INVESTOR FRIEND

Mandatory application of Cost Accounting Standards

2009-04-24T03:38:00.000-07:00

The Council of the ICWAI at its 251st Meeting held on 12-13 February 2009 decided as below:
Mandatory application of Cost Accounting Standards
“RESOLVED THAT the following Cost Accounting Standards
CAS 1: Classifications of CostsCAS 2: Capacity DeterminationCAS 3: OverheadsCAS 4: Cost of Production for Captive ConsumptionCAS 5: Determination of Average (Equalized) Cost of TransportationCAS 6: Material Cost
shall be mandatory with effect from period commencing on or after 1st April 2010 for being applied for the preparation and certification of General Purpose Cost Accounting Statements. Since there is no statutory requirement for the application of such Cost Accounting Standards for the preparation and certification of Cost Accounting Statements, in case the cost accountant is of the opinion that the aforesaid standards have not been complied with for the preparation of the Cost Statements, it shall be his duty to make a suitable disclosure/qualification in his audit report/certificate

Gold will ensure liquidity and help diversify your kids' portfolio. Invest in gold to get good returns in choppy markets and to hedge against inflatio

2009-02-23T06:26:00.000-08:00

What To Do
To build a corpus, buy a coin or bar of gold on your child’s birthday every year
Buy from a reputed jeweller in your city
Avoid buying from banks
Buy gold ETF through a mutual fund broker. You can also use online trading portal of brokers to buy ETF
***
Securing your child’s future in gold is an intrinsic part of the Indian tradition, one that has been passed down several generations. While gold may not give you the kicker returns of equity, it is a stable and often a necessary asset for diversification. And, it fits your kids’ future financial requirements. Outlook Money recommends that 2-5 per cent of your portfolio should be in gold. Typically, when a child is born, family and relatives give gifts in gold—coins or jewellery. This forms the base on which you can accumulate the gold part of your portfolio. There are several ways of building on this corpus, provided you are regular and disciplined in your investments. One way is to gift your child a gold coin every year on his birthday. Obviously, you cannot get away from giving him a ‘real’ gift, but you could mark the day on your calendar and buy a coin every year. You can also buy units of gold exchange-traded funds (ETFs) every year.
Usually, the gold section of your portfolio comes into use for your child’s marriage. There would be several requirements for jewellery and gifts during the marriage, and if you have been building a portfolio of gold over time, it will come in handy when you need it the most.
High returns. In the long term, gold earns high returns. The price of one gramme of gold has gone up from Rs 350 in 1999 to Rs 1,416 in 2009. It is also an excellent hedge against inflation. As inflation goes up, market sentiment and equity prices go down, but gold prices rise. Returns are attractive—from 1995 to 2008, gold has given a CAGR of 12.69 per cent. Gold is trading at very high rates at present— Rs 1,390.02 per gramme. But indications are that the prices would go up further. Analysts expect prices to touch Rs 1,760 per gramme this year. In fact, some even predict a high of Rs 2,200 per gramme. If you haven’t bought this year’s supply, then sooner might be better than later.
Exchange value. When it’s time to cash in on your gold, you can convert the coins into jewellery, or merely sell them at the prevailing rate. Gold coins and bars give you the full value. But, if you are converting gold jewellery into updated designs or other forms of gold, you will lose the making and design charges. Also, jewellery with stones will fetch a lower resale value.

Charge Away The Charges

2009-01-19T07:04:00.000-08:00

Banks charge for every small service they provide. Learn how to manage these to cut your banking costs
Your PocketIf you do not maintain the minimum balance in your account, you will be liable to pay the penalty charges as well as other charges for various transactions Penalty Charges (per quarter)*
ICICI: Rs 750 HDFC: Rs 750 HSBC: Rs 750 Standard Chartered: Rs 750-1,500 State Bank of India (SBI): Rs 30-55 Kotak Mahindra Rs 150 Charges On TransactionsCall To Customer Service (non-IVR) HDFC: Rs 50 per call ICICI: Rs 50 per call Cash Transactions At Branch ICICI: Rs 60 per transaction (first 3 transactions per quarter free) HSBC: Rs 50 per transaction (first 2 transactions per quarter free) Dormant Account SBI: Rs 30-50 per quarter Standard Chartered: Rs 1,000 a year Inoperative Account SBI: Rs 150 per quarter HSBC: Rs 150 per quarter Cheque Charges ICICI: Rs 5 per leaf SBI: Rs 2.50 per leaf * Charges for regular savings a/c for urban customers Other Charges Closing An Account Kotak Mahindra Bank: Rs 600 (within 6 months) HSBC: Rs 500 (within 6 months) SBI: Rs 100 (within 1 year) Urgent Cheque Issued Over The Counter HSBC: Rs 50 per leaf
Payment Of Credit Card Bill In Cash At Branch ICICI Bank: Rs 100 HDFC Bank: Rs 100 Duplicate Statement Standard Chartered: Rs 100 HDFC Bank: Rs 100 at the branch, Rs 50 through phone banking or ATM, Rs 30 over the Net, mobile banking, IVR Replacement Of ATM/Debit Card ICICI Bank: Rs 200 per card PNB: Rs 100 per card PIN Regeneration Charges PNB: Rs 25 ICICI Bank: Rs 25 (free if request through Instapin at branch or IVR customer care) Duplicate Passbook HDFC Bank: Rs 100 ICICI Bank: Rs 100 (Rs 25 per page for updation) Stop-payment Charges ICICI Bank: Rs 50 per cheque HSBC: Rs 100 per request Unarranged Overdraft HDFC Bank: Rs 100 per transaction plus 18 per cent interest per annum Cheque ReturnsICICI Bank: Rs 100 if a local cheque issued to customer is returned, Rs 300 if the cheque issued by the customer is returned and Rs 750 if the same cheque is redeposited by the customer and is returned again The list is not exhaustive. Check your bank websites for details of charges
***
In these times of financial uncertainty, when markets are down and jobs are scarce, cost cutting has become the buzzword. Let alone companies, even individuals are looking to cut costs—by reducing outings, trips or lavish shopping. Your savings bank account is another place where you can look to cut costs—a lot of it.
Banks levy various charges on transactions—ranging from Rs 25 to Rs 1,000. And if you haven’t been careful about them, or are not aware of them, in all likelihood they have already burnt a hole in your pocket.
A few steps, however, could help you not repeat the same mistakes this new year and help you save money. If you ignore them, you will have to pay, literally.
More Accounts, More CostsWhile there is no limit to the number of accounts you can have, it could prove costly to maintain more than one.
Most banks have a minimum balance limit. So, if you have six accounts, you would have to maintain a balance in each of them. If you don’t, you will have to pay a penalty—Rs 750 in most cases. And, you will have to pay that every quarter. So, in a year, you would end up paying Rs 3,000—that, too, for only one account. If you have more, do your own math to calculate the total losses. If you maintain the balance, you will earn only 3.5 per cent against the 8 per cent that you could earn from a Public Provident Fund (PPF), or more through other saving instruments.
That’s not all. A few banks levy added transaction charges in case of non-maintenance of minimum balance (see From Your Pocket). Moreover, if you do maintain the minimum balance somehow, but are not using the account, you will pay again because some banks charge an inoperative account fee.
By now, if you are convinced about closing those accounts you don’t use or need, be prepared to pay account closing charges. However, it is better to pay up this one-time charge to avoid future losses. This charge is only for accounts that are six months to a year old.
Check Those ChequesThink twice before you write those cheques, it may be better to use cash instead. Most banks do issue at least one cheque book (20-25 leaves) per quarter free of cost if you maintain minimum balance. Otherwise, you pay up. If you want to use more cheque leaves, you will have to pay for each of those.
Also, make sure you have adequate funds before issuing a cheque because a bounced cheque is costly, too.
Reduce Your Bank VisitsToo many transactions could cost you too, whether they are through ATMs, or over the Internet, or phonebanking, or at the branch. Only a limited number of banking transactions come free of cost per quarter for many banks.
In Standard Chartered, the first four transactions through any channel (Internet banking, phonebanking, ATM or branches) per month are free. However, it charges as high as Rs 75 per transaction, subsequently.
Some banks even charge for repeated visits to the bank branch.
If you pay your credit card bill through cash at a branch, you are fined. Says a senior executive of a private sector bank: "We want to discourage customers from coming to the branch, hence the fine. The customers can pay the bill through an ATM transaction, which is free." Banks also charge additional fees for banking at a non-base bank.
Cut The ClutterKeeping fewer papers will not only help you save money, but help keep your documents file uncluttered. So, be content with your quarterly account statements and monthly email statements. A physical monthly statement would cost you Rs 100-200 per year.
Banks even charge you for issuing interest and balance certificates in deposit accounts. A balance certificate gives the balance of a particular day and is used mostly for Visa purposes, while an interest certificate shows the total interest earned on bank deposits and is used at the time of filing income tax returns. Usually one certificate is issued free of cost every year. Make sure you don’t lose it and pay to get a new one.
Know What You Are DoingCarelessness is no excuse, especially when you are banking. For instance, if you deposit cash in the cheque drop box, banks will fine you. Private banks charge Rs 100, and if the deposit amount is over Rs 500, the fine is Rs 300. If you repeat instances of cash deposits in the cheque drop box, you would have to pay an additional Rs 500.
Regeneration of the PIN number of ATM or debit cards costs money in most banks. So, if you can’t remember your number, note it down at a safe place. Even replacement of cards attracts a fee. Subscribing to SMS alerts, bill payment, home banking, duplicate passbook, cheque status, unarranged overdraft, inter-branch transactions and cash delivery are only some of the services which are charged for.
You pay for every personalised service, such as SMS alerts, that you avail from your bank. So, make sure you really need these. And, do remember that there is no such thing as a free service.

How to pick growth stocks

2008-10-02T06:46:00.000-07:00

At a time when company managements are giving lower guidance of future growth rates in topline and bottomline, it makes it worthwhile to study companies projecting high growth rates. Such stocks have some inherent characteristics, which popularize them as growth stocks. But exactly what are these traits? Lets see the more important ones;
1.The basic assumption regarding growth stock investing is that these stocks, even in an economic downturn, come up with very high growth rates in earnings and EPS.
2.Such companies grow faster than their peer group. For example L&T is growing faster than companies mostly in the infrastructure group. In favorable business environments most companies show high growth rates. The key is which companies sustain these high growth rates even in adverse economic environments. Also whether these growth rates are sustainable.
3.These companies also show very high ROEs.
4.These companies have high PE multiples. This is because the investor is ready to pay a high price for each unit of the companies' earnings. Educomp Solutions is a good example.
Usually these multiples are greater than the multiples of the overall market.
5.These stocks have high retention rates and low dividend payout ratios.
6.These stocks are very risky and are volatile and have high betas. Areva T&D is a good example.7.The history of earnings growth is also very good

RETURN ON INVESTMENT (ROI)

2008-10-01T09:03:00.000-07:00

An investor is someone who commits money, time, or their own effort to get a return on that investment. One way to measure the value of that return is called return on investment, or ROI. Return on investment is a calculation of the amount, or percentage, that you have earned (or lost) on an investment you have made. Returns may be positive or negative. A positive return on investment would mean you earned money, and a negative return would mean you lost money. Return on investment is a percentage of the original amount you invested.
Related to return on investment is risk. Risk is the chance that you will lose money. Different types of investments will give you different returns, and different amount of risk. In general, if you invest in an opportunity with a lot of risk, then you should expect to get a higher return on investment. Low risk investments should give you a lower return on investment. For example, if you place your money in an insured bank account, your money might be pretty safe, but the return may be 1%. If you invest in stocks, you might earn 8%. However, stocks are more risky, and you actually might lose money instead.
The formula is:
ROI =
R - I
x 100

R =
Money received after
making the investment.
I
I =
Original money invested.
Example: John invests $100 in a mutual fund for one year. At the end of the year he has $108. What was his return on investment?
Answer: 108-100 = 8. 8/100 = .08 .08 * 100 = 8%

TEACHING AND LEARNING BASIC INVESTING

2008-10-01T08:49:00.000-07:00

RISK AND RETURN LESSON PLAN

Before investing your money, you will have to understand the important concept of risk and return. Risk and return means that the returns you will get when investing your money will vary. You may even lose money. However, no matter what you do with your money, you are always taking some amount of risk. If you keep your money at home, you risk that it could be lost or stolen. If you place your money in a bank account, you risk that the returns that you get will not be high enough.
Risk and return also means that if you take greater risks, you should expect to get greater returns. If you want the possibility of getting greater returns, you need to invest your money in more risky investments, for example bonds or stocks. Different bonds and stocks even have different degrees of risk.
So how much risk should you take with your money? That depends on many different factors including your age, risk tolerance, and investment objectives. No matter where you invest your money, you first should understand the investment's risks and potential rewards.

Additional thoughts on risk and return:
The risky investment in this exercise may be stocks, or may be another type of investment. If you consider the risky investment to be stocks, many people believe that stocks outperform safe investments over the long-term, and therefore showing negative returns (as this worksheet lesson does) may give a false impression that stocks are not good investments.
Our thought is that while it has been true that stocks and bonds have historically outperformed safe investments over the long-term, in the short term you could lose significantly with them. Also, you could lose significantly if you own particular stocks, rather than a diversified basket of stocks.
Also, even though stocks have outperformed in the past, there is no guarantee that they will in the future -- that is what makes them risky investments -- even over the long-term. Many people thought stocks would always give positive returns at the top of the market in March, 2000. No investment return is ever guaranteed -- there is always a risk. We can look at historical returns to get a sense of what we may get in the future, however, the past is never a guarantee of the future.

Account Statement

2008-10-01T08:00:00.000-07:00

Your work doesn't stop at investing in mutual funds. Keeping track of them is as important as deciding where to invest. The account statement helps you do just that

Once you invest in a mutual fund (MF) scheme, your MF sends you a statement within seven working days that gives details of the investments. Your MF account statement is just like a bank passbook, and gives information on all recent transactions done within a particular folio.The Securities and Exchange Board of India mandates that in addition to sending account statements to unitholders as and when there is some action in the account (redemption, additional investment or dividend declaration, for instance), MFs also have to send an account statement, at least once a year, for every folio a unitholder has.WHAT TO CHECK1. Current cost and valueCurrent cost is the amount you invested in a scheme while current value is the latest market value of your investments as on the date the statement is generated. Also, the price of one unit will be the net asset value (NAV) plus entry load or minus exit load. 2. Folio and account numbersMake a note of folio and account numbers. Most MFs offer one folio number and several account numbers in the same folio for all investments under the same unitholder combination. This makes for easier tracking all your investments with same MF. 3. Bank detailsCheck your account number and bank name. If you want to change your bank mandate, fill out the slip at the bottom of your account statement and submit to your fund or agent. 4. PAN detailsIt is mandatory for you to give the correct Permanent Account Number (PAN), irrespective of the amount invested. Check your PAN mentioned in the account statement and ensure there are no discrepancies. 5. Advisor nameIf you have invested through an agent, your agent’s name and code will appear on the statement. However, if you have invested directly, these parts should be left blank on your account statement

Big US, European firms cut IT spend 40%: Study

2008-09-09T19:56:00.000-07:00

The economic slowdown in North America and Europe has made 40 per cent of the large businesses cut their overall IT budgets, but companies were expanding their services spending by taking more activist sourcing approach to governance, according to survey by technology research firm Forrester.
Forrester surveyed nearly 950 senior managers across North America and Europe on their IT services spending and overall services strategies and priorities. While 43 per cent have already cut their overall IT budgets in 2008 in reaction to a slowing global economy, 24 per cent have put their discretionary spending on hold. About 28 per cent said the economy has had no impact on their IT budgets.
The Indian IT vendors, who earn over 60 per cent of their revenues from the US, have been facing challenging times as a result of uncertainty in the largest IT services market. The National Association of Software and Services Companies (Nasscom) has forecast that the country’s IT and BPO exports would grow at a slower pace at 25 per cent in the current fiscal, as compared to 29per cent growth witnessed last year.
“This is not an across-the-board spending slowdown. The impact of the economy on IT budgets varies widely by industry and geography,” said Mr John McCarthy, Vice-President and principal analyst with Forrester Research. The survey showed that IT departments in financial services were hit hardest with 49 per cent respondents in the sector having cut their budgets.
Further, IT departments of North American firms have been affected more by the economy than their European counterparts. About 49 per cent of the North American firms have cut their IT budgets compared to 31 per cent in Europe.
“The slowdown has firms renegotiating rates, being more selective in choosing vendors, and examining spending plans more thoroughly, but they are still expecting to pay more for services. The demand for enterprise IT services has not dropped significantly,” McCarthy said.
Forrester said the demand for services hold steady with 45 per cent of those surveyed planning to increase their use of applications outsourcing and 43 per cent of them moving work offshore. The survey showed that only 9 per cent of respondents used offshore resources, while 14 per cent planned to ramp-up use, 19 per cent piloting and 22 per cent not using but actively tracking developments. While those not sending work overseas, a majority cited the questionable quality of the work done offshore.

The Importance of a Trading Plan

2008-09-08T09:06:00.000-07:00

Why do you need a Trading Plan?
1 - During trading hours, emotions will turn smart people into idiots. Therefore, you have to avoid having to make decisions during those hours. For every action you take during trading hours, the reason should not be greed or fear. The reason should be because it is in the plan. With a good plan, your task becomes one of patience and discipline.
2 - Consistent results require consistent actions - consistent actions can only be achieved through a detailed plan.
What should be in your trading plan?
1 - Your strategy to enter and exit trades
You have to describe the conditions that have to be met before you enter a trade. You also have to describe the conditions under which you will close a position. These conditions may include technical analysis, fundamental analysis, or a combination of both. They may also include market conditions, public sentiment, etc...
2 - Your Money management rules to keep losses small - the goal of money management is to ensure your survival by avoiding risks that could take you out of business. Your money management rules should include the following:
- Maximum amount at risk for each trade.- Maximum amount at risk for all your opened positions.- Maximum daily and weekly amount lost before you stop trading
3 - Your daily routine - after the market closes, before it opens, etc...
4 - Activities you carry out during the weekend.
5 - I also like to include reminders that I read every day
I will follow a trading plan to guide my trading - therefore my job will be one of patience and discipline.
- I will always keep my trading plan simple.- I will take actions according to my trading plan, not because of greed, fear, or hope.- I will not deceive myself when I deviate from my trading plan. Instead I will admit the error and correct it.
I will have a winning attitude.
- Take responsibility for all your actions – don’t blame the market or world events.- Trade to trade well and for the love of trading, not to trade often and not for the money.- Don’t be influenced by the opinions of others.- Never think that taking money from the market is easy.- Don’t try to guess the future – trading is a game of probabilities.- Use your head and stay calm – don’t get excited or depressed.- Handle trading as a serious intellectual pursuit.- Don’t count how much money you have made or lost while you are in a trade - focus on trading well.
A trading plan will not guarantee you success in the stock market but not having one will pretty much guarantee failure.

Better times ahead?

2008-09-04T09:54:00.000-07:00

Better times ahead?
Ram Prasad Sahu & Jitendra Kumar Gupta / Mumbai September 1, 2008, 20:40 IST
Weakening of freight rates is a short-term phenomenon that will impact the shipping sector. But, healthy demand and supply bottlenecks will ensure stable growth for companies in this sector.

A slowdown in consumption due to a weakening global economy has resulted in a drop in demand for shipping services. This, coupled with fears of a supply overhang, has led to a steep decline in freight rates for tankers which transport crude and oil products as well as cargo carriers that deliver iron ore and coal.
The Baltic Dry Index and Baltic Dirty Tanker Index which measure cost of shipping dry commodities and crude have dipped 40 per cent apiece over their respective highs in May and July this year.
The impact of this is visible on the stock prices of shipping companies which have tanked between 19-42 per cent since May versus a 15 per cent decline in the Sensex.
Though things have looked better since July except for Bharati Shipyard and Shipping Corporation which have given negative returns, most companies have however returned far less than Sensex’s 12.5 per cent.
While the drop in American consumption of petroleum products has caused a blip in the demand for oil and thus hiring rates for tankers, the slowdown in construction activity in China and factory closures before the start of Olympics reduced the demand for commodities and bulk vessels.
Though the situation does not look too appetising, what are the implications of the current trends on the fortunes of shipping companies and ship builders?
We look at the various segments including tankers, dry bulk, containers and specialised ships to ascertain the short- to -medium term movement of freight rates, supply of ships and growth prospects for Indian shipping companies and ship builders

A cheque that can't be dishonoured

2008-09-03T07:25:00.000-07:00

UCO Bank launched its new product 'Pre-Funded Cheque' a facility which would be backed-up by pre-arranged funds kept in a separate savings or current account of the customer without having any scope of dishonour of cheques."The pre-funded cheque is a blend of qualities of our various products. This will cater to diversified requirements of our customers," Uco Bank's General Manager, K V Kulkarni, told reporters here today.The new product would help the bank mobilise CASA deposits, he said.With the cheque backed up by pre-arranged funds kept separately in savings or current account of the customer, it would prevent any chance of dishonour of the cheques on account of insufficiency of funds.The customer can earn interest on funds kept in his savings bank account and also save commission normally incurred on issuance of demand draft, traveller's cheque, manager's cheque or gift cheque.The facility at present would be available at selected 261 CBS branches of the bank.The cheques are payable at par at all CBS branches of the bank.The cheques are issued in three pre-determined denominations, upto Rs 1,000, Rs 5,000 and Rs 10,000.The service charges shall be levied upfront at Rs 100 per cheque book of 10 leaves of Rs 10,000 denomination and Rs 50 per cheque book of 10 leaves for denominations of Rs 5,000 and 1,000.The customers can also opt for stop payment of such cheques.

More pain for realty sector: Enam

2008-09-03T07:18:00.000-07:00

Enam Securities said that there is more pain in store for the country's real estate sector in the next 6-12 months, but the long-term outlook is still positive."Short-term conditions are unfavourable because of dampened affordability, high interest rates and oversupply. These are likely to play spoilsport in the near term," Enam Securities' Senior vice-president (Real Estate) Pankaj Jaju said here.This kind of situation is likely to continue in the near term before looking up after 6-12 months, he said.Subdued demand and the resultant price correction in the short-term would affect project Internal Rate of Returns and as a result, the focus of the builders would shift from owning land to execution.In addition to that, inability of companies to access funds may result in liquidation of assets at lower prices, impacting their profitability considerably, he said."So far, belief in strong end-user demand and high investor appetite for under construction properties fuelled liquidity. This is now disappearing on account of inability to churn capital, possible oversupply situation and waning demand," he said.Jaju said that when all signs pointing to a correction in real estate prices, builders are holding on the inventories to rack rates.The long-term outlook is still positive because of favourable demographics, increased urbanisation and higher disposable incomes. However, reduction in mortgage rates and higher loan to value (LTV) ratio are critical to improve affordability and re-instate sentiment, he said.

'It's Better To Pay A Higher EMI And Buy A House'

2008-09-01T10:00:00.000-07:00

Interview: Pranav Ansal Vice-Chairman & MD, Ansal API

Even if loans are expensive, Pranav Ansal, vice-chairman and managing director, Ansal API, says people would be better off paying higher EMIs than continuing to stay on rent. At the same time, he feels that competition will make developers offer something extra to homebuyers and that mid-income housing is where the real market is as most buyers are looking for homes in this space. Excerpts from an interview with Urmila RaoHow would you term the current real estate market scenario? Is it price correction or a crash?It is not a crash. There has been no dip in the sales of projects by major developers. The products of reputed builders are selling and their volumes are still the same. However, a lot of new builders with credibility issues are not able to sell because customers are skeptical about putting in money fearing failure in delivery. The slowdown has happened only to this extent.Industry body Assocham’s report says that the banks’ home loan disbursal rates have declined. Rating agency Fitch recently talked about a 16 per cent drop in home registrations in Mumbai.There have been no dips at all in some markets. We operate in 16 cities in northern India and I have not seen a decline in any of these cities. I also don’t see any decrease in sales in Mumbai. HDFC has seen 60 per cent growth in home loans. Well, they were expecting 100 per cent growth, and it is just 60 per cent. But still, there is growth.How do you justify the discount offers, freebies and schemes that even reputed developers are offering? Are these not a strategy to boost falling sales?If the market is very competitive, then people have to give various sops. It’s a part of marketing in areas where there is oversupply. We did that in some of our projects. But in projects where there isn’t too much competition, we don’t offer anything. Sops are purely a result of the demand and supply equation. In cities like Lucknow and Jaipur, where we are the largest developer by far, we don’t give any sops. Our scheme of EMI holiday (paying EMIs after the possession) is the future for all property transactions. Ten years down the road, 90 per cent of the homebuyers will be on EMI holiday schemes. Why didn’t the EMI waiver scheme start earlier when the residential market was on an upswing?Yes, the scheme started just one-and-a-half to two years back. The builders went to the bankers and it took time for the banks to understand and get involved in this scheme, do the paperwork and get clearances. Now, the EMI waiver scheme has started even for commercial projects. Freebies are a function of competition but the EMI holiday scheme is what the market is going to be in the future.Will we see an end of the schemes when the market firms up again?The EMI waiver scheme will stay. The sops will stop.What is your advice to the end-user buyer at a time when home loan interest rates, inflation and premium housing costs are up?People buying homes fall in two categories—those who want to move out of joint families and those who are living on rent. Rentals are increasing at a pace much higher than inflation. So, it still makes sense for a customer to pay a higher EMI and buy a home. This move has two advantages. First, from the point of view of income tax benefit and second, ownership of property. Unlike rentals, payment of EMI for 15-20 years gives a person ownership of the property, creating an asset for him.Of course, price increase is a concern because earnings have not risen that much. But, more than earnings, this is linked with the rental outgo. A person could get to own a property after 15-20 years if takes a call and pays the higher home loan interest rates now. But, if he doesn’t, then he will have to pay a much higher price after 15 years. That is why property transactions happen despite higher inflation.So, a person staying on rent should consider buying a home?Paying rentals does not end up in ownership even after 10 years. Also, you will maintain a rented house only up to a certain standard. You don’t want to invest a lot in maintaining a house that you don’t own.Many developers are getting into mid-income housing. Is this a new trend?Mid-income housing is where the market is. Almost 90-95 per cent of the country is mid-segment buyers. Premium housing accounts for only 1-2 per cent of the market in India. Many developers are building premium housing simply because it adds to their profile. Developers who realise the demand for mid-income housing and cater to it will always be there. Niche market is very exciting and tempting, but is a very small market compared to the mid-segment market. This segment is here to stay. How do you define mid-income housing?Every city has its own definition depending on its income brackets. So, for Delhi NCR, mid-segment is Rs 50-75 lakh. Most of our projects in Gurgaon, Noida, Greater Noida and Ghaziabad are in this range. In Kundli, it’s about Rs 40 lakh.What can we expect in the coming year?Major developers will not have delivery issues, but a lot of new developers will not be able to cope up and some of the projects will never see the light of the day. So, automatically, supply will come down and the value of deliverable properties will go up further. This is the fourth slowdown that we are seeing in 40 years of our operation. This time it is even greater because there are more people in the business and a lot of them will have serious issues. In one to one-and-a-half years, we are likely to charge another 5-10 per cent premium on our products owing to our credibility

Careers In Managing Money

2008-08-29T07:56:00.000-07:00

Professions in finance have always been popular. But specialist handling of financial assets is now picking up speed in India. It's the new wave to ride
Scott Turow, a writer of legal fiction, makes one of his characters compare an actuary to a bookie, because both professions deal with the odds behind any event. In India, the odds will be in the favour of your resume if you have a background in actuarial sciences. With corporate profiles branching into specialised jobs, a knowhow in this and some other disciplines, can lead to a sharper career graph
Tacticians. After chartered accountants and company secretaries, the new kid on the block is the certified financial planner (CFP). A CFP deals with different financial aspects of a firm, including insurance planning, risk management, retirement planning, wealth creation and budgeting, all of which are the key to a company’s financial health. “Even a course or certificate in financial planning can give a person the knowledge base and competence to take on higher responsibilities within a firm,” says Brijesh K. Dalmia, a Kolkata-based planner.
Authorised education providers, under the Financial Planning Standards Board (FPSB) of India, offer CFP courses. The one to three-year distance learning programmes cover all the relevant areas such as insurance, retirement planning, taxation, estate planning, cash flow management, debt management and financial plan construction.
“Ideally, an MBA/CA/Certified Financial Analyst (CFA) with an insurance specialisation, alone or in combination, gives you a broad understanding of the investment instruments and options, as well as their applications,” says Dalmia
Asset managers. This is another field that can add to your profile apart from being a career option by itself. Asset management companies, by definition, deal with a wider range of investments than is feasible for individual investors, thus, increasing the possibility of returns and minimising costs. Demand for these services is rising in India as individual investors are seeking better returns. Most institutions offering post-graduate diplomas in management also have asset and investment management modules. These include ICFAI University, Hyderabad, and Institute of Company Secretaries of India (ICSI), Kolkata
Risk assessers. Which brings us to actuaries, who provide professional services in investment and financial sectors ranging from life insurance to health and general insurance, and employee retirement and benefit planning. Actuaries deal with the financial impact of risk and uncertainty. “Indian companies, leaving aside those derived from abroad where actuaries are part of a long tradition, have opened up to the concept of having actuaries who assess factors which are considered fundamentally uncertain,” says Sanchit Maini, actuary, Max New York Life Insurance. “The calculation of risks involved in insurance decisions are crucial to any firm. So having a base or grounding in the actuarial sciences is a good decision for any employee,” he adds.
Being an amalgam of applied mathematics and statistics, a course in actuarial sciences requires at least 85 per cent in Mathematics or Statistics at the 10+2 level, or a graduation or post-graduation in Mathematics, Statistics or Econometrics. Moreover, an engineer, CA, CS, an MBA in finance or an MCA is automatically eligible to join this course.In India, the Institute of Actuaries of India, Mumbai, offers a course in actuarial sciences.Bankers. Of all the disciplines in the banking sector, investment bankers have emerged in a significant way. Just as the CFP’s words of wisdom are sought by companies, investment bankers literally hold the purse strings by providing independent advice on investment. Investment banking involves advising companies (and government bodies) on transactions such as mergers and acquisitions, raising money by issuing and selling securities in the capital markets.In India, several institutions provide certificate courses in investment banking as part of their overall banking curriculum. These include the Indian Institute of Banking and Finance (IIBF), Mumbai, National Institute of Bank Management (NIBM), Pune, Aligarh Muslim University (AMU), Madras University, SNDT Women’s University, Mumbai. “Investment banking as an independent course is picking up in India. In professions like these, demand usually fuels more courses exclusively with this specialisation. Most universities or institutes club it with other banking courses,” says Arindam Mukherjee, a consultant with a major bank with a background in investment banking. “But opting for a specific course in investment banking does pay long-term dividends,” he adds. One of the most obvious, as Mukherjee discovered, was that a background in investment banking helps a professional with virtually any specialisation in dealing with the banking sector or investment branches of corporate groups. A grounding in the field also helps in dealing with capital markets and grooms an employee for possible openings in areas that involve working with equity and debt capital markets. “In effect, if you have an investment banking course or training tucked into your resume, your versatility and operational effectiveness increases in the eyes of your employers or, in case you are a consultant, with your clients,” Mukherjee remarks.With the economy coalescing and evolving, having a background in these disciplines are proving to be one of the surest ways of getting a hand on those positions one seeks

Is Your Home Loan Crushing You?

2008-08-29T07:39:00.000-07:00

How to cope with rising interest rates on your floating rate home loan

How badly is the EMI (equated monthly instalment) of your home loan messing up your budget? Over the last four years, the interest rate on home loans has risen from the bottom of about 7.75 per cent in 2004 to about 12.75 per cent now for existing customers. During the initial period of the rise, your lender bank or housing finance company (HFC) increased the loan tenure, till it went up to the end of your expected working life. Then it started bumping up the EMIs. Your total interest burden would have more than doubled from what it was in 2004 unless you have already prepaid substantial chunks of your principal.This larger loan burden comes at a time when rising prices are putting pressure on your budget anyway. To cap inflation, the government and the Reserve Bank of India (RBI) have been tightening the screws on liquidity. The RBI has increased the cash reserve ratio (the amount banks set aside with the RBI) and the repo rate (the rate at which banks borrow from the RBI), sucking out cash. So, banks are having to pay higher interest on deposits to bring in cash. To make money on these higher-cost funds, they have had to hike lending rates. This has pushed up the overall interest rates. The biggest impact of this increase is on home loans. Those who took fixed rate loans have been guarded against this since the rate is likely to be reviewed after five years or so. However, those who took floating rate loans have borne the brunt of the rate hike, seeing their repayment tenures and EMIs shooting up.While there have been reports of suicides over inability to repay home loans in the US after the sub-prime crisis, we haven’t heard anything such in India yet. But the task of making ends meet without losing the roof over one’s head is stressing people out. So, how do you ease the pressure, even partially?THE SHOCKSTo find a way out, you have to understand how interest rates are set. Banks calculate their own cost of funds from various sources. Above that, they fix the prime lending rate (PLR), a rate at which they lend money to their best or least risky customers. Normally, all banks also fix a benchmark PLR (BPLR). All loans are linked to the BPLR. When interest rises, the PLR and the BPLR increase. This, in turn, pushes up the rates for the floating home loan buyers, since the rate of interest they pay is linked to the BPLR. Then comes the increase in loan tenure and, subsequently, EMIs.Longer tenure, higher EMIs. Take the case of a 30-year-old who had taken a Rs 30-lakh home loan in 2004. At an interest rate of 7.75 per cent per annum then, he was supposed to pay an EMI of Rs 24,628 for 240 months to repay his loan. Typically, most banks provide a loan tenure of up to 240 months. The total interest outgo over this period would have been Rs 29 lakh. So, the total cost of his home would have been Rs 59 lakh. By 2006, when interest moved to 9.5 per cent on the same loan, on the same EMI, the tenure was pushed to 26.61 years. A 1.75 per cent increase in the interest rate pushing up the tenure by 8.61 years!Higher interest outgo. Today the same loan runs on an interest rate of 12.75 per cent. Over the last four years, the bulk of what he has been repaying as EMI is interest. So, he still has an outstanding principal of Rs 27 lakh to repay and his EMI is up to Rs 29,774. This is what the situation is: a loan, originally for 240 months with an EMI of Rs 24,628, gets rolled into one for 319 months with an EMI of Rs 29,774. The horror story does not end there. On the outstanding principal of Rs 27 lakh now, the total interest burden for 26.61 years is a whopping Rs 68 lakh, and the total cost of the Rs 30-lakh home has become Rs 98 lakh, including Rs 3 lakh that has already been paid.Higher total cost. Every time the interest rate goes up by 0.25 percentage points, the repayment period gets longer. For instance, on a loan at 9 per cent, if the original repayment tenure was 240 months, a 0.25 percentage point increase after, say, a year lengthens the remaining payback period by 11 months to 239 months. A 1 percentage point increase prolongs the tenure by 60 months, taking the total tenure to about 288 months (see With Every Hike). With the loan amount constant, more the number of EMIs you pay, the higher the interest cost, and, therefore, the total cost of your home. Typically, for a buyer, it is difficult to look at his home in a clinical sort of way. The emotions and other intangibles play a strong role. He’ll usually try to cut back on everything else to retain the house, even if its cost has gone way above what he was looking at when he bought it. Even though he doesn’t, strictly speaking, own the home yet, in his mind he does. Thus, selling is not really an option. So, what can he do to reduce the financial pressure?THE SALVAGE OPTIONSNow, to become debt free, he will have to repay the loan. To expedite the process, he has to bring the total cost of the house closer to what he was expecting to pay when he bought it, that is, he has to reduce the interest outgo in some way. This would mean reducing the tenure, or EMI, or both. There are three possible ways—switching, refinancing or part-prepayment—to achieve this end. Let’s see how they work. A. Switchover. To attract people to home loans, lending institutions try to keep the interest rate for new loans as low a possible. At present, it is around 11.50 per cent per annum on a reducing balance on a floating rate loan taken for 20 years. This loan will be linked to a BPLR and the interest rate on it will move with that BPLR. BPLR varies across lenders largely dependant on the cost of funds. If you had taken a floating rate loan, yours, too, would be linked to a BPLR, although it would be different from the one for a new loan and you are likely to be paying interest at around 12.75 per cent per annum now. You can take advantage of the difference in interest rates for existing and new customers by asking your banker to switch over your loan to the rate applicable for fresh customers. This, however, comes at a cost. Typically, the borrower would have to pay some percentage of the balance outstanding, say 1.75 per cent, and 12.24 per cent service tax on it, to avail the new rate of interest, which, again, could rise over time. In this case, the tenure remains constant, while the interest burden is slightly reduced. In the example that we had taken earlier, the cost incurred to switch over would be about Rs 53,000, including service tax. The outstanding loan and the term of 319 months don’t change, but the interest reduces to 11.50 per cent. The EMI falls to Rs 27,171 and there is an overall savings in interest of about Rs 8 lakh (see The Options For Reducing Your Interest Burden: Switching). B. Refinancing. Not all banks charge the same rate of interest on home loans. So, if you can find a bank offering a lower rate of interest, you can refinance the loan—borrow from the new lender and pay off your old one. Banks expect to make a certain amount of money by funding you for some years. That amount is their expected future earning from you. Now if you foreclose the loan, that stream gets truncated. To ensure against that, banks impose a foreclosure penalty, through which they recoup part of this foregone income. The full repayment penalty is normally 1.75 per cent of the outstanding amount plus the service tax. The processing fee, depending on the bank, is 1.0-1.5 per cent.Refinancing is usually costlier than switching, but the overall savings are more (see The Options For Reducing Your Interest Bur-den: Refinancing). Here, the cost of closing the loan from the existing lender and opting for a new one from another lender will cost Rs 87,000. Paying this reduces the loan tenure to 240 months and the interest burden to about Rs 42 lakh assuming that your balance working life is more than 240 months. The new lender will want to finish the loan within your balance working life.C. Part prepayments. The third option is to make lump sum or regular part prepayments of the principal. Here you are going to the root of your problem. If your principal outstanding goes down, so will the interest you have to pay on it, whatever be the rate. Part prepayments also decrease the tenure and, therefore, the total interest outgo. But first, make sure there is no part prepayment penalty associated with your loan. Be careful, DO NOT increase the EMI—the prepayment amount should be in addition to your EMI. If you part pay the principal every time you have money in your hands, it will reduce the number of EMIs even at your higher rate of interest (see The Options For Reducing Your Interest Burden: Regular Prepayment). Almost all banks and HFCs allow part prepayment. The pay-off can either be done on a monthly basis, or as a lump sum anytime during the year. Banks have their own criteria of allowing part prepayments. For example, the minimum that one can part prepay should be equal to at least one month’s instalment.D. Part prepayment along with switching or refinancing. You can also combine either the switching or repayment options with the prepayment option. For instance, if you find that you have some free cash in hand and your bank or another one is giving new loans at lower rates, then you could part prepay the principal to bring down the principal outstanding and the interest outgo. After that, if you switch or refinance your loan, with a lower outstanding principal, you can bring down your EMI further. If you do combine, then make sure you make the prepayment first, since the switching and refinance options will calculate the cost of doing so on the reduced outstanding principal. If you have enough cash to fully pay off your loan, you will have to pay a penalty of around 2 per cent on the outstanding loan. To avoid the penalty, you may pay off the entire loan, except one year’s outstanding that you have to continue paying as EMIs.Aftershocks. If you wish to exercise the switching option, there is a one-time cash outflow. Getting your loan refinanced from a bank is also a good option. The best thing about this option is that the tenure and the interest burden reduces considerably, albeit at a cost higher than that of switching. The best option seems part prepayment, wherein there is no cost involved, except the opportunity cost that your prepayments could have earned if invested in high-yielding options like stocks where returns aren’t certain. RAISING PREPAYMENT FUNDSRemember, the amount that you are going to prepay your loan with is not coming back to you. Developments such as windfall profits from the stockmarket, maturing of old investments, build-up of capital over the years due to increase in salary, or a bonus might prompt you to go for prepayment, in part or whole. Diversion from other tax saving instruments can be explored. Close all dormant savings account and use those funds to prepay. Use unutilised funds lying in our brokerage accounts to prepay. Ring up your friends to ask them about the funds that they owe to you and seek zero-interest loans from parents or close relatives. CONCLUSIONBefore you choose your option, you should examine the alternatives and the costs associated. A period of indebtedness of 10, 15 or 20 years, clubbed with the uncertainties of job and life, create an uneasy situation. From a purely psychological perspective, it may be better to pay off one’s debts. This strategy would appeal all the more to you if you want to live in a debt-free world and own a home. You will get to own the home earlier if you channelise your surplus funds towards prepayment. Interest rates are cyclical in nature and considering that home loans are long-term commitments, there will be some periods du-ring the tenure when rates move up and some periods when they will move down. Prepaying allows you to own the home sooner. With luck, by the time the rates fall the next time around, you may be in a position to consider buying your second home

Indian stocks best performing among Asia in Aug: Citigroup

2008-08-29T07:33:00.001-07:00

Indian stocks have emerged as the best performing lot among Asian equities, as it recorded only a marginal loss during the month, while a majority of others in the region posted higher negative return, a Citigroup report says. According to th e report all Asian stocks have suffered losses this month, however, Indian stocks have performed the best among them.
“August is proving to be another very difficult month for equities - 80 per cent of Asian stocks have posted negative returns, with the median stock losing 8.1 per cent. India is performing best with a median return of negative 0.3 per cent.'' China st ocks performed the worst with a median loss of 15.4 per cent.
In India, large cap stocks have given a median return of negative 0.9 per cent in the month till August 25, while the small-cap equities have given a marginal negative return of 0.1 per cent in the period, it said. Companies with a market capitalisation in excess of Rs 1,000 cr are generally known as large cap companies, while those with lower market valuation are termed as small-caps.
In comparison, large cap Chinese stocks suffered the most with negative returns to the tune of 11.6 per cent, while small-cap equities posted losses as high as 16.7 per cent in the month so far

Inflation declines to 12.40%

2008-08-28T08:17:00.001-07:00

Inflation declined marginally to 12.40 per cent for the week ended August 16 following a dip in prices of vegetables, meat and cement, which the Finance Ministry described as “early signs of moderation” in prices.

The 0.23 per cent dip from 12.63 per cent in the previous week is the first time that inflation has fallen in a month. It was 3.99 per cent during the corresponding week a year ago.

“There are some early signs of moderation of inflation,” the Finance Ministry said in a statement, adding that in the primary articles group 21 out of total 98 articles have shown decline in prices and there was no increase in prices of another 48 articl es.

The last time inflation fell was when it dipped from 11.91 per cent to 11.89 per cent in the week ended July 12. In addition to vegetables, meat, egg and fish, the index of fuel and power items too declined by 1 per cent.

Prices of certain essential commodities like pulses, fruits, spices and iron and steel, however, continued to move up during the week. The increase was due to higher prices of sugar, pulses (moong, massor, urad and gram and dry chillies), the Finance Min istry statement said.

The annual rate of inflation for the week ended June 21, a fortnight after the government increased the prices of petrol, diesel and cooking gas, was revised from 11.89 per cent to 11.91 per cent.

Inflation declines to 12.40%

2008-08-28T08:17:00.000-07:00

US economy: Between zero growth and recession?

2008-08-27T08:09:00.000-07:00

It is the most often heard question these days. When will the crisis afflicting First World financial institutions end?
There seems no early or easy way out, this despite the coordinated and independent gigantic rescue efforts of the U S Federal Reserve, the European Central Bank and Bank of Japan.
They have gone the full distance and more in support, waiving collateral standards and financing illiquid assets in banks’ balance sheets.
The amounts involved are not small, running into hundreds of billions of dollars, euros and pound sterling. And when it came to it, the Fed was there to bail out Bear Stearns, one of the world’s large investment banks and absorb its possible portfolio losses even after the J P Morgan takeover. Myth and reality
As stated in these columns on several occasions, it is a myth to think that central banks are ivory tower institutions concerned only with finessing monetary policy and interest rates.
Theory and textbooks divide governments’ and central banks’ responsibilities into neat compartments. Reality is that the latter must get their hands dirty.
No stronger evidence than the active involvement of the inflation-targeting ECB and Bank of England in the present crisis is necessary.
The ECB in particular – an arch monetarist institution if ever there was one - was forced to eat crow.
Financial markets are still far from normalisation. Credit spreads in the inter-bank market are well above historical levels – in the region of 100 bps vs 25bps and less in the good old days. The story repeats in housing mortgage rates. They have been hardly impacted by the rapid succession of Fed rate cuts.
Meanwhile, house prices continue their downward journey, with the only buyers in sight being the bottom fishers. There are reports of sovereign wealth funds investing in distressed mortgages and foreclosed properties. Revival?
But can the market revive with just speculators in the fray? The canon fodder for sub-prime, Alt A, ARM and other various fancy-sounding mortgages were mostly genuine home buyers. Now they are gone, with no hope of qualifying for loans in the new regimented credit regime. Earlier, mortgage originators could securitise their portfolios and transfer risk, but that prospect too is remote with the collapse of the CDO market.
The US may yet escape the doomsday scenario painted by Mr Nouriel Roubini, the economist who first predicted the sub-prime crash and thinks major institutional, market and asset price upheavals are in store. But that does not mean an early recovery. There is more of bad than good news ahead and it is quite on the cards that the economy will simply flirt between zero growth and recession.
About the only comfort might be the softer price implications for energy and commodities from a weak economy.

All-India rainfall slips back into deficit

2008-08-26T20:14:00.000-07:00

The belt of scattered rains progressing from the Equatorial Indian Ocean has already hit Sri Lanka with the persistent drizzle playing spoilsport with the scheduled one-day international cricket match between the hosts and the touring Indians.
This rain belt is seen by various weather models to push north progressively to foray into extreme south peninsular India. The extent of coverage in the southern States would be decisive in terms of impact on the all-India rainfall, which has slipped back into deficit according to latest update.
India Meteorological Department (IMD) said in a special update on Monday that the cumulative seasonal rainfall as on June 24 had posted a deficit of one per cent. This made for an abrupt reversal from a comfortable surplus of two per cent till only four days back. DRY RUN CONTINUES
This is being attributed to another bout of dry run over northwest and west-central India close on the heels of a weeklong rain spell shutting out. There is hardly any sign of any significant wave coming back to these regions, given that the withdrawal of monsoon is set to begin from Rajasthan around September 1.
But indications are the rest of the country would continue to experience scattered heavy to moderate rainfall. The latest update from the Climate Prediction Centre of the US National Weather Services mentions about ‘increased chances of rains stretching from Equatorial Indian Ocean to the Philippines during the ongoing week’ (August 26 to September 1).
Thus the rain belt moving into peninsular India over the next few days would move east into the Bay of Bengal (to the detriment of north peninsula) and progressively into South China Sea and Northwest Pacific. Extended forecast for the week ending September 8 showed a northward progression of this rain belt.
This northward progression would be confined mostly over the Bay, and in later stages, to the northern fringes of the southeast coast (coastal areas of Orissa and West Bengal) during the forecast period.
This will effectively rule out any rain for the northern peninsular India whose waxing and waning weather and the fate of the larger monsoon have come to be inextricably linked. SURPLUS IN NORTHWEST
The IMD update said the rainfall distribution till date has been skewed over the four broad homogenous regions with only Northwest India managing a tidy surplus of 19 per cent. Central India (-7 per cent), South Peninsula (-6 per cent) and the Northeast (-5 per cent) bled the rainfall charts in that order.
The number of Met subdivisions recording excess and normal rainfall (again mostly confined to north and northwest) are 30. The rest six are in deficit, with Vidarbha (-20 per cent) the latest to join the list.
The rest featured on the list are (deficits in percentage in brackets): Marathawada (-44); Kerala (-31); Nagaland-Manipur-Mizoram-Tripura (-28); North Interior Karnataka (-27); and Assam and Meghalaya (-21). Of this, Kerala is expected to benefit from the approaching ran belt from the south and southwest.
The IMD update went on to add that model predictions suggested subdued rainfall over northwest and central India during the next week. But East and Northeast India may experience widespread rains with heavy to very heavy falls during the same period

A Champion In The Basket

2008-08-26T09:19:00.000-07:00

This large-cap fund can give stability to your portfolio as it limits the downside risk in volatile markets

Despite being one of the late entrants in the large-cap fund space, DSP ML Top 100 Equity Fund (DT100) has been one of the best performing schemes in this category. Here’s why it should be one of your first choices if you are shopping for large-cap funds. What’s it about?Launched on 21 February 2003, DT100 is a large-cap-oriented fund that aims to invest in the top 100 companies (by market capitalisation). It follows a mix of top-down and bottom-up style of investing. DT100 is well-diversified and holds around 40-50 scrips on an average. Its offer document says that it can hold up to 10 per cent of its corpus in cash. During volatile markets when liquidity drops in small- and medium-sized companies, a large-cap fund ensures stability to your portfolio as it falls less than small- and mid-cap funds. PerformanceDT100 has outperformed its benchmark index, the BSE 100, as well as the category average across all time periods. As on 25 July, DT100 returned 38.78 per cent in the past five years as against 34.76 per cent by its category and 31.97 by BSE 100. We also checked out the scheme’s rolling returns (an average of one-year returns over a total period of the past three years) to check out its consistency. Here, too, it scored over its category average and benchmark index. DT100 also scores low on its risks and this helps it give a superior risk-adjusted return (the best among 18 funds in the large-cap funds space). It bodes well for your portfolio if your fund delivers high returns and also keeps its risk levels in check. PortfolioWhen compared to small- and mid-cap funds, where the universe of target stocks is as wide as it can get and where one mutual fund’s research can be vastly different from the other’s, it’s tough for a large-cap fund to stay significantly ahead of the competition as all large-cap funds target the top 100 companies. To counter this, DT100’s fund manager actively manages the scheme and books profits from time to time. The fund manager has reduced exposures in banking and finance sector on the back of rising interest rates and also in capital goods and cement sectors as he feels the valuations have been high. Instead, the fund has increased its exposures to defensive sectors like pharmaceuticals and telecom, which are not sensitive to the interest rate cycles. Volatile oil prices have also led the fund manager to hedge exposure in this sector by buying into companies that would benefit from either rising oil prices (Cairn; 2.07 per cent and ONGC; 1.91 per cent) or falling oil prices (IOC; 2.01 per cent). Typically, when oil prices rise, oil manufactures like Cairn and ONGC gain since they realise a higher value, but when oil prices fall, oil retailers like IOC gain since they sell petrol through their petrol pumps. A notable feature of this scheme is that it also takes exposures in the derivatives segment to hedge its risk and reduce the impact of volatility on its portfolio. Since the end of January till date, its top exposures—as per its month-end portfolios—have been in Nifty Futures. This along with a high exposure to cash (11 per cent average exposure since February) and liquid debt securities has helped the fund tide over the volatility better as its fall during the past six-month period has been among the least in the category. We suggest you take the systematic investment plan route to invest in DT 100.

Global shipping: Drifting into recession?

2008-08-25T08:15:00.000-07:00

Is world shipping heading for recession? It is too early to predict anything firmly at this moment but the indications appear ominous. And traditionally, as everyone knows, shipping has been the leading indicator.
On August 15, Bloomberg reported that Baltic Dry Index (BDI), the benchmark for shipping freight, fell for 23 consecutive sessions through August 12, the worst decline since the third quarter of 2005.
Early this month, Goldman Sachs advised investors to sell bulk carrier stocks ahead of any major correction as it forecast that the BDI would fall 40 per cent in 2009 and a further 47 per cent year-on in 2010, citing an oversupply of capacity in coming years.
The fear may not be totally unfounded. Recently, the share prices of leading South Korean shipbuilders tumbled amid a spate of newbuilding cancellations and reports of some yards attempting to renegotiate price and delivery dates for new buildings.
Also, the echo of Russian bombers pounding Georgia and the steady decline in the crude price fuelled speculation of a further fall, driven by fears of slowing global demand and firming up of the US dollar.
The nervous sentiment was further aggravated when it was revealed that China, now the world’s second largest consumer of oil, imported record low crude in July.
China continues to have disproportionate influence also on the dry bulk market (it imported 230.2 million tonnes of iron ore in first half which annualised to 460.4 mt or 20 per cent higher than record setting year of 2007) but its manufacturing sector contracted in July from June, the first drop in almost three years.
The container rates are off the edge of a cliff against the backdrop of plunging consumer confidence so much so that even gold is down more than 20 per cent since it reached the record high in March. In tanker markets, unprofitable rentals are spurring owners to slow down speed.Bad, not so bad…
What all this could mean for shipping is stark. But there is no consensus among the experts over what happens next as one can find plenty of rosy forecasts.
There are shipbuilders who point out that order cancellations take place even in a good market. The present focus is on cancellations because the world’s financial market is passing through a bear period and the current developments, therefore, are not indicative of a wider problem but only of a specific issue for certain yards.
In fact, reports suggest that some of the Korean shipbuilders, after a panic over their nosediving share prices, succeeded in reselling their slots at a better price.
According to some experts, the gloomy prognosis of Goldman Sachs is overdone, more so because even a couple of weeks after the prediction the market really did not plunge as predicted. The market is softening but there is still money to be made, it is pointed out.
There are as many Capesize vessels on order as already exist in the fleet. The shipyards will deliver 786 bulk carriers of various capacities next year, representing 15 per cent of the existing fleet.
True, Neptune Orient Line reported a 19 per cent decline in second quarter results but the east-west containerised trade continues to grow, though the rate of growth has shrunk to 5 per cent as compared to exceptional figures in recent years.
But, then, as some experts point out, not too long ago, an increase of 5 per cent was considered a cause for satisfaction, not disappointment. Also, even after decline, it is further pointed out, the bulk shipping freight remains more than three times higher than the 20-year average of 2015 on BDI.Tanker market scene
According to some analysts, the tanker market too is set to break its lacklustre reputation and regain its pristine glory. Faster than expected oil demand growth has helped wholesale firming of tanker rates, with many tonnage types, both dirty and clean, now near highs for the year.
The rates were low in the past largely on the assumption that the order-book was too large despite the looming crunch to be caused by the 2010 IMO deadline for phasing out of old single-hull vessels.
But it now appears that the fleet growth may outstrip demand growth only marginally, securing for owners a much stronger negotiating position. According to some experts, the tanker market has better prospects.
But then it will be rash to claim that everything is hunky-dory. Quoting North of England P&I Club’s management report, the Lloyd’s List recently reported, “it seems that the phones in the freight, demurrage and defence department have been ringing non-stop with serious concerns over newbuild contracts, the rising price of steel and yards’ abilities to meet their obligations….
“All this of course has been said before but here it is in black and white that we have a real problem on our hands that is not expected to go away. Indeed the P&I clubs seem to think the position may well be worse in the coming years — leading to some potentially very expensive disputes and owners being declined cover”.
Clearly, these are unpredictable times.

Outlook: Markets may remain bullish

2008-08-25T07:59:00.000-07:00

The markets are expected to surge this week on the back of relatively improved sentiments in the American bourses and falling crude prices even though the chances of higher inflation playing a spoilsport cannot be ruled out, say analysts.The markets would be closely watching developments related to the Indo-US nuclear deal at the Nuclear Suppliers Group (NSG), they said and pointed out no key policy decisions is expected this week on domestic front."Tracking global cues, the stock market is likely to be bullish. As no major policy decision is expected this week and with Nasdaq and Dow Jones Industrial Index hovering in the positive zone, the sentiments in the domestic market would remain positive."The market will remain volatile and witness a strong opening on Monday. Then it will take cues from the crude price movement," brokerage firm SMC Global's Vice President Rajesh Jain said.Noting that crude prices would determine the movement of the market, he said that Sensex is likely to hover around 14,500 to 15,500 points during the week.According to experts, a further rise in crude oil prices may act as a dampener for the capital markets.On the crude front, the simmering tension between United States and Russia could push up the prices, which has been on the decline in recent weeks.Even though crude closed at 114.59 dollar per barrel on Friday, the prices had touched a high of nearly 121 dollar per barrel during that day.

'Indian art market set for major boom'

2008-08-25T07:57:00.000-07:00

Indian art market is growing at the rapid pace of 30-35 per cent annually touching the 1500 crore mark and is expected to witness a boom in the future, say international experts in the field.Speaking during the first Indian Art Summit, experts predicted that the boom of the Indian art market was because of the interest shown by new buyers seeking art investment for long term gains."Indian investors have moved up the art market in a very short time compared to their European counterparts. Indian art is very investable and every year new buyers are coming forward and are surpassing the older ones," said Philip Hoffman, Chief Executive, Fine Art Fund UK during his presentation at the Art Summit on the 'Commerce of Art'.He said around 1500 crore Indian art market remained volatile despite a fast growth and added that investors should seek advice from experts before putting their money on any work."The rise in the prices of the art will soon make art one of the most priced luxurious commodities and would be accessible to the super rich people only," Hoffman predicted.He pointed out that along with India the art markets in Middle East, China and Russian also have a promising future.Similarly talking in the panel discussion 'The Commerce of Art', Dr Hugo Weihe, Christie's International Director for Asian art said, "It is remarkable to be a young artist in todays' India. With the mixing of cultures it interesting to see the crossover effects on the artists and their work." With the new interest being shown by the young buyers who look at the art not from a collectors point of view but from the eye of an investor looking for long term gain. Commenting on the quality of Indian art, Hoffman said, "Regular spenders on art work are looking at Indian and Chinese contemporary art instead of spending their money on artists from other countries because they are getting quality work at a much cheaper price." The long history of art patronage in India has continued to sustain the Indian art which has not been the case with Western art collectors, said Henry Howard Sneyd, Deputy Chairman of Sotheby."Compared to the America, Chinese and Indian diaspora have continued to sustain and collect art work while the West remained blind to the rich art heritage of these countries," he said.Sneyd, however, felt that the contemporary artists like Husain, Souza and new but promising artists like Subodh Gupta have completely changed the Indian art scenario. The new artists are very global in their art expressions."A Subodh Gupta's art work is not necessarily Indian. It can be from any part of the world. Indian contemporary art is no longer 'foreign' to art collectors from Western countries," he added.

Advance Planning Is Less Taxing

2008-08-21T07:42:00.000-07:00

We all need to be congratulated for surviving another tax season. As in the previous years, many of us must have rushed in on the last day and somehow managed to submit the income tax return forms

We all need to be congratulated for surviving another tax season. As in the previous years, many of us must have rushed in on the last day and somehow managed to submit the income tax return forms. And like before you would have told yourself “I won’t go through all this again next year". But then the year will roll on, you will get busy, and tax matters will get pushed back as out of sight is out of mind. By 31 July 2009, when you would be filing tax returns for the assessment year 2009-10, advance preparation in this financial year 2008-09 itself can help you avoid the last-minute anxiety. Here are 12 must dos to reduce tax filing stress next yearLook out for refund Income tax authorities are supposed to send you the refund either electronically directly to your bank account, or by cheque to your address within 30 days of filing the return. Ideally, give 45-90 days for this to happen. Get in touch with the authorities in writing if the delay is longer.Estimate the tax billFor the current year, first estimate your tax liability. You may contact your account department to get a fix on the figure. Budget 2008 increased the income slabs, giving a relief of Rs 4,000 to every taxpayer. For an individual not a woman or a senior citizen, whose taxable income was Rs 8 lakh in the previous year, the tax liability was Rs 1,94,670. Now, it is Rs 1,49,350. A net yearly savings of Rs 45,320.Reimbursements As a part of your salary, you may get a reimbursement of medical expenses incurred by you on yourself and your family—Rs 15,000 would be tax-free per annum. You need to give bills or other documents to claim the amount. Preserve them carefully.Leave travel allowance (LTA) is paid every year, but it is tax-free only for two trips in a block of four years. The blocks are 2002-2005, 2006-2009 and so on. You may have to pay tax this year even after submitting the bills.Organise and keep documents handySome investment-related proofs, such as statement of account of ELSS funds, can be stored electronically. Remember that interest income earned on all your savings bank accounts also needs to be disclosed and tax paid on them. Close dormant accounts and reduce tax liability. Collect all your bank statements and TDS certificates, if any. This will help you calculate your earning from bank interest. Deposit advance tax if required. If you are claiming deduction on interest paid on an educational loan, collect a certificate of repayment for this financial year in which the interest is stated separately. Do the same for your home loan.If you are claiming deduction for house rent allowance on actual rent paid, collect and keep the rent receipts. For any donations given to an approved charity, get a receipt and also a certificate that the trust gets deduction under Section 80G. If you are claiming a deduction for any medical disability under Section 80U, get a certificate of disability from the authorised doctor. If you got any gifts during the year, collect the gift deeds in your favour, which should clearly state that you received money without any consideration. Keep all the receipts of contributions made towards health insurance, or to schemes under Section 80C such as LIC payment receipts, copy of the PPF pass book, and children’s tuition fee receipts, among others.Health for all Even before thinking of any tax-saving investments, ensure adequate health cover for your family. Further, to the ded-uction of up to Rs 15,000, from this year you will get additional deduction of Rs 15,000 if your parents are also covered, and Rs 20,000 if they're senior citizens.Pay in advanceIf your employer does not deduct tax at source and your total tax liability this year is above Rs 5,000, you will have to pay tax in advance. Keep a copy of the challan safely for future reference. Use capital lossesIf you have sold any stocks at a loss, you can book a short-term capital loss, which can be set off against any capital gain—long-term or short-term. If you have made any short-term capital gain during the year, you can set off the loss against the gain. If you book a long-term loss, it may not be of much use as it can be adjusted only against long-term gains, which are not taxable for shares. Declare investments Send all the details to your accounts department in the form of an investment declaration. This document normally states all the tax-saving investment and expenses you plan to undertake this year. This will allow your account department to calculate your taxes. Based on this, tax will be deducted at source. Figure out the existing outgo Work towards bringing down your tax outgo. Before blindly investing in tax-saving avenues, figure out how much tax you are already saving. For salaried employees, 12 per cent of the basic salary goes towards Employees’ Provident Fund, which qualifies for tax benefit. Life insurance premiums are also on the same list. Further, principal repayments up to Rs 1 lakh on existing home loans get tax relief under Section 80C and interest payments up to Rs 1.5 lakh qualify for tax deduction under Section 24. Another deduction could be on the tuition fees, up to Rs 1 lakh, that you pay for a maximum of two children. Add these figures to see how much of your tax liability is already covered.Get the old Form 16 If you have moved jobs anytime after 1 April 2008, take a copy of the Form 16 from your previous employer. If you don’t, you will lose the advantage of tax exemption. Taxable income is the aggregate of all income received during the year. If your earlier employer has not deducted any tax from your salary, you may get a salary certificate from him indicating the amount received by you as salary during the financial year. Choose tax-saversChoosing your tax-saver heads under Section 80C should depend on its time horizon and your risk appetite. An increase in EMI or loan tenure is likely for floating rate home loans. Try to prepay the loan, either in parts or in a lump sum. These payments will also help you cut down your tax liability. For an equity-linked saving scheme (ELSS), invest systematically to avoid a last-minute dash.The final momentsMost employers ask for actual proof of investment and expenses by the first week of February. Once these documents are given, wait till May 2009 for the Form 16, based on which you can file your income tax return for the next year by 31 July 2009

Welspun-Gujarat Stahl: Buy

2008-08-05T08:30:00.000-07:00

We recommend a buy in Welspun-Gujarat Stahl Rohren from a short-term perspective. From the charts of Welspun-Gujarat Stahl Rohren we observe that it has been moving down steadily since it recorded the peak at Rs 537 in January. This decline halted in July at Rs 269. This is a significant support level and the stock has reversed firmly from here. The reversal gained impetus by the positive divergence in the weekly relative strength index (RSI).The RSI in the daily chart too is moving in to the bullish region, denoting that this up trend can gain strength. Another oscillator, the daily moving average convergence and divergence has also entered the positive territory. The stock is currently positioned above its 21 and 50-day moving averages denoting a short-term trend reversal. We are bullish on the stock in the short-term horizon. We expect its current up move to prolong until it hits our price target of Rs 387 in the upcoming trading sessions. Traders with short-term perspective can buy the stock while maintaining a stop-loss at Rs 332

Falling markets have not spared Ulips, but their long-term mandate still keeps them worthwhile

2008-08-04T09:19:00.000-07:00

Falling markets have not spared Ulips, but their long-term mandate still keeps them worthwhile
For holders of unit-linked insurance plans (Ulips), the current market conditions do not matter much. The markets have fallen considerably from the highs of January this year, and the possibility of a long-term, sustained recovery is largely seen in the context of three factors—oil price, the Indian growth story and the US economy. A common thread going through these factors is that their impact can be measured only over a period of time. Ulips are bundled investment products designed to boost long-term savings more than short-to-medium duration ones. The benefit is reflected in low costs if the savings are over a long period of time.
Should the weakening stockmarket worry investors who take the Ulip route to equities? The product is best for generating wealth over periods not less than 10 years. There is also enough evidence to show that equity outperforms other assets and can give annualised returns of 15-20 per cent over the long term.
Existing holders. If you are holding Ulips with full exposure to equity, stay invested that way till maturity is around five years away. Ulips allow investors to switch their corpus to non-equity options like debt or balanced funds. If the fund value has eroded over the last six months or so, stick to the equity option.
If you have been putting premiums in the debt fund option, now is the time to move into equity. You can do this in two ways—by moving the entire corpus in one go or by transferring smaller amounts at regular intervals.
New buyers. Invest in a Ulip for the right reasons. Weak or strong market conditions should never be the cue for starting savings in any asset class or financial product. The equity fund option is the best option, so go for a fund that takes 100 per cent exposure to stocks. The other way to go about it is to put the premium in a debt or a balanced fund and then switch to equity when you feel that the market is strengthening. The problem with this is that you will have to time the market, which you should ideally avoid.
Switching options. Insurers provide a specified number of free switches among fund options in a year. These can be done both offline and online.
What to do. Shift gains from equity funds of more than 20 per cent in any year to debt or balanced funds. Markets move in cycles and there could be three or four opportunities of extraordinary returns in a 15-20-year holding period.
While restructuring fund options, ensure that optimum balance is maintained between returns and life coverage. If you lower the sum assured to maximise returns, your life cover may fall below your requirements. Finally, uncertain market conditions, as are being seen now, should never be the reason for a full exit from Ulips. Costs in most Ulips are front-loaded and, hence, it is important to make them run their full course

Step Buy Step

2008-08-04T09:01:00.000-07:00

Regular investment is the key to reaching a financial goal, irrespective of the waves in the equity market

Indian equity market has been tottering since the beginning of 2008. Equity mutual funds (MF) have lost around 40 per cent since the beginning of 2008. Seeing the volatility the question on everyone’s minds is: Is this a good time to invest, or is worse yet to come? If you believe that markets will fall further, you could stay in cash. We, however, do not believe in timing the market. Financial goals are important and it’s always advisable to avoid timing the market as there’s no telling how it might behave tomorrow, or the day after.
Short-term vs long-term. When will the markets rise or fall, is anybody’s guess. This, however, should not change your goals. So, how do you invest in the market, ride the volatility and still reach your financial goals? The short answer is systematic investment plans (SIP).
Under SIPs, investments are a pre-specified amount, in a selected scheme and at pre-specified time periods, monthly or quarterly. Say, you invest Rs 1,000 every month in a pre-determined equity scheme, and start when its net asset value (NAV) was Rs 15. In the first month, 66.67 (Rs 1,000 / Rs 15) units are credited to your account. Say, on the first day of the following month the NAV increases to Rs 20. An additional 50 units (Rs 1,000/Rs 20) are credited to your account that day. Further, say, on the first day of the next month, the NAV drops to Rs 12. In that case, 83.33 (Rs 1,000/Rs 12) units will be credited to your account.
In an SIP, more units will be credited when a scheme’s NAV is low and fewer units when it’s NAV is high.
Why SIP?
The mantra for wealth creation is to invest early and regularly irrespective of the size of the amount invested. SIPs are the ideal tool for this. The sooner you begin investing, the more time your money will have to grow because of power of compounding. Regular, disciplined investing. If you are a salaried investor, SIPs enable you to save a fixed portion of your salary every month. You don’t even need to remember your date of investment. Just enrol in a monthly SIP and give a bank mandate to your fund; every month a fixed sum will automatically get transferred from your account to your chosen equity scheme.
Cost averaging. By buying fewer units when the NAV is high and more units when it is low, your buying cost per unit gets averaged out. This is called rupee cost averaging (see Rupee Cost Averaging). This helps you avoid the need to time the market. Usually, when the NAV drops, many investors don’t buy additional units fearing a further drop in the market. They stay out and miss an opportunity to get units cheaper, especially if the NAV starts going up. An SIP allows you to buy an appropriate quantity of units depending on the NAV’s direction.
Rupee cost averaging doesn’t work in rising markets because, in an SIP, units become more expensive as markets keep rising. Small amounts. As an SIP entails regular investing; all you need is as low as Rs 100 a month to enrol, as against Rs 5,000 for a one-time investment. Earlier, SIPs called for a minimum investment of Rs 500, but over the past two years, competition has brought down the entry barriers. Presently, Reliance, ICICI Prudential and Lotus India MFs offer Rs 100 SIPs.
No lock-in period. Except for those in equity-linked saving schemes (ELSS), SIPs do not impose a lock-in period. If you wish to discontinue your SIP at any time, all you need to do is to inform your fund house by sending them a termination letter. If you gave post-dated cheques when you started your SIP, your MF will return the uncashed ones. Else, if you had opted for direct debit, your payments would stop after your MF receives your termination request. Further, you can stay invested in the scheme for as long as you want even after you terminate the SIP.
How to invest in an SIP?
All MFs have predetermined dates of any given month on which an investor can make regular investments in SIPs. For instance, if you receive your salary on the first of every month, you can choose seventh or tenth of every month as your SIP date. But if you get your salary by the month-end, the first of the following month would be the ideal, as you wouldn’t want your money lying idle in the bank account for long.
MFs also provide direct debit facility with all the major banks. You can also give post-dated cheques (at least 12) to the MF.
Who should invest?
If you want steady returns and would like to avoid market volatility, SIPs are for you. But they are not suitable for short- to very short-terms. These are most suited for those who have a regular stream of inflows and would like to deploy a part of their proceeds in the market, irrespective of what level the market is at.
ELSS SIPs. Before investing in an ELSS SIP, do remember that the lock-in period for each instalment is three years. So, an amount invested on 7 July 2008 will be locked in till 6 July 2011 and the one made on 7 August 2008 will be locked till 6 August 2011.
Systematic transfer plan. But what if you have a lumpsum amount to invest? You still stagger your investments like in an SIP and make the volatility work for you through a systematic transfer plan (STP). In an STP you first invest a lumpsum amount in a liquid or liquid-plus fund or any other debt fund like a floating rate fund. This money will later be transferred to an equity fund of your choice within the same fund house, every day, week, month or quarter, depending on what you choose. Your money lying in a liquid fund, pending deployment to your chosen equity fund, would fetch you higher returns than a savings bank account where you would have normally parked your surplus cash

Which is the best SIP

2008-08-01T08:29:00.000-07:00

That's a question we routinely hear nowadays. Ever since the equity markets have been engulfed by volatility, the most frequently heard piece of advice is - invest via the systematic investment plan route for the long-term. While regular visitors and clients of Personalfn have since long bought into the merits of SIP investing, we are rather surprised to note that it took a prolonged volatile phase for most investment experts/advisors to appreciate the importance of SIP investing.
Coming back to the original question - which is the best SIP? Thanks to all the hype around SIPs, several investors have been led to believe that the SIP is an investment avenue. Furthermore, the panacea to the present testing phase is to select the best SIP and get invested therein.
The SIP is simply an investment mode i.e. a means to invest in mutual funds and not an investment avenue. When an investor chooses to invest via an SIP, he makes investments (usually) in smaller denominations at regular time intervals as opposed to making a single lump sum investment. The underlying intention is to benefit from the volatility in equity markets by lowering the average purchase cost. In this article, we discuss the pros and cons of SIP investing.
How an SIP helps...As mentioned earlier, the most important role of an SIP is to lower the average purchase cost of an investment over the long-term. This is possible when equity markets experience a turbulent phase. Since the investment amount for each SIP installment is fixed, the investor gains by receiving a higher number of mutual fund units.
An example will clarify this better. Suppose the monthly SIP is for Rs 1,000 and the fund's net asset value (NAV) is Rs 50; this will lead to 20 units being credited to the investor. However, in the next month on account of the volatile markets, the fund's NAV falls to Rs 40. This will lower the average purchase cost; as a result, the investor will have 25 units credited to his account. This is how an SIP can help investors benefit from volatility in equity markets.
Lack of disciplined investing is one of the major reasons for investors not achieving their financial goals. For example, often monies that are kept aside for investments end up getting used for other purposes. As a result, the investor is even further divorced from his goals. An SIP ensures that the investor stays the course by investing in a disciplined manner.
An often heard excuse for not investing is lack of monies. SIP takes care of this problem by lowering the minimum investment amount. For example, the minimum investment amount for a lump sum investment in a diversified equity fund could typically be Rs 5,000; conversely for an SIP, it can be as low as Rs 500. As a result, investing via the SIP route is lighter on the wallet..
Timing the market is a popular pastime with several investors. Investors have an inexplicable urge for timing markets and aim at getting invested when markets have bottomed out. It's a different matter that timing markets to perfection and doing so consistently is beyond most investors. SIPs make market timing irrelevant.
Having discussed the benefits of SIP investing, now let's consider the situations when an SIP won't deliver�
In rising marketsAn SIP may not be able to lower the average purchase cost if equity markets rise in a secular manner. In such a scenario, the average purchase cost could actually rise. So in a market rally, SIPs could prove to be more expensive vis-a-vis a lump sum investment.
A directionless SIPA directionless SIP is one that does not form part of an investment plan; in other words, it's an aimless SIP. The SIP is not an 'end'; instead, it is the 'means' to achieve an end. Hence an SIP in isolation does not make 'financial' sense. Instead, the SIP should form part of an investment plan aimed at achieving a predetermined objective (like providing for a child's education or buying a house).
An SIP in a poorly managed fundInvesting via an SIP doesn't improve the prospects of a poorly managed fund. Such a fund stays the same, irrespective of the investment mode. Its shortcomings will not be eliminated by an SIP. Hence the key lies in first selecting a well-managed fund that is right for the investor and then investing in it via an SIP.
As can be seen, the SIP mode of investing has a fair number of advantages to offer; conversely, there can be instances when it may not deliver as expected. Investors on their part should make well-informed investment decisions after acquainting themselves of both the pros and cons.

10 Calculation To Know

2008-08-01T08:18:00.000-07:00

The value of investments is only as much as their returns. So, it is critical to know how much your money is worth to plan your financial goals
Managing money can involve calculations to understand the worth of an investment. To arrive at a result, calculations can be done in a different way or by using a different formula. Even the same formula can be used differently to arrive at a certain result. Here are a few commonly used money management formulas. Use an excel sheet to do these.
1. Compound Interest I want to take a loan of Rs 1 lakh to buy a used car. How much will the car cost me at an annual interest rate of 8 per cent for four years?
The compound interest formula can be used here to calculate the final cost, which would include the loan amount and the interest paid. The amount that is actually paid for Rs 1 lakh is Rs 1,36,048.90. The total amount of interest charged for borrowing Rs 1 lakh is Rs 36,048.90.
Formula: Future value = P(1 + R)^N
Type in: =100000(1+8%)^4 and hit enter. P: amount borrowed; R: rate of interest; N: time in years.
Also used for: Calculating the maturity value on lumpsum investment (bank fixed deposits and National Savings Certificate, for example) over a fixed period at a certain rate of interest.
2. Compound Annualised Growth Rate I had invested Rs 1 lakh in a mutual fund five years back at an NAV of Rs 20. Now the NAV is Rs 70. How should I calculate my returns on an annual basis?
Compound annualised growth rate (CAGR) will be used here to calculate the growth over a period of time. The gain of Rs 50 over five years on the initial NAV of Rs 20 is a simple return of 250 per cent (50/20 * 100). However, it should not be construed as 50 per cent average return over five years.
Formula: CAGR = {[(M/I)^(1/N)] – 1} * 100
Type in: =(((70/20)^(1/5))-1)*100 and hit enter. M: maturity value; I: initial value; N: time in years. CAGR here is 28.47%.
Also used for: Calculating the annualised returns on a lumpsum investment in shares.
3. Internal Rate of Return I paid Rs 18,572 every year on a moneyback insurance policy bought 20 years back. Every fifth year, I received Rs 40,000 back and Rs 4.5 lakh on maturity. What was my rate of return?
The internal rate of return (IRR) has to be calculated here. It is the interest rate accrued on an investment that has outflows and inflows at the same regular periods.
In the excel page type Rs 18,572 as a negative figure (-18572), as it is an outflow, in the first cell. Paste the same figure till the twentieth cell. Then, as every fifth year has an inflow of Rs 40,000, type in Rs 21,428 (40,000-18,572) in every fifth cell. In the twentieth cell, type in –18572. In the twenty first cell, type in Rs 4,50,000, which is the maturity value of the policy.
Then click on the cell below it and type: = IRR(A1:A21) and hit enter.
5.28% will show in the cell. This is your internal rate of return.
Also used for: Calculating returns on insurance endowment policies.
A

-18572

-18572

-18572

-18572

21428

-18572

-18572

-18572

-18572

21428

-18572

-18572

-18572

-18572

21428

-18572

-18572

-18572

-18572

-18572

450000

5.28%

4. XIRR I bought 500 shares on 1 January 2007 at Rs 220, 100 shares on 10 January at Rs 185 and 50 shares at Rs 165 on 18 May 2008. On 21 June 2008, I sold off all the 650 shares at Rs 655. What is the return on my investment?
XIRR is used to determine the IRR when the outflows and inflows are at different periods. Calculation is similar to IRR’s. Transaction date is mentioned on the left of the transaction.
In an excel sheet type out the data from the top most cell as shown here. Outflows figures are in negative and inflows in positive. In the cell below with the figure 4,25,750, type out
=XIRR (B1:B4,A1:A4)*100
Hit enter. The cell will show 122.95%, the total return on investment.
Also used for: Calculating MF returns, especially SIP, or that for unit-linked insurance plans.
A

B

1-Jan-07

-110000

10-Jan-07

-18500

18-May-08

-8250

21-Jun-08

425750

122.95%

5. Post-Tax Return My father wants a bank FD at 10 per cent return for five years. He pays income tax. What will be the returns?
The post-tax return has to be calculated here. The idea is to know the final returns on a fully taxable income. Interest income from the bank is taxed as per your tax slab.
Formula: ROI – (ROI * TR)=Post-tax return
Type in: =10 – (10 * 30.9%) and hit enter. You will get 6.91%
ROI: rate of interest; TR: tax rate (depends on tax slab)
Also used for: Calculating post-tax returns of national savings certificates, post-office time deposits, and Senior Citizens’ Savings Scheme.
6. Pre-Tax Yield
My brother says that the investment in public provident fund (PPF), which gives 8 per cent, is the best. Isn’t 8 per cent a low rate of return?
An investment’s pre-tax yield tells us if its return is high or low. The return on PPF (8 per cent) is tax-free. Also, this has to compared with returns of a taxable income to estimate its worth. For someone paying a tax of 30.9 per cent, the pre-tax yield in PPF is 11.57 per cent. At present, there is no fixed, safe and assured-return option that has 11.57 per cent return and a post-tax return comparable to PPF’s 8 per cent.
Formula: Pre-tax yield = ROI / (100-TR)*100
Type in: =8/(100-30.9)*100 and hit enter. You will get 11.57%. ROI: rate of interest, TR: tax rate, (depends on tax slab)
Also used for: Calculating the yield on an Employees’ Provident Fund or any other tax-free instrument.
7. Inflation My family’s monthly expense is Rs 50,000. At an inflation rate of 5 per cent, how much will I need 20 years hence with the same expenses?
The required amount can be calculated using the standard future value formula. Inflation means that over a period of time, you need more money to fund the same expense.
Formula: Required amt.=Present amt. *(1+inflation) ^no. of years
Type in: =50000*(1+5% or .05)^20 and hit enter. You will get Rs 1,32,664 as the answer, which is the required amount.
Also used for: Calculating maturity value on an investment.
8. Purchasing Power My family’s monthly expense is Rs 50,000. At an inflation rate of 5 per cent, how much will be the purchasing value of that amount after 20 years?
Inflation increases the amount you need to spend to fetch the same article and in a way reduces the purchasing power of the rupee. Here, Rs 50,000 after 20 years at an inflation of 5 per cent will be able to buy goods worth Rs 18,844 only.
Formula: Reduced amt.= Present amt. / (1 + inflation) ^no. of yrs
Type in: =50000/(1+5%)^20 and hit enter. You will get Rs 18,844, which is the reduced amount.
9. Real Rate of Return My father wants to make a one-year bank FD at 9 per cent. On maturity, he says, the capital will be preserved and he would get assured return on it.
It is true that fixed deposit is safe and gives assured returns. However, after adjusting for inflation, the real rate of return can be negative.
Formula: Real rate of return=[(1+ROR)/(1+i)-1]*100
Type in: =((1+9%)/(1+11%)-1)*100 and hit enter. -1.8% is the real rate of return. ROR: Rate of return per annum; i: rate of inflation (11 per cent here).
10. Doubling, Tripling of Money I can get 12 per cent return on my equity investments. In how many years can I double or even triple my money?
Formula: No. of years to double = 72/expected return
Type in: =72/12 and hit enter. You will get 6 years. For tripling, type in: =114/12 and hit enter. You will get 9.5 years. For quadrupling, type in: =144/12 and hit enter to get 12 years.

10 Emerging Careers

2008-07-31T08:29:00.000-07:00

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.”

10 Tips To $ Stock

2008-07-31T08:20:00.000-07:00

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

Tax Policy: Simplify, Simplify

2008-07-28T08:56:00.001-07:00

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

The Three Cs For The Future

2008-07-28T08:52:00.001-07:00

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 Three Cs For The Future

2008-07-28T08:52:00.000-07:00

Infosys to provide solutions to the power sector

2008-07-23T06:46:00.001-07:00

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

Focus should now be on reforms: industry

2008-07-23T06:43:00.000-07:00

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.

'India becomes costlier for expats'

2008-07-23T06:31:00.001-07:00

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'

2008-07-23T06:31:00.000-07:00

No Child's play

2008-07-17T09:19:00.000-07:00

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.

Get Your Car The Best Cover At Lowest Prices

2008-07-17T09:16:00.001-07:00

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.

Get Your Car The Best Cover At Lowest Prices

2008-07-17T09:16:00.000-07:00

The Fixed Backup For Emergencies

2008-07-17T09:07:00.000-07:00

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

LOGO

2008-07-15T08:55:00.001-07:00

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LOGO

2008-07-15T08:55:00.000-07:00

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Fight Back Inflation

2008-07-15T08:24:00.000-07:00

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

A Profitable Way Out Of The Market

2008-07-15T08:20:00.000-07:00

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

Indians see jobs, economy improving

2008-07-15T08:17:00.001-07:00

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

2008-07-15T08:17:00.000-07:00

World Markets: Critical inflexion points round the corner

2008-07-14T19:54:00.000-07:00

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

TDS: Tedious provisions

2008-07-12T20:17:00.001-07:00

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.

Q&A: 20 Answers To Get The Return Right

2008-07-12T20:13:00.000-07:00

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

Cost and works accountancy and law are among the higher study options after Plus Two.

2008-07-11T19:31:00.000-07:00

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

Near-term outlook looks positive

2008-07-10T19:55:00.000-07:00

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.

Banks` first quarter profits to take a hit

2008-07-10T19:50:00.001-07:00

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` first quarter profits to take a hit

2008-07-10T19:50:00.000-07:00

Banks` first quarter profits to take a hit

2008-07-10T19:49:00.000-07:00

Cover From All Angles

2008-07-10T09:09:00.000-07:00

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

Tax Returns Made Easy

2008-07-10T09:03:00.000-07:00

A chore is always a bore. But this one’s not even simple. use olm’s step-by-step guide and the answers to frequently asked questions to make peace with the task of filing your tax return

It’s that time of the year again. You knew all along that it would come, whether you ignored or waited for it. The pages of the calendar have turned and you can hear colleagues waking up to it. And you know you can’t run away from it any more. We are talking about 31 July, the day we are reminded of our bondage, the price we have to pay for many of the good things in our life. This happens to be the last day for filing income tax returns for all salaried Indians, be they resident or non-resident. Of course, you must have done everything legally possible to maximise your freedom from this bondage called tax. But then, the law permits you only that much. The rest, as they say, is illegal. You might also have wondered about the word return being used for an outgo. Maybe it’s because governments always want citizens to see things from their point of view, perhaps for the larger good.
Filing of tax is compulsory for everyone whose gross total income—the income under the five heads (salary, business, capital gains, house property or other sources) before allowing for any deductions such as insurance premium—exceeds the basic exemption limit. For financial year 2007-08 (assessment year 2008-09), this limit was Rs 1.45 lakh for women below 65 years of age, Rs 1.95 for senior citizens (above age 65 years) and Rs 1.10 for any other individual. It is compulsory for every person exceeding these limits to file the return before the prescribed date, even if their employer has taken care of their tax liabilities by reducing their salaries by the necessary amounts before paying the rest to them. Paid this way, it is known as tax deducted at source or TDS
Filing of the form There are two income tax return forms, ITR-1 and ITR-2, for salaried individuals. Your sources of income (they will fall under one or more of the five sources mentioned earlier) will decide your form. You will have to submit the filled form to the tax authorities and get an acknowledgement from them. Use ITR-1 to file your tax return if your income is from salary, pension or interest. In case of any capital gains, income or loss from house property and income from any other source, you will have to use ITR-2. You can go to www.incometaxindia.gov.in/download_all.asp to download these forms.
You will find ITR-1 relatively simple to fill up. A prerequisite for the exercise is Form 16, the certificate that comes from the employer showing the TDS from the income chargeable under the head salary. ITR-1 is almost a replica of Form 16. All you have to do is pick the numbers from Form 16 and put them in the ITR form.
Apart from salary income, there is an important component of income that many taxpayers ignore while filing their returns. It is the interest income earned from the funds lying in savings accounts in banks. Disclosing that, however small it may be, is mandatory. You just have to add the total interest credited to your bank account in the last financial year. Scrutinise your income tax return to ensure that no taxable income is undisclosed. After you file your return, the tax authorities will hand you an acknowledgment. That’s it, you are through with the filing of returns.
You will need to fill up ITR-2 if you, as a salaried individual, have made any capital gains. This form is filled in the same way as ITR-1. In addition, you will have to fill in income, if any, from house property and other sources.
How to file The actual filing of return can be done either by using the traditional paper form or electronically, over the Internet. The second, known as e-filing, is fast catching up. The digital method is compulsory for companies, but optional for salaried individuals still. However, it may well become compulsory for individuals with a certain level of income in times to come. So, it may not be a bad idea to familiarise yourself with this process.
Before you start filing the return, check if you would be getting a refund from the IT Department or have to pay tax. In case of the latter, even before starting the filing process, you should first get hold of Form 280, fill it up and deposit it any bank along with the tax payable in cash or cheque. You can also pay tax through Internet banking. In both cases, you will get a receipt number which has to be quoted in the ITR form.
Doing it offline There are two options—you may either submit the ITR form at the nearest income tax office (ITO) after filling it up yourself, or you may get a chartered accountant (CA) or a tax return preparer to do it for you. Try to visit the ITO well before the last date for filing return as crowds increase as 31 July draws near. You may also take help from the public relations officer of the ITO to fill the form. No documents or investment proofs need to be attached with the form, but remember to bring photocopies or originals with you to the ITO. These will come in handy if you are asked to authenticate the maths.
The fee of a CA would depend on your income slab and the number of income sources. Typically, it would range from Rs 300 to Rs 2,000, depending on the complexities involved. One good thing about filing through a CA is that it would bring down the margin of error to nil. Also, depending on the acumen of the CA, which often gets reflected in the quality of his practice, he would suggest some tax saving ways to you for the future.
Doing it online E-filing is done through sites authorised by the IT Department to file taxes on your behalf. To e-file, you will have to input the details of Form 16 in the software of the website, which would automatically generate an electronic return in XML format. This format helps in sharing of structured data across different information systems. A PDF file of the relevant ITR form is also created along with the XML format. You can download this ITR form, submit it at the ITO and get an acknowledgement.
Save the XML file to your desktop and then upload it on incometaxindiaefiling.gov.in—the IT Department site. Some sites also have provision for online payment of tax. Use of a digital signature (DS) will render the e-filing process complete without involving paperwork and visits to the ITO. In case DS is used, the acknowledgement will be emailed to you. If you upload the file on the tax department’s site without the DS, the acknowledgement, called ITR-V, emailed to you will have to be submitted at an ITO within 15 days of downloading it. A DS can be acquired from any of the agencies authorised by the government for the job, including the private and government websites meant for filing tax returns.
E-filing is not just convenient and saves time, it can also be done from anywhere. What is especially important is that the online method reduces or even eliminates the interface between the tax assessee and tax officials.
Online sites Among the major sites offering e-filing facilities are Taxspanner, Taxsmile and Taxshax. You can either take printouts of the relevant ITRs from these three sites and physically submit them or upload your XML file on the IT Department’s site. Taxspanner uploads the taxpayer’s file directly and emails ITR-V to him. With Taxsmile, you can submit the forms at any of its offices spread over the country. They will then forward it to the ITO.
All the three sites are secure and easy to navigate. The major difference among them is on two counts—the number of income sources covered and the process. Get clarity on the cost and features offered. The minimum cost package would normally be only for salary income. The advanced version might be required if you have income from other sources. The tax sites also differ in the way they ask for information and allow you to input figures. Taxshax gets most of the figures filled up in a single page. Taxspanner has a step-by-step guide and takes one piece of information on one page. Taxsmile gives both these options.
Use of DS raises the cost of e-filing. The amount of this increase varies across tax sites. A DS can be obtained from Taxsmile for Rs 500. Apart from this, you will have to pay for the basic package. Your DS comes with a validity period, after which it has to be renewed. A DS from Taxspanner, for example, is valid for two years. This site offers a deal in which you can file returns for three years at a cost of Rs 250 a year. To get your DS from a tax site, download the relevant form from it, attach the required documents, such as your identity and address proofs, and courier them to the address concerned. The entire process of acquiring a DS may take around 15 days.
A tax return can also be filed from the government site—incometaxindiaefiling.gov.in/portal/index.jsp—meant for it. Your PAN will work as the username for registering at this site.
Should you go online? Internet accessibility is growing, but it is still out of reach for many of the 40 million taxpayers. For those who have access to it and want to save time, the digital signature way looks ideal—you will be able to file the return in a few minutes from the comfort of your home or office. E-filing without the DS is almost the same as filing returns offline.
Tax laws can often seem like a cross between a Rubik’s cube and Mutthiah Muralitharan’s spin bowling. The three private tax sites get around this by making themselves friendly to taxpayers and not making filing of return dependent on an intricate understanding of the workings of tax laws. They empower with information and knowledge while taking the taxpayer step-by step through the entire process of tax filing. The details of the return filed get saved in the database of these sites and can be accessed anytime in the future.
If you have any specific doubts concerning the filing process, email the tax site to clear them. Getting clarity is important as some sites do not include things like income from business or profession, losses of earlier years brought forward or clubbed income. If tax is due, check if you can pay it through the site.
Stick to the deadline Whether you are going offline or online, make sure your are on the right side of 31 July. If tax is due and return is not filed till 31 March of the following year, a penalty of Rs 5,000 is levied. Penalty may also have to be paid in the form of interest. Check out the answers on the next few pages to some frequently asked questions (FAQs) to get on top of tax returns. And then go ahead and file with a smile

Reverse mortgage in respect of joint family property

2008-07-09T08:14:00.000-07:00

In The Hindu dated January 28, you have justified State Bank of India’s refusal to accept joint family property for purpose of reverse mortgage. Since a karta or for that matter any member can even make a Will of his share in the property, there is no risk in accepting joint family property, if the loan on reverse mortgage is limited to mortgagor’s share in the property.
It is true that a person can make a Will for his share of the joint family property so that such share can be mortgaged by any member.
But one is unlikely to find a lender against such security in view of the varying interest for a member of the family, including the karta in the joint family property, in view of such share being reduced by any possible addition or reduction in the family during his lifetime.
Further, no lender may be expected to finance a borrower, where he has some interest in a joint or co-owned property, unless all the other persons interested in the property become co-mortgagors for the reason, it is not easy to market such partial interest.
Reverse mortgage itself is possible only for individuals.
One may not expect joint family property being accepted in such cases. If the other members of the family surrender their interest in a family partition, in favour of the person in need of reverse mortgage loan, it may be possible to persuade the bank to accept the same in a reverse mortgage and not otherwise.

Life of apartment buildings

2008-07-08T20:06:00.000-07:00

Adverse conditions such as ground contamination, high or fluctuating temperatures and relative humidity can reduce the life span of a स्त्रुक्टुरे।

Generally, reinforced concrete apartment buildings in the country last only for 30 to 50 years compared to the expectation of 70 to 80 years. The short life span is an economic burden for not only owners and residents but to the nation as a whole.
A recent Japanese report urged the housing industry in that country to adopt, as a goal, an average life span of 200 years.
This will enable reducing the wastes during demolition and enhance energy conservation, harmony with the environment and resistance to disasters such as earthquakes and cyclones and help in regular and easy maintenance.
The major factor influencing long-term service life of concrete structures is the nature of exposure conditions and environment to which concrete is subjected, especially soon after casting and subsequent early stages.
It is to be noted that while the manufacture of concrete is under the control of the engineer, the early age environment is a factor beyond human control and not accounted for either during construction or during design.
Adverse conditions such as ground contamination, high temperature, humidity, fluctuating temperature and relative humidity can cause damage and reduce the life span of the structure.Reinforcement
The early age environment is the most critical factor which influences concrete degradation, affecting long-term serviceability of RCC apartment structures. Severe exposure conditions such as those present in coastal areas are known to indicate deterioration, cracking and reinforcement corrosion.
While reinforcing steel is protected by design by ensuring adequate cover, there are several electrical, plumbing and other steel items which are embedded in the cover region of concrete as inserts, not knowing the damage they can cause for long-term serviceability.
It is the interaction between concrete, steel insert and environment that dictates the material performance and hence the life of the structure itself.
The exposure conditions in the coastal areas are recognised as some of the most aggressive climatic conditions which pose severe challenges to the design and construction engineer.
In this type of exposure, the quality and extent of water curing, and the subsequent interaction between concrete and environment can often control and dictate concrete material performance resulting in premature deterioration and low durable service life of concrete structures.Deterioration
The material composition and shape must be sustainable to reduce environmental pollution and conserve material and energy resources. However, the sad fact is that in spite of the excellent strength and durability properties, concrete materials deteriorate at an unacceptable rate when they are exposed to real environment at locations where we have ignored the acetylic concepts of corrosion in inserts and fixtures which normally happens in the corner region of concrete.
Recent studies have shown that environmental effect reduces the strength and stiffness of structure at different rates.
The performance is related to deformation/deterioration aspects not necessarily under the control of the designer but largely in the hands of the user.
Apartment housing nowadays insists that on both shared and private spaces the RCC frame is the skeleton which bears the load and accounts for service life and stability of structure.
To extend service life, all materials which are used as inserts or allotments on the RCC frames should be barrage (non-corrosive). Though such materials may be costly at installation, the life cost will be less. Life extended
The use of stainless steel inserts for the pipes, electrical and plumbing system reduces the need for repair and extends the life of not only services but the entire structure.
Mild steel holding fast-frame clamps embedded in concrete tend to corrode and disrupt the whole RCC frame itself. When the gab corrode, products of corrosion will occupy 5-6 times the volume of the original steel.
The excess volume creates cracks in concrete. Stainless steel holdfast frame clamps serve a life time and save both doors and windows and the RCC frame in which they are embedded or attached. Stainless steel does not corrode and is compatible with the chemicals in concrete.Reduction in CO2 emissions
Longer-lasting housing will lead to reduction in CO2 emissions while dismantling and rebuilding structures call for the production and transportation of materials which causes carbon dioxide emissions.
Achievement of durability as a prime aim rather than strength-based design and construction approaches will ensure quality service-life performance of RCC apartment structures

Meeting SP’s demand on EOU, windfall tax may not be easy

2008-07-08T20:01:00.000-07:00

Meeting the demand of the Samajwadi Party (SP), whose support is crucial for the Congress-led Government, on withdrawing the export oriented unit (EOU) status extended to private sector refinery like Reliance Industries Ltd (RIL) and levy of ‘windfall tax’ on private refiners may not be easy for the Centre.
Under the current laws, the EOU status cannot be revoked unilaterally. Industry experts told Business Line that “an EOU status conferred on a unit by the Government cannot be withdrawn so long as all conditions associated with the approval of such a status continued to be met by the unit.”
Sources familiar with EOU policies and regulations said, “For grant of EOU status, a letter of permit is issued by the unit approval committee (UAC) along with the conditions that need to be met by the unit. The UAC comprises the development commissioner concerned besides the representatives of Finance and Commerce Ministries and also that of the State Government concerned. The EOU status is usually granted for a period of five years. After that period the performance of the unit concerned is reviewed and then a view is taken by the UAC on extending the status to the unit.” Therefore, withdrawal of such a status would require nod of all the authorities concerned.
As regards levying a windfall tax on private refiners and oil producers, the Finance Ministry officials said that “there was no proposal before us as on date to introduce tax on any ‘windfall profits’ of refineries arising from the recent spurt in international oil prices.”
“The Indian income-tax law in the present form does not even recognise windfall profits. All profits are brought to tax unless specifically exempted by any provision of income-tax law,” official sources said.
Meanwhile, the Petroleum Minister, Mr Murli Deora, said that both the issues were out of his jurisdiction. The issue of imposing windfall tax has also been raised by the Left parties.
Meanwhile, oil industry sources said, the production sharing contracts (PSCs) regime already provides ‘windfall taxes’ to the Government as the gains from high oil prices is also shared with them in the form of profit petroleum. They point out that around the world, Governments have only thought of windfall taxes in non-PSC regimes where there are flat royalties and taxes that do not enable the Governments to share in higher oil prices.
“India seriously needs investments in oil and gas and proposals like windfall taxes would further deter investment. For instance, the latest NELP round did not attract many major private sector investment,” industry sources said. Besides, any windfall tax introduced now would largely impact public sector producers who are already suffering heavy subsidy burdens. The public sector oil companies like ONGC produce bulk of India’s current crude output.
In reply to a question that the suggested windfall tax was aimed at refiners and not producers, industry sources said, windfall tax is a punitive measure that is “very much short term and has been proved in the past to be ineffective"

When demand exceeds supply

2008-07-07T20:12:00.000-07:00

CO{-2} footprint was the fastest growing कॉम्पोनेन्ट
The Ecological Footprint measures humanity’s demand on the biosphere in terms of the area of biologically productive land and sea required to provide the resources we use and to absorb our waste.
In 2003 the global Ecological Footprint was 14.1 billion global hectares, or 2.2 global hectares per person (a global hectare is a hectare with world-average ability to produce resources and absorb wastes).
The total supply of productive area, or biocapacity, in 2003 was 11.2 billion global hectares, or 1.8 global hectares per person.
The footprint of a country includes all the cropland, grazing land, forest and fishing grounds required to produce the food, fibre and timber it consumes, to absorb the wastes emitted in generating the energy it uses, and to provide space for its infrastructure.
People consume resources and ecological services from all over the world, so their footprint is the sum of these areas, wherever they may be on the planet.
Global Footprint Network, U.S., in Ecological Footprint, an annexure to the Living Planet Index (published by WWF and the Zoological Society of London in April 2008) provided to this correspondent by Jonathan Loh, the editor, says that humanity’s footprint first grew larger than global biocapacity in the 1980s; this overshoot has been increasing every year since, with demand exceeding supply by about 25 per cent in 2003. This means that it took approximately a year and three months for the Earth to produce the ecological resources we used in that year.
Separating the Ecological Footprint into its individual components demonstrates how each one contributes to humanity’s overall demand on the planet.
This makes it possible to compare absolute levels of demand over time. The carbon dioxide (CO{-2}) footprint, from the use of fossil fuels, was the fastest-growing component, increasing more than nine-fold between 1961 and 2003.
How is it possible for an economy to continue operating in overshoot? Over time, the Earth builds up ecological assets, like forests and fisheries.
These accumulated stocks can, for a limited period, be harvested faster than they regenerate. CO{-2} can also be emitted into the atmosphere faster than it is removed, accumulating over time.
For 30 years now we have been in overshoot mode. If we remain in overshoot much longer we will deplete the planet’s biological resources and interfere with its long-term ability to renew them.
Demand exceeded supply by 25 per cent in 2003
CO{-2} footprint was the fastest growing component

Great days ahead for pharma graduates

2008-07-07T20:09:00.000-07:00

Pharma industry has certainly earned a reputation for India. However, the career path of a pharma degree holder was not rising that steeply especially in respect of opportunities in foreign countries, though the sunrise industry had indeed provided placements for the pharma graduates within the country.
But now, thanks to the initiative shown by the Pharmacy Council of India (PCI) and the Central government, the future promises to be rosy for pharma graduates.Employment
If everything goes as per schedule, a six-year Pharm. D (Post Baccalaureate course) will be introduced in the country bringing pharmacy education on par with any other foreign country, thereby increasing the factor of employability in other countries.
Hitherto, pharma graduates of India could not get lucrative jobs abroad for the simple reason that Pharma education in India was not on par with international standards.
Essentially, pharma graduates from India were unfit to take up jobs as clinical pharmacists, where a pharmacist would educate the patient about the prescribed drugs.Job criteria
While a physician’s job is just to diagnose and prescribe the medicine, the pharmacist has to advise the patient on correct drugs, correct doses, correct formulations, and correct times to take the medicine.
However, such a practice has not existed in India with pharma education laying emphasis on the industry side.
There was more focus on the pharmaceutical industry while totally ignoring the clinical side of pharma education. And it was on the clinical side that lucrative jobs were on the offer in foreign countries.
Invariably, a graduate of pharmacy in India was not even being considered for any job on the clinical side abroad.
After much delay, the Government of India has now agreed to the proposals put up by the PCI for introducing a six-year Pharm. D course in India. Notification
A gazette notification to this effect was also issued in May 2008 listing out the regulations.
Having the Gazette notification, the PCI is now working out the modalities for starting the course.
In all probability, the course could start this September or if things get delayed, it would be thrown open for students who completed their intermediate education from next academic year. As per the gazette notification, there would be 30 seats per college, which is approved by the PCI under section 12.
The stipulation is that every college permitted to offer this course must have a hospital with 300 beds. If not, the college should have a memorandum of understanding with such a hospital.
The student of Pharm. D would be visiting the hospitals in second, third and fourth years and during the fifth year, there would be compulsory hospital ward visits and the final sixth year would be that of residency like that of a house surgeon for medicine.
The subjects would include clinical pharmacy, clinical toxicology, clinical pharmaco kinetics, therapeutic drug monitoring, pharmaco epidemology, bio-pharmaceutics and others. The eligibility will be intermediate with maths, physics and chemistry or biology, physics and chemistry. Post-Baccalaureate
For those who have already completed their B.Pharm course can also pursue a three-year Pharm. D (Post Baccalaureate) course. There would be 10 seats each in a college, which are approved under section 12 by the PCI.
According to M. Venkata Reddy, Pharmacy Council of India member, the new course would throw open many opportunities for Indian students as the core curriculum is as per international standards.
Those who completed the Pharm. D course can seek employment abroad in community pharmacy after clearing NAPLEX (National Association of Pharmacists License Exam) or FPGEE (Foreign Pharmacy Graduate Equivalent Exam

Hefty salary hikes turn a thing of the past

2008-07-07T20:04:00.001-07:00

Ask and it shall be yours, was the motto in the recruitment industry last year. The days of mind-boggling salary hikes for lateral moves seems to be over, say recruiters across the country.
Increment in salaries of people who switched jobs in 2006-07 rose 80-100 per cent in IT/ITES, retail and real estate sectors. This figure has now taken a beating with a few companies capping hikes at 15-20 per cent.
“Some IT companies have even gone down to as low as 12-18 per cent for mid-to-senior management positions,” says Ms Nirupama, V.G, Managing Director, Ad Astra Consultants, a Bangalore-based recruitment firm.
A leading retail firm which lured potential employees with 100-120 per cent hikes to their current salaries is now offering not more than 30-40 per cent even for top level positions, says a Bangalore-based recruiter. Hiring slowdown
Mr Gautam Sinha, CEO, TVA Infotech, rationalises the sudden downturn and attributes it to companies going slow in hiring. “Earlier IT companies operated on a tight schedule and were ready to pay any price for talent. Now they can afford to wait for the right candidate rather than give in to the whims and fancies of a demanding candidate. This is also because there is a drastic cut in the hiring numbers in the industry.”
There is a general change in expectations of both the companies and the candidates, agrees Mr K Lakshmikanth, Managing Director, Headhunters India. In his opinion, premium on salary for laterals has fallen from 25-30 per cent last year to about 10 per cent this year. Wary of switches
Employees too are wary of job switches this year, and therefore hiring predictability has increased. “While about 30-40 per cent of the candidates who took up offers last year did not join, this year the number of no-shows has come down to 10 per cent,” says Ms Nirupama.
Salary hikes offered are also directly linked to the criticality of the talent and the size of the talent pool in the area. Mr E Balaji, Chief Operating Officer, Ma Foi says even salaries that were upwards of 30 per cent last year have fallen to 15 per cent this year.
CXO expectations too have been tempered and global search firms like EMA Partners now advise executives to look for long-term gains rather than short-term compensation benefits. “Salary is not the absolute decision maker today, top leadership is now looking at autonomy and contribution to business,” according to Mr K. Sudarshan, Managing Partner at EMA.

FIIs shifting to SGX Nifty

2008-07-07T19:59:00.000-07:00

The market melt-down in the June has witnessed traders going into an over-drive to make money on short positions. However, it is not the domestic traders alone who are keen to benefit from the declining prices, the trading volumes on the Nifty futures traded on the Singapore Stock Exchange have recorded their highest monthly turnover in the month of June.
There has been plenty of negative news flow in June with domestic inflation climbing above 11 per cent, Reserve Bank of India hiking the credit reserve ratio and the reverse repo rate and the international crude prices crossing above $140. Resurfacing of the problems stalking the financial stocks in the US and rate hikes by other Central Bankers only added fodder to the fuel.
The trading fraternity has been making the most of these ill-tidings. The futures and options side of the National Stock Exchange that had witnessed lacklustre turnover after October 2007, witnessed a 20 per cent increase in monthly turnover in the month of June.
It may be recalled that in October 2007, the Securities and Exchanges Board of India (SEBI) had banned issue of participatory notes with derivatives as underlying. This had closed the doors for many of the external investors who wished to trade in the Indian derivatives market. The Nifty future traded on the Singapore Stock Exchange (SGX) has provided the route for such external investors to take a call on the Indian stock price movement.

बी SBI

2008-07-07T08:09:00.000-07:00

इन्फोस्य्स- buy

2008-07-06T20:08:00.000-07:00

Technology sector earnings could well show a positive impact of the rupee depreciation by about 7 per cent, during the first quarter of financial year 2008-2009, and also benefit from volume growth being on projected lines.
For the quarter ending June 2008, companies could give a clearer picture of business progress, particularly in the backdrop of reports about a general economic slowdown.
According to a research report of brokerage and analyst firm Sharekhan, “the top line of frontline technology stocks is expected to grow in the range of 6.5 per cent - 11.1 per cent sequentially in rupee terms for the first quarter of financial year 2009. (This) growth is primarily driven by volume growth of 1-2 per cent, boosted by 7 per cent depreciation in the rupee against the dollar during the quarter."
However, in dollar terms, the sequential growth may remain muted for the quarter.
During the first quarter ended June 30, 2008, tech stocks outperformed the benchmark indices driven by factors such as depreciating rupee and extension of tax sops under Section 10A/B for one more year.
Given this backdrop, it is likely that tech firms such as Infosys may revise revenue guidance upward. This may be the case with Satyam Computer, which had earlier come up with a conservative outlook for the year.
TCS, in its annual report for 2007-2008, has referred to trimming of costs by enterprises to remain competitive, which has resulted in increased outsourcing.

How Inflation Hurts

2008-07-04T08:12:00.000-07:00

Inflation on Friday crossed its own 13-year high at 11.42 per cent and experts believe it will continue to rise in the coming weeks. Markets plunged due to negative global cues and high domestic inflation. But why are the markets so much worried about high inflation. What are the repressions that the country and the different economic agents in the economy can face due to high inflation? We take you through some of the areas where high inflation can do some severe damage and this is why markets are so worried about inflation.

How it hurts different economic agents in the economy?
Individuals (consumer/investor): 10 per cent inflation for a consumer means that he pays Rs 110 for the same quantity of goods for which he paid Rs 100 last year. This means a direct cut in savings. Inflation also eats into returns from fixed investments. For example, if you are invested in an instrument where the yield is 8.5 per cent, at 11.4 per cent inflation the actual return is (-) 2.92 per cent. High inflation also results in high interest rates, which increases the interest payments on loans. As a result individuals are not able to save at earlier levels.

The producer
Higher inflation leads to lower demand for goods and services as the purchasing power of consumers go down. It also adds to the cost of production as input cost go up. Producers, at times, due to higher competition are not able increase prices, which lead to lower profits and lower return on investments. Higher interest cost also affects producers as their cost of borrowing goes up resulting in higher interest payments, which leads to higher production cost and lower profits.

The state
The government is also affected by higher inflation, which eventually affects producers and consumers. Lower consumption results in lower demand and lower sales, which reduces profits for producers. Lower profitability results in lower tax collection for the government. Low tax collection leads to higher deficit. Higher deficits means either more borrowing from the markets or printing currency. Printing currency will add to the inflation, as there will be more money in the hands of consumers with the same availability of goods. Higher borrowing will increase the interest burden on the exchequer and will also suck money from the system, which otherwise would have been used by private sector for investment purposes. Higher level of borrowing also results in higher interest rates as the amount for lending purposes get reduced by government borrowing
Higher inflation is a total loss-loss situation for the economy.

Is there any other implication?
Implications of high inflation are much deeper than what it appears.
Inflation means lower consumption demand. Inflation and interest rates go together which means lower investment demand. A low investment result is lower level of employment and low growth (GDP). Lower employment means low-income, low income will lead to low consumption, and lower consumption means low production. This cycle will keep on repeating it self and every time the growth will decelerate which will negatively affect employment and income and the economy will settle for lower growth every time.

Inflation also has effects on external economy and exchange rates.
Exports suffer because of high inflation. First due to state intervention as governments do not allow goods to flow out when there is high demand and prices are rising in domestic economy. Secondly, due to high inflation, the cost of production goes up which makes goods uncompetitive in the world markets. On the other hand the imports goes up in order to check domestic prices leading to greater trade deficit, which results in deprecation of currency.
Deprecation of currency is favorable for exports but state controls and high inflation at times do not allow countries to takes advantage of weak currency. Further deprecation of currency hurts FII investments as the currency risk eats into the returns. Higher fiscal and trade deficit also discourages direct investments as higher deficits leads to greater financial instability.

Creating wealth over time

2008-07-03T19:57:00.000-07:00

Small amounts of money invested in mutual funds lead to large amount of wealth in the long run. Here's हाउ
Like all the good things in life, even wealth creation takes its own sweet time. The sooner you begin, a bigger corpus can be created. Unfortunately, most want to create it in a very short time or start too late. And that is the perfect recipe for disaster.
An early start, regular and disciplined investment pattern has an important role to play in wealth creation. And starting early is very important because gaining a head start also means that you'll retire with a larger corpus than someone who starts later in life. That's because the power of compounding works best over long tenures and therefore rewards the early bird.
Also, trying to play the catch up game in the later years puts too much stress on your finances. Let us take an example. If you start at 39, and put Rs 10,000 per month in an investment that yields 12 per cent a year, you will have Rs 1.12 crore by the age of 60 (over 21 years).
If you were to start a year later at 40, and invest the same Rs 10,000 per month at the same rate of return at 12 per cent, you will have Rs 98.9 lakh by the age of 60. Just a loss of a year has reduced your corpus by a whopping 13.8 lakh (over ten times the money you invested in a single year that is, Rs 10,000*12months = Rs 1.2 lakh). And if the rate of return were 15 per cent, then the difference would be as much as Rs 25 lakh. A clear example that time creates money.
And it is not just that. A late starter needs to invest more each month to create the same kind of corpus. For instance, if you are a modest income earner and start at age 25 with an investment of Rs 5,000 a month at 8 per cent compound interest you will accumulate Rs 1 crore by the age of 60 (considering that investment amounts and returns remain the same).
But if you start investing ten years later at 35, you will need to invest 120 per cent more at Rs 11,000 per month for the next 25 years to reach the same target.
If we take the example of the public provident fund (PPF), if you save Rs 5,000 every month in it, you will amass over Rs 1 crore in 35 years (which currently returns 8 per cent compounded annually).
Of this, your savings component will just be Rs 21 lakh, the rest - nearly Rs 80 lakh, accrue to you as interest on your investments, which is reinvested in the same instrument, at the same interest. Clearly, the power of compounding at work.
No wonder, it is always advisable that you invest this PPF money at the very start of the month/year instead of waiting till year-end to take advantage of the Section 80C relief.
The difference of putting in Rs 70,000 (the maximum amount that can be invested for tax benefits) at the start of the year and at the end of the year will be around Rs 1.4 lakh over a 15-year period. Even depositing Rs 5,000 per month will result in much higher returns than depositing Rs 70,000 at the end of the year.
That brings us to compounding. If you park your money in an investment with a given return, and then immediately reinvest those earnings as you receive them, your investment will grow exponentially over time.
With simple interest, you earn interest only on the principal (that is, the amount you initially invested); with compounding, you earn interest on the principal and additionally earn interest on the interest. Compounding makes sure that your money works harder, and is perhaps the most powerful tool that an average investor can use to plan many of life's financial goals.
That is why financial advisors prefer that financial goals should be linked with investment plans that provide compounding returns. All fixed income life insurance plans such as endowment plans, money back, whole life plans and post office schemes operate on the principle of simple interest and not compounding.
However PPF and EPF in the debt space work on the principles of compounding and will definitely yield you much higher returns (for most tax slabs) than any other debt investment.

Back to old concerns

2008-07-03T19:52:00.000-07:00

Over the last few years, the economy has been awash in foreign exchange, completely shifting the focus of the debate on the balance of payments (BoP), from managing scarcity to dealing with abundance. But two data releases earlier this week point to a marked shift in the BoP situation. First, the aggregate BoP numbers for the fourth quarter of 2007-08 (January-March) show that the current account deficit for the whole year came in at $17.4 billion, significantly higher than the previous year's deficit of $9.8 billion. Of course, even this higher number was offset many times over by net capital inflows, of close to $110 billion. This resulted in an addition to reserves of about $92 billion, almost three times the amount added in the previous year. So the Reserve Bank of India has toted up in excess of $300 billion in reserves, providing a comfortable cushion from any conceivable change in the country's fortunes.

If this trend had persisted, even the significant widening of the current account deficit should not have been a source of concern and dealing with the reserve accumulation would have remained the policy challenge. That is no longer the case. For, the second change of the past few months is that the capital account scenario looks very different from what it did last year. The sharp decline in the stock market in the past few weeks is reflective of large exits by foreign investors. This has reversed the direction of the rupee's movement, which until recently was headed nowhere but up. Recent developments have pushed it firmly lower, taking it to lower than where it was when the great appreciation began in March 2007. Notwithstanding the other consequences of this reversal, it should make exporters happy. Unfortunately for them, though, the May numbers for exports indicate that sluggish global demand has more than offset the competitive benefits of a depreciating currency. Exports grew by a mere 13 per cent in dollar terms, considerably below the 35 per cent rate of growth in April. Imports, on the other hand, grew by 27 per cent, to which oil was a significant contributor with imports growing by over 50 per cent from May 2007. As a result, the trade deficit came in at $10.8 billion, taking the two-month deficit to $20.6 billion, nearly 50 per cent higher than the $13.9 billion in April-May 2007.
With the trade deficit widening on account of sluggish exports and buoyant imports, and capital exiting the country, the BoP has begun to tilt in the opposite direction. Exports of services may continue to provide a cushion, but they too are vulnerable to a US and global slowdown. Remittances are another big contributor and should remain healthy, particularly from West Asia, but it does appear that the global situation is beginning to tell on India's BoP. Of course, the $300 billion reserves do provide considerable cushion, giving the government enough time to deal with the macro-economic situation in its entirety. The longer this response is delayed, the greater the likelihood of the BoP adding yet another vulnerability to an already complex situation.

ICICI Bank`s gross retail NPAs up 78%

2008-07-03T19:48:00.000-07:00

ICICI Bank, India's second largest commercial bank, has reported a 78 per cent increase in the level of its gross non-performing assets (NPAs) in its retail loan portfolio.

At the end of March 2008, the bank's gross NPA on home, auto, personal, credit cards, dealer financing and loans to developers touched Rs 5,552 crore as compared with Rs 3,114 crore at the end of 2006-07.
In its annual report, the bank attributed the increase to seasoning of loans, change in portfolio mix in favour of unsecured loans, such as personal loans and credit cards, and an increase in bad debts in rural markets.
Gross NPAs are bad debts for which banks do not make a provision. In case of public sector banks, the gross NPAs rose by 5 per cent to Rs 37,854.15 in the last financial year.
ICICI Bank, which was the most aggressive player in the retail banking arena, has decided to go slow on portfolio growth during the current financial year and will lower the growth rate estimates to 10-15 per cent.
The moderation started last year itself and the share of retail credit in the bank's overall portfolio fell to 58.6 per cent in 2007-08 as against 65.2 per cent in the previous year.
Home loans constituted nearly half the retail loan portfolio of the private bank, while the share of personal loans and credit cards was estimated at 10.7 per cent and 7.2 cent, respectively.
Most banks have been hit by higher delinquency levels in the retail portfolio. Citibank and State Bank of India have also seen higher defaults on their credit card portfolio. Citi Financial, a Citi India arm, is also facing up to bad debt pressure.
ICICI Bank said that at the end of 2007-08, retail loans constituted 71.8 per cent of the bank's overall gross NPAs at Rs 7,600 crore, as compared with Rs 4,200 crore in 2006-07.
The bank's net NPA rose 76 per cent to Rs 3,564 crore. As a proportion of advances, net NPAs at the end of March 2007 were estimated at 1.49 per cent as against 0.98 per cent during the previous financial year.
ICICI Bank said it had sold some of its stressed assets, including retail NPAs, to asset reconstruction companies. Aggregate investments by ICICI Bank in security receipts issued by the Asset Reconstruction Company (Arcil) were estimated at Rs 2,853 crore at the end of March 31 this year.
The net NPA of SBI rose by 41 per cent to Rs 7,424 crore. At the end of the last financial year, the net NPA to net advances ratio for SBI and the SBI group stood at 1.78 per cent and 1.43 per cent, respectively.

ICICI Bank`s gross retail NPAs up 78%

2008-07-03T19:46:00.000-07:00

Global food crisis to hit finances of India, Pak

2008-07-02T19:55:00.000-07:00

The soaring global food prices will adversely impact government finances in countries like India and Pakistan and may result in bloating of their deficits by over five per cent of the GDP, according to a Standard & Poors (S&P) report.

India, Pakistan and Egypt would be hardest hit by the rise in food costs, with a general government deficits of 5.9 per cent, 6.5 per cent, and 6.9 per cent of GDP respectively, projected for 2008, says a S&P report.
India, Pakistan and Sri Lanka, having revenue at less than 20 per cent of their GDP, have put these economies in precarious position of large deficits and narrow underlying revenue bases, the report added.
It said, even developed countries are vulnerable to food-price inflation and susceptible to increased political instability if there is a mismatch between higher revenues from food exports or domestic supply.
"Although global food price rise in itself is unlikely to be direct cause of adverse rating action, for many sovereigns it will significantly increase overall susceptibility to negative rating movements by exacerbating already weak external and fiscal positions, or through potential for political and social unrest," S&P Sovereigns and International Public Finance Ratings group's Agost Benard said.
The other main pressure points would be on fiscal balances, which would likely be from both the expenditure and the revenue side, it said.
Subsidies for staple foods are common in many nations in the lower and middle-income ranges, and in many cases governments derive significant revenues from sales taxes and import tariffs on food.

Career Future-Proofing

2008-07-02T09:02:00.001-07:00

Don’t just cope with job uncertainty, respond proactively to it to stay in कंट्रोल
Even as corporate India rolls on, the flip side to an economy aligning itself to the world economy is also baring its teeth. M&A is the order of the day, followed by sweeping restructuring and downsizing. Rationalisation of jobs is a fact of life now. If you are in middle management and above, uncertainty about your own job is here to stay.
It is NOT good enough to learn to cope with uncertainty. You need to proactively respond to it and future-proof your career so that you stay in control.
Lifetime employment in the same company is passe. The new rule is ‘lifetime employability’. This is about constantly upgrading your skills, building specialisation and, yet, being broad-based (we will address this contradiction later), developing a network of well-wishers and supporters (both inside and outside the company), and being visible to the extent you can. This will ensure that no matter what the tremors in the company and industry are, you are insulated and employable. Treat yourself as a ‘product’ and build brand value around it.
The first building block of future-proofing is specialisation. Build a track record of success in a specific sub-function in the early years. Build and nurture a reputation as an expert. It could be in audit, on the shop floor or in recruitment. This will be your primary skill and stand you in good stead within your company, elsewhere, or as a stand-alone consultant. Once you garner this expertise, broaden your skill set. If you are a recruitment specialist, expand your skill base by toting up experience in industrial relations or employee development. If the demand for recruitment specialists falls, you will have sub-areas within your own function to fall back on. This way, you will become a specific domain expert and also build a larger repertoire of functional skills.
Focus next on expertise that can be ported from one function to another, like leadership skills, managing and mentoring large teams, Six Sigma, M&A, start-up and scaling up. This suite of broad-based skills can be easily applied to any function that you could venture into.
Branch out to other functions only after you have built a track record in your own function. After 10-12 years, if the possibilities of professional growth seem dim, extend your reach into related functions. If you are in manufacturing, sourcing or design could be the next stop. The function independent skills help you settle down well till you pick up nuts and bolts of the new role.
When a job or project is done well, let the world outside your immediate team know about it subtly. If you are making a presentation, make sure that the invite list goes beyond your immediate functional team. Getting more people to know that you deliver consistently enhances your brand value and insurance. In good times, you have more people rooting for your movement upwards and when the chips are down, you have that extra support to see that the axe does not fall on your neck in the first round. The days of doing a good job and leaving the rest in the hands of boss (or God Almighty) are long over.
Build visibility outside your company. Every function has functional bodies of like-minded professionals. Participate actively in these forums. It helps you stay abreast of the latest developments and network within your fraternity. These forums are happy hunting grounds for talent (both to hunt and be hunted). More job openings get discussed here than in any search consultant’s office.
Corporate turbulence is going to be a way of life, which, in turn, will impact careers. The loser blames it on karma and destiny. The smarter and more pragmatic response is to be prepared for it and come on top of it no matter how choppy the waves are.; The author is a strategic HR consultant, an executive coach and co-founder of Track3 HR Solutions.

Crude oil may touch $175 a barrel by Diwali: Experts

2008-07-02T08:59:00.000-07:00

Skyrocketing crude oil prices are likely to continue the upward march and could reach $175 a barrel by Diwali unless there is significant decline in demand from growing economies, analysts say.
Crude oil prices have risen by about $40 since March. Currently on New York Mercantile Exchange, oil traded near record high levels around $142.
“Considering the current situation and pace of price rise, crude oil rates may go up to $175 per barrel in the global market. Prices may get fresh triggers, if Israel attacks Iran this year which would affect Mideast supplies,'' Religare Commodities Head (Commodity Business), Mr Jayant Manglik told PTI.
High volatility spurred by uncertain geo-political tensions, slumping US economy and spiralling demand across the world would continue to support the already high crude oil prices, he said.
“If you look at the technical chart, prices have moved upwardly in the last six months and we expect the bullish trend to continue further in the coming months. Prices may go beyond $175 a barrel and touch $200 per barrel,'' Mumbai-based Kotak Commoditie s Services Technical Analyst, Mr Dharmesh Bhatia said

नो पण रेकुइरेड now

2008-07-02T08:57:00.001-07:00

These investors don't need PAN!
Market regulator SEBI has exempted certain categories of investors, including officials from central and state governments and those appointed by the courts, from mandatory presentation of the permanent account number for transactions in the securities market.Last year, the Securities and Exchange Board of India (SEBI) had made it mandatory for all investors to have the PAN while transacting in the securities market.Subsequent to that, the market regulator had received representations from certain categories of investors requesting exemption from mandatory presentation of PAN.Officials appointed by courts, who will be exempted from presenting the PAN while transacting in the capital market, include official liquidator and court receiver.However, the market regulator in a statement said that this exemption would be subject to the intermediaries verifying the veracity of the claim of the specified organisations, by collecting sufficient documentary evidence in support of their claim for such an exemption.The statement added that the stock exchanges and depositories are advised to make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the same.They would also be required to bring the provisions of the SEBI guideline to the notice of the member brokers/ clearing members of the exchange and depository participants of the depositories.In this connection, Bombay Stock Exchange has included the SEBI circular on its website.

Sensex falls below 13,000-mark

2008-07-01T08:33:00.001-07:00

Benchmark indices Sensex and Nifty today breached their psychological 13K and 4K levels by losing nearly 500 points and more than 140 points respectively to close at their 16-month low levels on relentless selling pressure on heavyweight stocks.The 30-share Sensex on the Bombay Stock Exchange lost 499.92 points at 12,961.68, a level last seen on February 28, last year. The index touched the day's low of 12,904.09 and a high of 13,613.82 points, reflecting volatility in trade.Similarly, the wider Nifty on the National Stock Exchange dropped 143.80 points at 3,896.75. The index, which had broke 4,000 level at early trade, cracked another resistance level of 3,900 on panic selling.In last three straight sessions, the Sensex had lost over 1,460 points as investors resorted to hectic selling on worries of political uncertainty, inflation and high oil prices."Stock markets are have been badly hit the ongoing tussle between the ruling party and its key allies over the nuclear deal amid crude oil surging to records," an NSE broker Rajiv Malik. Besides, fears of inflation rising further also haunt the bourses, he added.Marketmen said hike in interest rate by leading bankers has pulled down bank stocks and scrips of other interest sensitive sectors like realty, auto and consumer durables."Weakening trend received another blow after European and Asian stock markets remained weak," said a BSE broker Ratnesh Gupta.

Sensex falls below 13,000-mark

2008-07-01T08:33:00.000-07:00

Save tax through investments

2008-06-30T20:06:00.002-07:00

As an incentive for making savings and enhancing the public investment, the IT Act provides various options of investment to save taxes.
Under section 80C, individuals and HUF are allowed a deduction up to Rs. 100,000 on certain specified amounts paid or deposited towards –
·Subscription to the units of approved mutual funds
·Contribution to Provident Fund
·Life Insurance Premium
·Contribution to Approved Superannuation Plan
·Fixed deposit of minimum 5 years with scheduled banks, etc.
·Repayment of principal amount of Housing Loan.
·Subscription to any such security of the Central Government or any such deposit scheme as the Government may specify by notification in the Official Gazette
·Subscription to any National Saving Certificates (VII issue)
·Subscription to any such deposit scheme of:
(a)a public sector company which is engaged in providing long-term finance for construction or purchase of houses in India for residential purposes; or
(b)any authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both,
as the Central Government may, by notification in the Official Gazette, specify in this behalf;
·As tuition fees (excluding any payment towards any development fees or donation or payment of similar nature), whether at the time of admission or thereafter:
(a)To any university, college, school or other educational institution situated within India;
(b)For the purpose of full-time education of two children.

Save tax through investments

2008-06-30T20:06:00.001-07:00

Save tax through investments

2008-06-30T20:06:00.000-07:00

Cement shares hit 52-week lows

2008-06-30T19:56:00.000-07:00

Slump in the demand for cements due to a rise in interest rates and on aggressive monsoon across the country dragged cement stocks to their new 52-week lows on Monday. Margins of cement companies are getting affected due to the rise in raw material prices, Government intervention and rising inflation, said market men.
As these companies cannot pass on the extra burden to the consumers it is further affecting their margins due to which most broking houses have either given a neutral or a sell order to the clients holding cement stocks, added market men.

Homeowners struggle to keep up with rate hike

2008-06-30T19:51:00.000-07:00

Over the last four years interest rates on home loans have been steadily increasing and while income earners in all age groups have had to pay a steep price for their home investments, it is people in their 40's who have been the hardest hit.
From 7 per cent to 12 per cent - that is the leap in Rama Kirpal's interest rate on her home loan in just 6 years. “We started with an EMI of Rs 15,000 but now I pay almost Rs 21,000 every month. Had we taken the loan when we were young or newly married then our EMIs could have spread over longer period. I have taken an education loan for my son who studies abroad and now we don’t know how to manage,” said Rama Kirpal, a school teacher.
Increasing interest rates mostly affect such borrowers who take home loans in their forties because banks refuse to relax the tenure for such customers leaving them with no option but to pay higher EMIs with every interest rate increase.
Over the last 10 years, home buyers in Delhi have become much younger. The average age has fallen from 45 to 32.
Banks allow these younger clients to extend the duration of their loan for no extra cost but older clients who are closer to retirement don't get the same option.
So Rama has transfered her loan several times from one bank to another. But banks charge a hefty penalty when you settle with them ahead of schedule with the help of a new bank. “We ended up paying 2.25 per cent as pre payment charges, which translated into Rs 30,000 for LIC and almost the same amount when we shifted from ICICI bank to SBI,” said Kirpal.
So as interest loans keep rising, what is an older home owner to do? Experts say instead of transferring loans to new banks, use savings if possible to make payments on time.
“Whatever extra amount one has saved and kept as fixed deposit or in the capital market should be used to return the loan,” said Malay Ray, Business Head, DCM Services.
Thus the interest rates hike will cost Kirpal a little more every month than she had originally bargained for

Combo on offer

2008-06-30T07:26:00.000-07:00

Take a look at funds that offer a combination of tax savings and pension after retirement
टेक अ लुक अत फुन्ड्स ठाट ऑफर अ कॉम्बिनेशन ऑफ़ टैक्स सविंग्स एंड पेंशन आफ्टर रेतिरेमेंट

If you thought equity-linked savings schemes (ELSS) were the only mutual fund (MF) products you could invest in to save tax under Section 80C, here’s a surprise. Mutual fund pension plans, targeted towards your retirement corpus, can also help you in your tax planning. These are debt-oriented balanced funds that take equity exposure of up to 40 per cent (as opposed to 65 per cent equities in regular balanced funds), while keeping the remaining in ‘safer’ debt instruments.
Currently, there are two MF pension plans on offer—Templeton India Pension Plan (TIPP) and UTI-Retirement Benefit Pension Fund (UTI RBPF). Both these schemes offer section 80 C tax benefits.
For instance, if your taxable income is Rs 3 lakh, and if you invest Rs 1 lakh in TIPP or UTI RBPF, your taxable income comes down to Rs 2 lakh. As these schemes target your retirement, they mandate that you stay invested till the age of 58. Early withdrawals attract a high exit load. Of the two, we suggest you take a look at TIPP.
Consistent performance

'IT companies face infrastructure problems in small cities'

2008-06-29T06:39:00.001-07:00

IT and IT enabled services (ITES) companies, which are planning to make investments in small cities, face serious infrastructure problems there, said a top industry official here on Saturday. Speaking at an IT conference 'SEZ-India 2008' organised by MMG Worldwide here, BPO major FirstSource's infrastructure and administration vice-president Nakul Subramanyan said: "Even the basic building design is not very conducive to set up a unit. The structures are not convenient for housing facilities like air conditioning vents, service shafts and other things." He said the major challenge faced by IT and ITeS units in Tier II and III cities was the less availability of grade A and B buildings. Nearly 80 per cent of the commercial space absorption in the country is by the IT and ITeS units. According to Subramanyan, IT and ITeS units have taken around 130 million square feet commercial space and this is expected to go up further. He added that climate change was another major challenge for real estate developers as they have to change the designs and construction models. According to Raghypathy Vaidyanathan, facilities head of Cognizant Technologies, the issues related to work environment, employees' work convenience are also important as many European companies are now outsourcing their work to India.

'IT companies face infrastructure problems in small cities'

2008-06-29T06:39:00.000-07:00

Uncertainties in the realty sector are windows of opportunity for those looking to buy a house of their own. Here’s how

2008-06-28T23:36:00.000-07:00

Bad Times Can Be Good Times
After the stockmarket turmoil started in the first half of January this year, realty experts, for the first time since 2003, began predicting a possible correction of 20-25 per cent in capital values in the real estate sector, especially in areas where speculative interest was very high. This has unnerved investors with very strong positions in the sector.
“The correction of 20-25 per cent has already happened in many markets. A further softening may happen, even in markets with genuine demand,” says Sanjay Dutt, joint managing director, Cushman & Wakefield India, a real estate consultancy. “The next 3-6 months are a brilliant opportunity for those looking to buy a house.” What is bad news for investors therefore, translates into good news for end-users. “This is the ideal time to consolidate investments to create liquidity and hunt for opportunities,” says Dutt.
But before we look at strategies to cobble together the down payment, it’s important to understand how the realty market—especially the residential property market—can behave going forward. Which way will prices move? “I would not rule out a correction of 10-15 per cent in key markets from present levels. This is the minimum, it could be much more,” says Dutt.
Many factors govern the movement of capital values. To begin with, most experts believe that capital values have peaked. There is also a liquidity crunch in the market. Developers are finding it increasingly difficult to raise debt. Investor-confidence has taken a hit from the general expectation of an economic slowdown.
However, the most important factor that impacts the sector is inflation. In fact, when inflation touched 6.68 per cent (for the week ended 15 March), the finance minister spoke of sacrificing some growth as a control measure. If inflation continues to rise, the regulator will go out of its way to control it. “If interest rates increase further, it will put the housing sector under severe threat,” says Dutt.
Additionally, the lull in the real estate market is expected to last for all of 2008. In many places, it may extend to two-three years.
How would you benefit? Most realty investors took their positions in the hope of booking profits on a later date. However, with capital values expected to correct, instances of capital appreciation are very rare. “When investors realise this, they will be ready to cut their losses, especially as capital values may soften further,” says Dutt.
This is where homebuyers can benefit. They should look for investors who want to pull out of their investments. For this, you will have to do some planning and also deal with sellers, property brokers and even developers.
The planning process. The first step is raising the down payment, also called margin money. When you buy a house on loan, you are usually required to raise 15 per cent of the cost on your own. If you have a good credit profile, the lending institution may reduce this amount to only 10 per cent. The lending institution puts in the balance amount.
There are five things you can do to raise the down payment without depleting your investment portfolio too much.
Rationalise insurance cover. Even now, most people buy insurance to save on tax. We also tend to buy products pushed by insurance agents, such as moneyback, endowment and unit-linked insurance plans, rather than what we need. As a result, we end up paying a high price for comparatively low cover. If you have such insurance products, you could surrender them in favour of a term plan.
“This way you can get a higher cover at a much lesser cost,” says Veer Sardesai, a Pune-based financial planner.
For instance, endowment policies of Rs 20 lakh for a 25-year-old and a 35-year-old for 20 years would cost Rs 92,570 and Rs 95,730 per annum, respectively, excluding service tax. In comparison, a term policy for a 25-year-old and a 35-year-old would cost just Rs 5,290 and Rs 7,010, respectively, excluding tax.
You can divert these savings towards the down payment.
Liquidate debt products. If you have bank fixed deposits (FD) and post office schemes like Time Deposits, liquidate them as the post-tax returns from such instruments are very low. With inflation hitting 7 per cent (for week ended 22 March 2008), the returns would be further minimised. On a 8.5 per cent bank FD, the post-tax return for someone in the 30.6 per cent tax bracket would be 5.87 per cent. With inflation at 7 per cent, the returns would be negative.
Moreover, the returns on such instruments are lower than the effective cost of borrowing. For example, if you take a home loan at 10.25 per cent for 15 years, the effective cost of borrowing will be 5.10 per cent, thanks to tax benefits on interest and principal repayments.
Have one bank account. Close all accounts but one (ideally the oldest one, as the length of credit history impacts your credit score). Take out all the money, except the emergency corpus, and use it for down payment.
Sell some gold. If gold is a part of your portfolio, look into cutting down that exposure a bit. Gold prices have gone up around 47 per cent between August 2007 and March 2008. You can divert the profits towards the down payment. “However, make up for this shortfall as soon as possible,” suggests Sardesai.
Touch these last. Well-chosen stocks and equity funds have the potential to deliver high returns over the long term. Ideally, you shouldn’t touch them. But, if some holdings have already exceeded your return expectations, consider selling them to raise the money. In fact, use each market rally to clean out your portfolio of the losers and selectively book profits in some well performing stocks, if you still need the money.
Steer clear. There are some instruments, including your provident fund, that you should not touch at any cost. Let’s face it, most of us do not replenish withdrawals that we do make from these funds. Also, while liquidating assets, do consider the potential redemption loss.
How much should you borrow? Try and raise as much down payment as you can. To ensure that your EMI does not become a financial burden, follow this formula: Check the size of the loan you can service with an EMI of 40 per cent of your net salary. Then work out the worth of all your assets, including the house you will buy, and take 50 per cent of that. The lower figure of the two should be the size of the loan you take.
“If you are not able to find a house of your choice in that budget, settle for a smaller house (not a bigger one, which could stretch you financially in the future),” says Gaurav Mashruwala, a Mumbai-based financial planner.
Which property to look for? The best option would be a ready-to-move-in property as the risks in such cases are the lowest. However, if you opt for an under-construction property, do not commit to a project where the development is not taking place or where construction is slow or there is no clarity on infrastructure around the project.
Identify properties with a number of apartments on sale. There is room for better negotiation in these cases.
Last, but not the least, bargain hard. Due to uncertainties about the future, some sellers may be ready to take a cut on the quoted price.
Towards The Base Amount
To collect the 10-15 per cent of the cost of the house you can take the following steps:
Rationalise your unnecessary life insurance cover. Surrender insurance plans like endowment or moneyback, and opt for a term plan.
Liquidate debt products, especially those where the returns are lower than the effective cost of borrowing.
Close all accounts except the oldest one. Pull out all the money except emergency funds.
Reduce exposure to gold for the time being

Eat nuts to prevent asthma

2008-06-28T23:21:00.001-07:00

Eating a healthy diet including plenty of fruits and nuts could help protect children from respiratory allergies and asthma.
This benefit is thought to be linked to the vitamins and antioxidants they contain. Eating oranges, apples, tomatoes and grapes each day was shown to have a protective effect against wheezing and allergic rhinitis, according to a study in the international journal of respiratory medicine Thorax.
Similarly, nuts are rich sources of vitamin E and those who eat them at least thrice a week are less likely to wheeze. Vitamin E is the body's main defence against cell damage caused by free radicals.
Nuts also contain high levels of magnesium, which was earlier shown to protect against asthma and boost lungpower.
Scientists were curious to know why children in some parts of Britain get asthma while others in places like Crete do not.
Experts from the National Heart and Lung Institute in Britain, the University of Crete, Venezelio General Hospital in Crete and the Centre for Research in Environmental Epidemiology in Barcelona looked at the incidence of asthma symptoms, such as wheezing, and of allergic rhinitis, caused by dust mites or pet allergies.
The researchers assessed the diet and health of almost 700 children living in rural areas of Crete, where such conditions are rare and found those with a diet rich in fruit and vegetables were protected against both conditions.
The research, reported in the online edition of BBC News, found 80 per cent of the children ate fresh fruit and over two-thirds of them fresh vegetables at least twice a day.
"The results of this study add to the existing evidence which indicates that a healthy diet can play an important role in the control of asthma symptoms," Leanne Male, assistant director of research at Asthma UK, was quoted as saying.

Eat nuts to prevent asthma

2008-06-28T23:21:00.000-07:00

Unsafe Deposits

2008-06-28T09:25:00.000-07:00

NBFCs may not be able to accept deposits
To ensure that depositors’ interests are well-protected, even away from the regular banking channels, the Reserve Bank of India (RBI) is considering a proposal to gradually weed out deposit-taking non-banking financial companies (NBFC).
The caretaker. Factors forcing the RBI’s hand are the increasing concerns being voiced that the public deposits are not secure in NBFC hands. This is clear from the fact that the RBI does not accept any responsibility as far as repayments of public deposits by an NBFC are concerned. Therefore, in case a NBFC defaults on repayment, all that the depositor can do is approach the Company Law Board or a consumer forum, or file a civil suit.
The supporter. V. Leeladhar, deputy governor, RBI, says: “The RBI is looking to further strengthen the NBFC sector so as to help it grow. It had given them an option to voluntarily move out of public deposits acceptance activity. In case an NBFC voluntarily chose to get out of public deposits, the RBI would help the NBFC.”
The followers. That NBFCs are on a sticky wicket, is clear from the fact that their number has fallen from 710 at the end of June 2003, to 376 at the end of March 2008. V. Ravi, chief finance officer, Mahindra Finance, says: “We have stopped taking deposits more than five years ago.” Other companies are joining this list.
A Tata Investment Corporation spokesperson explained: “We are now an investment company and our major source of income consists of dividend income and profit on sales of investments.”
In short, NBFCs will now have to depend on alternate sources of funds, among which could be direct investments, insurance, and mutual funds.
The innovators. The real effect of the proposal would, however, be seen in residuary NBFCs, which are finance companies that depend exclusively on public deposits. For example, Kolkata-based Peerless is converting itself into a financial product distribution entity, as per the notice posted on its website.
The RBI is looking to protect the public’s interest, the only question is whether the NBFCs will manage to adapt to the change?

Nano to hit showrooms by Durga Puja

2008-06-28T09:09:00.000-07:00

Tata Motors said its ambitious Nano project was facing cost overrun but maintained the Rs one lakh car could be rolled out from its Singur facility by Durga Puja.Company Managing Director of the company Ravi Kant, who met West Bengal Chief Minister Buddhadev Bhattacharjee at Writers' Buildings here, told reporters that the entire project had been reworked at the plant site at Singur due to floods last year which had led to the cost escalation."We have already sunk in Rs 2000 crore", Kant said, adding earlier the project cost was pegged at Rs 1700 crore.Stating that Tata Motors was fully committed to the Singur project, Kant said if everything went well as planned, then the Nano car would be rolled out from the plant during Durga Puja."We hope to start trial production during July or August" he said.Asked whether there was a possibility of Nano being rolled out from any other plant of Tata Motors, Kant said, "Nano will be produced out of West Bengal".Kant had visited the Singur plant yesterday to review progress and held long discussions with suppliers and vendors.

Drinking 'has negative effect on kids'

2008-06-28T08:58:00.000-07:00

Parents, beware! Guzzling alcohol at home "to escape" from depression or tension could have a negative effect on kids, irrespective of the amount of the drinks, a new study has revealed. In their study, researchers in Philadelphia have found that children of mothers who drink are much more averse to the smell of alcohol than others, regardless of the amount of the drinks the mothers consume. The researchers divided 145 children aged five to eight years into two groups according to whether their mothers reported using alcohol to escape from feelings of tension and depression. The children were presented with two odours and asked to pick the one they preferred -- one of the odours was always beer and the other was either an odour that the children had previously identified as pleasant, such as chocolate or odour previously identified as unpleasant, such as coffee, cigarette smoke or rotten food. The researchers found while all the children chose the pleasant odours over beer, those whose mothers drink to escape were more likely to choose the unpleasant odours in preference to the smell of beer.

Leave your worries behind

2008-06-27T07:58:00.000-07:00

Get travel insurance to ensure safe holidays
The most frequently asked question by families going on an overseas holiday is whether to take a travel insurance or not. If you are flying to countries like the US or any western European country, you don’t have a choice as it is must. However, if you are going on a vacation to destinations in South or South-East Asia, Africa, South America, Western and Central Asia, travel insurance is not mandatory.
Need for travel insurance. Most people going on a holiday abroad do not take insurance as they are visiting relatives or friends and think the hosts can take care of them. But this is not the best way to cover risks. Also, there are various benefits to taking travel insurance. Not only does it take care of your medical expenses and repatriation if you fall ill, but also covers you against personal accident, loss of checked baggage, loss of passport, personal liability, cash-less service and trip delay.
Various options. Travel insurance products come with various options and you can choose the one that meets your needs. If you think that you and your family would require a travel insurance to cover only unforeseen hospitalisation expenses in an alien country, then you can choose a plain vanilla cover. Here, the premiums would be much lesser than if you choose to be insured against other losses as well.
Cost factor. Here is a ballpark figure. Travel insurance premium is likely to be less than Rs 2,500 for a family of four for a 14-day trip for a basic plan that covers risks like medical expenses, personal accident, loss of checked baggage or passport and cashless service. If you travel as a family, insurance companies provide discounts on the overall premiums.
The premium depends on the age of the travellers and the duration of the trip. But there are some exceptions. For example, if the trip is to the US, then premiums are double than to elsewhere in the world since medical costs are high in the US.
Even if the chances of you meeting with an accident or losing your baggage or your trip getting delayed are small, having insurance will save you from endless frustration if such a mishap does occur. Having an insurance plan can make your holiday that much easier.
It takes about a week to 10 days to get the policy documents. You can also buy travel insurance online. If you have arranged your trip through a dedicated tour and travel company, travel insurance usually comes at a discount, depending on the tie-up between the tour operator and the insurance company.
If adventure-based activities like bungee jumping, parasailing or deep sea walking are going to be a part of your holiday, then all the more reason to get insurance. Although insurers offer cover for such activities, the premiums are much higher as the risk associated with such sports is also high.
A word of caution. Most people opt for insurance for $50,000 or $1,00,000 or an even larger sum to cover all risks. However, in the event of loss of checked baggage or passport the claim amount to be paid is capped at $100 to $500 (depending on the company), irrespective of the sum insured.
Check list. Before you sign on the dotted line be sure to get answers to these questions. How much is the sum assured? What is the exact nature of the insurer’s payout? Insurance companies have specific payout for a particular claim and may not pay the entire sum insured for it. Check whether your policy covers medical expenses and repatriation. Check the claim payout for loss of checked baggage or passport. Be sure to understand the procedure to follow in order to make a claim. Most importantly, keep the toll free number of the company for any emergency. Happy holidays!

nflation rises to 11.42%

2008-06-27T07:46:00.001-07:00

Pushed by higher prices of food articles including milk, cereals, tea, edible oils and some manufactured items like soaps and detergents, inflation soared to 11.42 per cent for the week ending June 14. The inflation number was higher by 0.37 p er cent over the figure recorded during the previous week.
Inflation was 4.13 per cent in the corresponding week a year ago. At 11.42 per cent, it has breached a high of 11.11 per cent witnessed on May 6, 1995, but was still below 16.9 per cent recorded in March that year.
During the week, the prices of tea went up by three per cent, milk by one per cent, sunflower oil by four per cent, vanaspati by two per cent and imported edible oil, salt mustard oil by one per cent each.
At the same time, items of daily use like soap became expensive by eight per cent, detergents by nine per cent, hair oil by one per cent. Besides, fuel items especially lubricants became dearer by 19 per cent, while prices of steel products like wire ro pes and steel wire shot up by 36 and 25 per cent respectively.
Galloping inflation may further prompt government and the RBI to take steps to tame price rise

nflation rises to 11.42%

2008-06-27T07:46:00.000-07:00

Taxation - Planning

2008-06-26T19:51:00.000-07:00

Calculate your Deductions
You can reduce your taxable income by investing in specified instruments. You can work that out in 15 minutes

“If you beat us in a game of cricket, we will forgive your tax for three years. If you lose, you’ll have to pay triple the taxes.”
This was the condition the British administrator put before Bhuvan (Aamir Khan) in the film Lagaan. The Lagaan episode holds true even for you! Some of your tax is waived if you invest in specified areas. This is the crux of allowing deductions from your gross total income. The smaller the income on which tax is levied, the lesser is the tax. Under Section 80C of the Income Tax Act, you can reduce your total income by up to Rs 1 lakh by making specified investments. There are other sections of the Act as well wherein you can reduce your total income. These investments are mentioned below.
section 80C products
Bank deposits. Term deposits in a scheduled bank with a minimum period of five years notified under the Bank Term Deposit Scheme, 2006, not only give you a fixed and assured return (around eight per cent), but also a tax advantage. Term deposits are a one-time investment and there is no commitment to pay in the future. But remember that the entire interest income from such deposits is taxable. State Bank of India (SBI) and HDFC currently offer 8 and 7.75 per cent interest, respectively, over five years, while ICICI Bank offers 8.25 per cent.
Employee Provident Fund (EPF). This is a forced saving for employees and helps them save for retirement. Every month, 12 per cent of your basic salary is deducted and put into a kitty maintained either by the government or your company’s trust. The contribution currently earns a tax-free return of 8.5 per cent. The rate of return is fixed by the government every year in March-April. Your employer also pitches in with 12 per cent of your salary every month. Of this, 8.33 per cent is diverted to your pension fund, the remaining amount is put in the provident fund.
Public Provident Fund (PPF). This is a self-directed investment option. It is essentially a 15-year investment that gives a tax-free return of eight per cent as of now. The rate is subject to change. Investments of Rs 500-70,000 qualify for a tax deduction under Section 80C.
Home loans. The total amount eligible for deduction is up to Rs 1 lakh a year for the principal amount.
Children’s fees. Parents can claim a deduction for tuition fees for a maximum of two children within the overall limit of Rs 1 lakh. However, payment towards development fees or donations to the institution are excluded.
National Savings Certificates (NSC). These are for those who are less averse to risk. This government-backed security is available at post offices and gives an interest rate of eight per cent, compounded half-yearly as of now. The interest is entirely taxable. NSCs are good for those in lower tax slabs with an investment horizon of six years.
Equity-linked savings schemes (ELSS). These are mutual fund products and carry market risk. Like all tax saving options, these plans have a lock-in period of three years. Therefore, it makes sense to go in for funds with good track records rather than the new fund offers, especially in this category. Choose the ‘growth’ option for an optimal investment (see Get Tax Sops, Reap Returns, page 38).
Life insurance. Your life cover premium is eligible for a tax deduction up to Rs 1 lakh under Section 80C. If the premium paid in any of the years is more than 20 per cent of the sum assured, then deduction will be allowed only up to 20 per cent of the sum assured. This applies to all term, endowment and unit-linked plans.
Pension plans. If any investment is made under this section, then the qualifying amount under Section 80C stands reduced to that extent. Investment in insurance and mutual fund pension plans also comes under this section with an overall limit of Rs 1 lakh.
other deductions
Health insurance. Under Section 80D, medical cover premium is tax-deductible up to Rs 10,000, with an additional deduction of up to Rs 5,000 if the policy is in the name of a senior citizen (65 years or older) and the premium is paid by him. If someone below 65 buys a plan for his dependents, he can avail benefit upto Rs 15,000.
Educational loan. The interest on loans taken for higher education are also eligible for deduction from your total income under Section 80E. There is no monetary ceiling on the interest you can claim as a deduction. The loan must have been taken from a financial institution or an approved educational institution. Remember, repayment of loan or interest on loans taken by parents for higher education of their child is not eligible for deductions.
Charity. To avail tax benefits under Section 80G, donations must be made only to specified trusts. The tax breaks vary according to the trust to which you have donated.
Medical treatment. Any expenditure for the medical treatment (including nursing) of a handicapped person, training and rehabilitation of a person suffering from a permanent physical disability (including blindness) or from mental retardation, qualifies for a deduction under Section 80DD upto Rs 50,000. A life insurance policy bought for the benefit of such a handicapped person is also eligible for this benefit up to Rs 50,000. In case the disability is severe, the claim can go up to Rs 75,000.
What to do. US radio comedian Fred A. Allen once said, “An income tax form is like a laundry list—either way you lose your shirt.” The law, indeed, takes its own course, and cares little whether you are left with your shirt on or not. But the law just became better this year, by removing caps on investments in the avenues mentioned above, except for PPF, where deductions are available only up to Rs 70,000. Thus, investors can invest in line with their risk appetites and needs.
Investments in tax instruments should never be done merely to save taxes. The value derived through liquidity, returns and security over the next few years should guide your investment decision.
The Income Tax Act does not treat all kinds of savings uniformly—the taxability of contributions, accumulations and withdrawals differs from one instrument to another. In a PPF scheme, for instance, you can avail deductions, and the interest and the money you get on maturity is not taxed. This is the ‘exempt-exempt-exempt’ (EEE) method of taxation, since all three stages—contribution, accumulation and withdrawal—are exempt from tax.
On the other hand, while contributions to, and accumulations in pension plans are not taxable, lump sums withdrawn or periodical pension are taxed in the year of receipt. This is the ‘exempt-exempt-tax’ (EET) method of taxation.
Don’t forget to keep the records of your investments and tax deduction certificates, since you will have to attach them with your returns.
If you think the tax rates are skewed, American explorer Jeff Rich will give you company. He said: “We are all are equal, but some pay higher tax rates than others.” And you thought tax was invented to make life fair for everybody.

Oil is not yet fully priced in stock market’

2008-06-26T19:36:00.000-07:00

Markets are battered. Thanks to the two-digit inflation and three-digit oil prices, Sensex has lost 33 per cent value from January highs. “While most of the fears have already been priced in, if oil rises, it can spook the markets again,” says Mr Mitesh Mehta, Head (Institutional Sales), Enam Securities Direct.
The Business Line caught up with him on the sidelines of a presentation on equity markets, which also marked the official launch of wealth management and privilege client services for high net-worth investors in Chennai. Here is his take on the way forward for stock market, inflation and specific sectors.
Outlook on markets
Well, to be very honest, there is no a sure-shot call from here. But I think we have seen most of the correction taking place in the market. So basically now, time is the issue — from when markets start moving up. We feel that most of the negatives are priced in. But, if oil really blasts out from the current levels, markets may go down. We need to wait for a while to take a decisive view.
On inflation fears
The market has already factored in (inflationary pressures)and it may not present a further shock, which may pull the markets further down. While markets have corrected substantially because of inflation and oil, we feel oil is not yet priced in fully. So, basically, the focus should be more on the oil side.Some downside left?
It will be difficult to give you a number such as 10 or 15 per cent. We really don’t know how far the oil is going to go. If oil goes above $150 a barrel or even higher, we might have a serious correction on our hands going forward. We think the (stock) markets are negatively correlated with oil.Investors should…
The best advice for an investor, who is looking at the market with a one-year perspective, would be to bet 30-40 per cent in the equities. It’s a good time for them to shop. He/she should have money so that they are prepared to buy more if the markets correct further from here. We would advice investors to buy stocks, which are available at great prices. We think the entry point is crucial. What is good is no more an issue, but the price sure is.Index or companies?
The market is in such a phase that to give a Sensex bet is going to be difficult. Being optimistic, 15-20 per cent upside from current levels should make me happy. Individual companies are a better play. Sensex would have lot of IT and banks which have lost value. FMCG, on the other hand, even if does well will not show up so much on the benchmark. Stock-picking is advised, rather than a Nifty or for that matter, Sensex.
At this point of time, large-caps look a better choice. The others (mid sized companies) would have problems in raising money. Servicing their debt at 14-16 per cent (per year) would be a big issue for smaller companies. If one’s call goes wrong, one would easily exit from large-caps. In mid-caps and small-caps, the exit option is limited, even when it comes to booking profits.
Preferred sectors
We think investors can get good bargains in certain sectors. Banks have been battered very badly and provide good opportunity for entering. For contrarians, the best bet would perhaps be cement, which as we know is presently viewed with pessimism. I would like to stay away from real estate, since there are a lot of execution issues and properties would be difficult to sell. IT sector is more related to the dollar-rupee. IT has a lot of overheads and a global slowdown could affect them badly. As a business, I am not extremely bullish on them.
Banks, power, auto?
Bet more on the PSU banks. Exposure to real estate and agricultural loans is a crucial factor to look at. Higher exposure enhances risks of such stocks. Power has been de-rated and is expected to stay like that for a while. For auto, I don’t think people would stop using cars because of fuel. Input prices have risen, but they will be passed on as we have seen.
Pharmaceuticals
It appears to be a safe haven, but is fully valued. Pharma as a sector is valued at 20 price-to-earnings multiple, while companies from other sectors are available at 5-10 times. Plus, why would one want to look at a sector with such high valuations, especially when a number of them have a lot of internal issues as well as concerns on sustainable growth? It’s more of a defensive play, but at this juncture looks less worthy of the premium that it demands.
On FII inflows
Dwindling fund inflows is a worry but I don’t see any other country challenging India’s position. As soon as all this noise goes down, we will see fund managers looking back at us with more interest. We will still grow by 8 per cent and money always chases growth. Globally, as soon as the dust settles down, the money can come in pretty fast.
8% growth still achievable?
I don’t think we will have a problem this year. If at all there is a problem, it might be next year, when the elections come up. In such times, a lot of important issues go out of the window

Good times continue for Aban Offshore

2008-06-26T19:31:00.000-07:00

Aban Offshore has won a contract for the deployment of ‘Deep Driller 2’, its jack-up rig, for drilling three wells in offshore Malaysia. Contracted at a day rate of about $1,89,000, this order will earn the company over $17 million over a period of 90 days. This reiterates the strong demand environment for jack-up rigs in the near-term, since the day rates procured under the new contract are on par with the rates commanded under its contract with Chevron Offshore.
In December 2007, ‘Deep Driller 2’ had been deployed for use by Chevron Offshore at a day rate of about $1,90,000 for seven months. The new contract, which will come into effect as soon as the rig’s current contract lapses in July 2008, not only ensures a high-utilisation level, it also does away with any opportunity loss, which would have arisen, had the rig been left idle.Near-term demand
The sustenance of the firm day rates for ‘Deep Driller 2’ highlights that demand for jack-up rigs continues to be strong. Buoyed by a demand-supply mismatch, Aban has been able to command day rates in the range between $1,80,000- $2,25,000 for its rigs. Further, the company has also contracted the same rig for use by another operator after the 90-day period, when the new contract would lapse. The second contract for ‘Deep Driller 2’ has been procured for approximately $38 million for a period of 210 days. This translates into a day rate of about $1,80,000, which is over 4 per cent lower than the rate sealed under the first contract.Rates to taper
Day rates for jack-up rigs were expected to taper down over the medium term and the dip in rates secured under the second contract may be construed as early signs of the moderation in rates. An increase in supply of rigs over the next few years, in addition to the shift in focus towards deepwater offshore-spending may temper demand and this may reflect on day rates for jack-up oil rigs, which are primarily used for shallow water offshore drilling.

We love Rani Mukerji, but...

2008-06-26T09:52:00.001-07:00

We love Rani Mukerji, a very talented actress in the Hindi film industry. But we wish she would pay as much attention to her outfits, as she does to her performances.
And we're not just talking real life here. Even in reel life, Rani doesn't seem to pay much attention to her fashion and figure.
Her dresses in her latest film, Thoda Pyaar Thoda Magic are getting worse from her previous onscreen disasters. Here's why Rani needs a stylist and pronto