Taking a sneak peek at the hiring scene in the years to come and which sectors are set to emerge in a big way with all those dream jobs
While the world cries slowdown and news of companies downsizing makes headlines, crystal ball gazing on emerging careers might not be the order of the day. But such is the Indian growth story that apart from expansion in the sunrise sectors, entirely new opportunities that never existed will also open up for jobseekers. “According to the International Business Report, 2008, by consultancy firm Grant Thornton International, India alone will make up 30 per cent of the worldwide net increase in employment with 142 million new jobs by 2020,” says Sampath Shetty, vice president, permanent staffing, TeamLease Services, a staffing solutions company.
OLM spoke to a host of experts to find out what specific functional area in each of the emerging sectors would be most in demand and why.
1. Retail
Growth stimulus: “The vast middle class, strong income growth, favourable demographic patterns and organised retailing growth estimated at 40 per cent compounded annual growth rate (CAGR) over the next few years are some of the factors that will drive the retail boom," says Rajeev Gaur, COO, TimesJobs.com, an online jobs database.
Requirements: “The need would be around 15,000-20,000 people in each of these retail chains. So, in all, the requirements would touch 80,000-85,000 every year in the next three to four years, of which frontline sales staff will be 80-85 per cent,” says Vishal Chhiber, head, HR of Kelly Services India, an HR solutions firm.
The remaining jobs, says Nihar Ranjan Ghosh, senior VP HR, Spencer’s Retail, “will be in retail-specific areas like visual merchandising, plannogramming (the science of maximizing space efficiency in the store) and supply chain management. Retail management graduates and general MBAs will be wanted.
2. Real Estate/ Infrastructure
Growth stimulus: Growth in infrastructure and real estate developments with gradual opening up of FDI in certain sub-sectors will be the main reasons for the boom. “The percentage of middle class people in metros and Tier-2 cities who are buying their own property has increased from about 35 per cent in 2003 to 60 per cent today,” says Prodito Sen, VP marketing and corporate affairs, Alpha G: Corp Development, a real estate developer.
Requirements: “This will recreate a need for civil engineers, a tribe we forgot during the IT boom,” says Shabbir Merchant, chief value creator, Valulead Consulting, a leadership development firm. “The requirement is for 1.5 lakh engineers if the land bank we have is to be translated into construction,” says Chhiber. Infrastructure projects would need more such engineers.
“Other functions like residential and commercial real estate brokers, real estate appraisers, property mangers and real estate consultants would also be in demand,” says Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj, a property advisor and transaction firm.
3. Healthcare/Pharma
Growth stimulus: Hospital chains are expanding all over India, even in smaller towns.
Requirement: “An acute shortage of doctors is expected over the next few years, especially anaesthetists, radiologists, gynaecologists and surgeons, particularly neurosurgeons. The need would be for 45,000-50,000 doctors for the 50-odd healthcare companies expected to start operations in India,” says Chhiber.
“People with a Masters in Hospital Administration (MHA) will be in demand as they are key elements to a hospital’s efficiency,” says Vishal Bali, CEO, Wockhardt Hospitals Group. A study by consulting firm Technopak says, “Many big hospital projects have either been delayed or stopped because of this manpower shortage.”
“With the rule of thumb being four MHA people per hospital, around 2,000 hospital chains will need 8,000 such people over the next five years,” adds Bali.
In pharma, demand will be created in research and development (R&D). The requirement would be for 15,000-20,000 scientists every year. “Another area which would see a demand is pharma regulation and documentation officers,” says V. Suresh, senior vice-president and national head (sales), Naukri.com, an online jobs portal.
4. Financial services
Growth stimulus: There will be a lot of new entrants and existing players diversifying with new product lines.
Requirements: “A lot of portfolio managers—not necessarily fund managers, but those who manage portfolios beyond a certain amount—will be required. They will be working with banks and financial institutions. The requirement will be for 25,000-30,000 every year,” says Chhiber.
Suresh adds, “The salaries in private banking would be 200- 300 per cent more than in retail or corporate banking.”
Judhajit Das, HR chief of ICICI Prudential Life Insurance, foresees maximum jobs growth in retail financial services, with 80 per cent of them being in sales and distribution. The biggest employers will be the insurance and banking sector,” he says.
Gaur has some numbers: “Over 50,000 new jobs are expected to be created in the banking, financial services, and insurance sector in the current year. Banks are expected to hire 15,000-20,000 people in the next one year.”
5. Hospitality/facilities management
Growth stimulus: With hotel rooms being added across the country at a rapid rate to keep up with growing tourist inflow, hi-tech townships being developed and malls and multiplexes coming up at every corner, people will be needed to service and maintain them.
Requirements: “Over 2.5 lakh rooms will be needed in the next five years to meet the demand from both the domestic and international guests. Over the next two or three years, we will need over 1 lakh more rooms. An average of 1.5 service personnel per room will mean an overall shortage of at least 1.5 lakh people across a whole range of hotel-related jobs in India, especially food production, food and beverage services, housekeeping and front office operations,” says Satish Jayaram, principal, Institute of Hotel Management, Aurangabad.
According to Chhiber, the manpower growth prediction for facilities management is 20 - 25 per cent. Ashwin Puri, CEO, Property Zone, a firm that develops and manages shopping centres says, “Technical maintenance people need to understand aspects such as provision of adequate power supply, safety issues, water supply, sanitation, signages, and so on. For soft services, hospitality management experience is preferred.” A mall will need five to six such managers.
6. Consulting services
Growth stimulus: With existing businesses growing more complex and numerous startups on the cards, there will be demand for consultants specializing in human resources (HR) and startups.
“Apart from recruitment specialists, another area of demand in the HR space will be ‘employer brand specialists’ as organisations move away from a me-too approach and actively seeking differentiation,” says Merchant.
Requirements: Considering that with every 50-75 people recruited, one HR job gets created, TimesJobs.com estimates that 28,000 more HR jobs will be created in 2008.
Gautam Ghosh, senior manager, HR consultancy Tvarita Consulting foresees an explosion in demand for startup consultants and business strategists as more and more consumer-oriented portals mushroom across the country.
7. Entertainment
Growth stimulus: There would be about two new TV channels every month and 20-25 new FM channels every year.
Requirements: “About 4,000-5,000 people will be directly employed by TV channels every year,” says Chibber.
“In radio, the demand would be for production people, anchors, technical and distribution sales professionals: jobs for 2,500 people in the next two years,” he adds.
8. IT
Growth stimulus: “Despite stagnation in the industry, a lot of project-based or contractual hiring and increasing domestic IT requirements would lead to organic growth,” says Chhiber.
Requirements: Veerendra Mathur, CEO, Focus Infotech, a strategic IT HR and managed solutions firm says, “Professionals who have a holistic knowledge and can do multitasking like coding, testing, designing and communicating with clients will be in demand.”
“India will need 4.9 lakh professionals in the IT exports market, 11.1 lakh in the domestic IT industry and 20.5 lakh in the ITES-BPO sector by 2012,” says Chhiber.
9. Customer services
Growth stimulus: Companies will put more and more stress on customer service to stay ahead of the competition.
Requirements: According to Chhiber, frontline technicians who have skills required to service and manage customers will be in demand. “About 1.5 lakh trained people every year would be needed,” he adds.
10. Telecom
Growth stimulus: The telecom industry is growing faster in small towns and will also see a lot of organic growth. Jobs will also emerge in telecom when people employed here opt to shift to other emerging sectors.
Requirements: “The employment growth rate in telecom industry is expected to increase by seven per cent to ten per cent every year,” says Gaur. “Jobs in demand would be telecom, mechanical, software and telecom test engineers, project managers, network security specialists and operation managers.” According to data from FICCI, telecom will see 0.5 million new jobs by 2010 and 1.5 million by 2015.
Ghosh stresses the increasing demand for people who have a blend of two functional skills, like a financial services person with business and marketing skills. “In a dynamic job space in a growing economy,” he sums up, “people with the right skill sets will always be sought after.”
Thursday, July 31, 2008
10 Tips To $ Stock
The new thing in the next decade will be global diversification. Ten factors that you should weigh before becoming a global investor
Time was when moving from a fixed deposit to an equity mutual fund was diversification enough. And this was just 10 years ago. In the journey to 2008, it has become clear that just a debt-equity diversification is not good enough, and that you need diversification within equity too. If the core is of large-cap and broadly diversified funds, you do need the return kicker of sector, small- and mid-cap funds to build long-term wealth. Now, as we stand in 2008 looking outward towards the next decade, the savvy investor needs to add another product category to his equity portfolio—a global diversification. Here is a 10-point checklist.
1. Does my investment portfolio need international exposure? The rationale for investing in foreign companies is that it reduces the country-specific risks in a portfolio. Investors of mature economies seek the growth that emerging economy stocks bring to their returns, while investors of countries like India would like the stability that a developed economy exposure brings to their portfolio, especially in volatile times. If you are looking at international exposure to your portfolio, do not see it as a short-term arrangement. Like all equity investments, an adequate time frame is essential.
2. How do I get international exposure in my portfolio? You can invest in global companies in two ways. One, you get a global exposure when you own stock of Indian companies that have global revenue streams. Firms like Tata Tea, Telco and Tata Steel come to mind at once. The other way is to invest in foreign companies listed abroad. The true way to get a global slice to your portfolio would be to go for foreign-owned companies that are listed abroad to get a hedge against local geopolitical and economic events.
3. What are Currency risks? You need to take into account a new sort of risk. The new element in the process of investing in international markets comes from the currency risk involved in investing. If you invested Rs 1 lakh in foreign stocks or mutual funds and the rupee was at Rs 42 to a dollar then, your investment in dollar terms will be $2,380.95. If this investment grew by 10 per cent, it will be worth $2,619.04. Let's assume the rupee strengthens to Rs 40 to a dollar in the same period. If you sell the investment and convert it to Indian rupees, you get only Rs 1,04,761.60 instead of Rs 1,10,000. The change in the exchange rate has eaten into your returns. You stand to gain from international investing when the rupee depreciates.
4. What are Country risks? The other risk that you need to bear is country risk. Investing in international stocks implies that you are taking on the risk associated with the countries in which investments have been made. A fund that invests only in the US markets will be affected by the micro and macro factors that impact the US economy.A fund that invests across countries will reduce this risk through diversification. We now present a quick guide on the practical aspects of investing abroad.
5. How do I buy a foreign company or fund? You can use the same routes to invest in international stocks as you would to invest in stocks of domestic companies. Stock broking firms such as ICICI Direct and Reliance Money, among others, provide the facility to buy global stocks and funds directly. You can invest up to $200,000 every financial year in stocks, mutual funds and commodities in foreign markets. The other option is to use the mutual fund route. These could be Indian funds investing in foreign stocks or feeder funds that route money to an international fund.
6. How much does it cost? Global investing costs money. You will have to bear the costs of opening a trading account, and subsequently, broking charges on every transaction. For example, ICICI Direct charges a brokerage of 0.75 per cent of the trade value. The charges of mutual funds investing in foreign stocks are more or less at par with those that invest in domestic stocks. However, fund of funds come at a higher cost.
7. What should I Evaluate? Evaluate the investment option before committing money. If you are buying equity, evaluate the fundamental strengths of the company and its prospects before investing. If you are considering investing through a mutual fund, then you should evaluate factors such as the past performance of the fund, the extent of diversification that the fund has across markets and the expenses of the fund. Depreciation and appreciation of currency will also have an impact on the returns and will have to be considered before making an investment decision.
8. How much should I earmark for overseas investment? With the Indian economy and markets better poised than most, there is no case for a very large international exposure in the portfolio. Around 5-10 per cent of your portfolio can be in international stocks, though this would depend on your individual requirements.
9. How am I taxed? Remember, investing in foreign equity, whether directly or through mutual funds, does not get the tax benefits on dividend and capital gains as domestic equity investing does. The dividend earned on such holding is liable for tax at the rate applicable to the investor and long-term capital gains are taxed at 20 per cent. You will also be liable for tax under the laws prevailing in the country of trade. But this can be set off against the tax liability in India if there is an agreement between the countries to avoid double taxation.
10. What should I monitor? As with all investments, international holdings require close monitoring of the performance of your stock or fund, the economies in which you have invested and factors such as change in tax laws and exchange rates. All of these will impact the returns for the investor as well as the risk to the overall portfolio. You must be able to make changes in your portfolio as and when the situation demands it. If you are not able to keep track of your investment, then international investing is not for you
Time was when moving from a fixed deposit to an equity mutual fund was diversification enough. And this was just 10 years ago. In the journey to 2008, it has become clear that just a debt-equity diversification is not good enough, and that you need diversification within equity too. If the core is of large-cap and broadly diversified funds, you do need the return kicker of sector, small- and mid-cap funds to build long-term wealth. Now, as we stand in 2008 looking outward towards the next decade, the savvy investor needs to add another product category to his equity portfolio—a global diversification. Here is a 10-point checklist.
1. Does my investment portfolio need international exposure? The rationale for investing in foreign companies is that it reduces the country-specific risks in a portfolio. Investors of mature economies seek the growth that emerging economy stocks bring to their returns, while investors of countries like India would like the stability that a developed economy exposure brings to their portfolio, especially in volatile times. If you are looking at international exposure to your portfolio, do not see it as a short-term arrangement. Like all equity investments, an adequate time frame is essential.
2. How do I get international exposure in my portfolio? You can invest in global companies in two ways. One, you get a global exposure when you own stock of Indian companies that have global revenue streams. Firms like Tata Tea, Telco and Tata Steel come to mind at once. The other way is to invest in foreign companies listed abroad. The true way to get a global slice to your portfolio would be to go for foreign-owned companies that are listed abroad to get a hedge against local geopolitical and economic events.
3. What are Currency risks? You need to take into account a new sort of risk. The new element in the process of investing in international markets comes from the currency risk involved in investing. If you invested Rs 1 lakh in foreign stocks or mutual funds and the rupee was at Rs 42 to a dollar then, your investment in dollar terms will be $2,380.95. If this investment grew by 10 per cent, it will be worth $2,619.04. Let's assume the rupee strengthens to Rs 40 to a dollar in the same period. If you sell the investment and convert it to Indian rupees, you get only Rs 1,04,761.60 instead of Rs 1,10,000. The change in the exchange rate has eaten into your returns. You stand to gain from international investing when the rupee depreciates.
4. What are Country risks? The other risk that you need to bear is country risk. Investing in international stocks implies that you are taking on the risk associated with the countries in which investments have been made. A fund that invests only in the US markets will be affected by the micro and macro factors that impact the US economy.A fund that invests across countries will reduce this risk through diversification. We now present a quick guide on the practical aspects of investing abroad.
5. How do I buy a foreign company or fund? You can use the same routes to invest in international stocks as you would to invest in stocks of domestic companies. Stock broking firms such as ICICI Direct and Reliance Money, among others, provide the facility to buy global stocks and funds directly. You can invest up to $200,000 every financial year in stocks, mutual funds and commodities in foreign markets. The other option is to use the mutual fund route. These could be Indian funds investing in foreign stocks or feeder funds that route money to an international fund.
6. How much does it cost? Global investing costs money. You will have to bear the costs of opening a trading account, and subsequently, broking charges on every transaction. For example, ICICI Direct charges a brokerage of 0.75 per cent of the trade value. The charges of mutual funds investing in foreign stocks are more or less at par with those that invest in domestic stocks. However, fund of funds come at a higher cost.
7. What should I Evaluate? Evaluate the investment option before committing money. If you are buying equity, evaluate the fundamental strengths of the company and its prospects before investing. If you are considering investing through a mutual fund, then you should evaluate factors such as the past performance of the fund, the extent of diversification that the fund has across markets and the expenses of the fund. Depreciation and appreciation of currency will also have an impact on the returns and will have to be considered before making an investment decision.
8. How much should I earmark for overseas investment? With the Indian economy and markets better poised than most, there is no case for a very large international exposure in the portfolio. Around 5-10 per cent of your portfolio can be in international stocks, though this would depend on your individual requirements.
9. How am I taxed? Remember, investing in foreign equity, whether directly or through mutual funds, does not get the tax benefits on dividend and capital gains as domestic equity investing does. The dividend earned on such holding is liable for tax at the rate applicable to the investor and long-term capital gains are taxed at 20 per cent. You will also be liable for tax under the laws prevailing in the country of trade. But this can be set off against the tax liability in India if there is an agreement between the countries to avoid double taxation.
10. What should I monitor? As with all investments, international holdings require close monitoring of the performance of your stock or fund, the economies in which you have invested and factors such as change in tax laws and exchange rates. All of these will impact the returns for the investor as well as the risk to the overall portfolio. You must be able to make changes in your portfolio as and when the situation demands it. If you are not able to keep track of your investment, then international investing is not for you
Monday, July 28, 2008
Tax Policy: Simplify, Simplify
Leaving small business and self-employeds out of the tax net imposes additional burdens on those who actually pay
tax structure in India has come a long way. In the initial years, the tax system was employed to mobilise resources for the Plans. Economic disincentives on work, savings and investment mattered less and the need to garner revenues for financing public sector dominated, heavy industry based import substituting industrialisation was paramount. The tax system also had to bring about a socialistic pattern of society. Thus, in 1973-74, the marginal tax rate of personal income tax was raised to 97.75 per cent and along with the wealth tax, the rate was more than 100 percent!
In the process, the tax policy created a dishonest society: people either reduced or simply concealed their incomes. Tax evasion was easy because a large part of the economy was unorganised, income from agriculture was exempt and information system was quite inaccurate.
In 1985-86, personal income taxation was simplified with the number of brackets reduced from eight to four and marginal tax rate reduced to 50 per cent. In 1991, the number of tax brackets was reduced to three with tax rates levied at 20, 30 and 40 per cent. The Union Budget for 1997-98 reduced the rates further to 10, 20 and 30 per cent. Since 2005-06, a surcharge of 10 per cent on the payable tax was levied on incomes above Rs 10 lakh.
Despite simplification, a number of problems remain. Comprehensive income tax is not possible in India as agricultural incomes are exempt. Small businesses and self-employeds simply do not pay tax. Leaving them out of the tax net imposes additional burdens on those who pay for, had they been taxed, the tax rate to raise the same amount of revenue would have been lower. Similarly, there are exemptions and preferences for savings, interest incomes and investments in housing and equities. There have also been a lot of flip-flops in the dividend taxation policy. Dividend tax was 20 percent in 2000-01, subsequently reduced to 10 percent in 2001-02 and levied on shareholders. The policy was reversed in 2003-04 with the levy of the tax on the company.
Interestingly since 2002-03, the revenue from income tax has shown a sharp increase. The annual growth rate of revenue from personal and corporate income taxes has averaged to 30 per cent since 2002-03 and the revenue from income tax relative to GDP has increased by 3.5 percentage points. The credit for this must be given to the Tax Information Network that has been put in place by the National Security Depository Ltd.
Comprehensiveness and simplicity should be the goals of the next stage of tax reform. The first involves inclusion of incomes from agriculture. This would require amendment of the Constitution enabling the Central government to levy agricultural income tax. Second, sufficient safeguards are necessary to reduce volatility and associated risks in farm incomes and there must be a loss carry-forward provision while taxing agricultural incomes. Other reforms include minimising tax preferences to some forms of investments as against others to avoid distortions in asset choice. The system of flat rate of tax in countries such as Russia has been successful. In India, it may not be possible to implement such a tax, but it is possible to simplify the structure further by having just two rates: 10 per cent and 20 per cent. In a simple tax system, there is no scope for cesses and surcharges. The States, given concurrent powers to tax, can levy a flat tax rate of 5 per cent on all incomes above the exemption limit.Will this happen in the near future? I doubt it. The farm lobby may not give in to the idea of taxing agricultural incomes. Surely it should be possible to simplify the tax by removing various incentives and preferences and reducing the tax brackets to two. Without various exemptions and preferences (excepting the basic exemption), the tax system will be simple and more comprehensive. Lower rate of tax induces better compliance and promotes higher growth and both will contribute to higher revenue productivity. This should remove the need for cesses and surcharges. Hopefully, future reforms will move in this direction
tax structure in India has come a long way. In the initial years, the tax system was employed to mobilise resources for the Plans. Economic disincentives on work, savings and investment mattered less and the need to garner revenues for financing public sector dominated, heavy industry based import substituting industrialisation was paramount. The tax system also had to bring about a socialistic pattern of society. Thus, in 1973-74, the marginal tax rate of personal income tax was raised to 97.75 per cent and along with the wealth tax, the rate was more than 100 percent!
In the process, the tax policy created a dishonest society: people either reduced or simply concealed their incomes. Tax evasion was easy because a large part of the economy was unorganised, income from agriculture was exempt and information system was quite inaccurate.
In 1985-86, personal income taxation was simplified with the number of brackets reduced from eight to four and marginal tax rate reduced to 50 per cent. In 1991, the number of tax brackets was reduced to three with tax rates levied at 20, 30 and 40 per cent. The Union Budget for 1997-98 reduced the rates further to 10, 20 and 30 per cent. Since 2005-06, a surcharge of 10 per cent on the payable tax was levied on incomes above Rs 10 lakh.
Despite simplification, a number of problems remain. Comprehensive income tax is not possible in India as agricultural incomes are exempt. Small businesses and self-employeds simply do not pay tax. Leaving them out of the tax net imposes additional burdens on those who pay for, had they been taxed, the tax rate to raise the same amount of revenue would have been lower. Similarly, there are exemptions and preferences for savings, interest incomes and investments in housing and equities. There have also been a lot of flip-flops in the dividend taxation policy. Dividend tax was 20 percent in 2000-01, subsequently reduced to 10 percent in 2001-02 and levied on shareholders. The policy was reversed in 2003-04 with the levy of the tax on the company.
Interestingly since 2002-03, the revenue from income tax has shown a sharp increase. The annual growth rate of revenue from personal and corporate income taxes has averaged to 30 per cent since 2002-03 and the revenue from income tax relative to GDP has increased by 3.5 percentage points. The credit for this must be given to the Tax Information Network that has been put in place by the National Security Depository Ltd.
Comprehensiveness and simplicity should be the goals of the next stage of tax reform. The first involves inclusion of incomes from agriculture. This would require amendment of the Constitution enabling the Central government to levy agricultural income tax. Second, sufficient safeguards are necessary to reduce volatility and associated risks in farm incomes and there must be a loss carry-forward provision while taxing agricultural incomes. Other reforms include minimising tax preferences to some forms of investments as against others to avoid distortions in asset choice. The system of flat rate of tax in countries such as Russia has been successful. In India, it may not be possible to implement such a tax, but it is possible to simplify the structure further by having just two rates: 10 per cent and 20 per cent. In a simple tax system, there is no scope for cesses and surcharges. The States, given concurrent powers to tax, can levy a flat tax rate of 5 per cent on all incomes above the exemption limit.Will this happen in the near future? I doubt it. The farm lobby may not give in to the idea of taxing agricultural incomes. Surely it should be possible to simplify the tax by removing various incentives and preferences and reducing the tax brackets to two. Without various exemptions and preferences (excepting the basic exemption), the tax system will be simple and more comprehensive. Lower rate of tax induces better compliance and promotes higher growth and both will contribute to higher revenue productivity. This should remove the need for cesses and surcharges. Hopefully, future reforms will move in this direction
The Three Cs For The Future
Customers, choice and convenience will be the words to watch for the insurance industry in the next decade
The business of life insurance is all about risk mitigation, be it financial risk associated with loss of life or risk of erosion of value of investments. Today, life insurance may mean different things to the insured, suiting his different needs, but it remains unaltered even in a rapidly changing social and financial milieu. However, for the insurer, it is about risk management. Increasingly, the risk of investment guarantee is getting passed on to the policyholder through the recent genre of unit-linked insurance plans (Ulips).
Even then, insurance is associated with guarantees and moving on, it will also be seen as a financial planning product, for an individual if he survives, or for his nominees upon his death. However, what is likely to change is the way insurance products are distributed. Financial products have reached an advanced stage of evolution where they now come coupled with other products in the market. For instance, you can now get a loan coupled with insurance.
Such combinations are also indicative of the fact that investors have become more discerning and, with technology taking evolutionary leaps, have started looking for convenience. With the emergence of a strong middle class, the cost-benefit proposition of any financial product has become a challenge. In such a competitive market, insurance products present us with a lot of opportunities to look beyond the conventional distribution model, which is currently the driving force.
For the next 10 years, the thrust will be on distribution of products. I foresee stand-alone distribution companies emerging, which will offer an entire product suite, from insurance to mutual funds to banking products.
The traditional channel will remain active and vibrant but the new channel will show a bigger growth rate, thus cornering a bigger market share. Like other products available today at the click of a mouse, life insurance too would be sold online. In addition to the convenience of the online medium, it will also help in customisation of policies.
Suggestions have been made to have a different pricing model in the industry and in the future, if insurance companies are able to price their products differently depending upon the distribution channel they choose, we would be able to pass on a lot of cost-cutting—in terms of less paperwork and elimination of intermediary involved while transacting online—to policyholders.
With so many new channels of distribution emerging and the human interface gradually petering out, focus will also increase on providing after-sales service to policyholders. The need is to look at efficient ways of providing customer service to enable policyholders to forge long-term commitments.
Any insurance product is a bundle of specific benefits. Since premium rates are linked with benefits, the premium does not vary across different distribution channels and service delivery models for a given product of a company. However, this could change in the future and there could be regulatory changes which would allow different premium rates to be offered to customers for the same bundle of benefits, depending on relevant factors like intermediaries or service delivery platforms.
With improved distribution, penetration of insurance will also increase, which will make insurance policies viable collateral for loans or credit cards. It will be an asset which will empower you to negotiate with banks for lower rates of interest.
Guarantees were not so much of an issue during the stockmarket boom, when policies were giving erratic returns. But today, when the markets are volatile and people are looking for guarantee, products that guarantee protection of capital and loyalty additions offering some kind of safety net will gain focus. The concept of guaranteed returns, which takes a backseat with a certain section of investors, will again come into prime focus. Again, the insurer will take more long-term risk than it does now in terms of returns.
All in all, the next decade will be the decade of customers, choice and convenience
The business of life insurance is all about risk mitigation, be it financial risk associated with loss of life or risk of erosion of value of investments. Today, life insurance may mean different things to the insured, suiting his different needs, but it remains unaltered even in a rapidly changing social and financial milieu. However, for the insurer, it is about risk management. Increasingly, the risk of investment guarantee is getting passed on to the policyholder through the recent genre of unit-linked insurance plans (Ulips).
Even then, insurance is associated with guarantees and moving on, it will also be seen as a financial planning product, for an individual if he survives, or for his nominees upon his death. However, what is likely to change is the way insurance products are distributed. Financial products have reached an advanced stage of evolution where they now come coupled with other products in the market. For instance, you can now get a loan coupled with insurance.
Such combinations are also indicative of the fact that investors have become more discerning and, with technology taking evolutionary leaps, have started looking for convenience. With the emergence of a strong middle class, the cost-benefit proposition of any financial product has become a challenge. In such a competitive market, insurance products present us with a lot of opportunities to look beyond the conventional distribution model, which is currently the driving force.
For the next 10 years, the thrust will be on distribution of products. I foresee stand-alone distribution companies emerging, which will offer an entire product suite, from insurance to mutual funds to banking products.
The traditional channel will remain active and vibrant but the new channel will show a bigger growth rate, thus cornering a bigger market share. Like other products available today at the click of a mouse, life insurance too would be sold online. In addition to the convenience of the online medium, it will also help in customisation of policies.
Suggestions have been made to have a different pricing model in the industry and in the future, if insurance companies are able to price their products differently depending upon the distribution channel they choose, we would be able to pass on a lot of cost-cutting—in terms of less paperwork and elimination of intermediary involved while transacting online—to policyholders.
With so many new channels of distribution emerging and the human interface gradually petering out, focus will also increase on providing after-sales service to policyholders. The need is to look at efficient ways of providing customer service to enable policyholders to forge long-term commitments.
Any insurance product is a bundle of specific benefits. Since premium rates are linked with benefits, the premium does not vary across different distribution channels and service delivery models for a given product of a company. However, this could change in the future and there could be regulatory changes which would allow different premium rates to be offered to customers for the same bundle of benefits, depending on relevant factors like intermediaries or service delivery platforms.
With improved distribution, penetration of insurance will also increase, which will make insurance policies viable collateral for loans or credit cards. It will be an asset which will empower you to negotiate with banks for lower rates of interest.
Guarantees were not so much of an issue during the stockmarket boom, when policies were giving erratic returns. But today, when the markets are volatile and people are looking for guarantee, products that guarantee protection of capital and loyalty additions offering some kind of safety net will gain focus. The concept of guaranteed returns, which takes a backseat with a certain section of investors, will again come into prime focus. Again, the insurer will take more long-term risk than it does now in terms of returns.
All in all, the next decade will be the decade of customers, choice and convenience
The Three Cs For The Future
Customers, choice and convenience will be the words to watch for the insurance industry in the next decade
The business of life insurance is all about risk mitigation, be it financial risk associated with loss of life or risk of erosion of value of investments. Today, life insurance may mean different things to the insured, suiting his different needs, but it remains unaltered even in a rapidly changing social and financial milieu. However, for the insurer, it is about risk management. Increasingly, the risk of investment guarantee is getting passed on to the policyholder through the recent genre of unit-linked insurance plans (Ulips).
Even then, insurance is associated with guarantees and moving on, it will also be seen as a financial planning product, for an individual if he survives, or for his nominees upon his death. However, what is likely to change is the way insurance products are distributed. Financial products have reached an advanced stage of evolution where they now come coupled with other products in the market. For instance, you can now get a loan coupled with insurance.
Such combinations are also indicative of the fact that investors have become more discerning and, with technology taking evolutionary leaps, have started looking for convenience. With the emergence of a strong middle class, the cost-benefit proposition of any financial product has become a challenge. In such a competitive market, insurance products present us with a lot of opportunities to look beyond the conventional distribution model, which is currently the driving force.
For the next 10 years, the thrust will be on distribution of products. I foresee stand-alone distribution companies emerging, which will offer an entire product suite, from insurance to mutual funds to banking products.
The traditional channel will remain active and vibrant but the new channel will show a bigger growth rate, thus cornering a bigger market share. Like other products available today at the click of a mouse, life insurance too would be sold online. In addition to the convenience of the online medium, it will also help in customisation of policies.
Suggestions have been made to have a different pricing model in the industry and in the future, if insurance companies are able to price their products differently depending upon the distribution channel they choose, we would be able to pass on a lot of cost-cutting—in terms of less paperwork and elimination of intermediary involved while transacting online—to policyholders.
With so many new channels of distribution emerging and the human interface gradually petering out, focus will also increase on providing after-sales service to policyholders. The need is to look at efficient ways of providing customer service to enable policyholders to forge long-term commitments.
Any insurance product is a bundle of specific benefits. Since premium rates are linked with benefits, the premium does not vary across different distribution channels and service delivery models for a given product of a company. However, this could change in the future and there could be regulatory changes which would allow different premium rates to be offered to customers for the same bundle of benefits, depending on relevant factors like intermediaries or service delivery platforms.
With improved distribution, penetration of insurance will also increase, which will make insurance policies viable collateral for loans or credit cards. It will be an asset which will empower you to negotiate with banks for lower rates of interest.
Guarantees were not so much of an issue during the stockmarket boom, when policies were giving erratic returns. But today, when the markets are volatile and people are looking for guarantee, products that guarantee protection of capital and loyalty additions offering some kind of safety net will gain focus. The concept of guaranteed returns, which takes a backseat with a certain section of investors, will again come into prime focus. Again, the insurer will take more long-term risk than it does now in terms of returns.
All in all, the next decade will be the decade of customers, choice and convenience
The business of life insurance is all about risk mitigation, be it financial risk associated with loss of life or risk of erosion of value of investments. Today, life insurance may mean different things to the insured, suiting his different needs, but it remains unaltered even in a rapidly changing social and financial milieu. However, for the insurer, it is about risk management. Increasingly, the risk of investment guarantee is getting passed on to the policyholder through the recent genre of unit-linked insurance plans (Ulips).
Even then, insurance is associated with guarantees and moving on, it will also be seen as a financial planning product, for an individual if he survives, or for his nominees upon his death. However, what is likely to change is the way insurance products are distributed. Financial products have reached an advanced stage of evolution where they now come coupled with other products in the market. For instance, you can now get a loan coupled with insurance.
Such combinations are also indicative of the fact that investors have become more discerning and, with technology taking evolutionary leaps, have started looking for convenience. With the emergence of a strong middle class, the cost-benefit proposition of any financial product has become a challenge. In such a competitive market, insurance products present us with a lot of opportunities to look beyond the conventional distribution model, which is currently the driving force.
For the next 10 years, the thrust will be on distribution of products. I foresee stand-alone distribution companies emerging, which will offer an entire product suite, from insurance to mutual funds to banking products.
The traditional channel will remain active and vibrant but the new channel will show a bigger growth rate, thus cornering a bigger market share. Like other products available today at the click of a mouse, life insurance too would be sold online. In addition to the convenience of the online medium, it will also help in customisation of policies.
Suggestions have been made to have a different pricing model in the industry and in the future, if insurance companies are able to price their products differently depending upon the distribution channel they choose, we would be able to pass on a lot of cost-cutting—in terms of less paperwork and elimination of intermediary involved while transacting online—to policyholders.
With so many new channels of distribution emerging and the human interface gradually petering out, focus will also increase on providing after-sales service to policyholders. The need is to look at efficient ways of providing customer service to enable policyholders to forge long-term commitments.
Any insurance product is a bundle of specific benefits. Since premium rates are linked with benefits, the premium does not vary across different distribution channels and service delivery models for a given product of a company. However, this could change in the future and there could be regulatory changes which would allow different premium rates to be offered to customers for the same bundle of benefits, depending on relevant factors like intermediaries or service delivery platforms.
With improved distribution, penetration of insurance will also increase, which will make insurance policies viable collateral for loans or credit cards. It will be an asset which will empower you to negotiate with banks for lower rates of interest.
Guarantees were not so much of an issue during the stockmarket boom, when policies were giving erratic returns. But today, when the markets are volatile and people are looking for guarantee, products that guarantee protection of capital and loyalty additions offering some kind of safety net will gain focus. The concept of guaranteed returns, which takes a backseat with a certain section of investors, will again come into prime focus. Again, the insurer will take more long-term risk than it does now in terms of returns.
All in all, the next decade will be the decade of customers, choice and convenience
Wednesday, July 23, 2008
Infosys to provide solutions to the power sector
Information and technology giant Infosys Technologies will provide inputs and IT-related solutions to help the power sector, including the Union Power Ministry, to employ latest technology for adapting to the changing demands for efficiency, energy conservation and green grids.
The IT Task Force, headed by Infosys Director Nandan Nilekani, and his team, is likely to submit its recommendations on the issue to the Government by September in order to ensure its implementation at various levels from this year itself. Earlier, the IT Task Force by Mr. Nilekani had prepared a report on the IT solutions in the power sector in 2002 during the previous NDA regime but the recommendations were gathering dust in the corridors of power.
The initiative to enrol Infosys Technologies and Mr. Nilekani was taken by Minister of State for Power Jairam Ramesh who felt that it was time that IT was applied to enhance the potential in generation, transmission, distribution and inter-state transfer of power.
The IT Task Force identified IT solutions in the field of distribution, undertake pilot projects with the help of technology, to make computer applications more consumer- friendly and other related issues. It is understood that Mr. Nilekani has stressed the need to put IT solutions into action on priority in areas that directly deal with consumers. “The IT-related solutions would be first applied to areas like billing and metering that directly relate to the consumers across the country. This could be later extended to power grid and transmission sector,” Mr. Jairam Ramesh said.
Although the IT Task Force had done great work during 2002 but the new developments in the power sector and the huge expansion happening due to capacity addition challenges during the XI Plan need to be addressed under the changed circumstances. The focus of the new study would be establishment of smart grid that would lead to better load management
The IT Task Force, headed by Infosys Director Nandan Nilekani, and his team, is likely to submit its recommendations on the issue to the Government by September in order to ensure its implementation at various levels from this year itself. Earlier, the IT Task Force by Mr. Nilekani had prepared a report on the IT solutions in the power sector in 2002 during the previous NDA regime but the recommendations were gathering dust in the corridors of power.
The initiative to enrol Infosys Technologies and Mr. Nilekani was taken by Minister of State for Power Jairam Ramesh who felt that it was time that IT was applied to enhance the potential in generation, transmission, distribution and inter-state transfer of power.
The IT Task Force identified IT solutions in the field of distribution, undertake pilot projects with the help of technology, to make computer applications more consumer- friendly and other related issues. It is understood that Mr. Nilekani has stressed the need to put IT solutions into action on priority in areas that directly deal with consumers. “The IT-related solutions would be first applied to areas like billing and metering that directly relate to the consumers across the country. This could be later extended to power grid and transmission sector,” Mr. Jairam Ramesh said.
Although the IT Task Force had done great work during 2002 but the new developments in the power sector and the huge expansion happening due to capacity addition challenges during the XI Plan need to be addressed under the changed circumstances. The focus of the new study would be establishment of smart grid that would lead to better load management
Focus should now be on reforms: industry
Corporates and investors hailed the UPA Government’s victory in the trust vote on Tuesday, saying that the focus should now be on economic reforms.
The stock market showed upsurge since Monday, coinciding with the commencement of the debate on the confidence motion moved by Prime Minister Manmohan Singh as if reflecting the belief in the victory of the government.
Apex industry chambers welcomed the Prime Minster’s victory in the confidence vote saying not only the government should push for economic reforms including the passage for the financial bills, but also take the nuclear deal to its logical conclusion, a move that should help India on the energy front.
The confidence of industry in the government’s victory was evident by the response that over 400 CEOs gave in a survey saying the UPA regime will sail through. Top officials of Indian banking fraternity said the development would augur well for the economy and the financial sector.
“We expect that in the next three months the major bills pending in Parliament, including the pension bill and the banking reform bill, will be pushed through,” FICCI President Rajeev Chandrasekhar said immediately after the results of the trust vote were known.
Congratulating the Prime Minister, Assocham President Sajjan Jindal described the victory as “a vote to the future of India and pragmatic policy pursued by the UPA Government for building a strong India”.
Stating that the political development has ended days of uncertainty, CII Director General Chandrajit Banerjee said: “It has come in as a much-needed relief for growth momentum of the Indian economy.”
FICCI said its President Rajeev Chandrasekhar would be proposing to the Prime Minister a 10-point agenda on Wednesday to move the reforms efforts forward in a major way.
Echoing the sentiment, PHD Chamber of Commerce President L. K. Malhotra said the victory would signal stability and continuation, which was good for the economy and the industry, as reforms initiated by the government would continue. “It will also signal a stint of reforms which have been debated such as insurance, pension funds and financial reforms,” he added.
FIEO President Ganesh Gupta said the victory would help the nation in continuity of policies initiated by the UPA Government for promoting exports.
The stock market showed upsurge since Monday, coinciding with the commencement of the debate on the confidence motion moved by Prime Minister Manmohan Singh as if reflecting the belief in the victory of the government.
Apex industry chambers welcomed the Prime Minster’s victory in the confidence vote saying not only the government should push for economic reforms including the passage for the financial bills, but also take the nuclear deal to its logical conclusion, a move that should help India on the energy front.
The confidence of industry in the government’s victory was evident by the response that over 400 CEOs gave in a survey saying the UPA regime will sail through. Top officials of Indian banking fraternity said the development would augur well for the economy and the financial sector.
“We expect that in the next three months the major bills pending in Parliament, including the pension bill and the banking reform bill, will be pushed through,” FICCI President Rajeev Chandrasekhar said immediately after the results of the trust vote were known.
Congratulating the Prime Minister, Assocham President Sajjan Jindal described the victory as “a vote to the future of India and pragmatic policy pursued by the UPA Government for building a strong India”.
Stating that the political development has ended days of uncertainty, CII Director General Chandrajit Banerjee said: “It has come in as a much-needed relief for growth momentum of the Indian economy.”
FICCI said its President Rajeev Chandrasekhar would be proposing to the Prime Minister a 10-point agenda on Wednesday to move the reforms efforts forward in a major way.
Echoing the sentiment, PHD Chamber of Commerce President L. K. Malhotra said the victory would signal stability and continuation, which was good for the economy and the industry, as reforms initiated by the government would continue. “It will also signal a stint of reforms which have been debated such as insurance, pension funds and financial reforms,” he added.
FIEO President Ganesh Gupta said the victory would help the nation in continuity of policies initiated by the UPA Government for promoting exports.
'India becomes costlier for expats'
Strengthening rupee and growing aspirational demand has made four Indian cities -- Delhi, Mumbai, Bangalore and Chennai -- increasingly expensive for expatriates to live in, a latest global survey says.Moscow has emerged as the world's most expensive city for expatriates for the third consecutive year, according to the survey conducted by global consulting firm Mercer.It is followed by Tokyo, London, Oslo and Seoul, the top five cities in the 'Worlwide Cost of Living 2008' survey.All cities in India rose in the cost of living ranking due to strengthening of the rupee against the US dollar, with Mumbai moving to 48th place in the March survey this year, compared to 52nd position in the same period last year, while the national capital New Delhi climbed to the 55th place from 68th a year ago.Chennai and Bangalore also improved their positions to 117 and 118 ranks, respectively in the survey which comprised of 143 cities globally.Last year, Chennai had been ranked at the 133rd position, while Bangalore was at the 134th place, the survey revealed."Delhi, Bangalore and Chennai are racing up the ladder from a cost of living perspective, having moved up over 12 ranks from Mercer's last survey conducted six months ago," Mercer Business Leader for Information Product Solutions India Gangapriya Chakraverti said."A strengthening rupee and growing but unfulfilled demand for expatriate-style housing are factors that have contributed significantly to the changes in the ranking of Indian cities," Chakraverti added.
'India becomes costlier for expats'
Strengthening rupee and growing aspirational demand has made four Indian cities -- Delhi, Mumbai, Bangalore and Chennai -- increasingly expensive for expatriates to live in, a latest global survey says.Moscow has emerged as the world's most expensive city for expatriates for the third consecutive year, according to the survey conducted by global consulting firm Mercer.It is followed by Tokyo, London, Oslo and Seoul, the top five cities in the 'Worlwide Cost of Living 2008' survey.All cities in India rose in the cost of living ranking due to strengthening of the rupee against the US dollar, with Mumbai moving to 48th place in the March survey this year, compared to 52nd position in the same period last year, while the national capital New Delhi climbed to the 55th place from 68th a year ago.Chennai and Bangalore also improved their positions to 117 and 118 ranks, respectively in the survey which comprised of 143 cities globally.Last year, Chennai had been ranked at the 133rd position, while Bangalore was at the 134th place, the survey revealed."Delhi, Bangalore and Chennai are racing up the ladder from a cost of living perspective, having moved up over 12 ranks from Mercer's last survey conducted six months ago," Mercer Business Leader for Information Product Solutions India Gangapriya Chakraverti said."A strengthening rupee and growing but unfulfilled demand for expatriate-style housing are factors that have contributed significantly to the changes in the ranking of Indian cities," Chakraverti added.
Thursday, July 17, 2008
No Child's play
Insurance firm told to cover unborn child
In a landmark judgment recently, the Maharashtra State Commission recognised an unborn child as a consumer.
An unborn child died in a car accident and the Commission ruled that the insurance company would have to pay the insurance money to his grandmother.
Mohanlal Kotecha had taken a comprehensive insurance policy from United India Insurance Company, covering three unnamed passengers and the owner-driver of his Maruti car.
The three passengers were covered for Rs 1 lakh each and the owner-driver for Rs 2 lakh. Mohanlal, his son Atul and Atul’s seven-month pregnant wife Switi died in a car accident and Mohanlal’s wife, Kanta Kotecha, claimed insurance money for the three as well as her unborn grandson.
While officials in the United Insurance Company were unavailable for comment, ICICI Lombard, SBI Life, ICICI Prudential and ING Vysya Life refused to comment on the issue, as “it was now a legal issue”.
Consumer activists have come out in support, however. Consumer Guidance Society of India chairman Anand Patwardhan says: “Murder of a pregnant woman is considered double murder. This means a foetus is considered alive. Then why not in this case?”
Medically, after 20 weeks of pregnancy, the foetus is considered a human being living inside a mother’s womb. The ruling has thrown up questions on what happens in cases of miscarriage or when the unborn child dies even as the mother is alive.
In a landmark judgment recently, the Maharashtra State Commission recognised an unborn child as a consumer.
An unborn child died in a car accident and the Commission ruled that the insurance company would have to pay the insurance money to his grandmother.
Mohanlal Kotecha had taken a comprehensive insurance policy from United India Insurance Company, covering three unnamed passengers and the owner-driver of his Maruti car.
The three passengers were covered for Rs 1 lakh each and the owner-driver for Rs 2 lakh. Mohanlal, his son Atul and Atul’s seven-month pregnant wife Switi died in a car accident and Mohanlal’s wife, Kanta Kotecha, claimed insurance money for the three as well as her unborn grandson.
While officials in the United Insurance Company were unavailable for comment, ICICI Lombard, SBI Life, ICICI Prudential and ING Vysya Life refused to comment on the issue, as “it was now a legal issue”.
Consumer activists have come out in support, however. Consumer Guidance Society of India chairman Anand Patwardhan says: “Murder of a pregnant woman is considered double murder. This means a foetus is considered alive. Then why not in this case?”
Medically, after 20 weeks of pregnancy, the foetus is considered a human being living inside a mother’s womb. The ruling has thrown up questions on what happens in cases of miscarriage or when the unborn child dies even as the mother is alive.
Get Your Car The Best Cover At Lowest Prices
Before settling for what your agent recommends, shop around for premiums on your car insurance policy and haggle to get the best deal
Even as the option to shop around for a tailor-made insurance policy for your car looks some months away, you can still shop around for best prices in the market. Beginning January 2008, the insurance regulator, Insurance Regulatory and Development Authority (Irda), freed motor, fire and engineering insurance from all price controls. This means more bargaining power to you when you go to the insurance company.
Says Mahavir Chopra, director (e-business) of insurance portal insurancemall.in: “Currently, the market is in such a frenzy to grab a larger pie that there are no strict rack rates. If you bargain right you can further reduce the premium rates.”
changing gears
Post-detariffing also what you pay as premium remains a function of the geographical location, age of the vehicle, model, and manufacturer. But now there is a fifth head, the past claim ratio of the car model, is also being considered to slip in discounts. Says Eswaranatarajan N., head, motor insurance, ICICI Lombard General Insurance, the largest private sector general insurance company in India: “Depending on the history, we give discount on models which have a lower claim ratio. We are currently offering around 40 per cent discount on premiums.”
Still In The Workshop
The motor insurance industry is, however, still grappling with data to further categorise the discounts on the basis of individual claim experience. Till they finalise their lists, here is your chance to shop for the best possible price. Keep these pointers in mind before you settle for a discount.
Bargain Tool Kit
If you are buying directly from the insurer, bargain for the best possible price. Typically, insurance companies keep a margin on their rack rates which gives you enough room for negotiation. “There is usually a margin of 5 per cent so that premiums can be negotiated further and if the customer approaches us directly we are able to offer more discounts as we can cut intermediary cost,” says Vijay Mehrotra, head (retail), IFFCO TOKIO General Insurance.
lGo to different brokers before buying a policy. Brokers have tie-ups with a number of insurers while an agent represents just one insurer. Says Rahul Aggarwal, CEO of Delhi-based Optima Insurance Brokers: “Large broking houses have attractive deals with the insurers. Also, since they represent the interest of the clients, they come in handy when a claim needs to be serviced.”
lDon’t compromise on cover for a discount. A discount might mean a cover less here or there. Always ask for what covers are you getting. A comprehensive policy covers theft or damage to your car, third-party liability as well as the passengers of the car. The cost of covering the passengers and a paid driver comes to around Rs 250 and is optional. Don’t ignore this cover for a discount, especially as the cost is low.
lGet your car insured on a full IDV. Insured Declared Value (IDV) is the amount that the insurance company would pay you if your car got completely damaged or stolen. Higher discounts might mean a lower IDV. So, ask for the exact IDV to get a real idea of the insurance amount.
lAsk the insurer if it has tie-ups with dealers. If the insurer has an arrangement with the dealers of your car model, you can walk out with a cashless claim settlement.
lLook at the co-payment clause. Also known as ‘excess’ in the policy, a co-payment clause makes you bear a portion of the claim. Higher excess would mean lower premium since you shift some of the risk from the insurers on to yourself. But, if you can’t afford to pay a higher portion of the claim then don’t bump up your excess. Check with your agent to see if the discount in the premium means a higher excess for you.
In the present scenario, you can get many discounts. But make sure you don’t lose out on essential coverage. Make use of the tools mentioned here to fix up a smart deal.
Even as the option to shop around for a tailor-made insurance policy for your car looks some months away, you can still shop around for best prices in the market. Beginning January 2008, the insurance regulator, Insurance Regulatory and Development Authority (Irda), freed motor, fire and engineering insurance from all price controls. This means more bargaining power to you when you go to the insurance company.
Says Mahavir Chopra, director (e-business) of insurance portal insurancemall.in: “Currently, the market is in such a frenzy to grab a larger pie that there are no strict rack rates. If you bargain right you can further reduce the premium rates.”
changing gears
Post-detariffing also what you pay as premium remains a function of the geographical location, age of the vehicle, model, and manufacturer. But now there is a fifth head, the past claim ratio of the car model, is also being considered to slip in discounts. Says Eswaranatarajan N., head, motor insurance, ICICI Lombard General Insurance, the largest private sector general insurance company in India: “Depending on the history, we give discount on models which have a lower claim ratio. We are currently offering around 40 per cent discount on premiums.”
Still In The Workshop
The motor insurance industry is, however, still grappling with data to further categorise the discounts on the basis of individual claim experience. Till they finalise their lists, here is your chance to shop for the best possible price. Keep these pointers in mind before you settle for a discount.
Bargain Tool Kit
If you are buying directly from the insurer, bargain for the best possible price. Typically, insurance companies keep a margin on their rack rates which gives you enough room for negotiation. “There is usually a margin of 5 per cent so that premiums can be negotiated further and if the customer approaches us directly we are able to offer more discounts as we can cut intermediary cost,” says Vijay Mehrotra, head (retail), IFFCO TOKIO General Insurance.
lGo to different brokers before buying a policy. Brokers have tie-ups with a number of insurers while an agent represents just one insurer. Says Rahul Aggarwal, CEO of Delhi-based Optima Insurance Brokers: “Large broking houses have attractive deals with the insurers. Also, since they represent the interest of the clients, they come in handy when a claim needs to be serviced.”
lDon’t compromise on cover for a discount. A discount might mean a cover less here or there. Always ask for what covers are you getting. A comprehensive policy covers theft or damage to your car, third-party liability as well as the passengers of the car. The cost of covering the passengers and a paid driver comes to around Rs 250 and is optional. Don’t ignore this cover for a discount, especially as the cost is low.
lGet your car insured on a full IDV. Insured Declared Value (IDV) is the amount that the insurance company would pay you if your car got completely damaged or stolen. Higher discounts might mean a lower IDV. So, ask for the exact IDV to get a real idea of the insurance amount.
lAsk the insurer if it has tie-ups with dealers. If the insurer has an arrangement with the dealers of your car model, you can walk out with a cashless claim settlement.
lLook at the co-payment clause. Also known as ‘excess’ in the policy, a co-payment clause makes you bear a portion of the claim. Higher excess would mean lower premium since you shift some of the risk from the insurers on to yourself. But, if you can’t afford to pay a higher portion of the claim then don’t bump up your excess. Check with your agent to see if the discount in the premium means a higher excess for you.
In the present scenario, you can get many discounts. But make sure you don’t lose out on essential coverage. Make use of the tools mentioned here to fix up a smart deal.
Get Your Car The Best Cover At Lowest Prices
Before settling for what your agent recommends, shop around for premiums on your car insurance policy and haggle to get the best deal
Even as the option to shop around for a tailor-made insurance policy for your car looks some months away, you can still shop around for best prices in the market. Beginning January 2008, the insurance regulator, Insurance Regulatory and Development Authority (Irda), freed motor, fire and engineering insurance from all price controls. This means more bargaining power to you when you go to the insurance company.
Says Mahavir Chopra, director (e-business) of insurance portal insurancemall.in: “Currently, the market is in such a frenzy to grab a larger pie that there are no strict rack rates. If you bargain right you can further reduce the premium rates.”
changing gears
Post-detariffing also what you pay as premium remains a function of the geographical location, age of the vehicle, model, and manufacturer. But now there is a fifth head, the past claim ratio of the car model, is also being considered to slip in discounts. Says Eswaranatarajan N., head, motor insurance, ICICI Lombard General Insurance, the largest private sector general insurance company in India: “Depending on the history, we give discount on models which have a lower claim ratio. We are currently offering around 40 per cent discount on premiums.”
Still In The Workshop
The motor insurance industry is, however, still grappling with data to further categorise the discounts on the basis of individual claim experience. Till they finalise their lists, here is your chance to shop for the best possible price. Keep these pointers in mind before you settle for a discount.
Bargain Tool Kit
If you are buying directly from the insurer, bargain for the best possible price. Typically, insurance companies keep a margin on their rack rates which gives you enough room for negotiation. “There is usually a margin of 5 per cent so that premiums can be negotiated further and if the customer approaches us directly we are able to offer more discounts as we can cut intermediary cost,” says Vijay Mehrotra, head (retail), IFFCO TOKIO General Insurance.
lGo to different brokers before buying a policy. Brokers have tie-ups with a number of insurers while an agent represents just one insurer. Says Rahul Aggarwal, CEO of Delhi-based Optima Insurance Brokers: “Large broking houses have attractive deals with the insurers. Also, since they represent the interest of the clients, they come in handy when a claim needs to be serviced.”
lDon’t compromise on cover for a discount. A discount might mean a cover less here or there. Always ask for what covers are you getting. A comprehensive policy covers theft or damage to your car, third-party liability as well as the passengers of the car. The cost of covering the passengers and a paid driver comes to around Rs 250 and is optional. Don’t ignore this cover for a discount, especially as the cost is low.
lGet your car insured on a full IDV. Insured Declared Value (IDV) is the amount that the insurance company would pay you if your car got completely damaged or stolen. Higher discounts might mean a lower IDV. So, ask for the exact IDV to get a real idea of the insurance amount.
lAsk the insurer if it has tie-ups with dealers. If the insurer has an arrangement with the dealers of your car model, you can walk out with a cashless claim settlement.
lLook at the co-payment clause. Also known as ‘excess’ in the policy, a co-payment clause makes you bear a portion of the claim. Higher excess would mean lower premium since you shift some of the risk from the insurers on to yourself. But, if you can’t afford to pay a higher portion of the claim then don’t bump up your excess. Check with your agent to see if the discount in the premium means a higher excess for you.
In the present scenario, you can get many discounts. But make sure you don’t lose out on essential coverage. Make use of the tools mentioned here to fix up a smart deal.
Even as the option to shop around for a tailor-made insurance policy for your car looks some months away, you can still shop around for best prices in the market. Beginning January 2008, the insurance regulator, Insurance Regulatory and Development Authority (Irda), freed motor, fire and engineering insurance from all price controls. This means more bargaining power to you when you go to the insurance company.
Says Mahavir Chopra, director (e-business) of insurance portal insurancemall.in: “Currently, the market is in such a frenzy to grab a larger pie that there are no strict rack rates. If you bargain right you can further reduce the premium rates.”
changing gears
Post-detariffing also what you pay as premium remains a function of the geographical location, age of the vehicle, model, and manufacturer. But now there is a fifth head, the past claim ratio of the car model, is also being considered to slip in discounts. Says Eswaranatarajan N., head, motor insurance, ICICI Lombard General Insurance, the largest private sector general insurance company in India: “Depending on the history, we give discount on models which have a lower claim ratio. We are currently offering around 40 per cent discount on premiums.”
Still In The Workshop
The motor insurance industry is, however, still grappling with data to further categorise the discounts on the basis of individual claim experience. Till they finalise their lists, here is your chance to shop for the best possible price. Keep these pointers in mind before you settle for a discount.
Bargain Tool Kit
If you are buying directly from the insurer, bargain for the best possible price. Typically, insurance companies keep a margin on their rack rates which gives you enough room for negotiation. “There is usually a margin of 5 per cent so that premiums can be negotiated further and if the customer approaches us directly we are able to offer more discounts as we can cut intermediary cost,” says Vijay Mehrotra, head (retail), IFFCO TOKIO General Insurance.
lGo to different brokers before buying a policy. Brokers have tie-ups with a number of insurers while an agent represents just one insurer. Says Rahul Aggarwal, CEO of Delhi-based Optima Insurance Brokers: “Large broking houses have attractive deals with the insurers. Also, since they represent the interest of the clients, they come in handy when a claim needs to be serviced.”
lDon’t compromise on cover for a discount. A discount might mean a cover less here or there. Always ask for what covers are you getting. A comprehensive policy covers theft or damage to your car, third-party liability as well as the passengers of the car. The cost of covering the passengers and a paid driver comes to around Rs 250 and is optional. Don’t ignore this cover for a discount, especially as the cost is low.
lGet your car insured on a full IDV. Insured Declared Value (IDV) is the amount that the insurance company would pay you if your car got completely damaged or stolen. Higher discounts might mean a lower IDV. So, ask for the exact IDV to get a real idea of the insurance amount.
lAsk the insurer if it has tie-ups with dealers. If the insurer has an arrangement with the dealers of your car model, you can walk out with a cashless claim settlement.
lLook at the co-payment clause. Also known as ‘excess’ in the policy, a co-payment clause makes you bear a portion of the claim. Higher excess would mean lower premium since you shift some of the risk from the insurers on to yourself. But, if you can’t afford to pay a higher portion of the claim then don’t bump up your excess. Check with your agent to see if the discount in the premium means a higher excess for you.
In the present scenario, you can get many discounts. But make sure you don’t lose out on essential coverage. Make use of the tools mentioned here to fix up a smart deal.
The Fixed Backup For Emergencies
Need a large amount of money swiftly? Your home, or other major assets, could provide the loan in times of need
Emergencies, like troubles in the Hindi saying, come unannounced. So to what can you look for an immediate, reliable fund source during an emergency? A good option is your own property.
Sakharam Aachrekar, 52, teacher from Mumbai says, “I took a loan against my South Mumbai property for my daughter’s treatment. Since the amount was large, banks were ready to give a secured rather than an unsecured loan. It was also cheaper than a personal loan.”
Loan Against Property (LAP) is taken against the mortgage of property you own (self-occupied residential or commercial property), provided it has not been put up as security for any other purpose.
Choices. You can take the full loan amount as a lump sum as in Aachrekar’s case, repaying it as an EMI, or take it as an overdraft account. This allows you to draw more money than your available bank balance.
Harsh Roongta, CEO, Apnaloan.com says, “With overdrafts, you save on interest by depositing the money in a bank.”
“A lump sum loan attracts half a percentage point lower interest than an overdraft. With an overdraft, you pay an annual fee, compared to lump sum loans where you pay it at once. An overdraft makes more sense,” Roongta says.
Choose an overdraft facility; it lets you use funds when needed, and thus you pay lower charges.
A LAP can be availed for any need, but it has a risk involved. You should devote time, effort and resources before taking a loan against property, especially house. Many take it to buy an appreciating asset like real estate, as Sanjay Sharma did. The 34-year old Delhi banker took a loan against his house to invest in real estate.
“I wanted a long-term loan with a lower interest rate and a manageable EMI. I chose a LAP for a Rs 5 lakh loan, and a 15-year term at 13 per cent interest, which is less than for a personal loan,” says Sharma. As lump sum or overdraft, LAP is a better deal than a personal loan.
Cheaper. A LAP is cheaper compared to a personal loan. The interest rate is 12.5-15.75 per cent for LAP compared to 12-25 per cent for personal loans.
Fixed or Floating. With some banks, you can choose between fixed and floating rate loans. In the former, the interest rate is constant throughout the loan tenure, while for a floating rate loan interest is adjusted with the changes in banks’ floating reference rates.
Larger amount. The maximum amount you can get in a personal loan is Rs 10 lakh. With a LAP you can get a loan of between 40-75 per cent of the property's market value. Some banks are known to offer loans up to Rs 3 crore.
Longer tenure. The maximum tenure of a personal loan is about 72 months. A LAP's term would be 15 years. The tenure is subject to your age of retirement, or on your turning 65, whichever is earlier.
Processing and prepayment fees. Processing fees, which vary from bank to bank, are between 0.25-2 per cent and in most cases are non-refundable.
If you want to pay off the loan before the full term, you have to give a prepayment fee, between 1 per cent and 4 per cent of the loan amount. Says Roongta: “Processing and prepayment fees can be negotiated. Some banks waive off some of these fees after negotiating with the applicant on certain occasions.”
Your payment history matters. Today, banks use the Credit Information Report (CIR) brought out by the Credit Information Bureau of India (CIBIL). Getting a LAP or any other loan approved largely depends on a clean credit history.
Here are a few things you should keep in mind before finalising the loan:
Contact several lenders and compare their respective interest rates (see Interest Rates on Loan Against Property).
The EMIs should be affordable for the entire tenure without missing payments.
Check if the LAP offers any insurance on your loan.
Know the penalty for late or missed payments of the EMIs.
Find out if there are any prepayment fees and if they can be waived.
Some Banks give a “loan back guarantee offer”, under which you can return the loan amount within a fixed time, if you decide the loan is no longer needed.
Alternatives. You can also borrow against other assets.
Loans against securities such as equity shares often give instant liquidity. The shares need not be sold: merely pledging them in favor of your banks gives you an overdraft facility against them, where you get up to 40 per cent of the value. You continue to get all shareholders' benefits.
With mutual fund units you get up to 40 per cent of the net asset value. LIC (non-term) and private insurers' policies, National Savings Certificates (NSCs) among others can be pledged.
Gold is another good option. Kanwar Vivek, general manager, ICICI Bank, says: “Loan against gold fulfills short-term financial needs. Given the low credit rating required for gold and income proof not being needed, it is a cheap and convenient option.” You can get a loan of up to 70 per cent of the value of your gold, at an interest rate of 12 -13 per cent.
You can take a loan against your vehicle, for up to 80 per cent of its value. The tenure is usually 12-60 months and interest rates for different car models vary from bank to bank.
Gaurav Mashruwala, a Mumbai-based financial planner says, “The sequence while mortgaging assets is based on increasing order of importance of the asset: car, shares, gold, life insurance policy, and lastly house. Loan against house is to be to be taken only in emergencies."
Taking a LAP is an easy process. But remember to make payments regularly. If you fail to repay you could lose the asset, in this case your home
Emergencies, like troubles in the Hindi saying, come unannounced. So to what can you look for an immediate, reliable fund source during an emergency? A good option is your own property.
Sakharam Aachrekar, 52, teacher from Mumbai says, “I took a loan against my South Mumbai property for my daughter’s treatment. Since the amount was large, banks were ready to give a secured rather than an unsecured loan. It was also cheaper than a personal loan.”
Loan Against Property (LAP) is taken against the mortgage of property you own (self-occupied residential or commercial property), provided it has not been put up as security for any other purpose.
Choices. You can take the full loan amount as a lump sum as in Aachrekar’s case, repaying it as an EMI, or take it as an overdraft account. This allows you to draw more money than your available bank balance.
Harsh Roongta, CEO, Apnaloan.com says, “With overdrafts, you save on interest by depositing the money in a bank.”
“A lump sum loan attracts half a percentage point lower interest than an overdraft. With an overdraft, you pay an annual fee, compared to lump sum loans where you pay it at once. An overdraft makes more sense,” Roongta says.
Choose an overdraft facility; it lets you use funds when needed, and thus you pay lower charges.
A LAP can be availed for any need, but it has a risk involved. You should devote time, effort and resources before taking a loan against property, especially house. Many take it to buy an appreciating asset like real estate, as Sanjay Sharma did. The 34-year old Delhi banker took a loan against his house to invest in real estate.
“I wanted a long-term loan with a lower interest rate and a manageable EMI. I chose a LAP for a Rs 5 lakh loan, and a 15-year term at 13 per cent interest, which is less than for a personal loan,” says Sharma. As lump sum or overdraft, LAP is a better deal than a personal loan.
Cheaper. A LAP is cheaper compared to a personal loan. The interest rate is 12.5-15.75 per cent for LAP compared to 12-25 per cent for personal loans.
Fixed or Floating. With some banks, you can choose between fixed and floating rate loans. In the former, the interest rate is constant throughout the loan tenure, while for a floating rate loan interest is adjusted with the changes in banks’ floating reference rates.
Larger amount. The maximum amount you can get in a personal loan is Rs 10 lakh. With a LAP you can get a loan of between 40-75 per cent of the property's market value. Some banks are known to offer loans up to Rs 3 crore.
Longer tenure. The maximum tenure of a personal loan is about 72 months. A LAP's term would be 15 years. The tenure is subject to your age of retirement, or on your turning 65, whichever is earlier.
Processing and prepayment fees. Processing fees, which vary from bank to bank, are between 0.25-2 per cent and in most cases are non-refundable.
If you want to pay off the loan before the full term, you have to give a prepayment fee, between 1 per cent and 4 per cent of the loan amount. Says Roongta: “Processing and prepayment fees can be negotiated. Some banks waive off some of these fees after negotiating with the applicant on certain occasions.”
Your payment history matters. Today, banks use the Credit Information Report (CIR) brought out by the Credit Information Bureau of India (CIBIL). Getting a LAP or any other loan approved largely depends on a clean credit history.
Here are a few things you should keep in mind before finalising the loan:
Contact several lenders and compare their respective interest rates (see Interest Rates on Loan Against Property).
The EMIs should be affordable for the entire tenure without missing payments.
Check if the LAP offers any insurance on your loan.
Know the penalty for late or missed payments of the EMIs.
Find out if there are any prepayment fees and if they can be waived.
Some Banks give a “loan back guarantee offer”, under which you can return the loan amount within a fixed time, if you decide the loan is no longer needed.
Alternatives. You can also borrow against other assets.
Loans against securities such as equity shares often give instant liquidity. The shares need not be sold: merely pledging them in favor of your banks gives you an overdraft facility against them, where you get up to 40 per cent of the value. You continue to get all shareholders' benefits.
With mutual fund units you get up to 40 per cent of the net asset value. LIC (non-term) and private insurers' policies, National Savings Certificates (NSCs) among others can be pledged.
Gold is another good option. Kanwar Vivek, general manager, ICICI Bank, says: “Loan against gold fulfills short-term financial needs. Given the low credit rating required for gold and income proof not being needed, it is a cheap and convenient option.” You can get a loan of up to 70 per cent of the value of your gold, at an interest rate of 12 -13 per cent.
You can take a loan against your vehicle, for up to 80 per cent of its value. The tenure is usually 12-60 months and interest rates for different car models vary from bank to bank.
Gaurav Mashruwala, a Mumbai-based financial planner says, “The sequence while mortgaging assets is based on increasing order of importance of the asset: car, shares, gold, life insurance policy, and lastly house. Loan against house is to be to be taken only in emergencies."
Taking a LAP is an easy process. But remember to make payments regularly. If you fail to repay you could lose the asset, in this case your home
Tuesday, July 15, 2008
Fight Back Inflation
With the monster at the gate, it is time to pull out all stops to fight it. Here's a combat guide
The inflation fire is now an inferno. It singed wallets on its way from 4.7 per cent in July 2007 to 8.86 per cent in May 2008. It did not stop there, but shot up to a 13-year high of 11.42 per cent for the week ended 14 June. Much of this recent rise is being attributed to the pervasive impact of the increase in the state-administered prices of oil products on 5 June. That looked inevitable after international oil prices rose to an all-time high, up to $140 a barrel last fortnight. Worse, this inflation is not expected to go south anytime soon. Says Shuchita Mehta, senior economist, Standard Chartered Bank: “We expect inflation to remain high for some time and to average 8.72 per cent this fiscal year.”
WHY HIGH INFLATION IS HERE TO STAY Oil aftershock. Two issues ago Outlook Money had warned of a period of high inflation (see Turmoil, 5-18 June 2008) driven by oil prices. With little chance of increasing global supplies, higher extraction costs, production cuts and export taxes in some oil producing countries, and speculative investments in oil by large international investors has buttressed price pressures due to continuing high demand for oil (see Prices On Fire).
Rising food prices. A worldwide shortage is driving up food prices. In India, oil seed prices are 20 per cent higher than a year ago. While food supplies are expected to increase over 6-8 months, higher costs of inputs (diesel, fertilisers, and seeds, among others) would likely continue to keep prices high.
High commodity prices. High prices of commodities such as iron and steel and edibles have been responsible for about a fifth of the spike in price rise. With stockmarkets worldwide falling, large international institutional investors are buying commodities, further pushing up their prices and inflation, a trend unlikely to change soon.
Expensive funds. On 24 June, the Reserve Bank of India hiked the cash-reserve ratio (CRR) and the repo rate (rate at which it lends to banks) by 50 basis points each to reduce liquidity and weaken inflationary pressures. This has raised banks’ cost of funds and, thus, making cost of production higher. With limited policy options, it could do so again.
Weaker rupee. With a rapid price rise you need more rupees for the same amount of imports, making imported products or those with high import content such as edible oils, costlier. Expect more of the same.
MONEY SHOCK The immediate impact of high inflation will be pressure on household budgets, and lower savings, both for now and the future. Higher interest rates are pushing up EMIs. Inflation-adjusted returns from fixed income options, be it fixed deposits or pensions, have gone negative. Five-year term deposits paying 8.5 per cent when inflation is 11.5 per cent are giving real returns of -2.69 per cent. So, the value of what you get back is lower than what you put in. The future’s not rosy either. Higher costs due to high inflation is likely to dent corporate profitability, putting downward pressure on stock prices. Some sectors, such as aviation, could see layoffs, while fewer people will be hired by IT, BPO, and banking and financial services companies. A recent services employment report for April-June 2008 by staffing company TeamLease said ITeS lost the most (-24 points) on its index of increasing employment.
YOUR ACTION PLAN As always, to tackle the situation, you will have to keep existing outflows down, skip new large expenses, bump up your savings, and invest in higher return options at, perhaps, marginally higher risk (see How You Can Fight Back).
Enhance emergency funds, life and health covers. The 3-6 months’ worth of expenses that you keep aside in liquid assets such as fixed deposits for emergencies will need to be increased. Life and health covers may need to be augmented. Bridge the gap with low-cost term plans and family floaters.
Avoid large savings account balances. Drain your bank account into short-term debt funds such as fixed maturity plans (FMPs). Sanjay Prakash, CEO, HSBC Asset Management, says: “At 9-10 per cent returns, the real rate of return for FMPs may be negative in the short term. But, we expect inflation to lower by the last quarter of 2008 after which returns will turn positive.”
Prepay your home loan. As home finance rates are set to climb higher, prepay your floating rate loans. No investment option will currently give assured returns to match the higher interest outgo (see Beat The Rising Rates, page 24).
Opt for capital gains and dividend instead of interest. Interest income is taxed at your income tax rate while capital gains taxes are lower or zero. Also, short-term capital gains are taxed at higher rates than long-term gains, which can even be zero. Dividends in your hands, whether from stocks, equity or debt mutual funds, is tax free.
Continue with equity investments. “The only way to beat inflation is to keep investing in equity,” says Rajen Shah, chief investment officer, Angel Broking. Carry on with your existing systematic investment plans (SIPs) in equity funds. For fresh investments, seek larger cap funds from OLM 50 (see Introducing OLM 50, 10-23 April)—they are likely to rebound first, along with the blue-chips they primarily invest in.
If you want to pick up stocks, invest in stages and go for value buys. History is on your side. If you had invested in the Sensex after the markets recovered from the tech bust in 2004, you would be sitting on gains of about 150 per cent even now. Avoid interest rate-sensitive stocks such as real estate and auto. Go for large-cap pharma and FMCG stocks, which are more stable.
Diversify in international funds and gold. Over the last six months, while the Indian market was falling by over 30 per cent, international funds fell by a little over 13 per cent. As before, we will yet again recommend that you invest 5-10 per cent of your portfolio in gold exchange-traded funds (ETFs) and gold mutual funds as periods of high inflation witness a surge in gold prices (see Why You Should Buy Gold Now, 31 March). This will shore up the minimum long-term growth of your overall investments.
High inflation has terrible repercussions on the future of our money. Luckily, we have enough weapons in our arsenal to fight and win the war against it. Time’s come to pull out all stops.
PRICES ON FIRE
Why Inflation Rose To A Record High… Rising oil prices. At an all-time high of $140 per barrel, oil prices have more than doubled from $64 a barrel in April 2007, fuelling inflation.
Rising food prices. A global shortage of foodgrains, such as wheat and rice, has made the food prices index shoot up by about 10 per cent, pushing up inflation.
High commodity prices. High prices of commodities such as steel and cement due to their less-than-adequate supply has made industrial production, housing, roads, airports and other crucial infrastructure more expensive.
High cost of funds. To combat inflation, the central bank is sucking out excess money from the economy by increasing cash-reserve ratio (CRR) and increasing repo rates so that less money chases the limited supply of goods and services. This, however, is also driving up the cost of existing funds, that is interest rates, adding to inflation.
Rupee’s eroding purchasing power. Rising prices are eroding the value of what the rupee can buy vis-a-vis other currencies such as the dollar. The rupee’s fall of around 8 per cent in the last six months has made major imports like petroleum and edible oil costlier, fuelling inflation.
…And Why It Will Continue To Remain High New era of high oil prices. With little prospect of increase in international oil supplies, production declines in some oil producing countries, increasing oil production costs, taxes on oil exports by producing countries and speculative investments in oil by large international investors, besides continuing high oil demand, oil prices are expected to remain high.
No respite from high food prices. While the situation of shortfall in supply is likely to improve in the next 6-8 months, higher input costs in the form of costlier diesel, seeds, fertilisers and the like will neutralise the impact of enhanced food supply.
Uninterrupted rise of commodity prices. As most stockmarkets across the world test lower levels, investments by institutional investors pouring into commodities is expected to keep commodity prices high. Also, with no sign of demand for commodities from high-growth countries like China tapering off, no relief seems to be in sight.
High interest rates to continue. As long as high prices remain, with limited fiscal policy options, the Reserve Bank of India will either make attempts to suck out money or ensure status quo. This will mean continuing high interest rates and inflation.
continued pressure on the rupee. Various domestic and international macroeconomic factors are expected to keep up the pressure on the rupee, which will make imports more expensive.
HOW HIGH INFLATION WILL AFFECT YOU Higher Budgets. Get ready to pay more for vegetables, groceries, especially soaps, detergents, packaged food, personal and public transport, as well as for services such as couriers.
Costlier loans. You can expect costlier loans, especially car and personal loans. New home loan rates are likely to go up even as the tenure or EMIs of existing home loan rates go up.
More expensive recreation. Higher airfares along with lower purchasing power will make international travel more expensive even as domestic leisure becomes costlier.
Dent on returns. Fixed income options such as bank fixed deposits and monthly income options will give negative returns after adjusting for inflation, impacting senior citizens, single parents and risk-averse investors such as those with many dependents. Impact on corporate profitability via higher costs will bring down stock prices.
Higher taxes. To raise more money to cushion vulnerable parts of the population the government might impose higher taxes, cesses and surcharges on goods and services.
Lower infrastructure growth. Upcoming road, airport, power and port projects will witness cost escalations and might see slow downs.
Some layoffs and lower pay hikes. Hard hit sectors such as aviation could see some layoffs while most sectors are likely to witness lower pay hikes. This may be especially true in the IT and the BPO sectors.
More austere workplace. Expect fewer office parties and conferences, reduction in amenities, office travel and allowances as employers try to cut corners to save costs.
HOW YOU CAN FIGHT BACK Review your emergency fund requirement. Keep six months' expenses as emergency funds, mostly in short-term debt funds such as inflation- and tax-efficient FMPs.
Examine your health and life cover. With costs going up, you need to bump up your life and health covers. Go for low-cost, high-cover term plans and floating health covers to bridge the gap. avoid large idle savings and bank balances. Invest in short-term debt funds like FMPs.
Defer large loan-based purchases. Avoid large EMIs that will stretch your finances more. Go for your first home if you can afford the down payment and EMI.
Prepay high-cost loans. Start with your floating rate home loan. Remember, no investment option will provide guaranteed returns that equal the higher interest payout.
Seek capital gains and dividend instead of interest. Interest income gets taxed at your income tax rate. Long-term capital gains and dividends from equity and equity MFs are tax-free, but taxed at 10 per cent without indexation and 20 per cent with indexation if coming from debt funds. Dividends from debt funds are tax-free post dividend distribution tax.
Continue staggered investments in equity and equity MFs. Carry on with your systematic investment plans (SIPs) in equity funds. For fresh investments, seek large-cap funds from OLM 50 (see Introducing The OLM 50, 10-23 April 2008) that are likely to benefit from a rebound along with blue chips they predominantly invest in.
Diversify into international funds and gold. Gain from the upsides in well-performing equity markets in other countries by investing in international funds. Investing in gold (up to 5-10 per cent of your corpus) will give your portfolio a stable growth.
Avoid interest rate-sensitive stocks. This includes sectors such as real estate and auto. The best bets would be large-cap pharma and FMCG stocks currently available at attractive valuations.
Invest windfalls. Avoid the urge to splurge increments, bonuses and refunds. Invest them to further empower your investment effort
The inflation fire is now an inferno. It singed wallets on its way from 4.7 per cent in July 2007 to 8.86 per cent in May 2008. It did not stop there, but shot up to a 13-year high of 11.42 per cent for the week ended 14 June. Much of this recent rise is being attributed to the pervasive impact of the increase in the state-administered prices of oil products on 5 June. That looked inevitable after international oil prices rose to an all-time high, up to $140 a barrel last fortnight. Worse, this inflation is not expected to go south anytime soon. Says Shuchita Mehta, senior economist, Standard Chartered Bank: “We expect inflation to remain high for some time and to average 8.72 per cent this fiscal year.”
WHY HIGH INFLATION IS HERE TO STAY Oil aftershock. Two issues ago Outlook Money had warned of a period of high inflation (see Turmoil, 5-18 June 2008) driven by oil prices. With little chance of increasing global supplies, higher extraction costs, production cuts and export taxes in some oil producing countries, and speculative investments in oil by large international investors has buttressed price pressures due to continuing high demand for oil (see Prices On Fire).
Rising food prices. A worldwide shortage is driving up food prices. In India, oil seed prices are 20 per cent higher than a year ago. While food supplies are expected to increase over 6-8 months, higher costs of inputs (diesel, fertilisers, and seeds, among others) would likely continue to keep prices high.
High commodity prices. High prices of commodities such as iron and steel and edibles have been responsible for about a fifth of the spike in price rise. With stockmarkets worldwide falling, large international institutional investors are buying commodities, further pushing up their prices and inflation, a trend unlikely to change soon.
Expensive funds. On 24 June, the Reserve Bank of India hiked the cash-reserve ratio (CRR) and the repo rate (rate at which it lends to banks) by 50 basis points each to reduce liquidity and weaken inflationary pressures. This has raised banks’ cost of funds and, thus, making cost of production higher. With limited policy options, it could do so again.
Weaker rupee. With a rapid price rise you need more rupees for the same amount of imports, making imported products or those with high import content such as edible oils, costlier. Expect more of the same.
MONEY SHOCK The immediate impact of high inflation will be pressure on household budgets, and lower savings, both for now and the future. Higher interest rates are pushing up EMIs. Inflation-adjusted returns from fixed income options, be it fixed deposits or pensions, have gone negative. Five-year term deposits paying 8.5 per cent when inflation is 11.5 per cent are giving real returns of -2.69 per cent. So, the value of what you get back is lower than what you put in. The future’s not rosy either. Higher costs due to high inflation is likely to dent corporate profitability, putting downward pressure on stock prices. Some sectors, such as aviation, could see layoffs, while fewer people will be hired by IT, BPO, and banking and financial services companies. A recent services employment report for April-June 2008 by staffing company TeamLease said ITeS lost the most (-24 points) on its index of increasing employment.
YOUR ACTION PLAN As always, to tackle the situation, you will have to keep existing outflows down, skip new large expenses, bump up your savings, and invest in higher return options at, perhaps, marginally higher risk (see How You Can Fight Back).
Enhance emergency funds, life and health covers. The 3-6 months’ worth of expenses that you keep aside in liquid assets such as fixed deposits for emergencies will need to be increased. Life and health covers may need to be augmented. Bridge the gap with low-cost term plans and family floaters.
Avoid large savings account balances. Drain your bank account into short-term debt funds such as fixed maturity plans (FMPs). Sanjay Prakash, CEO, HSBC Asset Management, says: “At 9-10 per cent returns, the real rate of return for FMPs may be negative in the short term. But, we expect inflation to lower by the last quarter of 2008 after which returns will turn positive.”
Prepay your home loan. As home finance rates are set to climb higher, prepay your floating rate loans. No investment option will currently give assured returns to match the higher interest outgo (see Beat The Rising Rates, page 24).
Opt for capital gains and dividend instead of interest. Interest income is taxed at your income tax rate while capital gains taxes are lower or zero. Also, short-term capital gains are taxed at higher rates than long-term gains, which can even be zero. Dividends in your hands, whether from stocks, equity or debt mutual funds, is tax free.
Continue with equity investments. “The only way to beat inflation is to keep investing in equity,” says Rajen Shah, chief investment officer, Angel Broking. Carry on with your existing systematic investment plans (SIPs) in equity funds. For fresh investments, seek larger cap funds from OLM 50 (see Introducing OLM 50, 10-23 April)—they are likely to rebound first, along with the blue-chips they primarily invest in.
If you want to pick up stocks, invest in stages and go for value buys. History is on your side. If you had invested in the Sensex after the markets recovered from the tech bust in 2004, you would be sitting on gains of about 150 per cent even now. Avoid interest rate-sensitive stocks such as real estate and auto. Go for large-cap pharma and FMCG stocks, which are more stable.
Diversify in international funds and gold. Over the last six months, while the Indian market was falling by over 30 per cent, international funds fell by a little over 13 per cent. As before, we will yet again recommend that you invest 5-10 per cent of your portfolio in gold exchange-traded funds (ETFs) and gold mutual funds as periods of high inflation witness a surge in gold prices (see Why You Should Buy Gold Now, 31 March). This will shore up the minimum long-term growth of your overall investments.
High inflation has terrible repercussions on the future of our money. Luckily, we have enough weapons in our arsenal to fight and win the war against it. Time’s come to pull out all stops.
PRICES ON FIRE
Why Inflation Rose To A Record High… Rising oil prices. At an all-time high of $140 per barrel, oil prices have more than doubled from $64 a barrel in April 2007, fuelling inflation.
Rising food prices. A global shortage of foodgrains, such as wheat and rice, has made the food prices index shoot up by about 10 per cent, pushing up inflation.
High commodity prices. High prices of commodities such as steel and cement due to their less-than-adequate supply has made industrial production, housing, roads, airports and other crucial infrastructure more expensive.
High cost of funds. To combat inflation, the central bank is sucking out excess money from the economy by increasing cash-reserve ratio (CRR) and increasing repo rates so that less money chases the limited supply of goods and services. This, however, is also driving up the cost of existing funds, that is interest rates, adding to inflation.
Rupee’s eroding purchasing power. Rising prices are eroding the value of what the rupee can buy vis-a-vis other currencies such as the dollar. The rupee’s fall of around 8 per cent in the last six months has made major imports like petroleum and edible oil costlier, fuelling inflation.
…And Why It Will Continue To Remain High New era of high oil prices. With little prospect of increase in international oil supplies, production declines in some oil producing countries, increasing oil production costs, taxes on oil exports by producing countries and speculative investments in oil by large international investors, besides continuing high oil demand, oil prices are expected to remain high.
No respite from high food prices. While the situation of shortfall in supply is likely to improve in the next 6-8 months, higher input costs in the form of costlier diesel, seeds, fertilisers and the like will neutralise the impact of enhanced food supply.
Uninterrupted rise of commodity prices. As most stockmarkets across the world test lower levels, investments by institutional investors pouring into commodities is expected to keep commodity prices high. Also, with no sign of demand for commodities from high-growth countries like China tapering off, no relief seems to be in sight.
High interest rates to continue. As long as high prices remain, with limited fiscal policy options, the Reserve Bank of India will either make attempts to suck out money or ensure status quo. This will mean continuing high interest rates and inflation.
continued pressure on the rupee. Various domestic and international macroeconomic factors are expected to keep up the pressure on the rupee, which will make imports more expensive.
HOW HIGH INFLATION WILL AFFECT YOU Higher Budgets. Get ready to pay more for vegetables, groceries, especially soaps, detergents, packaged food, personal and public transport, as well as for services such as couriers.
Costlier loans. You can expect costlier loans, especially car and personal loans. New home loan rates are likely to go up even as the tenure or EMIs of existing home loan rates go up.
More expensive recreation. Higher airfares along with lower purchasing power will make international travel more expensive even as domestic leisure becomes costlier.
Dent on returns. Fixed income options such as bank fixed deposits and monthly income options will give negative returns after adjusting for inflation, impacting senior citizens, single parents and risk-averse investors such as those with many dependents. Impact on corporate profitability via higher costs will bring down stock prices.
Higher taxes. To raise more money to cushion vulnerable parts of the population the government might impose higher taxes, cesses and surcharges on goods and services.
Lower infrastructure growth. Upcoming road, airport, power and port projects will witness cost escalations and might see slow downs.
Some layoffs and lower pay hikes. Hard hit sectors such as aviation could see some layoffs while most sectors are likely to witness lower pay hikes. This may be especially true in the IT and the BPO sectors.
More austere workplace. Expect fewer office parties and conferences, reduction in amenities, office travel and allowances as employers try to cut corners to save costs.
HOW YOU CAN FIGHT BACK Review your emergency fund requirement. Keep six months' expenses as emergency funds, mostly in short-term debt funds such as inflation- and tax-efficient FMPs.
Examine your health and life cover. With costs going up, you need to bump up your life and health covers. Go for low-cost, high-cover term plans and floating health covers to bridge the gap. avoid large idle savings and bank balances. Invest in short-term debt funds like FMPs.
Defer large loan-based purchases. Avoid large EMIs that will stretch your finances more. Go for your first home if you can afford the down payment and EMI.
Prepay high-cost loans. Start with your floating rate home loan. Remember, no investment option will provide guaranteed returns that equal the higher interest payout.
Seek capital gains and dividend instead of interest. Interest income gets taxed at your income tax rate. Long-term capital gains and dividends from equity and equity MFs are tax-free, but taxed at 10 per cent without indexation and 20 per cent with indexation if coming from debt funds. Dividends from debt funds are tax-free post dividend distribution tax.
Continue staggered investments in equity and equity MFs. Carry on with your systematic investment plans (SIPs) in equity funds. For fresh investments, seek large-cap funds from OLM 50 (see Introducing The OLM 50, 10-23 April 2008) that are likely to benefit from a rebound along with blue chips they predominantly invest in.
Diversify into international funds and gold. Gain from the upsides in well-performing equity markets in other countries by investing in international funds. Investing in gold (up to 5-10 per cent of your corpus) will give your portfolio a stable growth.
Avoid interest rate-sensitive stocks. This includes sectors such as real estate and auto. The best bets would be large-cap pharma and FMCG stocks currently available at attractive valuations.
Invest windfalls. Avoid the urge to splurge increments, bonuses and refunds. Invest them to further empower your investment effort
A Profitable Way Out Of The Market
Buybacks and open offers give investors a chance to exit the market and also get handsome rewards for being shareholders
The stockmarket gives shareholders opportunities to increase their wealth even during periods when volumes go down, as is the case now. These come from the promoters or prospective promoters, either by way of buyback offers or open offers.
Such activities tend to increase when share prices are down. Presently, there are 83 companies that have either announced opening dates or plans for a buyback. More than 50 companies have announced their opening dates for takeover open offers.
WHAT ARE BUYBACKS?
A company’s offer to purchase its own shares issued earlier is termed as buyback. It usually does not affect the company’s operations or its stability. Its objective is to reduce the company’s share capital as, typically, these shares are extinguished.
Types of buyback. A company buys back its shares by sending a letter of offer to shareholders. It fixes a price, generally higher than the prevailing market price. Companies can also fix a range of prices in which it is willing to buy the shares.
Companies also buy shares in the open market through brokers.
How to evaluate a buyback. In theory, a company goes for a buyback when it has surplus cash and few investment opportunities. In such a situation, companies reward their shareholders by offering them cash for the shares.
However, a developing economy like India, which has many investment opportunities, there are very few companies that can give this reason for a buyback.
Investors should be aware of any manipulation or inaccurate information that a company may give to explain why it opted for a buyback.
A buyback reduces the number of shares in the market and, thus, the earning per share increases. As a result, the price earning multiple (PE) falls and the valuations become attractive, which leads to more demand for the stock pushing prices up.
At times, the management uses this to put a gloss to their financial statements. Investors should note that prices cannot be sustained until the profitability of the company improves.
WHAT ARE OPEN OFFERS?
An open offer is a way in which the acquirer tries to take control of the target company. The acquirer makes a public announcement in the newspapers disclosing his intentions to acquire the shares of the target company.
How to evaluate an open offer? Investors have the discretion to accept or reject the open offer. The offer price can be a major criterion for deciding. If the investors feel the offer is underpriced, they may hold on to their shares. Also, if indications point towards competitive bids by other acquirers, investors can also wait for these bids, which might be more attractive than the present one.
If investors feel that the stock has the potential to perform better than the present open offer, even then they might not put up their shares for sale. Otherwise, at the right price, an open offer is a good exit opportunity, especially in a turbulent market like the present one.
Buybacks and open offers give investors a chance to exit the market and also get a handsome reward for being a shareholder. However, investors should evaluate buybacks and open offers on a case-to-case basis before taking a decision
The stockmarket gives shareholders opportunities to increase their wealth even during periods when volumes go down, as is the case now. These come from the promoters or prospective promoters, either by way of buyback offers or open offers.
Such activities tend to increase when share prices are down. Presently, there are 83 companies that have either announced opening dates or plans for a buyback. More than 50 companies have announced their opening dates for takeover open offers.
WHAT ARE BUYBACKS?
A company’s offer to purchase its own shares issued earlier is termed as buyback. It usually does not affect the company’s operations or its stability. Its objective is to reduce the company’s share capital as, typically, these shares are extinguished.
Types of buyback. A company buys back its shares by sending a letter of offer to shareholders. It fixes a price, generally higher than the prevailing market price. Companies can also fix a range of prices in which it is willing to buy the shares.
Companies also buy shares in the open market through brokers.
How to evaluate a buyback. In theory, a company goes for a buyback when it has surplus cash and few investment opportunities. In such a situation, companies reward their shareholders by offering them cash for the shares.
However, a developing economy like India, which has many investment opportunities, there are very few companies that can give this reason for a buyback.
Investors should be aware of any manipulation or inaccurate information that a company may give to explain why it opted for a buyback.
A buyback reduces the number of shares in the market and, thus, the earning per share increases. As a result, the price earning multiple (PE) falls and the valuations become attractive, which leads to more demand for the stock pushing prices up.
At times, the management uses this to put a gloss to their financial statements. Investors should note that prices cannot be sustained until the profitability of the company improves.
WHAT ARE OPEN OFFERS?
An open offer is a way in which the acquirer tries to take control of the target company. The acquirer makes a public announcement in the newspapers disclosing his intentions to acquire the shares of the target company.
How to evaluate an open offer? Investors have the discretion to accept or reject the open offer. The offer price can be a major criterion for deciding. If the investors feel the offer is underpriced, they may hold on to their shares. Also, if indications point towards competitive bids by other acquirers, investors can also wait for these bids, which might be more attractive than the present one.
If investors feel that the stock has the potential to perform better than the present open offer, even then they might not put up their shares for sale. Otherwise, at the right price, an open offer is a good exit opportunity, especially in a turbulent market like the present one.
Buybacks and open offers give investors a chance to exit the market and also get a handsome reward for being a shareholder. However, investors should evaluate buybacks and open offers on a case-to-case basis before taking a decision
Indians see jobs, economy improving
Inflation may be flirting with double-digit figures, but Indians living in metros seem to be an optimistic lot with most of them expecting the employment scenario as well as the economic conditions to improve in the near term.Knowledge services firm Boston Analytics' Consumer Sentiment Index (BACSI), a monthly barometer of consumer opinion regarding current state and future expectations of the macro economy, household financial conditions and consumption, has registered a nearly three per cent increase in the level of over all optimism in June.BACSI for June stood at 96.9, up 2.9 per cent from the previous months reading of 94.2. The rise is attributable primarily to improvement of sentiment related to consumption plans, employment and expectations from the future state of economy. However, sentiment related to inflation remained very low and acted as a significant offset, the survey stated.The index, based on a monthly survey conducted across metrosDelhi, Mumbai, Kolkata and Chennaitargets a diverse set of demographics representative of Indian consumers. It addresses macro-level variables reflecting the nation's economic conditions, including indicators such as employment, inflation, interest rates, and real estate.The BACSI Employment Sentiment index recorded a marginal increase reflecting the expectation of a positive and robust hiring market.High job security, combined with consumers' increased confidence about their ability to create alternative means of employment, led to a marginal increase in the BACSI Employment Sentiment Index compared to last month.The index, which declined gradually from the beginning of the year until May, increased by 4.9 per cent, from 71.1 in May 2008 to 74.6 in June 2008.
Indians see jobs, economy improving
Inflation may be flirting with double-digit figures, but Indians living in metros seem to be an optimistic lot with most of them expecting the employment scenario as well as the economic conditions to improve in the near term.Knowledge services firm Boston Analytics' Consumer Sentiment Index (BACSI), a monthly barometer of consumer opinion regarding current state and future expectations of the macro economy, household financial conditions and consumption, has registered a nearly three per cent increase in the level of over all optimism in June.BACSI for June stood at 96.9, up 2.9 per cent from the previous months reading of 94.2. The rise is attributable primarily to improvement of sentiment related to consumption plans, employment and expectations from the future state of economy. However, sentiment related to inflation remained very low and acted as a significant offset, the survey stated.The index, based on a monthly survey conducted across metrosDelhi, Mumbai, Kolkata and Chennaitargets a diverse set of demographics representative of Indian consumers. It addresses macro-level variables reflecting the nation's economic conditions, including indicators such as employment, inflation, interest rates, and real estate.The BACSI Employment Sentiment index recorded a marginal increase reflecting the expectation of a positive and robust hiring market.High job security, combined with consumers' increased confidence about their ability to create alternative means of employment, led to a marginal increase in the BACSI Employment Sentiment Index compared to last month.The index, which declined gradually from the beginning of the year until May, increased by 4.9 per cent, from 71.1 in May 2008 to 74.6 in June 2008.
Monday, July 14, 2008
World Markets: Critical inflexion points round the corner
World markets are at a unique stage right now with many markets at a critical inflexion point. This period has acquired special significance because of the synchronous movement and confluence of short term and medium term cycles not only across geographies but also across asset classes like equities, bonds and commodities. Following are our views on these various inflexion points:
1) Global Equities: Most of the global equity indices are at or near their intermediate term bottoms and hence present excellent BUY opportunities. All the bottoming out are likely to happen between now and 9th July. DOW could bottom out between 10800-11200. S&P500 between 1250- 1275; NASDAQ between 2240-2290; BSE SENSEX between 12400- 12800; NSE NIFTY between 3700-3850; HANGSENG between 21000-22000; SHANGHAI between 2550-2650; NIKKEI 13200- 13500; SINGAPORE 2850-2950; FTSE 5300-5500; DAX 6100-6300; CAC 4200-4400. Many of these global equity indices are going to make their next intermediate peaks between August and September. However, many of them could go onto make higher intermediate peaks between December and January. It would be appropriate to point out that this intermediate uptrend is part of a long term bear market in equities which can easily extend upto the second half of 2009. One could buy these indices with a medium term horizon, albeit, with appropriate stop losses at this stage. However, on a longer term basis, any rally that happens in next few months is an opportunity to SELL and Exit or may be even short these markets.
2) Crude Oil and other Industrial Commodities: We expect crude oil to hit an inflexion zone very soon. We expect crude oil to go through a period of relative underperformance initially followed by absolute underperformance and may be a big fall sometime in September to October 2008. What this means is that Crude could hover between 140-150 $ in next few days and weeks and may be go a little beyond as well, but would consistently underperform its scorching rise of last few months. It could in all likelihood be sideways for next many weeks before it starts its downward climb. What is more evident is that crude by October may be significantly lower than what it is today. Similarly other industrial commodities would essentially remain in a narrow range before starting a convincing downward journey in the next 2-4 months
3) Gilts: We expect US and German 10 year bond yields to be in sideways territory for next few months. US 10 year Treasuries would remain locked between 3.80 to 4.25% while German bunds could remain between 4.40 to 4.75%. Yields could go down sharply in September to October period and then continue with the downward bias right upto October 2009.
We recommend an across the board BUY on all non-commodity driven Equity indices of the world with a horizon of 3-6 months. One could start buying immediately and exhaust 50% of the buying in next 2-3 days. If the bottom of various ranges is reached (within 2-3 %) one can be 100% invested. Stop loss levels would vary from one index to another but broadly be 10% below the bottom of the buying range
1) Global Equities: Most of the global equity indices are at or near their intermediate term bottoms and hence present excellent BUY opportunities. All the bottoming out are likely to happen between now and 9th July. DOW could bottom out between 10800-11200. S&P500 between 1250- 1275; NASDAQ between 2240-2290; BSE SENSEX between 12400- 12800; NSE NIFTY between 3700-3850; HANGSENG between 21000-22000; SHANGHAI between 2550-2650; NIKKEI 13200- 13500; SINGAPORE 2850-2950; FTSE 5300-5500; DAX 6100-6300; CAC 4200-4400. Many of these global equity indices are going to make their next intermediate peaks between August and September. However, many of them could go onto make higher intermediate peaks between December and January. It would be appropriate to point out that this intermediate uptrend is part of a long term bear market in equities which can easily extend upto the second half of 2009. One could buy these indices with a medium term horizon, albeit, with appropriate stop losses at this stage. However, on a longer term basis, any rally that happens in next few months is an opportunity to SELL and Exit or may be even short these markets.
2) Crude Oil and other Industrial Commodities: We expect crude oil to hit an inflexion zone very soon. We expect crude oil to go through a period of relative underperformance initially followed by absolute underperformance and may be a big fall sometime in September to October 2008. What this means is that Crude could hover between 140-150 $ in next few days and weeks and may be go a little beyond as well, but would consistently underperform its scorching rise of last few months. It could in all likelihood be sideways for next many weeks before it starts its downward climb. What is more evident is that crude by October may be significantly lower than what it is today. Similarly other industrial commodities would essentially remain in a narrow range before starting a convincing downward journey in the next 2-4 months
3) Gilts: We expect US and German 10 year bond yields to be in sideways territory for next few months. US 10 year Treasuries would remain locked between 3.80 to 4.25% while German bunds could remain between 4.40 to 4.75%. Yields could go down sharply in September to October period and then continue with the downward bias right upto October 2009.
We recommend an across the board BUY on all non-commodity driven Equity indices of the world with a horizon of 3-6 months. One could start buying immediately and exhaust 50% of the buying in next 2-3 days. If the bottom of various ranges is reached (within 2-3 %) one can be 100% invested. Stop loss levels would vary from one index to another but broadly be 10% below the bottom of the buying range
Saturday, July 12, 2008
TDS: Tedious provisions
Far from recognising the efforts of TDS deductors, the tax man penalises them for even petty defaults
THE GOVERNMENT'S efforts to improve tax collections through tax deduction at source (TDS) are increasing by the day, and the scope for TDS expanding by the year. There’s good reason for that: TDS is the best medium of collecting tax without much of a hassle, since the responsibility to deduct tax is not on the government, but on citizen-payers. What’s more, the government doesn’t even have to pay any remuneration to these ‘involuntary volunteers’ who deduct tax at source. It is, therefore, not surprising that the tax department accords a lot of importance to TDS as a source of generating revenue and to administering the TDS provisions more vigorously.
Casting a wider net. In 2001, brokerage and commission payments were brought within the TDS net; in 2002, it was the turn of dividend distributions. However, an individual or a Hindu Undivided Family (HUF) was always spared the obligation to deduct tax while making payments in most cases. This exemption was based on the well-established principles that people with little or no infrastructure shouldn’t be called upon to undertake government work.
However, with effect from 1 June 2002, specified individuals and HUFs have been saddled with the responsibility of deducting and depositing tax on payments made by them. These specified individuals and HUFs are those whose total sales, gross receipts or turnover from business exceed Rs 40 lakh or, where they are in profession, their gross receipts exceed Rs 10 lakh as specified under Section 44AB during the financial year immediately preceding the financial year in which the sums of money liable for TDS are credited or paid.
In other words, individuals and HUFs who were liable to get their books of accounts audited under Section 44AB (Tax Audit) for the year ended 31 March 2002 will also, with effect from 1 June 2002, be liable to deduct and pay tax to the government under the various TDS provisions.
TDS Provisions
The provisions under which specified individuals and HUFs are liable to deduct tax at source are:
Section 194A. For interest exceeding Rs 5,000 per person per year at 10.50 per cent.
Section 194H. For commission or brokerage (apart from brokerage on securities) in excess of Rs 2,500 per person per year at 5.25 per cent.
Section 194I. For rent exceeding Rs 1.20 lakh per person per year at 15.75 per cent if the payment is to an individual or an HUF, and at 21 per cent if the payment is to any other person/entity.
Section 194J. For fees for professional or technical services exceeding Rs 20,000 per person per year at 5.25 per cent.
Section 194C. For payments by a contractor to sub-contractors exceeding Rs 20,000 per person per year at 1.05 per cent.
The rates that have been specified are the prescribed rates of income tax for TDS and include surcharge at the rate of 5 per cent. In addition, the specified individuals and HUFs are obligated to deduct tax under Section 192 in respect of salaries paid to employees and payments to Non-residents under Section 195. Importantly, the specified individuals and HUFs are liable in the case of payments to sub-contractors only where they are contractors themselves.
TDS Obligations
TAN number. Every person who is liable to deduct tax at source (deductors) will have to get a TAN Number by making an application using Form 49B within the prescribed time, failing which there is a penalty.
Tax deduction. The deductor has to deduct tax at source in accordance with the specified provisions at the prescribed rates at the time of credit of the sums of money liable for deduction or at the time of payment of these sums, whichever is earlier
Tax payment. The deductor has to pay the tax that has been deducted during a month by the 7th of the following month. Failure to pay TDS by the due date will attract interest at 1.25 per cent per month for the period of delay.
Issue of TDS certificate. The deductor has to issue a TDS certificate using Form 16/16A by the end of the following month in which the tax is deducted, and where the payment is credited to the account of the payee at the end of the year, within seven days of two months from the end of the year. A consolidated yearly TDS certificate can be issued only if the payee so requests within one month from the end of the year. Failure to issue the TDS certificate within the prescribed time attracts a penalty of at least Rs 100 per day for the period of the delay; the maximum penalty being subject to the amount of the tax deducted at source. If the deductor has the payee’s Permanent Account Number (PAN), this must be mentioned on the TDS Certificate, failing which there is a penalty of Rs 10,000.
Filing TDS Returns annually. The deductor has to file TDS Returns by June 30 every year, failing which there is a penalty of Rs 100 per return per day. The penalty cannot, however, exceed the sum total of tax deducted. Form 26A must be used for interest (under Section 194A); Form 26I for commission or brokerage (Section 194H); Form 26J for rent (Section 194I); Form 26K for professional or technical fees (Section 194J); Form 26C for payments to sub-contractors (Section 194C). The annual return of TDS on salaries is to be filed by May 30 every year using Form 24.
Taxpayer’s Privilege
A person whose income/receipts are subject to TDS can apply to the TDS Officer and get a certificate for lower deduction of tax at source in case of salaries, interest on securities, dividend, interest other than ‘interest on securities’, insurance commission, commission or brokerage, rent, income from units, payment of compensation on acquisition of a capital asset, and payments to non-residents. The application has to be made in the prescribed form in response to which the ‘Certificate of lower TDS’ will be issued by the TDS Officer.
Bottomline. Unfortunately, although the deductor renders the government a service by collecting tax free of cost, his time and efforts are never recognised by the tax department. Instead, the department levies interest and penalties for defaults of the complicated TDS provisions. It’s high time the department acknowledged the efforts of deductors and reciprocated by interpreting the provisions liberally.
Further, no penalties should be levied for petty and technical defaults. After all, no deductor would want to err on the wrong side of the law and subject himself to the additional liabilities of interest, penalties, punishment and harassment for income that has been earned by another person. The only reason for a default can, therefore, be lack of knowledge or perhaps inadequate infrastructure.
THE GOVERNMENT'S efforts to improve tax collections through tax deduction at source (TDS) are increasing by the day, and the scope for TDS expanding by the year. There’s good reason for that: TDS is the best medium of collecting tax without much of a hassle, since the responsibility to deduct tax is not on the government, but on citizen-payers. What’s more, the government doesn’t even have to pay any remuneration to these ‘involuntary volunteers’ who deduct tax at source. It is, therefore, not surprising that the tax department accords a lot of importance to TDS as a source of generating revenue and to administering the TDS provisions more vigorously.
Casting a wider net. In 2001, brokerage and commission payments were brought within the TDS net; in 2002, it was the turn of dividend distributions. However, an individual or a Hindu Undivided Family (HUF) was always spared the obligation to deduct tax while making payments in most cases. This exemption was based on the well-established principles that people with little or no infrastructure shouldn’t be called upon to undertake government work.
However, with effect from 1 June 2002, specified individuals and HUFs have been saddled with the responsibility of deducting and depositing tax on payments made by them. These specified individuals and HUFs are those whose total sales, gross receipts or turnover from business exceed Rs 40 lakh or, where they are in profession, their gross receipts exceed Rs 10 lakh as specified under Section 44AB during the financial year immediately preceding the financial year in which the sums of money liable for TDS are credited or paid.
In other words, individuals and HUFs who were liable to get their books of accounts audited under Section 44AB (Tax Audit) for the year ended 31 March 2002 will also, with effect from 1 June 2002, be liable to deduct and pay tax to the government under the various TDS provisions.
TDS Provisions
The provisions under which specified individuals and HUFs are liable to deduct tax at source are:
Section 194A. For interest exceeding Rs 5,000 per person per year at 10.50 per cent.
Section 194H. For commission or brokerage (apart from brokerage on securities) in excess of Rs 2,500 per person per year at 5.25 per cent.
Section 194I. For rent exceeding Rs 1.20 lakh per person per year at 15.75 per cent if the payment is to an individual or an HUF, and at 21 per cent if the payment is to any other person/entity.
Section 194J. For fees for professional or technical services exceeding Rs 20,000 per person per year at 5.25 per cent.
Section 194C. For payments by a contractor to sub-contractors exceeding Rs 20,000 per person per year at 1.05 per cent.
The rates that have been specified are the prescribed rates of income tax for TDS and include surcharge at the rate of 5 per cent. In addition, the specified individuals and HUFs are obligated to deduct tax under Section 192 in respect of salaries paid to employees and payments to Non-residents under Section 195. Importantly, the specified individuals and HUFs are liable in the case of payments to sub-contractors only where they are contractors themselves.
TDS Obligations
TAN number. Every person who is liable to deduct tax at source (deductors) will have to get a TAN Number by making an application using Form 49B within the prescribed time, failing which there is a penalty.
Tax deduction. The deductor has to deduct tax at source in accordance with the specified provisions at the prescribed rates at the time of credit of the sums of money liable for deduction or at the time of payment of these sums, whichever is earlier
Tax payment. The deductor has to pay the tax that has been deducted during a month by the 7th of the following month. Failure to pay TDS by the due date will attract interest at 1.25 per cent per month for the period of delay.
Issue of TDS certificate. The deductor has to issue a TDS certificate using Form 16/16A by the end of the following month in which the tax is deducted, and where the payment is credited to the account of the payee at the end of the year, within seven days of two months from the end of the year. A consolidated yearly TDS certificate can be issued only if the payee so requests within one month from the end of the year. Failure to issue the TDS certificate within the prescribed time attracts a penalty of at least Rs 100 per day for the period of the delay; the maximum penalty being subject to the amount of the tax deducted at source. If the deductor has the payee’s Permanent Account Number (PAN), this must be mentioned on the TDS Certificate, failing which there is a penalty of Rs 10,000.
Filing TDS Returns annually. The deductor has to file TDS Returns by June 30 every year, failing which there is a penalty of Rs 100 per return per day. The penalty cannot, however, exceed the sum total of tax deducted. Form 26A must be used for interest (under Section 194A); Form 26I for commission or brokerage (Section 194H); Form 26J for rent (Section 194I); Form 26K for professional or technical fees (Section 194J); Form 26C for payments to sub-contractors (Section 194C). The annual return of TDS on salaries is to be filed by May 30 every year using Form 24.
Taxpayer’s Privilege
A person whose income/receipts are subject to TDS can apply to the TDS Officer and get a certificate for lower deduction of tax at source in case of salaries, interest on securities, dividend, interest other than ‘interest on securities’, insurance commission, commission or brokerage, rent, income from units, payment of compensation on acquisition of a capital asset, and payments to non-residents. The application has to be made in the prescribed form in response to which the ‘Certificate of lower TDS’ will be issued by the TDS Officer.
Bottomline. Unfortunately, although the deductor renders the government a service by collecting tax free of cost, his time and efforts are never recognised by the tax department. Instead, the department levies interest and penalties for defaults of the complicated TDS provisions. It’s high time the department acknowledged the efforts of deductors and reciprocated by interpreting the provisions liberally.
Further, no penalties should be levied for petty and technical defaults. After all, no deductor would want to err on the wrong side of the law and subject himself to the additional liabilities of interest, penalties, punishment and harassment for income that has been earned by another person. The only reason for a default can, therefore, be lack of knowledge or perhaps inadequate infrastructure.
Q&A: 20 Answers To Get The Return Right
We answer 20 questions that crop up frequently in the taxpayer’s mind
1] Heard of New Year. What are financial year, previous year and assessment year?
A financial year (FY) is a period of 12 months commencing on 1 April of a year and ending on 31 March the next year. An assessment year is the year immediately following an FY. For the purpose of calculating income tax, FY is the period during which the income has been earned. The income earned in a FY is assessed in the following year, that is, the assessment year. For example, income earned in FY 2007-08 (1 April 2007 to 31 March 2008) will be assessed for tax in the year 2008-09. The year preceding the assessment year is the previous year.
2] What if I have not received my Form 16?
Employers are supposed to hand over Form 16 within 30 days of the end of a financial year, that is, by 30 April. Ask your employer to issue Form 16 immediately so that you don’t miss the 31 July deadline for filing return for salaried employees. If you think that your employer might not issue the form in time, you can write a registered letter to him on the issue and send a copy of this to your assessing officer. The employer can be penalised for not issuing the form in time. If no tax was deducted at source, you can ask your employer for a salary certificate on his letterhead stating your salary during the financial year. This certificate can be used to file a return.
3] Can I use my investment in ELSS this year to reduce last year’s tax liability?
No. But if you had not claimed any deductions in your previous year’s return, you may file a revised return to claim a refund, if eligible. However, fresh investments would not be eligible for deductions from last year’s income.
4] Taxes get deducted from my salary every month. Do I need to file income tax return?
Yes. Filing of tax is compulsory for every person whose gross total income, that is, the income under the five heads before allowing for any deduction such as insurance premium, exceeds the basic exemption limit. For financial year 2007-08 (assessment year 2008-09), this exemption limit was Rs 1.45 lakh for women below the age of 65, Rs 1.95 lakh for persons above 65, and Rs 1.10 lakh for any other individual. Every person falling in the tax bracket should file a return, even if his tax liabilities have been taken care of by the employer through tax deducted at source (TDS). Persons whose salaries have been subjected to TDS are also required to file return because they may have earned from sources other than salary.
5] I have earned under two heads—salary and capital gains. Which form should I use to file my return? How will my tax be assessed?
As an individual assessee, if you have earned income from capital gains in addition to your salary, you will have to file your return in form ITR-2. For taxation, you will have to first segregate capital gains into short-term (STCG) and long-term (LTCG). Any gain from selling shares held for more than a year is termed long-term. Gain from sale of shares held for a year or less is called short-term. If you have paid the securities transaction tax on all share trading, LTCG will be exempt from tax and STCG will be taxed at 10 per cent for FY 2007-08. Your gross tax outlay will depend on your salary income, income from capital gains, income from other sources like interest on bank deposits, and the deductions you are entitled to.
6] I was in two jobs. How should I file return?
The aggregated income from both your employers will be considered while calculating your tax. Ideally, both companies should give you Form 16 for salary earned during the relevant period. Try to get a salary certificate from your previous employer if you cannot get Form 16 from him. Submit this estimate and a declaration in Form 12B to your current employer who will then incorporate these details in the Form 16 that he issues.
7] What if I miss the deadline of July 31?
If there are no balance taxes to be paid, no interest or penalty will be levied if you file your return before 31 March 2009. However, there is a penalty of Rs 5,000 if you fail to file by that date. In case there are tax arrears, a penalty of 1 per cent per month will be charged as interest on the taxes due.
8] I took up a job in Bengaluru recently. My IT return was filed in Delhi till now. Where should I file it now?
You can file your IT return either in the city you are residing in at present, or in the city where your office is located. Since you have joined a company based in Bengaluru and also shifted your residence there, you will be required to file your return at Bengaluru. You should write a letter about the change of your address to your current assessing officer and mark a copy of the same to your assessing officer in Delhi. You should also write to the IT Department to get your address changed in its PAN records. It would be best if you enclose a copy of your previous year’s return while filing your return at Bengaluru. This will serve as a ready reference for your current assessing officer.
9] I have misplaced my insurance receipt. Is it necessary to attach it and other relevant documents with the tax return?
No attachments are needed with the current ITR forms as the forms themselves capture most of the required information. You don’t even need to attach the computation sheet with the form. After you submit the form, the IT department cross-references the TDS details using Oltas (Online Tax Accounting System). However, make sure to carry the photocopies of all the relevant documents to the income tax office.
10] Last minute planning can hurt. How do I prepare myself for next year?
This financial year (2008-09) would be better than the previous one as Budget 2008 has already brought a minimum of Rs 4,000 as tax savings for all the taxpayers. There is a gamut of instruments that can be used to avail deductions under Section 80C. The mix taken usually depends on the safety, liquidity and term of the various instruments. However, most taxpayers generally forget to factor in whether the income generated by the instrument is subject to tax. It is at the fag end of the financial year that most salaried employees wake up to the need to save taxes through investments. And in this last minute commotion and confusion, a lot investment happens in assets that are low on return, high on risk, or unsuited to the long-term financial objectives of the investor. As in life, it is always better to be an early riser in tax planning too and begin right at the dawn of a financial year, in April.
A deduction of up to Rs 1 lakh is allowed from income every year on specified investments, expenses or payments. Among these are bank deposits with a minimum period of five years, life insurance premiums, Employees’ Provident Fund, Public Provident Fund, repayment of the principal amount on housing loans, tuition fees, National Savings Certificate and equity-linked saving schemes. Link tax saving investments to long-term goals. Gauge Section 80C instruments as tax savers and wealth creators by looking at their post-tax return.
11] Where do I file my return?
The filing process has been centralised, so you can file your return anywhere in the country, at IT offices. If a person has relocated, he just needs to intimate the change of address and file his return at the new location. Filing can also be done through the Internet. The help of authorised intermediaries can also be taken.
12] TDS is nil on my income. Do I have to file return?
You may skip filing return if your taxable income was below the exempted limit. However, if your gross total income exceeds the basic exemption limit, then you have to file a tax return even if no tax was deducted at source.
13] I do not have enough money to pay off my tax dues. What is the best way out? Should I sell off some of my equity investments?
A tax amount may be due to the government after you factor in the income from various sources like salary and capital gains. To settle this due, you may seek a loan from friends or relatives or raise a personal loan from a bank. If that does not work out, you may sell some of your low-yielding shares or mutual funds. If that does not suffice, you can use your credit card to raise funds. Arrange for the funds in the quickest possible time and try to pay off any debt you run while raising the funds as soon as possible.
14] I bought shares worth Rs 1.25 lakh last year. Do I have to disclose that and other transactions?
Certain disclosures are mandatory while filing an income tax return. Among these are investments above a specified amount in bank deposits, mutual funds, shares and property in the financial year for which the return is being filed, 2007-08 in this case. The cut-off amount of investment from where disclosure should be made is: Rs 1 lakh or more for shares, Rs 2 lakh for credit card payments, up to Rs 10 lakh for deposits in one bank during the year, Rs 2 lakh for mutual funds, Rs 5 lakh or more for bonds or debentures issued by a company, Rs 5 lakh or more for RBI bonds and Rs 30 lakh or more for the purchase or from the sale of immovable property.
15] My wife earns Rs 10,000 per month from part-time coaching classes at an institute. Is she required to declare her income and file tax return?
For FY 2007-08, the basic exemption limit for not filing return for females is Rs 1.45 lakh per annum. Your wife is earning Rs 1.20 lakh per annum, which is below the taxable limit. Therefore, it is not mandatory for her to file her income tax return at this stage. The exemption limit has been increased to Rs 1.8 lakh per year from FY 2008-09. Filing of return will be required once her income crosses this limit. Also, she will need a PAN card to file returns then.
16] I incurred losses last year while trading in shares. Can gains from other sources set these off?
Short-term capital losses can be set off against long-term (LTCG) or short-term capital gains (STCG), but long-term capital losses can only be set off against LTCG. Loss from trading in shares cannot, however, be set off against gains from ‘other incomes’. A loss that is not wholly set off in the financial year in which it is incurred can be carried forward to eight succeeding assessment years.
17] I don’t have a PAN card. How do I file my return?
The Permanent Account Number (PAN) is a compulsory entry in the tax return form. If you have lost the card and forgotten the number too, get your PAN number and also a new copy of your card by giving your personal information to the Income Tax Department. The tax return form needs only the number, so you can file return if you get that in time. If you have not obtained a PAN card till now, you should apply for one. Act fast as the last date for filing returns is very close.
18] My minor child is earning an income. Should I file a separate return on her behalf?
It depends on the source of income. In case the child has earned income using her talent, it will be assessed in her hands and you will have to file return as the guardian of the child. However, if the resources from where income has arisen belong to you, it will be clubbed with your income.
19] I am a salaried employee. I don’t know whether I am liable to pay advance tax. If I am, is there a penalty if I don’t pay?
Payment of tax in advance on the income of the current financial year is compulsory for every person liable to pay tax in India. However, there is no need to pay advance tax if the total tax payable for the year is less than Rs 5,000 or if the employer has deducted tax from the salary as TDS. Non-payment or short payment of advance tax will attract penal interest.
20] My brother is abroad and will return after 31 July. How can he file his return?
If your brother had left India without signing on the ITR form, offline filing of return is not possible. The only way for him to file his return in that case is to log on to a computer and let technology work for him. He can do this from anywhere in the world. He will need to use his digital signature
Friday, July 11, 2008
Cost and works accountancy and law are among the higher study options after Plus Two.
Cost accountancy
In the highly competitive scenario in manufacturing industries, efficiency is the keyword. To attain efficiency, there has to be a multi-pronged approach, an important element of which is harnessing of wealth-generating resources and waging a war against waste. The primary objective is cost reduction.
A significant role in this effort is played by the cost accountant. The services of competent cost accountants are required for analysing each one of the different items that add up to the cost of a product and for identifying ways and means of bringing down expenses.
The realm of the cost accountant spreads to regions beyond costing and maintaining accounts in industrial or business organisations. Owing to his role in the overall management and financial regimen of an industry, he is sometimes referred to as cost and management accountant. The success or failure of business decisions depends to a large extent on the quality of the information made available to the management. This emphasises the value of right cost prescription from the cost and management accountant.
On the strength of professional experience, cost accountants can reach the topmost rungs of the corporate hierarchy. They have opportunities in the public as well as private sectors.
Experienced cost accountants can opt for private practice.
The Institute of Cost and Works Accountants of India ( www.myicwai.com) regulates the profession and imparts training to students in the distance mode.
The structure of the training programme comprises three levels – Foundation, Intermediate and Final. The subjects of study are as follows. Foundation
Organisation and management fundamentals; accounting; economics and business fundamentals; and business mathematics and statisticsIntermediate
Financial accounting; commercial and industrial laws and auditing; applied direct taxes; cost and management accounting; operation management and information systems; and applied indirect taxesFinal
Capital market analysis and corporate laws; financial management and international finance;
management accounting – strategic management; indirect and direct – tax Management; management accounting – enterprise performance management; advanced financial accounting and reporting; cost audit and operational audit; and business valuation management.
Candidates can join the Foundation course after passing the higher secondary examination. Those who are waiting for Plus Two results will be permitted to register provisionally.
The next step after the Foundation is the Intermediate. Admission to the Intermediate examination will be granted after obtaining the Coaching Completion Certificate. For this certificate, the students should complete the following items of training.
•Group discussion
The students are required to appear in group discussion in each stage. The topics would be as per the choice of the students but within the curriculum of that particular stage.
•Business communication seminars – two
•Hands-on computer training – 50 hours
Those who possess recognised computer qualifications would be exempted from this part.
After passing the Intermediate examination, the candidates reach the Final. Appearance in the Final examination is permitted only after obtaining the necessary coaching completion certificate. For this certificate, the students should complete the following items of training.
•Dissertation
Of 5,000 words, under the guidance of a person with the stipulated qualification
•Hands-on computer training – 100 hours
Those who possess recognised computer qualifications would be exempted from this part.
•Modular training for 15 working days, arranged by the institute
•Audit or industrial training for 12 Months
In the highly competitive scenario in manufacturing industries, efficiency is the keyword. To attain efficiency, there has to be a multi-pronged approach, an important element of which is harnessing of wealth-generating resources and waging a war against waste. The primary objective is cost reduction.
A significant role in this effort is played by the cost accountant. The services of competent cost accountants are required for analysing each one of the different items that add up to the cost of a product and for identifying ways and means of bringing down expenses.
The realm of the cost accountant spreads to regions beyond costing and maintaining accounts in industrial or business organisations. Owing to his role in the overall management and financial regimen of an industry, he is sometimes referred to as cost and management accountant. The success or failure of business decisions depends to a large extent on the quality of the information made available to the management. This emphasises the value of right cost prescription from the cost and management accountant.
On the strength of professional experience, cost accountants can reach the topmost rungs of the corporate hierarchy. They have opportunities in the public as well as private sectors.
Experienced cost accountants can opt for private practice.
The Institute of Cost and Works Accountants of India ( www.myicwai.com) regulates the profession and imparts training to students in the distance mode.
The structure of the training programme comprises three levels – Foundation, Intermediate and Final. The subjects of study are as follows. Foundation
Organisation and management fundamentals; accounting; economics and business fundamentals; and business mathematics and statisticsIntermediate
Financial accounting; commercial and industrial laws and auditing; applied direct taxes; cost and management accounting; operation management and information systems; and applied indirect taxesFinal
Capital market analysis and corporate laws; financial management and international finance;
management accounting – strategic management; indirect and direct – tax Management; management accounting – enterprise performance management; advanced financial accounting and reporting; cost audit and operational audit; and business valuation management.
Candidates can join the Foundation course after passing the higher secondary examination. Those who are waiting for Plus Two results will be permitted to register provisionally.
The next step after the Foundation is the Intermediate. Admission to the Intermediate examination will be granted after obtaining the Coaching Completion Certificate. For this certificate, the students should complete the following items of training.
•Group discussion
The students are required to appear in group discussion in each stage. The topics would be as per the choice of the students but within the curriculum of that particular stage.
•Business communication seminars – two
•Hands-on computer training – 50 hours
Those who possess recognised computer qualifications would be exempted from this part.
After passing the Intermediate examination, the candidates reach the Final. Appearance in the Final examination is permitted only after obtaining the necessary coaching completion certificate. For this certificate, the students should complete the following items of training.
•Dissertation
Of 5,000 words, under the guidance of a person with the stipulated qualification
•Hands-on computer training – 100 hours
Those who possess recognised computer qualifications would be exempted from this part.
•Modular training for 15 working days, arranged by the institute
•Audit or industrial training for 12 Months
Thursday, July 10, 2008
Near-term outlook looks positive
The markets opened on a weak note and ended with mild gains as the overnight weakness in the US markets spooked players initially. The bear covering at lower levels and the Asian cues curtailed the damage to the domestic headline indices.
The traded volumes were relatively unchanged compared to the previous session, which is a routine indicator on a high volatility session.
The market breadth was positive as the BSE advance decline ratio was 1453:1171. The capitalisation of the breadth was also positive as the BSE & NSE combined figures were Rs 8407 crore:Rs 7167 crore.
The indices have closed at the upper end of the intraday range as the closing level was boosted by bear covering. That the market internals were positive adds to the weight of evidence that the near term outlook is positive.
The intraday range specified for Thursday at the 4045 / 4270 has held as the index gyrated within these parameters. The coming session is likely to witness a range of 4210 on advances and 4110 on declines. The bullish trigger for the session will be the 4150, above which the Nifty must sustain if the upmove is to sustain.
The outlook for the markets on Friday is that of guarded optimism as the weekend factor and the overseas cues will weigh on the near-term sentiment. Profit taking at higher levels cannot be ruled out.
The traded volumes were relatively unchanged compared to the previous session, which is a routine indicator on a high volatility session.
The market breadth was positive as the BSE advance decline ratio was 1453:1171. The capitalisation of the breadth was also positive as the BSE & NSE combined figures were Rs 8407 crore:Rs 7167 crore.
The indices have closed at the upper end of the intraday range as the closing level was boosted by bear covering. That the market internals were positive adds to the weight of evidence that the near term outlook is positive.
The intraday range specified for Thursday at the 4045 / 4270 has held as the index gyrated within these parameters. The coming session is likely to witness a range of 4210 on advances and 4110 on declines. The bullish trigger for the session will be the 4150, above which the Nifty must sustain if the upmove is to sustain.
The outlook for the markets on Friday is that of guarded optimism as the weekend factor and the overseas cues will weigh on the near-term sentiment. Profit taking at higher levels cannot be ruled out.
Banks` first quarter profits to take a hit
Starting on an optimistic note to being engulfed by economic uncertainty has been tumultuous journey for banks in the April-June 2008.
Banks' profit in the first quarter may grow by an average 10 per cent due to the shrinking margins and a rise in provisioning for bonds and bad loans, according to analysts.
The income may rise at a slower pace of 17 per cent as measures by the Reserve Bank of India curbed the growth in consumer and corporate loans.
Banks' profit in the first quarter may grow by an average 10 per cent due to the shrinking margins and a rise in provisioning for bonds and bad loans, according to analysts.
The income may rise at a slower pace of 17 per cent as measures by the Reserve Bank of India curbed the growth in consumer and corporate loans.
Banks` first quarter profits to take a hit
Starting on an optimistic note to being engulfed by economic uncertainty has been tumultuous journey for banks in the April-June 2008.
Banks' profit in the first quarter may grow by an average 10 per cent due to the shrinking margins and a rise in provisioning for bonds and bad loans, according to analysts.
The income may rise at a slower pace of 17 per cent as measures by the Reserve Bank of India curbed the growth in consumer and corporate loans.
Banks' profit in the first quarter may grow by an average 10 per cent due to the shrinking margins and a rise in provisioning for bonds and bad loans, according to analysts.
The income may rise at a slower pace of 17 per cent as measures by the Reserve Bank of India curbed the growth in consumer and corporate loans.
Cover From All Angles
For Dr. Sanjeev Gulati, 45, a senior consultant nephrologist with Fortis Hospitals, Delhi, it was about bringing a good habit home when he relocated to India from Canada some four years back. As a doctor in a private hospital here, the first thing he had to do was to get a professional indemnity cover. “The rate of litigations is high internationally and very expensive. So, it is mandatory to have a professional liability cover,” he says.
Back in India, even though the hospital did not require him get such a cover, Gulati did buy one as “the rate of litigation is on an increase even in India”, he says. “Moreover, as a doctor I feel protected. You never know when a client might sue you and for what reason. With insurance I can at least ward off that worry,” he reasons.
Protecting something on which hinges the rest of our lives should be a priority. Gulati, as a practitioner of medicine, faces the risk to his profession directly. Other people, too, also need to get cover against any liability.
Just so that you aren’t caught off guard, non-life insurers offer cover against liabilities in three broad areas: professional liability, motor third-party liability, and public liability. These covers pay your compensation and any legal fees on your behalf.
These policies are renewed every year. A claim from an accident that occurred in the previous policy year is covered in the current year. Professional and public liability insurance is also available for a specific duration or events.
Professional Liability At many places, professional indemnity is mandatory. It may or may not be provided by the employer. For example, for Gulati’s wife, Dr. Kiran Gulati, a radiologist with Apollo Clinic and Cradle Birthing Center, New Delhi, professional indemnity was mandatory. “Consulting doctors have to buy their own covers while the company provides it for resident doctors,” she says.
The Gulatis have fortunately not needed to use their respective covers. But should anything go awry they can rest assured that the expenses will be taken care of.
Professional liability insurance was typically taken by doctors earlier, but is now used in other professions as well—lawyers, chartered accountants, architects, engineers, adventure tour operators, media professionals, and people from many other professions.
What does it cover. This policy covers you against any financial loss because of bodily injury borne by your clients due to your work-related mishaps. For instance, a doctor can be sued for performing an operation, which the client thought was an act of error. Or, a lawyer could be hauled up before a court of law if a client feels he lost a case because of professional shortcomings in the lawyer.
The policy, however, does not provide cover for any wilful act of negligence or deliberate act of error or criminal intent by the professional.
Liability cover not only pays for the amount of claim that may arise as compensation, but also your legal fees. This means that you don’t feel a pinch irrespective of which way the court’s judgement goes. What you will need to pay yourself are the statutory fines and penalties.
Premium calculator. Premiums are usually worked out on the basis of the profession, business turnover and the extent of jurisdiction one would want (that is, you could be covered only in India or worldwide). Says Amol Phadnis, director, Review Risk Management Services, an insurance broker: “The turnover helps the insurer decide the risk probability of an individual. A higher turnover would mean more clients and a greater probability of errors and omissions. Hence a higher premium would be charged on such a profile as compared to one with a lower turnover.”
The profession, too, makes a difference. Says T.A. Ramalingam, head, underwriting, Bajaj Allianz General Insurance: “Any profession can be covered but we typically don’t cover lawyers and media professionals as the stakes are high and makes very little underwriting sense to us.”
Double layers. A typical liability policy is divided into two levels—any one accident (AOA) and any one year (AOY). In the any one accident level, there is a limit to the amount you can claim from the insurer for each case filed against you. In any one year, all mishaps in a year can be claimed for provided the total amount does not exceed the sum insured. This means that if your AOA limit was capped at Rs 10 lakh and AOY limit was capped at Rs 40 lakh, your insurer will pay a maximum of Rs 10 lakh for any one accident subject to a limit of Rs 40 lakh in any one year. This distinction in sub-limits, however, doesn’t apply to third-party liability and public liability policies.
To ensure that having a cover does not make a person lax at work, the cover comes with a deductible clause. This means that a part of the claim amount will have to be borne by you. Says Ramalingam: “It could be anywhere between 0.25 per cent and 0.5 per cent of the claim amount.”
Motor Third Party Liability This is the first cover that you need to buy even before you take your car out of the showroom. As per the Motor Vehicles Act, any vehicle that plies on the road needs to have a third-party cover.
What does it cover. This policy provides cover in case you damage property or cause an accident or loss of life of a third party. Again, it does not cover a deliberate act or a criminal intent.
Usually there is no cap on the sum insured for a bodily injury or loss of life and the entire amount of compensation is borne by the insurers, excluding any deductibles. Says Ajay Bimbhet, managing director, Royal Sundaram Alliance Insurance: “The liability for third party bodily injury or death is unlimited as per the statute. When awarding damages, the courts take into consideration the earning capacity and age of the injured/deceased person. But for third-party property damage, the maximum liability is Rs 7.50 lakh and the mandatory (minimum) liability is Rs 6,000.”
Like the professional liability policy, the motor third party liability also covers the compensation and legal fees and interest on compensation awarded.
Premium. Third-party motor premiums are still under tariff, that is, they are controlled by the Insurance Regulatory and Development Authority. This means that premiums are pre-determined and the same across insurers.
Public liability As the name suggests, a public liability policy protects you against any mishap resulting in injury or death of a third party or damage to the property of a third party. This policy is popular with hoteliers, restaurant owners and multiplexes. For an individual, the policy comes tucked in with a householder’s package policy and cannot be bought by itself. Explains Ramalingam: “Public liability comes with householder’s packaged policy as, on a standalone basis for individuals, the premium size could be very small, which doesn’t make underwriting sense for us.”
What does it cover. This cover is optional when buying a householder’s policy. It covers accidents occurring within the premises of the insured’s house, for example, your neighbour could pull you up if your AC fell on their brand new Honda CRV.
Again the concepts of AOA and AOY are applied here, but the limits are more relaxed. Says Phadnis: “Insurers mostly don’t have any sub-caps in the form of AOA. So, an accident can qualify for the entire sum insured in a year.” This policy, however, is not much used as chances of a guest filing suit against you is little. But as the cost of assets rise, having public liability insurance may make a lot of sense.
Premium. As this cover comes as a part of a householder’s policy, there is no separate premium for it.
Threats to your life and health are not the only dangers you face. A road accident or a professional mishap has the potential to jeopardise your otherwise well-planned life. Cover yourself with more layers of insurance, and stay warm and dry
Back in India, even though the hospital did not require him get such a cover, Gulati did buy one as “the rate of litigation is on an increase even in India”, he says. “Moreover, as a doctor I feel protected. You never know when a client might sue you and for what reason. With insurance I can at least ward off that worry,” he reasons.
Protecting something on which hinges the rest of our lives should be a priority. Gulati, as a practitioner of medicine, faces the risk to his profession directly. Other people, too, also need to get cover against any liability.
Just so that you aren’t caught off guard, non-life insurers offer cover against liabilities in three broad areas: professional liability, motor third-party liability, and public liability. These covers pay your compensation and any legal fees on your behalf.
These policies are renewed every year. A claim from an accident that occurred in the previous policy year is covered in the current year. Professional and public liability insurance is also available for a specific duration or events.
Professional Liability At many places, professional indemnity is mandatory. It may or may not be provided by the employer. For example, for Gulati’s wife, Dr. Kiran Gulati, a radiologist with Apollo Clinic and Cradle Birthing Center, New Delhi, professional indemnity was mandatory. “Consulting doctors have to buy their own covers while the company provides it for resident doctors,” she says.
The Gulatis have fortunately not needed to use their respective covers. But should anything go awry they can rest assured that the expenses will be taken care of.
Professional liability insurance was typically taken by doctors earlier, but is now used in other professions as well—lawyers, chartered accountants, architects, engineers, adventure tour operators, media professionals, and people from many other professions.
What does it cover. This policy covers you against any financial loss because of bodily injury borne by your clients due to your work-related mishaps. For instance, a doctor can be sued for performing an operation, which the client thought was an act of error. Or, a lawyer could be hauled up before a court of law if a client feels he lost a case because of professional shortcomings in the lawyer.
The policy, however, does not provide cover for any wilful act of negligence or deliberate act of error or criminal intent by the professional.
Liability cover not only pays for the amount of claim that may arise as compensation, but also your legal fees. This means that you don’t feel a pinch irrespective of which way the court’s judgement goes. What you will need to pay yourself are the statutory fines and penalties.
Premium calculator. Premiums are usually worked out on the basis of the profession, business turnover and the extent of jurisdiction one would want (that is, you could be covered only in India or worldwide). Says Amol Phadnis, director, Review Risk Management Services, an insurance broker: “The turnover helps the insurer decide the risk probability of an individual. A higher turnover would mean more clients and a greater probability of errors and omissions. Hence a higher premium would be charged on such a profile as compared to one with a lower turnover.”
The profession, too, makes a difference. Says T.A. Ramalingam, head, underwriting, Bajaj Allianz General Insurance: “Any profession can be covered but we typically don’t cover lawyers and media professionals as the stakes are high and makes very little underwriting sense to us.”
Double layers. A typical liability policy is divided into two levels—any one accident (AOA) and any one year (AOY). In the any one accident level, there is a limit to the amount you can claim from the insurer for each case filed against you. In any one year, all mishaps in a year can be claimed for provided the total amount does not exceed the sum insured. This means that if your AOA limit was capped at Rs 10 lakh and AOY limit was capped at Rs 40 lakh, your insurer will pay a maximum of Rs 10 lakh for any one accident subject to a limit of Rs 40 lakh in any one year. This distinction in sub-limits, however, doesn’t apply to third-party liability and public liability policies.
To ensure that having a cover does not make a person lax at work, the cover comes with a deductible clause. This means that a part of the claim amount will have to be borne by you. Says Ramalingam: “It could be anywhere between 0.25 per cent and 0.5 per cent of the claim amount.”
Motor Third Party Liability This is the first cover that you need to buy even before you take your car out of the showroom. As per the Motor Vehicles Act, any vehicle that plies on the road needs to have a third-party cover.
What does it cover. This policy provides cover in case you damage property or cause an accident or loss of life of a third party. Again, it does not cover a deliberate act or a criminal intent.
Usually there is no cap on the sum insured for a bodily injury or loss of life and the entire amount of compensation is borne by the insurers, excluding any deductibles. Says Ajay Bimbhet, managing director, Royal Sundaram Alliance Insurance: “The liability for third party bodily injury or death is unlimited as per the statute. When awarding damages, the courts take into consideration the earning capacity and age of the injured/deceased person. But for third-party property damage, the maximum liability is Rs 7.50 lakh and the mandatory (minimum) liability is Rs 6,000.”
Like the professional liability policy, the motor third party liability also covers the compensation and legal fees and interest on compensation awarded.
Premium. Third-party motor premiums are still under tariff, that is, they are controlled by the Insurance Regulatory and Development Authority. This means that premiums are pre-determined and the same across insurers.
Public liability As the name suggests, a public liability policy protects you against any mishap resulting in injury or death of a third party or damage to the property of a third party. This policy is popular with hoteliers, restaurant owners and multiplexes. For an individual, the policy comes tucked in with a householder’s package policy and cannot be bought by itself. Explains Ramalingam: “Public liability comes with householder’s packaged policy as, on a standalone basis for individuals, the premium size could be very small, which doesn’t make underwriting sense for us.”
What does it cover. This cover is optional when buying a householder’s policy. It covers accidents occurring within the premises of the insured’s house, for example, your neighbour could pull you up if your AC fell on their brand new Honda CRV.
Again the concepts of AOA and AOY are applied here, but the limits are more relaxed. Says Phadnis: “Insurers mostly don’t have any sub-caps in the form of AOA. So, an accident can qualify for the entire sum insured in a year.” This policy, however, is not much used as chances of a guest filing suit against you is little. But as the cost of assets rise, having public liability insurance may make a lot of sense.
Premium. As this cover comes as a part of a householder’s policy, there is no separate premium for it.
Threats to your life and health are not the only dangers you face. A road accident or a professional mishap has the potential to jeopardise your otherwise well-planned life. Cover yourself with more layers of insurance, and stay warm and dry
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