simple terms, America is looking for suckers. Business process outsourcing now takes a new fork: Money process outsourcing. Who cares if the Rupee is Rs. 60 to a dollar? If it can help 10 Janpath chamcha-s to merrily accumulate their monies, who cares for remedying the impoverishment of the poor Indian who has to bear the burden of inflation run amuck?
Indian financial markets: meltdown has begun...
The good news is that $8.4b net capital outflow has occurred during 2008 (as of Sept. 2008) meaning that FIIs have mostly pulled out their 'investments'. The bad news is that still over $20b 'investments' still remain which should also be taken out, thus bringing Sensex to a sensible level of 5000.
The disastrous experiment of treating FII fund-flows as engines of development should be given up, since FIIs are interested in trading in money as a commodity and least concerned about nation's abhyudayam. Instead, the old-fashioned method should be followed of getting specific wealth-generating projects which require imported technology through local entrepreneurs collaborating with MNCs. This is the route PRC took with fast-track implementation of such projects.
The ongoing saga of the fall of the rupee (it has to fall further) is related to the simple fact of inflation and the resultant fall in the purchasing power of the rupee vis-a-vis, say, the dollar. [Exchange rate regime is also manipulated by forward trading in currencies by the same group of 'investment' sharks who indulge in participatory note transactions to complement the looting efforts of anti-nationals. Witness what Soros et al did for the misiere of the Tiger economies during the 1980's.] Inflation is the result of mismanagement of the fiscal regime by the 10-janpath chamcha-s in utter disregard for the welfare of the farmers. (Again, inflation is too much money chasing too few available goods and services which is indicated by the absurd levels of current accounts deficits and loot from the exchequer through government dole-outs).
Remedy? Get the government off the backs of the people. Leave the economy to be managed by the trusted jaati-guild-formations which have proven expertise in generating social capital and stellar individual initiatives which have always been the hall-mark of Indian economic activity without waiting for government largesse or government trying to control commanding heights of the economy.
The remedy has to be preceded by throwing the 10-janpath chamchas doubling up as looters, out of power.
The loot which has been ongoing during the last 4 years shames to insignificance, the loot perpetrated by the British colonial regime. No development project worthy of mention has occurred during the last 4 years. Even the golden quadrilateral was messed up and dumped by the UPA regime which didn't even bother to take up the National Water Grid programme. It was indeed too much to expect from a regime marked by chamcha-giri a nationalist-oriented approach to abhyudayam. As we vote, so we reap. It is time to weep as the rupee continues its southward decline.
kalyan
Rupee value plunges; biggest fall in a decade
16 Sep 2008, 1908 hrs IST,REUTERS
MUMBAI: The rupee posted its biggest fall in a decade on Tuesday, hit by risk aversion and banks arbitraging a weaker offshore rate, although suspected central bank intervention stopped the slide just short of 47 per dollar.
The partially convertible rupee ended at 46.89/90 per dollar, off a trough of 46.99 which was its lowest since July 24, 2006.
The rupee fell 1.8 percent from its close of 46.05/06 on Monday, its biggest fall since May 14, 1998, according to Reuters daya, when the currency fell 2 percent after sanctions were imposed on India for its nuclear testing. One-month offshore non-deliverable forward contracts were quoting at 47.15/25, weaker than the onshore rate, indicating a bearish near-term outlook for the rupee.
That also created an arbitrage opportunity, where the dollar is bought against the rupee in the onshore market and sold in the offshore NDF market to exploit the price differential. "There are no (dollar) sellers in the market apart from the central bank. There is lot of oil, equity and NDF-related dollar demand, and even importers are covering near-term imports," said Madhusudan Somani, associate director of financial markets at Yes Bank.
"The rupee may test 47.20-25 levels in the near term," he added. Dealers said the central bank was seen selling dollars to halt the rupee's sharp decline, but sales were offset by demand for the US currency. At its low on Tuesday, the rupee was down 6.5 percent in September and more than 16 percent in 2008. Dealers estimated the central bank had sold $1.5-$2 billion to put a floor under the rupee on Tuesday.
Indian shares pulled out from a nosedive to end almost level on Tuesday after they had opened down 3.5 percent. Capital outflows from the local shares so far in 2008 total a net $8.4 billion, including $1 billion in September, a sharp turnaround from a record net inflows of $17.4 billion in 2007.
Traders said broad strength in the dollar versus other currencies overseas was also hurting sentiment on the rupee. The dollar steadied near 4-month lows versus the yen on Tuesday, but held gains against high yielders as investors took refuge in safe-haven assets following the collapse of Lehman Brothers.
Warren Buffet
Listen to his words....what he has to say.
"I am careful not to confuse excellence with perfection. "
Excellence,. ....... I can reach for. " Perfection is God's Business"............ ....WB.
Warren Buffet
There was a one hour interview on CNBC recently with Warren Buffet, the second richest man who has donated $31 billion to charity. Here are some very interesting aspects of his life:
1. He bought his first share aged 11, and he now regrets that he started too late!
2.. He bought a small farm aged 14, with savings from delivering newspapers.
3.. He still lives in the same small 3-bedroom house in mid-town Omaha that he bought after he got married 50 years ago. He says that he has everything he needs in that house. Out side of His house does not have a wall or a fence.
4 . He drives his own car, everywhere and does not have a driver or security people around him.
5. He never travels by private jet, although he owns the world's largest private jet company.
6.. His company," Berkshire Hathaway", owns 63 companies. He writes only one letter each year to the CEOs of these companies, giving them goals for the year. He never holds meetings or calls them on a regular basis. He has given his CEO's only two rules.
Rule number 1:" Do not lose any of your shareholder's money".
Rule number 2:" Do not forget-The rule number 1".
7. He does not socialize with the high society crowd. His pass time after he gets home is to make himself some pop corn and watch TV.
8. Bill Gates, the world's richest man met him for the first time only 5 years ago. Bill Gates did not think he had anything in common with Warren Buffet. So he had scheduled his meeting only for "half hour"..
But when Gates met him, the meeting lasted for "Ten hours" and Bill Gates became a devotee of Warren Buffet.
9. Warren Buffet does not carry a 'cell phone', nor has a computer on his desk.
His advice to young people:
"Stay away from credit cards and invest in yourself and Remember: -
A. Money doesn't create a man; it is the Man who created money.
B. Live your life as simple as you are.
C. Don't do what others say, just listen to them. But," Do what you feel good."
D. Don't go for a brand name; just wear those things in which you feel
comfortable.
E. Don't waste your money on unnecessary things; Just spend on "Those who really are in need".
F. After all it's your life..., so why give the chance to others to rule your life."
A Few Simple Precautions to Avoid ATM Fraud
Although manufacturers and owners of ATM equipment are constantly working to enhance security, there has been a significant increase in ATM fraud. One source of ATM fraud occurs when the information on the back of the ATM or debit card is "skimmed" or read by an electronic device located on the ATM.
Skimming devices are card readers placed on an ATM close to or next to the actual ATM card reader. The devices may even be mistaken for the actual ATM equipment. It's important to be observant and take precautions if the ATM equipment appears to be modified or to have unusual instructions for its use. Follow these tips to securely use an ATM.
· Use ATMs that are most familiar and choose an ATM that has sufficient lighting and security.
· Never use an ATM if there are any suspicious-looking individuals or if it's too isolated.
· Check the ATM for any unusual attachments to the card slot or key pad, and do not use if there are unusual instructions on the display screen.
· Never use an ATM if there are messages or signs indicating that screen directions have been changed.
· Stand close to the ATM and shield the keypad when entering your PIN.
· Never force your card into the card slot.
· Keep your printed transaction records and compare to your monthly statement.
· If your card gets jammed, retained by the ATM or lost, report this immediately to the bank using the phone number posted on the ATM.
Applied for a loan? Why you may not get it
If you thought the sub prime crisis in the USA has no implications on your loan -- think again!
All banks and NBFC companies operating in retail lending i.e. personal loans, STPL, consumer finance etc, have gone slow in this segment primarily because of the growing number of defaults on unsecured loans and difficulties in recovering the money. It all started last year with a recovery issue with the banks, which then snowballed into the sub prime crisis in the USA and the final punch came from inflation and an economy slowdown.
The reasons mentioned above are macro in nature and there is no fault of a single customer, however things get complicated when these macro reasons impact the credit worthiness and history of the customer.
Taking these macro factors into consideration, we take a look at some of the reasons why you may not get a loan the next time you apply for one.
Past credit history
Very few of us are aware of the fact that our repayment track record is passed on by our bank to the centralised Credit Information Bureau India (CIBIL). This data, positive or negative, plays an important role in ascertaining whether a borrower's future loan application gets rejected or accepted.
CIBIL records the following information of all borrowers
- All the credit facilities availed by the borrower
- Past payment history
- Amount overdue
- Number of inquiries made on that borrower, by different members
- Suit-filed status.
Even inquiries made to call centres of banks are reported to CIBIL and many banks have started rejecting applications if the customer has inquired about a loan more than three times in the past month or so.
A small overdue amount mainly with credit cards is reported as well and results in bad credit of the consumer. So even if there are charges which should not have been imposed on a card and a customer does not pay the same, it is reported to CIBIL.
"CIBIL, of late, has become the backbone for ascertaining the profile of the customer and the current slow down in the unsecured lending market can largely be attributed to it," says an industry insider.
Multiple exposure
Unsecured loans, primarily personal loans, are sourced on surrogates, i.e. loans given without income proof of the customer. Some of the popular surrogates are loan against loan track record, loan against credit card limit, loan against LIC [Get Quote] premiums paid etc. The eligibility of the customer is ascertained on these and loans given without looking at the actual income of the customer.
In the blind race of capturing market share, most of the banks and NBFCs gave loans to the same set of customers based on surrogates, resulting in over leveraging. The modus operandi is very simple, a customer in need of money approaches more than one bank at a time and most of the banks powered with their surrogate programmes lend money. Result: a customer worth one loan actually gets ten and ultimately ends up defaulting in most cases.
Powered by CIBIL and sharing data among themselves, now banks and NBFCs are strictly avoiding lending to customers who are servicing too many loans. Even lending on surrogates they factor in or take into account all the obligations which results in rejections due to multiple exposures.
Bank statement
Most banks have started asking customers for their last three to six-month bank statement to ascertain their credit worthiness. Some important things observed in the bank statement are:
- Average bank balance on certain dates of all months
- Dishonoured cheques both inward and outward
- Minimum balance charges
- Servicing of other obligations
The bank statement in a surrogate scheme has become the most important document that impacts your loan eligibility after CIBIL, as it throws a great deal of light on the banking habits and financial assessment of the customer.
Negative areas
Of late, recovery or collection of overdue amounts has become a major hindrance for retail lending. With the RBI getting strict on recovery rules, banks and NBFCs avoid lending in community-dominated areas, slum areas and outside city limits to avoid complications in future if things go wrong.
Unsatisfactory physical verification
A physical verification is conducted both at the customers' place of residence and work. Things observed during the verification play an important role. Some key considerations are:
- Standard of living of the borrower
- Third party confirmations about the borrower
- Verifying declarations about the vintage of the place
- Observation of stocks and furniture/ fixture at customer's workplace
- Confirmation of business ownership
Physical verification gives the lending institution a feel of the borrower and helps in checking frauds and fabricated cases.
So, the next time you plan to apply for a loan, remember it's not going to be a smooth ride.
Falling markets: 'I'm fed up of investing in SIPs'
The Indian stock market seems to have entered a free fall and harried investors like you are wondering if they should keep on investing their money in systematic investment plans, SIPs, of mutual funds.
Are you right in thinking this way? What should be your strategy during such difficult times when losses just keep on mounting? Should you stop investing or invest more then? If you are still keen on investing should you go for diversified equity funds, equity linked saving schemes or assumed to be safe products like fixed maturity plans?
In a chat with Get Ahead readers on July 9, financial planning expert Vetapalem Sridhar answered these and several other queries related to mutual fund investments, financial planning and how to achieve financial freedom for you and your family.
For those of you who missed the chat, here is the transcript.
umesh asked, currenty which sector i should invest in?
Vetapalem Sridhar answers, Hi Umesh, basics of investing suggest that you should hv a core portf of diversified funds before u think of any specific sector. And even then a sector fund should be considered only in case u hv indepth understanding of the sector. By asking the Q itself it is evident that u r not an expert in any specific sector. So would suggest that pick diversified funds and invest in them with a 5-7 yrs horizon.
bala asked, What is the future for Infosys [Get Quote] stocks? Can we look at the stock turning upward once the political chaos are over? Or should I wait through US elections in November?
Vetapalem Sridhar answers, Though it is facing tough times, Infosys is amongst one of the best managed companies in India. U can expect it to deliver average returns with a long term horizon. It does qualify as a stock which can form part of a long term core portf which adds stabiltiy. In the short term, which u hv in mind, no one can say with certainty wat will happen to the stock price of Infosys�.
nadu asked, Sir,last date of return file is 31st of july 2008. if we fail to return file before 31st of july 2008 then what happern.i have tds certificate with me of approx. amount 65k. can we get this refund from income tax if we late return file i mean after 31 st of march 2009???
Vetapalem Sridhar answers, I think speaking to a Chartered Accountant would the best way for u to know. . Having said that, I want to comment that why dont u file your returns within the due date? A similar attitude in Investing would create problems for u in future.
raj kumar asked, i am holding mutual fund of icici infra 25000,reliance banking 25000, jm basic 50000 all growth should i hold or sell .
Vetapalem Sridhar answers, The first Q that u need to ask urself is what is ur objective of investing. All actions or a strategy of investing should be based on that.... If u hv invested with an objective of creating wealth in the long run, there r simple things that u hv to focus on: 1. invest regularly with DISCIPLINE, 2. Have PATIENCE and allow the magic of compounding to play its role , 3. Be FOCUSSED on investing with a long term horizon and not let emotions (due to mkt movements) affect decision making 4. Put EFFORT into learning about investing which will help u become aware about your money and wat is happening to it.
Sandeep Kumar asked, Can you suggest good FMP available in market?
Vetapalem Sridhar answers, Hi Sandeep, FMP is a Fixed Maturity Plan, offered by mutual funds and r something similar to a Fixed Deposit. As returns come under capital gains, it is more tax efficient than an FD. FMPs keep coming at regular intervals, but are open for just around a week...So to invest into one, u would need to talk to a MF Advisor or to ur banker. Also let me caution u that there is a risk in FMP which u should be aware of. The RISK is risk of default. Hence to ensure that this risk does not hit u please make sure that the FMP is investing into gud quality papers..
mmk asked, Sir, I am confused while choosing "Term Insurance". Can you please suggest the factors we should consider while choosing "Term Insurance" & also good term insurance options available in market?
Vetapalem Sridhar answers, Insurance is to cover risk (in financial terms only). Hence if a person dies and there r people dependant on him/her (in financial terms) then they will be put into financial discomfort. Hence the role of insurance should be limited to the extent of this financial discomfort. It is not an easy task to put a figure to this financial discomort. It would include all existing liabilities and future living cost of dependants (minus current assets, future earning potential of any other earning member). Hence when current assets exceeds the liabilities and future living cost of dependants then the need for insurance no longer remains. Evaluation also needs to be done whether a non working member of the family can take up work and earn if the need arises in this estimation. Hence in majority of cases Term insurance works out the cheapest soln to the above issue.During the period (generally 10-20 yrs) that the term cover is in operation the focus should be on creating a good amount of assets, thereby ensuring that the need for insurance no longer remains. SBI [Get Quote] Shield, Reliance [Get Quote] TERM plan, ICICI [Get Quote] Pru Lifeguard WROP r some gud options available....
mb asked, I invest in ELSS which includes Fidelity Tax Advantage Fund, SBI Magnum ,Birala Tax Relief 96, DSP ML, Princiapal Personal Tax Saver. Shoud i continue with these or do u think i should modify my portfolio..pls advise.
Vetapalem Sridhar answers, Why do u want to invest into so many ELSS schemes. It like u r eating a Simla Apple, a kashmiri apple, a New Zealand [Images] Apple, an American Apple. Finally it is just a Apple that u r eating. Pick just one or at max two ELSS schemes and conitnue with them in future. Once ur 1L limit is taken care of invest money into regular diversified funds. Ideally u can create a well diversified portfolio with around 4 to 6 funds. It does not make sense to increase the number of funds. A large cap, a diversified, a Mid cap and an opportunities fund would create a well diversified portfolio. One ELSS fund for the sake of investing to save on tax u/s 80C should be sufficient.
Gunjan asked, Hi, if I have 1 lacks to invest and my risk level is intermediate what will be the best investment strategy?
Vetapalem Sridhar answers, What do u mean by intermediate risk? Ur risk bearing ability is determined by the horizon of ur investment. The horizon of investment depends on when u need money back. When u need money back depends on when ur needs hit u. So first determine this. If after doing this analysis u find that the horizon is more than 5 yrs, invest the money into a diversified equity Fund. If not then at this stage a bank FD should be a better option.
AMIT asked, HOW DO YOU THINK THE REAL ESTATE MARKET WOULD FAIR FOR THE NEXT 1 YEAR. WILL SUB PRIME AFFECT IT ?
Vetapalem Sridhar answers, Hi Amit DISCLAIMER: Now this is my Current View and which may change based on happenings. Based on marco economic factors and study of certain aspects about real estate, it seems that a lot of builders will face a cash crunch somewhere during the start of the next financial year. Banks may not easily lend to them as they will be considered as a high risk category. Also due to higher housing loan rates (which r expected to go up further) most people r finding EMIs too high to take loans. This is leading to a drop in demand. Again As biulders will be short of cash and interest cost will rise they will not be in a position to sit on unsold flats. So all in all this should lead to a correction in property prices. It is not possible to know how much and how long the correction will last. But it is being floated around by specialists in real estate that around a 25% correction should be expected.
rajesh asked, What would be the ideal horizon to remain invested in the market?
Vetapalem Sridhar answers, Dear Rajesh, Warren Buffet's ideal horizon to invest in a Company is FOREVER! And he is the greatest investor that we know of. The minimum horizon that u should look at is atleast 5-7 yrs...
rock asked, What will beneficial in long term? Buying a property now and pay EMIs or to invest in SIPs for next @ 20 years.
Vetapalem Sridhar answers, Definitely investing in a SIP into a diversified equity Mutual Fund should be more beneficial if compared to buying a property and holding it for 20 yrs.
Kumar asked, I want to start an investment for my son's education. What is the best plan in the market? My son is just 3 months old.
Vetapalem Sridhar answers, Hi, I think that for ur son's higher education we can safely say that there r still around 17 yrs. So this tells us that ur horizon of investing is around 15 yrs atleast...So for this horizon the best return potential is going to be offered by equities. To invest in equities the best method is to invest thro diversified funds. Remain invested into equities for 15 yrs and u would hv created enough funds for ur child's education needs... I hv written a comprehensive article on this topic. U may want to read thro it...Investing for children A Slide Show, click NEXT to read thro.
rocky asked, Is this the best time to invest in share market or i should wait for some more time till the market falls further.
Vetapalem Sridhar answers, Dear Rocky, if u know EXCATLY how much more the mkt is going to fall then OBVIOUSLY it makes sense to invest at lowest level of the mkt. But as u urself would know that u do not know the answer. So stop worrying about timing the mkt and start investing regularly with discipline. And remain invested with a long term horizon.
manoharan asked, Mr.Sridhar, 6 months back all analysist said market won't correct more than 500-1000 points at the peak of 21000, but now the same analysist says market is heading to 10000. How we failed to anticiapte this big fall?
Vetapalem Sridhar answers, Dear Manoharan, wat a beautiful observation! If we just analyse it further, it tell us that even the so called experts do not know how the mkts will behave. So stop listening to people who r in the business of predicting where the mkts will go and try to learn the fundamentals of investing. Some of them r invest regularly, maintain a suitable asset allocation, remain invested with a long term horizon. Remember tht mkts hv a mind of their own, and time and again it keeps proving u wrong.
rahul asked, Hi How do you look at investing in SIP's and other equity based products at this stage?
Vetapalem Sridhar answers, Hi Rahul, is the stage referring to the fall in the mkts? Let me ask u a simple Q, do u go and buy all ur groceries when prices are down and not buy at all when prices rise? NO. Maybe U buy less but u dont stop buying when prices rise. Similarly should be the case with investing in equities. When they fall u should be investing and similarly when they rise u should be investing. And SIP is a very simple method to invest regularly with discipline.
Aditya asked, Sir My Portfolio is as under Sip 1000 each for 3 years (started in May08) in BSL Frontline Equity & HDFC [Get Quote] Top200, 30000 in Principal personal Tax saver, 10000 in JM Tax Gain, apart from that I want to invest more 5000 Rs. per month in Mutual Fund kindly suggest me some good funds which will balance my portfolio in this Market condition i m looking for 8-10 yrs period. should i go for Shares also?
Vetapalem Sridhar answers, Hi Aditya, Split the 5k into 2 SIPs. U can look at one large cap fund like Relaince Vision, franklin bluechip, etc and one mid/small cap like Sundaram SMILE, JM Emerging Leaders etc... I think sticking to MFs should be a better idea... The horizon is gud...
Kumaran asked, Hi, Is it right time to invest in FD, now? Or should i wait expecting an increase in the deposit rate? If so, probably how long?
Vetapalem Sridhar answers, There r indications that inflation is expected to rise further to around 15%. Though it cannot be said so with cerainty. But as RBI is expected to raise rates soon, I think there is a strong possibility that deposit rate will go up in a months time. So it wont harm too much to wait for a short period before deciding on it.
Deepak asked, Hi, its common now to hear from you people that keep on investing keep on investing....... so how long ? Market is completely out of track & may take 2-3 yrs to make up even no one can predict. Can you ? NO, then on what basis you are suggesting we people to remain & investing ? You all must be geting your funds in pockets from these companies otherwise no one is suggesting to do so. I am fadeup of doing SIPs. Please dont mind.
Vetapalem Sridhar answers, Hi Deepak, why do people not complain when mkts go up continuously at a rapid pace without falling? and why do they complain when mkts fall. When in the past equities have given 100% return in short spans did u not enjoy it? This apart, Mkt consists of 2 parties - Stronger Hand and Weaker Hand. Both own equities. The Stronger hand will hv strategies to make weaker hand sell stocks when they are low and buy them. A simple strategy is to take mkts to very low levels and keep it there, which frustrates the Weaker Hand (THE SIGNS R EVIDENT IN UR Q) so that eventually he sells her/his equity. The day most of the Weaker Hands start to sell u will see that mkts resume their new upward journey. The only way u can avoid being the weaker hand is to hold onto ur investments by having a Long Term horizon and infact investing consistently at lower levels of the mkt.
Dinxie asked, Hi Sridhar, How good are the Money Back policies from the financial planning point of View? Is there any policy which handles the inflation also? I am thinking of opting LIC [Get Quote] Jeevan Tarang, How good is this?
Vetapalem Sridhar answers, Dear Dinxie, from a view of a investor Money back policies hv become irrelevant today. However commission structures in such policies r high and hence they r still sold. I dont think that in the long run tradition money back policies would be able to beat inflation. I would suggest that u take up a TERM Insurance for the cover and invest into a diversified Mutual fund just as u would invest in the policy...
Jyotis asked, How to make 1 crore in 20 years, How much amount should someone invest on monthly basis to achive this target.
Vetapalem Sridhar answers, Say by invest around 7.5K p.m. for the next 20yrs into a diversified equity MF u can accumulate around 1 Crore. But in purchasing power terms its value should be roughly worth around 32L in current terms...assuming an inflation of 6% p.a.
Vetapalem Sridhar says, Patience is the key to making money in equities....I hv run out of time friends...will catch up soon...
Follow the leaders. Invest like they did in June
The Indian mutual fund industry in June saw an erosion of 7.5 per cent in its assets under management (AUM). AUMs reflect the total amount of money that all the mutual fund houses, together, collect from the public.
This indicates that there was very little pressure on the mutual funds in terms of investors selling their units and taking back their money even after markets falling continuously. During the month under consideration (June 2 to June 30) the benchmark BSE 30 Sensex lost 16 per cent or 2,570. The Sensex was trading at 16,063 points on June 2 and crashed to 13,461 points on June 30 the last trading day of the month.
In fact, all the mutual funds put together bought shares worth Rs 3,187 crore in the month of June indicating that they were buying heavily even as the markets were falling. Clearly, an indication that they were finding a lot of value in the Indian stock market.
Interestingly, in a sign that mutual fund investors think long term and are not affected by short-term blips, funds like ABN Amro, DBS Chola and Fidelity -- all managed by expert fund managers -- gained in terms of AUMs by 15 per cent, seven per cent and two per cent respectively. On the other hand we saw the corpus of Tata AIG Mutual Fund falling by a whopping 22 per cent. Barring Tata AIG, most other mutual funds saw a good amount of addition to their AUMs.
If we have to look at stocks specifically then Piramal Healthcare, a pharmaceutical company that is supposed to be a defensive stock in such volatile times, has been the darling of the month. As many as 10 mutual funds bought 44,40,259 shares of the company in the previous month.
The other stocks that found favour with mutual funds are Aban Lloyd Chiles Offshore (bought by six funds), Reliance Infrastructure (bought by five funds), and Spice Communications and Sundaram Clayton [Get Quote] (each bought by four funds apiece).
In terms of highest quantity of stocks bought by AMCs Mukesh Ambani led Reliance Petroleum [Get Quote] has won the race with 62,38,923 shares being picked up by mutual funds. Incidentally, the company is in the news as it has completed 94 per cent of its 100-per-cent-export-oriented refinery at Jamnagar in Gujarat. Once operational, the company will refine 5,80,000 barrels of crude every day.
Interestingly, corporate wars/family feuds apart, Anil Ambani-owned Reliance Mutual Fund was one of the top three funds that lapped up Reliance Petroleum in June. The other two funds were DSP Merrill Lynch and Sundaram BNP Paribas.
The other stocks that found favour were Development Credit Bank [Get Quote], IFCI and Ashok Leyland [Get Quote].
| Top 5 stocks bought by AMCs | |
| Company | No of Shares |
| Reliance Petroleum Ltd | 62,38,923 |
| Piramal Healthcare Ltd | 44,40,259 |
| Development Credit Bank | 26,94,419 |
| Industrial Finance Corporation of India Ltd | 26,53,602 |
| Ashok Leyland Ltd | 22,25,448 |
Now, let's have a look at what the mutual funds sold in the month of June.
As many as eight AMCs removed Nicholas Piramal [Get Quote] (not to be confused with Piramal Healthcare; they are two separate companies) from their portfolio. NDTV and Tata Tea [Get Quote] were sold by five AMCs each. Centurion Bank on Punjab was also sold as mutual funds feared that high interest rates and high inflation will affect the company's profits in the next six months.
| Top 5 stocks sold by AMCs | |
| Company | No. of AMCs |
| Nicholas Piramal India Ltd | 8 |
| New Delhi Television [Get Quote] | 5 |
| Tata Tea Ltd | 5 |
| Centurion Bank of Punjab [Get Quote] Limited. | 4 |
| Gmr Infrastructure Ltd [Get Quote] | 4 |
The top five stocks sold in terms of quantity were Centurion Bank of Punjab, Nicholas Piramal India, Chambal Fertilisers, Geojit Financial Services [Get Quote] and Carborundum Universal [Get Quote] as shown in the table below.
| Top 5 stocks sold (quantity) | |
| Company | No of AMCs |
| Centurion Bank of Punjab Limited. | 2,30,85,456 |
| Nicholas Piramal India Ltd | 41,95,535 |
| Chambal Fertilisers & Chemicals Ltd | 38,13,818 |
| Geojit Financial Services Ltd. | 35,86,586 |
| Carborundum Universal Ltd | 34,24,993 |
Centurion Bank of Punjab was one of the most heavily sold stocks by mutual funds about. About 2.3 crore shares were sold by four AMCs namely Birla Sun Life, Franklin Templeton, ICICI [Get Quote] Pru, and Kotak. And 42 lakh shares of Nicholas Piramal shares were sold by mutual fund houses.
Key points
- Piramal Healthcare is a good buy according to 10 fund houses out of the 31 fund houses in the Indian mutual fund industry
- DSP Merrill Lynch, Reliance Mutual Fund and Sundaram BNP Paribas consider Reliance Petroleum as a good pick