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THE ECONOMIC TIMES

wealth

www.wealth.economictimes.com | Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, New Delhi, Pune | January 10, 2011 | 48 pages | ` 5

Sensex 19,691.81

US (Dow Jones) 11,674.76

Gold `20,180 per 10 g

Silver `43,885 per kg

Currency `45.39 per $

● Weekly -3.98% ● Yearly +11.79%

● Weekly +0.84% ● Yearly +10.07%

● Weekly -1.92% ● Yearly +20.26%

● Weekly -4.73% ● Yearly +58.14%

Markets tumbled after a spike in inflation stoked fears of a rate hike.

US markets were marginally up during a volatile week.

Gold lost ground due to depressed demand and profit booking.

Silver lost heavily due to profit taking. Its prices are more volatile than gold.

● Weekly +1.52% ● Yearly -0.63% The dollar rebounded smartly against the rupee during the week.

INSIDE INVESTING 5 questions for your wealth manager PAGE 8 When to break a fixed deposit PAGE 10

How your gratuity can grow to `10 lakh PAGE 14 Inflation-proof bonds PAGE 16 Fund managers’ debate PAGE 20

Choosing an index fund PAGE 21 Bidding for a house PAGE 23 Family finances PAGE 26 Financial planning PAGE 28 Guest column: Uma Shashikant PAGE 29

EARNING & SPENDING Pay through your mobile PAGE 42

Get most out of jewellery sale PAGE 43

Cashing in on coins PAGE 44 Senior Citizens PAGE 46

INTERACTIVE Q & A PAGE 30 Test your MQ PAGE 47

How to fight and conquer inflation

PAGE 24

Be a Financial Wizard and win `5,000 PAGE 47 The Economic Times Wealth is India’s only personal finance paper exclusively devoted to multiplying your wealth, week after week – for years to come. The Economic Times Wealth is available at an invitation price of `5/issue. To book your copy*, contact your newspaper vendor or call 011 - 39898090; Email: crm.delhi@timesgroup.com; SMS ETWS to 58888 *Available in city and NCR areas only

Most frauds happen due to the ignorance of investors rather than fraudsters’ ingenuity. Turn the page to know how easy it is to fool you.


02

Financial Fraud

The Economic Times Wealth, January 10, 2011

Unscrupulous brokers are not the only ones responsible for investment frauds. The abject financial illiteracy of their victims is also to blame. Babar Zaidi looks at five ways in which investors allow themselves to be conned.

You

deserve cheated

to be SHOME BASU

if Rajendra Khosla, 75, Delhi A bank executive opened a new savings account for this retired builder and took signed cheques from him to start fixed deposits. Instead, Khosla was sold four life insurance policies and two pension plans. The executive also started SIPs in mutual funds using the ECS mandate given by Khosla.

I gave the agent signed cheques to invest in FDs, not in insurance plans. I trusted her because she worked in the bank.”

all you ask an adviser or broker is ‘Where do I sign?’ WHEN YOU OPEN a stock trading account with a broker, you have to sign an agreement that runs into several pages. Who has the time to go through it? Isn’t it much easier if he just marks out with an x the places where you need to put your signature? If your answer is yes, get ready to be cheated. Blind faith in your broker can be disastrous, as has been highlighted by the Citibank fraud. Even well-educated and highly-placed people can be taken for a ride if they are too trusting. “It defies explanation. It is incomprehensible why even educated people fall in such traps,” says Virendra Jain, founder of the Delhi-based Midas Touch Investors’ Association, which helps investors fight for their financial rights. Fraudsters prey on human weaknesses. They manipulate people by winning their trust. And the best way to do this is by giving an aura of respectability. Ask Rajendra Khosla (see picture). The retired builder wanted to invest in fixed deposits but was sold six insurance policies by a clutch of bank employees in a well-oiled forgery racket. “She worked in the bank so I thought I could trust her,” he says. Investors are easily swayed by calling cards of agents. In a nationwide online survey conducted by economictimes.com last week, 28% of the 1,150 respondents said Five questions they would trust an agent from an established organisation. As the for your Citibank fraud has shown, this trust can be grossly misplaced. wealth manager page 8


04

Cover Story

The Economic Times Wealth, January 10, 2011

if

you invest in a scheme because others have ARE YOU A bullish investor? Most people are, but this is because they like to invest in herds. Kochi-based MC Chacko is one such herd investor. In June 2007, he invested `35,000 in a scheme that promised to double his money in 694 days. Floated by the Ernakulam-based Jyothis Project, the investment scheme was offering an annualised yield of nearly 40%. As expected from such “golden” and “lifetime” opportunities, despite repeated reminders and threats of legal action, Chacko has not even got his principal back leave alone the interest he was being offered. Given that he works for a leading private sector bank and is conversant with interest rates, yields and default risks, Chacko should have seen through the fraud. “I invested because the scheme had given good returns in the past,” he says. Does he know of anybody who has earned

from the scheme? “I don’t know personally but I have heard of people who got good returns,” he replies. This herd behaviour is fodder for Ponzi schemes, also known as multilevel marketing (MLM). The more investors you rope in, the higher is the reward promised to you. In Quantum Fund Online, a Ponzi scheme, an investor is promised an additional 10% for every new investor he brings in. The temptation is so great that even informed investors can throw caution to the wind. As a business development manager in an insurance company, Jhansi-based Deepesh Kumar advises people how to manage risk. But he himself jumped headlong into a Ponzi scheme by following his friend Vivek Gupta (see picture). The online survey by economictimes.com reveals that one in every five respondents is willing to put money in such multi-level marketing schemes.

if Kulbhushan and Vinod Suri, 75 and 74, Rishikesh The retired couple were cheated of `82 lakh by a mutual fund agent who took cheques from them for investments. But he used the cheques to invest in his own name. The fraud was discovered when Suri applied for redemption.

We didn’t know about mutual funds and did whatever the agent asked us. How could we know that he was a fraud?”

>>

SANJAY SONKAR

Insurance plans that don’t pay anything on maturity are a waste of money?

3 out of 10 say YES economictimes.com survey

The online survey was conducted by economictimes.com between 4 and 7 January 2011. There were 1,150 responses. For a complete analysis of the survey results, log on to wealth.economictimes.com

Vivek Gupta, 33, Orai, Uttar Pradesh This small businessman invested `5 lakh in a Ponzi scheme run by an outfit called Aryarup Travels and Club Resorts. He also got friends and associates to invest `20 lakh in the scheme in the hope of getting higher returns. The mastermind of the scheme has been booked by the police. “Their website looked very impressive and there was even a certificate of incorporation,” he says.

A month after I invested, there was a raid against the company and its accounts were sealed. Now my uplines are not answering calls and the downlines are haranguing me.”

you think ignorance is bliss when it comes to your investments DO YOU KNOW the features of your insurance policy? Or the investment mandate of your mutual fund? Not many investors do. They just invest in any and every scheme that is suggested to them. Unscrupulous brokers take advantage of this low level of financial literacy. It allows them to sell high commissions but low-value products to investors. The tax-planning season, which begins in January when companies ask employees to provide proof of tax-saving investments, is when mis-selling is at its peak. “Few investors look at what they are getting from the insurance product they are buying. All they want to do is save tax anyhow,” says a chartered accountant who advises retail investors on tax-saving strategies. Vimal Gupta has bought a Ulip but insists that it is a mutual fund. “It is not an insurance plan because the risk cover comes free. My agent told me that the risk cover will continue even if I stop paying the premium,” says the small businessman from Orai in Uttar Pradesh. Retired lecturer Minoti Chakravarty-Kaul is a well known name in development economics. But she too was conned into buying a pension plan by the same advisor who mis-sold the scheme to her former colleague Chandrakanta Makhija. “He knew

my investment in RBI tax-free bonds was maturing soon and suggested that I buy a pension policy which would mature in three years and give a return of 30%,” she says. It was actually an insurance policy which covered only her children. Insurance companies are flooded with complaints from investors who are miffed at the high charges deducted on their Ulip policies and the surrender charges levied when they want to withdraw after the lockin period. “I was assured that I can foreclose the child plan after three years. But when I ended the policy because of other financial commitments in 2010, the company gave me only 40% of what I had paid,” says Bangalore-based Bharti Kumar. Their mistake: They did not do their homework or spend time studying the features of the products before signing on the dotted line. But their losses are too small compared to what Kulbhushan Suri and his wife Dr Vinod Suri suffered last year (see picture). It’s not surprising that high-net worth investors such as the Suris did not go to a professional financial planner but relied on the “free” advice given by the broker. Nearly 30% of the respondents in the economictimes.com survey believe that there is no point in paying for financial advice when you can get it free.


06

Financial Fraud

The Economic Times Wealth, January 10, 2011

SHOME BASU

if

you believe your money will double in two years FEAR AND GREED are the two most uncontrollable things in financial markets. It was fear of losses that made retired Delhi University lecturer Chandrakanta Makhija steer clear of stocks and invest a big chunk of her retiral corpus in the fixed income Senior Citizen’s Savings Scheme in 2005. But it was greed that made her break the deposit two years later and invest the entire `15 lakh in a scheme that an insurance agent said would double her money in two years. “He even gave me an affidavit on a stamp paper assuring me the returns,” she says. What he didn’t tell her was that the scheme was a pension plan which would put her money in stocks. He also didn’t tell her about the 15% that would get deducted in the first year as allocation charges. One year later, in October 2008, the value of her investment had come down by more than 50% due to the market crash. As a veteran investor, Makhija should have known that no investment option can offer such high returns. Besides, market-linked schemes don’t offer assured returns, so the affidavit she is holding is just waste paper. Makhija’s folly pales in comparison to what S Thungo of Imphal did with his money. He invested `50,000 in a scheme from Quantum Funds Online (no link with the Quantum Mutual Fund) in February 2009 because it had promised to pay him 30% (`15,000) every month for the next three years. The money was handed over in cash to a representative of the “Cayman Island-based” Quantum Funds Online who came from Kolkata. No payment came to Thungo. The representative never called back and the phone number is no longer functional. As they say, a fool and his money are soon parted.

if >>

You can trust an agent if he works for a reputed organisation.

2 out of 5 say YES

>>

Agents should give back some of the commission earned to the investors.

3 out of 5 say YES

Chandrakanta Makhija, 67, Delhi Lured by promises of high returns, she broke her deposits in the Senior Citizens’ Savings Scheme to invest in a pension plan from an insurance company in October 2007. Four months later, the markets crashed and her investments went into a tailspin. When she contacted the broker, he said angrily, “If you keep calling me, how can I double your money.”

The agent had given me an assurance in writing on a stamp paper that my money will double in two years. But it halved after the stock market crash.”

you think an insurance policy should give you returns IF YOU NEED life insurance, there’s nothing like a low-cost term plan. And if you want returns, choose any option ranging from lowrisk fixed deposits to high-risk mutual funds. Yet, Ulips, which bundle investment and insurance into one but levy high charges in the initial years, are sold more than pure insurance term plans. “Very few people buy term plans because most people think it’s a waste of money if they are not getting returns,” says Hyderabad-based insurance adviser Suri Seeta Ram. That is why agents find it easier to sell life insurance as a three-in-one combo that gives good returns, saves tax and also provides life cover. If you don’t get taken in by the triple benefit, agents add a fourth dimension and sweeten the deal with “cash incentives”. If your agent is offering you kickbacks, it’s a sureshot sign that he is selling you a lemon. Nashik-based Rajendra Sonawane, who is himself an insurance agent, should have known this. His wife Sangita bought a Ulip from an agent who not only promised high returns but offered 20% cash incentive in the first year. “She told my wife that since 2010 was the silver jubilee year of the parent company, there were lots of benefits being rolled out for investors,” says Sonawane. “At that time, it seemed like a good offer,” he adds sheepishly. Four months on, the `6,000 promised to Sangita on her investment of `30,000 has still not reached her. “When I called her, the agent said she had send the cheque to me and even gave the cheque details. After that, she has been evading my calls,” she says. The agent had also promised Sangita that if she was not satisfied with the policy, she could return it within 90 days of receiving it. Insurance Regulation and Development Authority has directed insurance companies to offer buyers a 15-day free-look window within which they can return a policy. No company has extended this offer to three months. It’s surprising that Sonawane was not able to see through the lies even though he is from the same industry. All he was concerned about was the “cash incentive” they were promised. As our survey shows, an overwhelming 61% of the respondents say agents should give kickbacks. And 28% feel that term policies are a waste of money.

>>

You can earn well by joining a Ponzi scheme and enrolling members.

1 out of 5 say YES

>>

There is no point paying for financial advice when you can get it free.

3 out of 10 say YES


Cover Story

The Economic Times Wealth, January 10, 2011

Fresh retirees are also prime candidates. They are flush with retiral benefits. Though the best option for a retiree is a fixed deposit or the Senior Citizen’s Savings Scheme, you won't make a penny selling them those ideas. It is better to push them into buying a pension plan which will earn a good commission. Never mind that the person has already retired and doesn't need a pension plan. We are also on the lookout for deep pockets. Every month, the bank manager takes a printout of the balances in the savings accounts. If you have a fat bank balance, we tip off the telemarketing guy who calls you offering an investment plan. It’s so funny, because the telecaller often is completely unaware what the plan is all about. Do I repent my actions? Not at all. My job is to earn revenue for my bank and I am doing just that. You might say the methods are unethical, but you must appreciate that the seller is just trying to fend for himself. How can you be concerned about the future of your clients when you have your own to think about. Besides, if I don’t mis-sell them a plan, someone else will. Who knows, he might sell them something worse? I look at it this way--I am only helping them get away lightly by mis-selling an investment scheme they don’t really need. At least I am not running away with their money or getting them to invest in a Ponzi scheme. (Based on interactions with employees of a private sector bank branch in Ghaziabad)

CONFESSIONS OF A MIS-SELLER

GETTYIMAGES

‘My victims helped me cheat them’

B I feed selective truths to the investor. I tell him he can withdraw after 5 years but I don’t tell him about surrender charges.”

efore I tell you how I conned my clients, let me make it very clear that this would not have been possible without their help. My victims were accomplices in my crimes. How could I have sold a person looking to invest in a recurring deposit a systematic investment plan (SIP) in a mutual fund instead? It was possible only because the customer was too trusting and did not take the trouble to understand what he was signing up for. It’s easy to sell a scheme to an investor by feeding him selective truths. Tell the customer he has to pay the Ulip premium for only five years and he can withdraw after the five-year lock-in. Don’t tell him how this could translate into losses or how surrender charges are levied if a plan is foreclosed. And don’t even discuss allocation charges. Just focus on the tax savings, followed by the long-term growth and risk cover. You learn the tricks on the job. Buyers can pay the premium in monthly, quarterly and half-yearly installments. But I advise them to opt for an annual payment option. Who knows if they might change their mind after the third month? Also, it’s best to get them to split the investment into three or four policies. This pushes up the cost for the investor but also gives me a fatter commission. One needs to be on the guard when it comes to projecting returns. Forget what the Insurance Regulatory and Development Authority guidelines say. If we project 6% and 10% returns, nobody will invest in a Ulip. Show the client the returns in the past one, two, or three years depending on what is convenient. Right now, for instance, three-year returns won’t show a good growth so use the past one-year returns in the calculation. New parents are easy targets. At our bank branch, we are always on the lookout for such families. There is usually a lot of cash coming in as gifts for the newborn. Why not help yourself to a slice of this cake by selling them a child plan wrapped in emotional appeal?

07

If I tell a retiree to invest in the Senior Citizen’s Savings Scheme, I don’t earn anything. I sell them pension plans instead.”


08

Guest Column

The Economic Times Wealth, January 10, 2011

ASSET MANAGEMENT

5 questions for your wealth manager Dipen Sheth lists a few checks that will help raise red flags when investment products are recklessly thrown at you.

GETTYIMAGES

I

ntelligent, hardworking, mature, respectable, professionally successful and handsomely rich is what we all want to be. These are also reasonably accurate descriptions of the victims of the recent ‘wealth-management’ fraud allegedly committed in Gurgaon. I would like to add some more adjectives to this list. How about sloppy, gullible, careless, unrealistic, greedy and irresponsible? Because this is actually the description that fits some of their actions (and those of so many of us who are but a little luckier than them). Let me hasten to add that I am not sufficiently in the know about what exactly has happened in this particular instance. But incidents like this serve as wakeup calls for those of us who are financially indolent. I guess it’s time to make a laundry list of some essential questions we should be asking our wealth managers. We should do this well before we entrust a fat fraction of our hardearned wealth to them, I may add. This is not an exhaustive list that can absolutely cover all situations for you, but it will certainly help you raise the right flags when wealth management ‘pitches’ are recklessly waved at you. And thereby reduce the chances that you get duped into an unfair or fraudulent transaction. The first question that you should raise is obvious, to the point of sounding silly: “What are you going to invest my money in?” But ask, nevertheless, and see the range of replies you can get. Your money might be going to (one or more of ) the following investment (or asset) classes—listed stocks, unlisted stocks, stock futures, stock options, corporate bonds, government bonds, call money market instruments, real estate, commodity futures or funds managed by people other than your money manager (which might include mutual funds, index funds, bond funds, liquid funds, etc). Ask the person managing your wealth for his views on each asset class. If he is investing your money in more than one such asset class, ask for details on what will guide the mix, and why. If the answer is ambiguous or complicated, you could be heading for trouble. If the person selling you the investment scheme ‘selectively’ highlights returns (and ignores or underplays risks) while describing these asset classes, get ready to pop Question 2: “Ok, I get what you are investing in, but tell me what can go wrong, and how bad can it get?” Ask for historical returns dating back to a little more than what is offered, and ask for the worst year (not just the best)

Ask the person managing your wealth for his views on each asset class. If he is investing your money in more than one asset class, ask for details on what will guide the mix, and why. Should fund managers' fee be linked to the money they make for you? page 20

in terms of annual return in the asset class that is being sold to you. Even this is a historical figure. Surely, there’s nothing to guarantee that things can’t get worse? By now, you are clearly driving the conversation. Onto question 3: “By the way, what are you going to charge me for this service?” Any profit-share is to be frowned on in principle. No matter what the definition, a profit-share induces the wealth manager to chase returns and, in many cases, to neglect risk. Remember, it is the job of the wealth manager to earn you a profit, while protecting you from risks, not just be an action-oriented cowboy or casino-hopper with your money. Does he take a serious fee cut if profits fall below a threshold? The good news is that most wealth managers now use ‘high-watermarking’ in profitshare which simply means that no profit-

share is charged on profits that ‘make up’ for previously incurred losses. Check for this. Meanwhile, lots of complicated fine print has been written in contracts about profit-share or ‘carry’, enough to puzzle most people, so it’s best to avoid any kind of profit-sharing nowadays. Question 4 is actually more important than Q3: “Can I take my money back? Unconditionally?” This is actually a stress test; you really don’t want to withdraw after entering the sweepstakes. But what if you change your mind? Is there a penalty, delay or any other restrictive condition that makes withdrawal more unpleasant than it should be? After all it’s your money, so why should you be penalised for taking it back? Finally, question 5 is a sanity check that

most victims of fraud (of the investmentmanagement type) forget to do: “How often, and in what level of detail, will you tell me what’s happening to my money?” You could also add a crucial corollary: “Will it all be in a format that I can understand, and can I spend as much time clarifying the dense stuff, as you are spending today in selling it to me?” (The views expressed are personal)

The author is vice-president (institutional equities), Edelweiss Securities Please send your feedback to etwealth@indiatimes.com


10

Fixed Income

The Economic Times Wealth, January 10, 2011

NEW VS OLD FD

When to break an FD Re-invest your fixed deposit with the same bank to take advantage of higher rates. Shifting to a new bank invites a penalty.

KHYATI DHARAMSI

B

Like IDBI, public-sector counterparts such as State Bank of India, Bank of Baroda, Punjab National Bank and Union Bank of India also impose a charge on premature withdrawal, even if it is partial. There is no fine on a deposit renewed for higher interest rate, said officials of these banks. UBI’s Govindan says there was always a penalty on breaking an FD. UBI charges a lower interest rate of 1% on an FD removal. “But if you re-invest the same amount for a period higher than the remaining period of the original FD, the penalty is waived off,” he says. The waiver is paying off. “We are seeing people who were in for the shorter term are breaking existing FDs and going for the longer-tenure FDs because of the attractive interest rate,” says Govindan. The Reserve Bank of India had asked

anks have been raising interest rates on fixed deposits of various tenures by 0.5-0.75% in the past two weeks. A three-year FD in the second week of December 2010 was earning as much as 8.30-8.50%. The interest rate has since swelled to 9%. A senior citizen might even earn 10% by picking the right bank FD. In this backdrop, it is tempting to withdraw an FD and deposit the money with a bank offering a higher interest rate. Here is why you should not rush. Banks usually levy a penalty in the form of a 0.5-1% lower interest on customers looking to ditch their account for a rival’s. “When the interest rate goes up in quick succession, people will start breaking existing deposits. Banks will feel the pressure,” says S Govindan, general manager of personal banking and for breaking FD for re-investing FD operations department at HDFC Bank 1% 1% Union Bank of India. Banks are okay with ICICI Bank 0.5-1% 0.5-1% customers reinvesting monState Bank of India 1% Nil ey with them, though there IDBI Bank 1% Nil are exceptions. Union Bank of India 1% Nil HDFC Bank is one. The Punjab National Bank 1% Nil bank has said it will charge a 1% penalty on premature Axis Bank Nil Nil withdrawals for all fixed deSource: Bank branch survey posits, including sweep-in FDs (accounts that combine savings-current and fixed deposit banks to allow conversion of fixed, recurfeatures) and partial closures, from ring or daily deposits for reinvesting 24 January 2011. without reducing the interest as a ICICI Bank already charges a 0.5-1% lowpenalty. In April 2010, RBI reversed its er interest rate to end an FD. The penal instance, saying banks can decide their terest is 0.5% for a one-year deposit and own charges if people convert deposits to 1% for deposits below `5 crore but with a earn higher interest. higher tenure. A spokesperson of ICICI The leeway to banks means a rethink Bank said the penalty applies even if the on pulling out money is in order. For a money is re-invested. customer, it pays to calculate the penalty Not every bank imposes a sweeping as some banks do not tell upfront about fine on withdrawals. IDBI Bank said last the charges while ending an FD week it will not fine new or renewed FDs prematurely. The accompanying tables opened from 1 January 2011. will help you decide. The penalty of 1% lower interest when “Breaking an FD is helpful to a people renew existing FDs or open a new customer only if there is a rapid increase deposit will now be waived off, says RK in interest for two weeks or one month as Bansal, executive director and chief we have seen now,” says Govindan. “If financial officer of IDBI Bank. the rate moves up in the range of 300 bps It is a customer-friendly measure, says (3%) in quick succession, you benefit.” Bansal. People want to re-invest when rates rise, he says, though FD Please send your feedback to termination creates an asset-liability misetwealth@indiatimes.com match for the bank.

Penal interest...

CHANDER

If you break the FD now... Amount invested in FD

`10,000

Period of FD (starting May 2010)

1 year

Interest rate (compounded)

6.25%

FD broken after

7 months

Rate of interest for 7 months

5%

Penalty

1%

Effective rate of interest

4%

Interest income received

`233

Total amount on maturity

` 10,233

...and reinvest the income... Amount invested after breaking FD

`10,233

Rate of interest on the new FD

8%

Interest received for 5 months (till May 2011)

`341

Total amount after one year

`10,574

“Breaking an FD is helpful to a customer only if there is a rapid increase in interest for two weeks or one month as we have seen now.” S GOVINDAN GENERAL MANAGER, UNION BANK OF INDIA

However, if you had not broken the FD, you would have received after a year

Moral of the story: Do the math before breaking an FD.

} `10,625 Cashing in on old coins and notes page 44


This Week

The Economic Times Wealth, January 10, 2011

Market Outlook: A MAJORITY EXPECT MARKETS TO RISE Which segment will lead the rally?

Which way will markets move?

Up by more than 2%:

Up by 2%:

At the same level:

Down by 2%:

Down by more than 2%:

4%

40% 27% 25% 4%

An ET Wealth-Synovate poll of market experts on what to look forward to in the week ahead

69% 25%

6%

Largecap

Smallcap

Midcap

This poll of 40-50 experts of the country’s top broking firms is conducted by market research firm Synovate after market hours every Friday.

short take

Product launches ■

Axis Bank launched Axis Direct, an online trading platform that offers multiple options to customers for trade in cash, derivatives and IPO segments on the NSE and BSE. It also features independent third-party research, stock research and portfolio analysis tools.

Aegon Religare Life Insurance unveiled Rising Star Plan, a child Ulip. The Ulip offers features such as premium waiver and income benefit riders. The plan offers four funds—Secure, Debt, Stable and Accelerator—and an Invest Protect option.

Free savings bank rates in the works After imposing daily interest calculation on savings bank accounts last year, RBI is expected to set the ball rolling for deregulating savings bank interest rate with its discussion paper. Indeed, a 3.5% per annum (fixed since 2004) interest on savings accounts is the only regulated rate in the banking system and a highly contentious one. To what extent will deregulation benefit the common man, though, is to be seen, given that the move will also expose the rate to downward swings. Banks are worried rates will rise as competitors scramble to woo customers, deposit The bank rates being the cheapest deposit pie and the biggest (80% of bank liabilities come from deposits) source of funds 85% for banks. Retail But there is no denying that the savings deposits 6% market is concentrated, Foreign 1% with the top 5-7 private and public sector banks Corporates 8% controlling the competiGovt tion. Not surprisingly, it is these banks that do not want rates to be freed. Most small private banks with smaller deposit franchises favour deregulation as the 2008 crisis showed that institutions with a weak deposit market tend to be more vulnerable. So if small banks have their way, it is advantage small investors too. A recent report by Execution-Noble says depositor’s preference for liquidity, deposit safety and convenience will continue to favour public sector banks and private sector majors after savings rates are freed. But here too, smaller banks in bigger cities may get to drive rates upwards and that will benefit small investors.

weekly calendar Wednesday JAN

12

ndustrial In production data for November to be released.

Thursday JAN

13

Food inflation data to be released for week ended 2 January.

Friday JAN

14

Monthly wholesale price inflation data to be released for December.

Market pulse ■

Spiralling food price inflation had a major casualty last week, as the group of ministers deferred a decision to free the prices of urea on 5 January. Fertiliser stocks that have rallied expecting a favourable decision declined significantly and the ET Fertiliser Index ended the week with a loss of 6.37% (see ‘Benefit from spike in prices’ on page 18)

We are entering a new results quarter (for October- December) and as usual, Infosys is the first major company that will flag off the season. The quarterly results to be declared by Infosys on 13 January will be closely monitored by investors and analysts because it will set the tone for the broader market as well as for the information technology sector. Analysts are convinced that Infosys will beat its previous management guidance. Therefore, focus will be on the level of beating it (i.e. by how much percentage) and also the kind of guidance India’s second-biggest software exporter provides for the future.

reader poll

Hits & duds Top 3 sectors (in %) IT and Telecom . . . . . . .58 Banking & Finance . . . .48 Pharmaceuticals . . . . . .38 Worst 3 sectors Realty . . . . . . . . . . . . . . .40 Commodities . . . . . . . . .31 Petroleum . . . . . . . . . . . .27

Figures may not add up to 100 because of multiple responses

DO WEALTH MANAGERS HELP RETAIL INDIVIDUALS MAKE SOUND INVESTMENT DECISIONS? An upshot of the recent Citibank fraud is that readers seem to have lost faith in wealth managers and believe it is up to themselves to decide on investments

13

NO

69% 22% YES

9%

CAN’T SAY

Resolution of the week I will invite friends home instead of going out With inflation hitting the sky, it is prudent to invite your friends over for a barbecue or potluck instead of emptying your wallet in a restaurant. A small party at home is more fun and far less expensive. If you spend `4,000 on eating out with four other friends, you can save up to `2,000 by doing it at home. If these savings are invested in a scheme that earns 15% a year, they can grow to `1.72 lakh in five years.


12

Last Week

The Economic Times Wealth, January 10, 2011

1-week change %

Weekly wealth monitor 10.09

8.05 7.84

Balanced funds

-3.45 Equity funds

-1.92 Gold

Jindal Saw Deepak Fertilizers Bata India

Price ( `)

Weekly % change

210.3 176.4 386.5

14.98 9.53 6.59

DEBT FUNDS

NAV ( `)

Weekly % change

Templeton India IBA UTI-Dynamic Bond Birla Sun Life Dynamic Bond

31.62 10.37 16.1

0.23 0.21 0.20

NAV ( `)

Weekly % change

Tata Growing Economies Infra 12.72 BNP Paribas China-India 9.28 Reliance Natural Resources 10.87

-0.83 -1.19 -1.19

0.03 Income funds

Weekly % change

WORLD INDICES

-3.98 Sensex

Nikkei 225 Hangseng France Cac 40

Wealth doesn’t get built—or destroyed—in a week. But you do need to know broadly how your investments in different asset classes are doing. This monitor tells you exactly that. The 10-year government bond yield is the average yield in the respective periods.

The top three STOCKS

11.79

10.43 4.67

-1.72 10-yr GoI bond yield

1-year change%

20.26

Data as on 7 January

10,541.04 23,686.63 3,865.58

3.05 2.83 1.60

EQUITY FUNDS

* Figures as of 7 January. Stocks are BSE 500 stocks. Debt funds are income funds.

Source: Bloomberg

bulletin board

top news BANKING

Only account number for e-transfers Electronic fund transfers just got faster. Banks will henceforth only take customers’ account numbers for such transactions, ignoring other details such as names. The new mechanism, which came into effect on 1 January, is aimed at reducing the possibility of errors. This is in line with a Reserve Bank of India directive under which customers must give their account numbers twice for every electronic fund transfer request made online as well as at bank branches. The new system would be applicable for all electronic payment gateways such as RTGS, NEFT, NECS and ECS, besides fund transfers initiated by customers at bank branches or over the internet.

RBI extends base rate deadline The Reserve Bank of India has given banks another six months until 30 June to adopt a new method for computing base rate. The earlier deadline was 31 December. Last April, the RBI had directed all banks to switch to the base rate system with effect from 1 July from the then Benchmark Prime Lending Rates (BPLR) system.

REAL ESTATE

Realty rates to rise through 2011: NHB National Housing Bank said property prices would rise in the next one year but would eventually lead to a correction in these rates in all metros subsequently. NHB chairman RV Verma said higher property prices will create a dampening impact on demand, resulting in the correction of prices. Many experts also believe that rising loan rates as a result of RBI monetary tightening moves would lead to a correction.

PROVIDENT FUND

UID to replace PF account number The tiring procedure of transferring provident fund money from one account to another might get easier once the unique identification (UID) project is fully launched. The number will also help track PF accounts. More importantly, this number will not only help in online checking of the status of an account but also ensure a smooth transfer once a person changes jobs. Labour secretary PC Chaturvedi says this will happen in the second phase of digitisation of EPFO but the ministry is not looking at a deadline right now as it is dependent on the progress of the UID project. The first phase, which entails digitisation of data in its regional offices, will be completed in March 2011 after which work on interconnecting the regional offices will start.

A pick of corporate filings by companies at stock exchanges Indusind Bank allotted 4.6 lakh equity shares of `10 each to employees under an Employee stock option scheme (Esop).

Balrampur Chini Mills allotted 94,400 shares of `1 each at `45 a share to employees under Esop.

Minal Industries declared a bonus issue of shares in the ratio of 2:3.

Garware Offshore Services declared a second interim dividend of 70 paise a share on 2.38 crore shares of `10 each.

Uttam Sugar Mills allotted 5 lakh preferential shares of `100 each to its promoters. GCV Services split its equity shares in the ratio 2:1.Two equity shares of `5 each are now one share of `10..

State Bank of India raised the benchmark prime lending rate (BPLR) by 25 bps from to 12.75% a year effective 3 January 2011. Indiabulls Financial Services sold a 26% stake in Indian Commodity Exchange (ICEX) to Reliance Exchangenext. It now holds 14% in ICEX.

Selan Exploration Technology allotted 15.44 lakh bonus shares of `10 each held by shareholders on 3 January 2011 in the ratio 1:10.

Omnitech InfoSolutions acquired Avensus Netherland for $9 million.

State Bank of Mysore raised the base rate by 25 basis points from 8.25% a year to 8.50% a year with effect from 6 January.

State Bank of Travancore raised its base rate by 50 basis points to 8.50% and BPLR by 25 basis points to 13.50 effective 3 January 2011.

insider track

wealthwise

A list of companies in which shares were bought or sold by insiders BUY

SELL

53.8 lakh shares in Religare Enterprises at an average price of `463.8.

1 lakh shares in Century Plyboards at an average price of `59.7.

68.25 lakh shares in Assam Company at an average price of `21.1.

2,500 shares in HDFC at an average price of `2,339.

2.4 lakh shares in Usher Agro at an average price of `92.8.

1,754 shares in Oracle Financial Services at an average price of `2,331.

34,500 shares in Maharashtra Polybutenes at an average price of `133.

6,400 shares in IPCA Labs at an average price of `344.

30,000 shares in Dhampur Sugar Mills at an average price of `76.

1,011 shares in Priyadarshini Mills at an average price of `108. WWW.CARTOONSTOCK.COM

quote of the week

CIVIL AVIATION

Air India follows Jet, raises fares There seems to be no respite from rising airfares. After a `200 increase in fuel surcharge on domestic travel by two private carriers, state-run Air India followed suit across the domestic sectors by `100 for travel up to 750 km and `200 for flights over 750 km. After the hike, the revised fuel surcharge stands at `2,450 and `3,300. The hike comes into force with immediate effect. Last week, Jet Airways and Kingfisher had raised fuel surcharges by `100 and `200 on their domestic sectors following a 2% hike in jet fuel prices effected by oil marketing companies.

...Not sure whether we understand all the factors that contribute to price rise. Nor am I sure whether we have at our hand all the tools to control inflation.

P CHIDAMBARAM UNION HOME MINISTER


14

Earning

The Economic Times Wealth, January 10, 2011

GRATUITY

Get `10 lakh for not hopping jobs Your gratuity benefit can grow to gigantic proportions if you continue to stick with your company in the long term.

What is Gratuity

?

It is a lump-sum amount paid to an employee on exit or retirement. Companies use gratuity as a retention tool.

Who is eligible

You get gratuity if you have completed five years in a company. But there is a cap of `10 lakh.

How is gratuity calculated? Salary = Basic + Dearness Allowance

Your last drawn monthly salary Gratuity

X

15 26 1 Month = 26 days

Number of years in service

How much will you get?

started working at the age of

GETTYIMAGES

at a basic monthly salary of

`20,000

25 10% increment every year

10 years

A

re you ruing your decision not to change jobs while your peers jumped more than two or three times to land fatter salaries? Don’t worry, because patience is not only a virtue but can also be very rewarding in financial terms. If you have completed at least five years of service, you are eligible for a fat lump-sum payment in the form of gratuity when you are finally bidding farewell to a company. Your former colleagues, who changed every two or three years for lucrative new offers, will not be eligible for the same benefit. Gratuity is one of the oldest employee-retention tool in the basket of HR managers. It used to be one of the three major retiral benefits along with Employees’ Provident Fund and pension. The objective was to make it lucrative for an employee to stay in the company in the long term and reap benefits. But unlike the retention bonuses that companies now offer to select employees, gratuity used to be for all employees in a company. However, gratuity has lost favour over the years because job-hopping has become a norm. “The average employee now changes jobs every 2-4 years,” says Kris Lakshmikant, CEO and managing director of Bangalorebased HR firm Head Hunters India. Besides, patience is in short supply in this era of

instant gratification. “Youngsters today are more concerned with cash in hand than what comes to them after 10-20 years. They do not think of long-term benefits and give no significance to benefits such as gratuity,” says Lakshmikant. This can be a costly judgement error. Even with a small hike in your basic salary, your gratuity corpus can assume gigantic proportions over the long term. If someone starts his career at a basic salary of `30,000 and gets a nominal 10% increment every year, his gratuity at the end of 20 years will be `14.1 lakh (see graphic). However, the Payment of Gratuity Act, 1972, places a cap of `10 lakh on the amount that a company has to pay as gratuity, although a company is free to give more if it wants to. What’s more, the tax exemption limit for gratuity has now been raised to `10 lakh (see box), which makes this long-term benefit even more attractive. “You should consider the fact that a lump sum of up to `10 lakh you get is tax-free while the raise in your next salary would be taxable. So when you decide to change jobs and there are only a few months left for entitlement of the gratuity, buy some more time from the new employer so that you are able to avail this benefit,” says Veer Sardesai, a Pune-based certified financial planner. Governed by the Payment of Gratuity Act, 1972,

of service with the company would give you...

`2.72 lakh TAX-FREE

15 years

20 years

of service with the company would mean a gratuity of

of service with the company would push up gratuity to

`6.57 lakh

`14.1 lakh

CHANDER

PRIYA KAPOOR


Earning gratuity is a defined benefit plan. It is mandatory for companies with more than 10 employees on their payrolls to give gratuity to an employee on resignation, retirement and termination of service. However, an employee is eligible for this benefit only on completion of five years of continuous service with the company. Say, you leave after working for three years and rejoin after sometime and work for another two years, you are not entitled to this benefit. “There should not be any break by the employee from the date of joining to be eligible for the sum, though probation period, any leaves that you have availed and notice period served by you are not counted as breaks,” says the HR head of a large corporate house. But there are exceptions to this rule. The condition of minimum five years of service is relaxed in the case of death or permanent disablement of the employee. Gratuity is calculated as 15 days’ salary for each completed year of service. The salary includes your last drawn basic salary and dearness allowance but excludes all other allowances. For instance, if you have completed seven years of service and the last drawn monthly salary is `45,000, you are entitled to a gratuity of `1.8 lakh. The gratuity rules are lenient when it comes to calculating the completed years of service. If one has put in more than six months during a year, it shall be treated as one complete year. However, the rules are not so lenient for employees who do not fall within the ambit of the Gratuity Act. Their entitlement is based on

The Economic Times Wealth, January 10, 2011

15

How gratuity is taxed Tax exemption to gratuity is the least of the following: 1. Actual amount received 2. 15 days’ salary for each year of service 3. `10 lakh No tax for government employees Gratuity rules are skewed in favour of government employees. For them, gratuity is fully exempt from income tax. For private sector employees, gratuity is exempt up to `10 lakh. This limit has recently been raised from `3.5 lakh earlier to make gratuity more attractive.

Tax-free limit This `10 lakh is the combined limit for the gratuity amount received by an individual over a lifetime. If you have received `3.5 lakh as gratuity from a previous employer and get another `8 lakh from the next employer, only `6.5 lakh of the second payment will be tax-free. The balance `1.5 lakh will be taxed as income. Gratuity on death In case gratuity is paid on the death of an employee, the amount received by a nominee is tax-free subject to maximum exemption of `10 lakh.

Excess payment If a company pays more than the gratuity amount as per the calculation given in the Gratuity Act, 1972, the excess amount is taxed as income at the applicable rate. If the gratuity adds up to `8 lakh but the company pays the employee `10 lakh, the excess `2 lakh will be taxed even though it is within the tax-free limit.

the average salary of half a month for each completed years of service. Also, any period of more than six months is not considered to be a complete year here. However, if an employer wishes, you can be paid more than the entitlement. Typically, employers manage this liability by creating a trust or outsource this money into the group gratuity scheme of an insurance company. It’s important to note that this benefit is only for those on the company’s regular payroll. If you are on a contract, there’s no gratuity waiting for you even after 5-10 years of service. However, some organisations do offer employees who are on the payroll of a

company but have been hired on contract full benefits if the contract is renewed and they complete the stipulated time frame. Ask your company for details if you are on a contract. Of late, the gratuity component has found its way into the cost-to-company compensation packages of companies. Some companies offer gratuity to employees even though they may not have put in the required number of years. Delhi-based telecom engineer Yogendera Kumar was in for a pleasant surprise when he recently switched jobs. “I got gratuity along with my final settlement. Though I had been told that I would be eligible for gratuity, I wasn’t sure since the previous two organisations

“Gratuity up to `10 lakh is taxfree while the raise at the new job will be taxable. Keep this in mind when you change your job at the cost of losing gratuity.” VEER SARDESAI CERTIFIED FINANCIAL PLANNER

where I worked for a similar tenure didn’t pay me any.” For companies, this is a good HR practice that makes them look like a great place to work in. This is especially important at a time when India Inc is struggling to find the right talent. Says an HR professional with a Gurgaon-based telecom company: “We have included the annualised cost of the gratuity in the package, so we pay that up regardless of employee serving us for five years or not.”

Please send your feedback to etwealth@indiatimes.com


16

Fixed Income

The Economic Times Wealth, January 10, 2011

NEW INSTRUMENT

How about an inflation-proof bond? IN

F

L

T

N

RAJ

There may be some respite from rising prices if inflation-indexed bonds become a reality. Unlike a regular fixed deposit or bond, your investment in these instruments will be hedged against inflation.

A

IO

RET U PRERNA KATIYAR

I

nflation scares no one more than those living on interest income. The news that food inflation is hovering above 18% must be giving them sleepless nights. The trouble is that though interest rates have risen marginally lately, they are nowhere near the actual rate of inflation. Worse, the inflation number that is bandied about is mostly based on wholesale prices. If you actually include the consumer price-based inflation (considering we don’t buy things from the wholesale market), things would indeed look unpleasant. That is why we are all ears when there is talk about inflation-indexed bonds (IIBs). The Reserve Bank of India (RBI) has published a discussion paper on IIBs in December to obtain views from the public and market participants on the product. Why are these bonds such good news? Unlike your regular FD or bond, the principal is indexed (or adjusted) to the inflation periodically and the interest is paid on this inflation-adjusted principal. Simply put, your investment is hedged against rising inflation. Also, the implications of having IIBs in place are much bigger. If these bonds really hit the market, one may soon have a host of products such as inflation-indexed pension plans, inflation-indexed insurance and mutual funds that may allow one to protect capital from the evils of inflation. Still not clear? See the illustration: The government issues a 10-year bond with 3% interest to be paid semi-annually on 1 January 2011. Suppose you invest `10,000. The first interest payout will happen on 1 July 2011. During this period, if inflation is at 5%, the inflation-adjusted principal on 1 July

RNS

option for portfolio diversification example, the and would be particularly coupon on these attractive to individuals with a lowbonds is typically lower risk appetite. In a period of high than that of fixed rate bonds as IIBs are Instrument Typical annual Inflation-adjusted and volatile inflation, they gain aimed primarily at protecting investors yield returns more currency,” says Crisil’s chief from inflation. If inflation is 8% economist DK Joshi. The However, as you get the interest payout underlying inflation index should based on the inflation-adjusted principal, Bank deposits 3% -5% reflect the true inflation in the your real returns may be higher than other Bank FDs 8% Nil economy for the bonds to work, fixed rate bond in higher inflationary times. says Joshi. The only time these bonds will fall out of PPF 8% Nil “Inflation-indexed favour is during deflation—when the Inflation-indexed bond 3% 3.24% bonds are definitely principal can be eroded. That Steps to Debt MF 8% Nil good for a set of shouldn’t worry us since we look far follow while investors looking for away from the deflationary scenario. buying & selling Company FD 9% 1% hedge against Experts also say IIBs can only gold jewellery page 43 Gold 9% 1% become popular if they are pushed through retail investors. Also, they believe the tenure of these bonds shouldn’t exceed five to 10 years as longertenure bonds are not favoured by retail investors, especially senior citizens. “There is no single preferred tenure for these WPI index on coupon bonds. The appetite for instruments with payment date differing tenure will vary with the type of inInterest Coupon Principal* vestor. I think the tenure should extend payment rate amount WPI index on the from medium (five) to long term (10-15) date of issue years to cater to diverse needs. I agree with RBI’s proposition on this,” says Joshi. * Par value of the bond; WPI: Wholesale Price Index value The US Treasury Inflation Protected Secu2011 would stand at `10,500 inflation. But I feel that acceptance of rities (TIPS) are issued for different (10,000+10,000X5/100). Hence, the semiinflation-indexed bonds will take time,” maturities and denominations. annual interest payment (or real yield) for says Nandkumar Surti, chief investment offiAs of now, you will have to wait to see the bonds would be `157.5 (10,500 x cer, JP Morgan Asset Management. Experts what the central bank does eventually. The 1.5/100). Alternatively, if you have invested like him think the long tenure of these discussion paper says the banking regulator in a regular bond with the same interest bonds, lower coupon rate (or the rate of plans to issue IIBs in small lots and based on rate, you would have got only `150 (10,000 interest offered) and lack of awareness the experience, may consider expansion in x 1.5/100). If inflation inches further, it among retail investors may lead to the poor the future. (with inputs from Sameer Bhardwaj) would reflected in the principal invested in offtake of IIBs and in turn, may result in the IIBs, but not in a plain bond. government issuing these instruments Needless to say, that makes a huge infrequently. Please send your feedback to difference to the return you make. According to experts, investors must be etwealth@indiatimes.com “Inflation-indexed bonds provide an educated about the benefits of IIBs. For

Returns comparison

How interest is calculated


18

Stocks

The Economic Times Wealth, January 10, 2011

INVESTMENT PLAN

Benefit from spike in prices Soaring prices do not always portend gloom. Cash in by investing in companies poised to gain most from inflation. NARENDRA NATHAN & VIVEK KAUL

Y

ou can do little but wait for the rampage to end. High food prices are battering your monthly budget, stripping real returns from investments and pushing back immediate goals. You hope for news of fresh imports of tomatoes and onions. And add a good harvest to your wish list. But waiting is a costly strategy. “The high food inflation is structural in nature. Therefore, it may last for at least five years,” says Saurabh Mukherjea, head, (Institutional Equities), Ambit Capital. There is only one way out: You must launch a counter-offensive and wring out profits from inflation. Yes, it is possible to benefit from high food prices. The idea is backed by economic principles. For, inflation does not destroy wealth, only redistributes it unfairly. You may lose out as a buyer because the purchasing power of money is down, but sellers gain. Similarly, if you are a debtor, repaying a home, car or personal loan, you have the advantage over your creditor as the money you repay has lower value. This concept is complicated and has wide-ranging macro ramifications. As ordi-

nary investors, there is only one important takeaway: Inflation benefits some assets. You have to identify and invest in them. As the current inflation phase is driven by food products, agricultural commodities and companies that provide agricultural inputs will benefit. These are your target investments. Here are a pick of the stocks, funds and commodities that experts are eyeing. Investing in them will do nothing to your monthly budget. But you will have reason to cheer when food prices shoot up further. Inflation-friendly stocks The agricultural input sector includes fertilisers, pesticides, seeds and irrigation systems. One company that has a finger in many of these pies is Rallis India. “It is well established in the fertiliser and pesticide business. Recently, it bought Metahelix Life Sciences for `99.5 crore which has strengthened its presence in seeds,” says Ajay Parmar, Research Head, Institutional Equities; Emkay Global. The acquisition may dilute Rallis India's earnings in 201112. But analysts recommend the stock as they believe Rallis will benefit from the opportunities in the seeds industry. United Phosphorus also boasts of a diverse portfolio. It deals in agro chemicals, phosphorus and phosphorus-based fertilisers, pesticides, etc. As the pesticide

Reaping the inflation dividend A N A L Y S T Company

ALANKAR

No. of Buys

No. of Holds

No. of Sells

V I E W S

HISTORICAL ABSOLUTE RETURNS (%)

Consensus rating

Consensus target price (in `)

CMP (in `)

Onemonth

Threemonth

Sixmonth

Oneyear

Advanta India

3

1

0

4.50

554.00

397.00

0.69

12.53

15.97

27.08

Jain Irrigation

10

5

1

3.94

258.43

228.05

2.65

3.57

1.97

30.56

Monsanto India

1

0

0

5.00

2,150.00

1,858.05

5.51

9.55

8.12

13.68

Rallis

6

5

0

4.15

1,575.80

1,385.90

3.80

4.52

24.86

115.35

18

2

0

4.70

223.70

161.70

10.76

11.00

9.07

10.46

United Phosphorus


Stocks industry is free from government control, the company is expected to perform well in the coming years. It has enhanced its position in the pesticide industry by buying US-based Riceco LLC, a key pesticides player for the rice crop, for about `225 crore. But as United Phosphorus is cashrich (about `2,000 crore as on September 2010) and Riceco is also debt-free, the deal should not pose problems. Betting on pure fertiliser stocks is tricky as the government regularly intervenes. You can expect more interferences with elections due in Bengal and Tamil Nadu. Recently, the Centre decided to continue with nutrient-based subsidy on fertilisers till March 2012. But it cut subsidy rates per kg for components such as nitrogen, phosphorus potash and sulphur. Subsidy for micronutrients boron and zinc are the same. These changes will be effective from April 2011. Given that input prices are high, they might crunch this year's margins of the makers of phosphatic and complex fertilisers such as Coromandel International, Zuari Industries, Deepak Fertilisers and Tata Chemicals. The focus of increasing agricultural productivity is likely to benefit companies that produce high-yielding hybrid or genetically-modified seeds. “Even though overall irrigation, fertiliser and seed costs will rise, farmers will benefit from better yields of hybrid and genetically-modified seeds. This will create a good business opportunity in the seed sector,” says Akhilesh Tilotia, thematic analyst, Kotak Institutional Equities (KIE) and the author of the GameChanger report. Experts recommend investing in Advanta India and Monsanto India that are leading the pack in this sector. As water is scarce, efficient irrigation systems are also in demand. Vijay Bhambwani, CEO of BSPLindia.com, says: “Pathetic irrigation systems are forcing farmers to buy potable or arable water at metro city rates.” This is why governments have increased subsidy to the farmers for micro irrigation. High demand coupled with government funding is good news for the irrigation industry. With a 50% market share, Jain Irrigation Systems is likely to benefit. It also plans to expand to Africa, Middle East and the US. Experts are also happy with its valuation—a P/E of 31—as they expect a growth of 40% CAGR in three years. Food commodities If you are uneasy about dabbling in stocks, buy farm products in the commodities futures market. “Inflation will hit almost all staples, so wheat and rice will be primary buys. Their performance may be matched, even outperformed by pulses, dals, cardamon, cashew nuts, jeera and maize. The pricing of staples is politically-sensitive. As bull runs will be against state intervention, all buys must be for a minimum 12 months,” recommends Bhambwani. Agriculture sector funds Mutual funds are another option. But only one scheme offers exposure to the sector—DWS Global Agribusiness Offshore Fund from Deutsche AMC. This fund invests globally too. But as the scheme is a fund of fund, you will not get the tax gain of equity schemes. The fund has done well, giving 16% returns since its launch in April 2010.

The Economic Times Wealth, January 10, 2011

19

Why prices will not subside The high food inflation is structural in nature. Therefore, it may last for at least five years.” SAURABH MUKHERJEA HEAD, INSTITUTIONAL EQUITIES, AMBIT CAPITAL

vernight, onions and tomatoes have become the pin-ups of food inflation. Unseasonal rains in the last quarter of 2010 ruined crops and prices of vegetables rose. But the truth is that food inflation has been high for nearly one and a half years. Officially, it is at a 23-week peak—about 18%. But it has been even higher—21%—in the past one year. Worse, the culprits of inflation keep

O

High food inflation … 19.65% 18.32%

Monthly inflation Weekly inflation

8.6% 2 Jan 2010

25 Dec 2010

% year-on-year food inflation. Figures represent wholesale price index (WPI).

…and the changing culprits Different food products have been responsible for high food inflation in the past two years, making it difficult for policymakers to control the surge in prices Nov -2010 Top 3 food products

Inflation (%)

Cabbage

56.37

Grapes

46.08

Orange

38.75 6 months ago

Guava

182.55

Moong

92.66

Sweet potato

53.83

12 months ago Potato

128.48

Tapioca

79.24

Moong

65.86 18 months ago

Tea

70.78

Potato

65.58

Onion

51.76

Figures are wholesale price index (WPI). The impact of inflation in food products on WPI can be computed by multiplying the figures with their weightage in the index

changing (see table). A year ago, they were potato and tapioca, cabbage and grapes in November, and now onions and tomatoes. This has made it tough for policymakers to contain the overall price rise of food items. Industrial expansion, which eats away arable land, are not helping matters. The demand for food has also been boosted by rural programmes. As Tilotia says, “Inflow of government money via the Mahatma Gandhi National Rural Employment Guarantee Scheme and institutional credit (bank loans) has created a new-found prosperity in the rural heartland." The agricultural income over the past five years has risen by around 138% to `3,94,900 crore in 2009. Says Bhambwani: “Higher disposable income in the hands of under-nour-

ished masses will result in more demand for food. Before they buy mobile phones, they will buy food.” As the solution is not simple, it is unlikely that food prices will stabilise. Short-term solutions may decrease the price of vegetables in the limelight, but a few weeks later, other food items will cause high inflation. This is more evidence for what is now known—food inflation is primarily due to structural bottlenecks. The high demand and strained supply equation lead to higher food prices. You can't do much, so live with it. And try to make the most of the aforementioned strategies. Please send your feedback to etwealth@indiatimes.com


20

Mutual Funds

The Economic Times Wealth, January 10, 2011

DEBATE

Should fund managers’ fee be linked to the money they make for you? `6,78,159 crore. That's the amount of money in the custody of mutual fund managers—as on 31 December 2010. That’s not just loads of money, but also lots of trust. Trust that the money will be invested in the right instruments and at the right time to earn maximum possible returns. Fund managers will perform best if they have good reasons to. One of the reasons is their compensation. Today, mutual fund companies take a fee that is a percentage of the total assets they are managing. The fee is not linked to the performance of a fund. A section of experts believes that fees should be linked to the profits funds earn for investors. Is this desirable and feasible? Prashant Mahesh checks with some fund experts.

Rajiv Deep Bajaj VICE CHAIRMAN & MANAGING DIRECTOR, BAJAJ CAPITAL

No Mutual fund by its very nature is a trust where the investor is part-owner. Hence, any profit or loss in the fund belongs to the investor. A fund manager is a professional like any lawyer or doctor, who charges a fee for his services. If mutual funds start linking their fees with the performance of a scheme, it will defeat the basic nature of the Fund managers will product and it will also have a either become too detrimental effect on the behaviour of fund managers. They will conservative and focus only on debt either become too conservative and start focusing only on debt products or become products, or they might become too aggressive, too aggressive, churning the portfolio at regular intervals to churning the portfolio at regular generate higher returns, both of which will be detrimental to the intervals investor. If the markets were to switch to a performance-based fee, a fund manager may be better off managing large foreign institutional investor portfolios rather than small investors’ money, as he will be answerable to a single entity and not to the public at large. Similarly, if an investor prefers a profitsharing structure, he is better off investing in portfolio management schemes or private equity funds.

Dhirendra Kumar CEO, Value Research Online

No In an ideal world, managers of actively-managed funds should get more if investors make more money. However, this should be based on the returns that investors actually realise. The method used by portfolio management services and hedge funds, whereby they dip into the returns annually or whenever it hits a new peak, just amounts to skimming off

the top. Performance-based fees would only be fair to investors if they were deducted only once at the time of redemption based on actual returns generated. In practice, I think the current AUMbased system best balances the interests of investors The current AUM-based and an asset manager system best balances the while being easy to understand and impleinterests of investors and ment. Also, one must an asset manager not forget that asset managers do reap rich rewards for performing better. In India, the highest growth has often gone to funds that have outperformed others.

Arindam Ghosh CEO, Mirae Asset Global Investments (India)

Yes, but From an investor’s perspective, dovetailing the management fees of an asset management company (AMC) with the returns generated is a valid argument. However, one needs to consider a host of aspects related to the AMC business while deciding on income generated since there are several costs associated both on the fixed Risk-adjusted side as well as variable costs. returns is a If one were to just evaluate the quesmore tion in isolation, it will be prudent to go beyond absolute returns generated inclusive by the fund and include the risks assoapproach ciated with the investment. We believe this is a more holistic approach to evaluate the performance of your investments. Generating high returns during times of boom is not so difficult, the challenge is when markets start declining or turn volatile. Risk-adjusted returns therefore is a more inclusive approach to performance evaluation. Also, the evaluation of

performance of the fund needs to be linked to its proper benchmark index since it clearly indicates the alpha that the fund manager is able to generate due to stock-picking and the research process an AMC adopts.

Aneesh Srivastava CIO-IDBI FEDERAL LIFE INSURANCE

Yes There is certainly a merit in the argument that the fund management industry should charge fees based on performance. To implement this, current fund management charge (FMC) can be broken up into two parts. The first, a ‘core FMC’ to meet the basic setup costs and the other, a ‘performance fee’. Also, the Performance performance fee component fee should be should be made very attractive made very for better performing funds. attractive for However, this would require us to decide the following: i) What better-performwould be the benchmark for pering funds formance evaluation? All funds offered by MF and insurance companies may not have publicly available benchmarks. Hence, there would be a need for synthetic benchmarks. These synthetic benchmarks should be created ideally by an independent agency. ii) What time frame should be considered to evaluate performance? iii) If the performance fee is determined at the end of the year, how would this be charged? In close-ended funds, it is easy but in open-ended funds, some investors would have switched out of funds. iv) What is an appropriate performance fee?

Sandeep Parekh FINSEC LAW ADVISORS

No Switching from a long prevalent and globally followed asset-based management fee model to a performance-fee regime would have far-reaching implications. Linking fee to profits cannot be a solution and will be an overkill. Even a seasoned fund manager cannot assure profits and can only take The attempt to get well-informed decisions. higher returns may Performance fee is a practice unheard of even in the US or the require taking UK. Given the regulatory greater risk restrictions on investment and the large size of many funds, asset managers attempt only to marginally beat the index. Investors may seem to benefit in the short run but will ultimately be harmed because of fewer players and bad service as the interest in mutual fund business reduces. The attempt to get higher returns may require taking greater risk, which could harm ordinary investors.


Mutual Funds

The Economic Times Wealth, January 10, 2011

21

INDEX FUNDS

You cannot choose an index fund on the basis of high returns alone. Here is what you need to look out for.

What leads to tracking error Scheme name

UTI Master Index Franklin India Index-Sensex Nifty BeES UTI Nifty Index Franklin India Index-Nifty HDFC Index-Nifty LICMF Index-Nifty Junior BeES

Fund return

Benchmark return

18.24 18.08 19.22 18.08 18.41 17.30 18.65 18.09

17.73 17.73 18.39 18.39 18.39 18.39 18.39 18.09

Diff

I

t is fairly known that index funds are less risky compared to actively-managed diversified funds. Since index funds mirror the benchmark index, they are less volatile compared to other equity-based funds. What is also known is that the risk in index funds is also lower because your investments are not at the mercy of a fund manager taking a wrong investment decision. What few investors know is how to identify the best index fund. The normal method of identifying schemes that have outperformed their benchmark indices won’t work here. As Tarun Bhatia, director (capital markets), Crisil Research, says “If an index fund has outperformed its benchmark now, it can underperform the same later. One should go for funds that closely map index.” In other words, if a fund is giving returns higher than its index, it may not be such a great fund. The tracking error, or the difference in the returns of the index fund and its benchmark (see box), is the most common tool for this. When tracking error doesn’t work But the tracking error does not capture all the deviations from the

Tracking Error

AUM (` cr)

Cash %

0.02 0.03 0.10 0.10 0.10 0.10 0.10 0.59

69.37 62.82 513.38 211.39 135.78 54.28 64.97 200.47

0.03 0.24 0.29 0.07 0.23 4.00 0.12 0.22

0.51 0.35 0.83 (0.31) 0.02 (1.09) 0.26 0.00

Expense ratio

0.75 1.00 0.50 1.50 1.00 1.00 1.16 1.00

Source: Accord Fintech

How is the tracking error computed

Beyond tracking error

Tracking error is the annualised standard deviation of the difference in the returns of an index fund and its benchmark index. These can be computed in four steps:

This fund has a high tracking error among index funds compared but its one-year return matches closely with its benchmark .

1. The daily returns of the index fund and the benchmark index are computed. Since Sensex and Nifty values do not capture the dividend component, “total returns index” has to be used for this 2. Then the difference between these two returns is computed for each day. 3. After this, the standard deviation of these differences is calculated. 4. In the final step, this standard deviation is annualised by multiplying it with the square root of 250. This is based on the assumption that there are 250 trading days in a year.

Why passively managed index funds are not a bad idea Page 29

benchmark index. For example, the Nifty Junior BeES has a high tracking error (at 0.59%), but maps the index very closely and its one-year return matches that of its benchmark, the Nifty Junior. But other index funds that have a lower computed tracking error have shown more deviation from their benchmark returns. We take a closer look at the factors that can influence the tracking error. Cash component: The cash in the portfolio is a major cause of the difference in returns. The lower the cash component, the closer the fund can track the index. Therefore, investors have to keep a close watch on it. “If an index fund gets negligible incremental cash inflow, it can’t spread it across all the index constituents in the exact ratios. Also, if there is a high amount of cash in the portfolio, it can also contribute to a higher tracking error,” says Rajesh Krishnamoorthy, managing

GETTY IMAGES

When high returns can be a problem

NUPUR ANAND & NARENDRA NATHAN

director of fundsupermart.com. Let us assume that the benchmark index moves up by 1% in a given day. An index fund holding 1% of its assets under management (AUM) in cash will move up only by 0.99%, while another with 10% cash component will move up only by 0.90%. In other words, the cash component will result in these funds underperforming the index in a rising market and outperforming the index in a falling market. So it always makes sense to stick with an index fund with a lower cash component. Fund size: If the fund size is larger, the mutual fund house will be able to manage it efficiently. “That is why larger index funds usually have low tracking error,” says Krishnamoorthy. Higher AUM also makes management of inflows and outflows easier as a larger corpus facilitates better cash movement. So it always makes sense to stick with an index fund of significant size. The table has schemes that have an AUM of at least `50 crore . Expense ratio: This is the total expenses charged to the scheme in a year. The expenses can be for asset management and marketing commission given to distributors. It is a recurring expense and is charged to the scheme daily. Since no active fund management is required, the expense ratios of index funds are relatively low. Experts say this should not exceed more than 0.5%. But in India, there are 16 index funds with expense ratios of more than 1%. And unlike the other two factors (i.e., cash component and AUM), this will remain a major drain on the scheme. In other words, investors need to

avoid a scheme with a very high expense ratio even if it has a lesser “declared tracking error”, because it is most likely to underperform the benchmark index in the long run. Index composition: Liquidity of the index component and how smoothly a fund manager can get in and out of these stocks also play a crucial role in determining the tracking error. Since major indices such as Nifty and Sensex are constituted of extremely liquid stocks, the tracking error has to be relatively lower. But that won’t be the case when one keeps tracking less liquid indices like Nifty Junior or CNX Bank Index. In other words, investors have to expect a higher tracking error in funds that track non-major indices. Index Funds vs ETFs: Though exchange-traded index funds (ETFs) map the benchmarks very closely, there are disadvantages too. You can invest in or redeem from an openended index fund whenever you want. But it may not be easy in the case of ETFs because they may not be traded frequently. The average daily turnover of Nifty BeES in December 2010 was `2.36 crore while that of Kotak Nifty ETF was only `5.54 lakh. There can be small difference between the NAV and market price. The bid/ask spread (the difference between the best buy quotes and best sell quotes ) is another headache investors have to face if they decide to stick with illiquid ETFs.

Please send your feedback to etwealth@indiatimes.com


22

Fund Portfolio

The Economic Times Wealth, January 10, 2011

Safe bet for retirement Mutual fund investors often wonder how many and what type of funds they should buy. ET Wealth presents five fund portfolios to suit different sets of investors. These portfolios have been designed by Value Research for our television channel ET Now. Every week, we will analyse one portfolio in detail and provide an update on the rest. Go ahead and choose the portfolio that best suits your needs.

Watch show on fund portfolios every Saturday at 12.30 pm and every Sunday at 10.30 am See page 33 for the ETW Funds 100 list of best funds.

Top 5 stocks in equity holding (in `)

2,08,421

Franklin India Bluechip Fund*

34,742 (57.03%) 1,874 (3.08%) 1,419 (2.33%) 1,155 (1.9%) 1,129 (1.85%)

State Bank of India ICICI Bank

Annualised return

Coal India

11.4%

ONGC

*Held by the FT India Dynamic PE Ratio Fund of Funds

Top 5 sectors in equity holding (in `) 40,062 (65.76%) 5,100 (8.37%) 2,512 (4.12%) 2,270 (3.73%) 1,771 (2.91%)

Financial Energy Engineering Automobile Technology

Portfolio asset allocation

Equity investment style

Others 3.1%

Equity market-cap break-up

Growth Blend Value

Equity 29.2%

Debt 67.7%

Giant 16.32%

CAPITALISATION

T

his portfolio is designed for an individual who is close to retirement and does not want to take too much risk with money. This portfolio has two aims. First, to beat the returns of a standard bank deposit so that your money continues to grow. Second, to offer a partial equity allocation to negate the effects of inflation on your retirement corpus. While 40% of the portfolio has been invested in the Franklin Templeton Dynamic P/E Ratio Fund of Funds, this fund has nearly 60% of its corpus invested in debt. The total equity allocation is just about 30%. FT Dynamic P/E Ratio Fund of Funds gives the portfolio a diversified equity allocation with a lower risk. The fund invests in units of Franklin India Bluechip and Templeton India Income. Both are high-performing equity funds. The two MIPs—HDFC Long Term MIP and Reliance MIP—have been picked to start paying a monthly income post-retirement. Both have been top performers in their categories. Each invests 20% in equity and have given annualised returns of about 12% since launch, which is far more impressive than bank deposits. We began investing in this portfolio 19 months ago through an SIP of `10,000 a month and it has so far given an annualised return of 11.4%. Funds invested in this portfolio remained insulated during the market volatility last year while it continued to accumulate a modest return. —Faye D’Souza

Fund value (`)

Small Medium Large

‘I can’t take risk’ Fund

Not classified 57.77%

Large-cap 8.8% Mid-cap 11.17%

INVESTMENT STYLE

Small-cap 5.94%

Debt rating break-up

Funds in the portfolio Investment Annualised Rating `) returns (%) per month (`

Fund

FT India Dynamic PE Ratio FoF-G

4,000

12.5

NA

HDFC MIP Long-term-G

3,000

11.3

*****

Reliance MIP-G

3,000

10.0

*****

10,000

11.8

Total Portfolio

The portfolio was established in June 2009. SIPs are made on the first day of a month.

AA 3.99% `5,898 AA0.48% `710

Cash & Call Money 4.41% `6,525 A+ 0.77% `1,135

GOI Securities 13.16% `19,463 AA+ 4.87% `7,198

P1+ 17.52% `25,910

AAA 21.35% `31,571

Net Payables -0.04% `-56

Mutual Fund Debt 33.49% `49,530

‘I seek high returns’ Fund

‘I want regular growth’ Fund

‘Good returns at low risk’ Fund

‘I want regular income’ Fund

Fund value

Fund value

Fund value

Fund value

(`)

2,26,098

(`)

11,30,135

Annualised return

Annualised return

Equities: 70-80% Debt: 20-30%

17.8%

15.8%

Funds Annualised returns (%) BSL Frontline Eqt A-G 23.1 Canara Robeco Income-G 4.9 DSPBR Short Term-G 5.6 DSPBR Top 100 Eqt Reg-G 22.3 DWS Investment Opp Reg-G 16.0 HDFC Top 200-G 26.7 UTI Dividend Yield-G 28.8

Equities: 65-70% Debt: 30-35%

Equities: 25-30% Debt: 70-75%

Annualised return

Equities: 80-90% Debt: 10-20% Funds Annualised returns (%) DSPBR Short Term-G 5.6 IDFC Premier Equity Plan A-G 33.8 L&T Opportunities-G 18.4 Reliance Regular Savings Equity-G 23.0 Sundaram S.M.I.L.E. Reg-G 17.7 UTI Opportunities-G 25.8

Monthly SIPs ranging from `1,000 to `2,500 in seven funds.

(`)

2,18,973

2,21,876

22.1%

(`)

Monthly SIPs ranging from `1,000 to `2,500 in seven funds.

Annualised return

19.6%

Funds Annualised returns (%) DSPBR Balanced-G 19.6 FT India Balanced-G 15.5 HDFC Prudence-G 20.8 Reliance Regular Savings Bal-G 22.2

Monthly SIPs of `2,500 in four funds

Funds Annualised returns (%) FT India Dynamic PE Ratio FoF-G 13.8 HDFC MIP Long-term-G 14.5 Reliance MIP-G 13.8 UTI Balanced-G 20.9

Quarterly withdrawals of `5,000 from each of the four funds


Real Estate

The Economic Times Wealth, January 10, 2011

23

PROPERTY ON AUCTION

Bidding for a house Steal a deal by buying a property that goes under the hammer. But first know the basics.

AMIT SHANBAUG

GETTY IMAGES

U

lhas Dedhia, a Mumbai-based businessman, wasn’t keen to buy a flat in an auction. Still, he decided to do so after much coaxing from a friend. The flat in one of the prime localities in south Mumbai had a reserve price of `35 lakh. The flat was put up for auction by a public sector bank after one of its borrowers had defaulted on loan payments, thus forcing the institution to take possession of the property and auction it. “It was 1996, and `35 lakh was a lot of money. It was only after much persuasion that I decided to go for it,” says Dedhia. During the bidding, the price of the flat increased to `42 lakh. “However, it was at least 30% cheaper than the market price in those days. Today, the flat is valued at least at `10 crore,” he says. With prices soaring beyond the reach of the common man, property auctioned by banks is the gateway to your dream house. “The bank in most occasions is just bothered with its dues. In many cases, the reserve price is just the amount, including interest. This is much less than the market price,” says Pankaj Kapoor, managing director, Liases Foras, a Mumbai-based property research consultancy firm. According to Kapoor, these flats are usually available at a discounted price of at least 15-20%. “I have known cases where flats have been sold at a 50% market price as there were few bidders at the auction,” he says. His views are echoed by Joy Sanyal, head (development initiatives), Jones Lang LaSalle India, a property consultancy firm. “In case of bad loans, banks attach properties. These are then auctioned. It is often possible to obtain such properties at lower rates than those prevailing in the market,” says Sanyal. Banks have to advertise auctions in a few local dailies. Bidders can check houses accompanied by a bank official. The houses are on an as-is basis, meaning the bidder also gets the furniture and fittings along with the property. The bank fixes a date and place where the auction takes place. The bank may also fix a minimum sum, which is usually a per cent of the reserve value that a bidder may have to submit immediately after winning a bid. Funding for these flats is done in the same way as a regular flat. After the initial 15-20% down payment, a buyer can obtain a home loan from a bank. He can also apply to the auctioning bank for a loan. As the bank has done the back ground check of the title deed, loan procurement is faster. But before rushing to buy auctioned property, it is prudent to carry out a few background checks. Though banks verify the title deeds before

AUCTION FACTS … Why? Property cheaper by 15-20% than market price

How? Banks advertise in local dailies with property details, date and place of auction  Bidders can visit the property  Submit expression of interest by specified date  Submit earnest money  Attend the auction  Banks also give home loans for auctioned property 

Watch out  

Bank may ask for part of reserve value immediately after the bid Buyer has to bear all outstanding dues on the property

mortgaging a property, it is advisable that a buyer checks important documents such as possession record in title before bidding. The title of a property can be verified at registry offices. An investor should also verify municipal records to find out whether any tax is outstanding. If the property is part of a housing society, a buyer should check with the society for any outstanding maintenance or electricity dues. A bidder must consider all these charges as the bank does not pay for these and the onus is on the new flat owner to clear all dues. It is after adding all the dues to the reserve price the buyer knows if a property is really cheaper than the market rate. A legal adviser would be able to help out with the necessary technicalities concerning a property. A property broker would help understand the correct value of the property. The difference between the reserve price and market value or final bid is the gain a bidder stands to make.

Please send your feedback to etwealth@indiatimes.com


The Economic Times Wealth, January 10, 2011

Learn & Keep

`5.1

REAL SALARY

`3.5 lakh

REAL SALARY

`2.9 lakh

`4.7 lakh

NOMINAL SALARY

REAL SALARY

`2.6 lakh

REAL lakh SALARY

NOMINAL SALARY

`35.9 lakh

NOMINAL SALARY

`9.3 lakh

REAL SALARY

`3.2 lakh

NOMINAL SALARY

`6.6 lakh

`1.6 lakh

`2.6 lakh

5 yrs

10 yrs

Grapes

Onion

Onion

405 /kg `

8%

which school or college fees are rising):

Rate of education inflation (rate at

8% Share in consumption 9% Contribution to inflation

MARRIED WITH KIDS

Contribution to inflation

24%

22%

Share in consumption

RETIRED

10%

0%

The impact on you will depend on your age and family status. SO IF YOU ARE...

General rate of inflation:

Contribution to inflation

Share in consumption

MARRIED WITH KIDS

Contribution to inflation

11%

consumption

15% Share in

Contribution to inflation

19%

Share in consumption

RETIRED

12% 25%

at which medical expenses are rising):

Rate of health-care inflation (rate

The impact on you will depend on your age and family status. SO IF YOU ARE...

8%

55/lts

PRICE IN 2010

Petrol

`

Milk

26/lts `

Petrol

264 /kg `100/lts

Milk

PROJECTED PRICE IN 2020

67/lt `

Wheat

55/kg `

11% Nagpur

Wheat

19/kg `

Goa

12%

3.5% Ludhiana

Puducherry

3.5%

Amritsar

12%

9%

Chennai

5%

Durgapur

12%

Data compiled by: SAMEER Graphics: RAJ

Bangalore

5.2%

Jamshedpur

14%

Before you fret over food inflation crossing 18%, check out inflation in your city— which is what really matters. As the map shows, city-wise inflation ranges from as low as 3.5% in Puducherry to over 14% in Jamshedpur.

Inflation and your location

Unlike in the case of education inflation, the healthcare inflation keeps rising with age and peaks after your retire.

8% 6%

SINGLE

Health care

General rate of inflation:

If you are single, your only expense on education may be a career enhancement programme, but as a family with kids, your consumption of education will jump substantially only to reduce to zero by the time you retire.

SINGLE

Education

40 yrs

Grapes

No. of years

Your inflation depends on what all products and services you and your family consume, and how much. Education and health are two major and growing heads of consumption from most families:

Onion prices may be bringing tears today and grapes may be turning sour because their cost is prohibitive. But what if the past 10 years’ rate of inflation for basic commodities continues to hold true for the next decades too? Here’s how much they will cost 10 years from now.

`

YOUR INFLATION

GENERAL INFLATION

Two examples of how your inflation differs from the general inflation

dotted line in the chart on the right).

The inflation rate you read in newspapers is the one that applies to you and your family. Depending on your lifestyle—which depends on the stage of life you are in— your own inflation can be lower or higher than the country’s rate of inflation (as has been indicated with the

Your inflation isn’t the same as the country’s inflation

What you may pay in 2020

58/kg `

36/kg `

`6.4 lakh

After

20 yrs

15 yrs

After

After

REAL INVESTMENT

NOMINAL INVESTMENT

`45.3 lakh

REAL INVESTMENT

NOMINAL INVESTMENT

`6.7 lakh

REAL INVESTMENT

`2 lakh

NOMINAL INVESTMENT

is the difference between real and nominal value of your investment after 40 years — caused by inflation.

-86%

Inflation: 5%

Starting age: 20 years

`4.2 lakh

{

Annual return on investment: 10%

Starting investment: `1 lakh

Annual increment in salary: 7%

Starting annual salary: `2.4 lakh

This graphic assumes the following:

Your income + your investment = your purchasing power. This is the commonly understood definition of purchasing power, or net worth. But it is incomplete. The missing element in this equation is the inflation rate. Not just today’s inflation, but the likely inflation during your lifetime. How does the inclusion of inflation in the calculation affect your current and future prosperity? Very dramatically. The graphic on the left shows this clearly. Even a modest 5% annual inflation can create a difference of 22% between your nominal and real income and investments in just 5 years. Over 40 years these differences inflate to 86%. The takeaway: Plan your future based on the real values of income and investment and not the nominal values.

The assault on income and investment

`2.5 lakh

REAL INVESTMENT

After

NOMINAL INVESTMENT

REAL INVESTMENT

`1.3 lakh

After

NOMINAL INVESTMENT

`1.6 lakh

NOMINAL SALARY

`3.4 lakh

Inflation is one of those phenomena that everybody knows about, but few understand—at least not fully. We know inflation makes things expensive, some of us also know it reduces the value of our income, and fewer still know how and by how much it also reduces the value of our investment. Here’s all you ought to know about what really inflation is and in how many different ways it eats into your prosperity.

LIVE, FIGHT & CONQUER INFLATION WE TELL YOU HOW

24

Rate of inflation


26

Family Finances

The Economic Times Wealth, January 10, 2011

I have not invested in mutual funds as I know little about them. I don’t know which funds to invest in or how much.” CHAITANYA J SHOME BASU

Chaitanya J with wife Sudha

Chaitanya’s asset allocation Way to Goal Goal

19.5

`

lakh

is the approximate current net worth of Chaitanya

Time to achieve

9

Future cost ( `)

Resources used

Car

3 years

4 lakh

Fixed deposit

Nil*

Home

6 years

35 lakh

Cash from sale of property + Direct equity

Nil*

37 lakh

SIP

7,195

Retirement

3.73 crore SIP+ Employee Provident Fund+ Pension fund

5,000

* Remaining amount to be paid by a loan to be serviced with EMIs Inflation assumed to be 6%, income assumed to grow at 10% per annum. Equity portfolio to grow at 12%, Hybrid portfolio to grow at 10%, Debt to grow at 8%. A comprehensive plan has been mailed to the couple

8.7%

30%

Debt

Real estate

EXISTING

Child's education 15 years 35 yrs

% Equity

Further investment required (`/pm)

40% Equity PROPOSED

20.6

61.7% Real estate

% Cash & Gold

10%

20% Debt

Cash & Gold The proposed asset allocation is to be reached over a period of time as Chaitanya would make changes in his investments


Family Finances

The Economic Times Wealth, January 10, 2011

CONSERVATIVE INVESTOR

Never too late to start 

No exposure to equities apart from employee stock option scheme



67% of financial assets are either in gold or bank fixed deposits



Inadequate and expensive life insurance cover

Can Chaitanya J catch up after losing some of the most important years of investing? nancial plan. However, it is never too late to start investing. Chaitanya can still achieve have not invested in mutual funds as I his goals if he is disciplined. know little about them. I don't know Of his four major goals, his investible which funds to invest in or how surplus is sufficient for funding his child's much,” says 30- year-old Chaitanya J. education and retirement. The short-term It is not that the Hyderabad-based goals of buying a car and a house will have program manager is unaware of his to be postponed by a couple of years. financial goals. His to-do list reads like this: Chaitanya wants to buy a car worth `4 Buying a car and a house, saving for his lakh in a year from now. However, he does child's education and building a retirement not have enough money to service a car corpus. Given this ambitious list, his loan. Allocating money from his current investment approach is ultra-conservative. surplus at the cost of the long-term goals is The good news is that Chaitanya’s not prudent. We suggest that he scale down cautiousness is not due to risk aversion but his aspirations and buy a cheaper or a ignorance. He is ready to invest in equities second-hand car. provided he gets the right guidance. But he Else, he should postpone the goal for will have to up the ante, having lost around three years. By then, his income should seven to eight of his golden years of grow sufficiently to support the equated investing. monthly installment (EMI) for a car loan. In Chaitanya, who works for an e-commerce this period, his investment in the fixed company, and his wife Sudha live in his deposit will grow to `1.16 lakh, which can be parents’ house. He earns `32,500 a month. used as down payment for the loan. The balAfter deducting household expenses and ance `2.84 lakh can be serviced with a fivepremiums for his life insurance policy and year loan for which the EMI works out to pension plan, he is left with an investible `6,317 at the rate of 12% a year. surplus of about `14,000. As there In two years, Chaitanya and Sudha is no rental expense, he saves want to buy a two-bedroom more than half his monthly takeapartment in Hyderabad worth `25 An ex-nuclear home, leaving sufficient funds lakh. At the current income level, it scientist starts his own company after for investments. Had he started is not possible to accommodate a retirement investing in equities early, he hefty home loan EMI. A house is Page 46 would have accumulated a usually “a once-in-a-lifetime sizeable wealth by now. investment”. It is not the case with just Therefore, we don’t think that equities. Chaitanya’s investments in debt inthey should scale down the goal and struments are also quite low, which compromise on a dream home. indicates that he has not been investing diliInstead, the couple can delay the gently. Well, he does own jewellery worth purchase of a house by another four years. about `4 lakh and a plot in Damaiguda The apartment’s price could rise to `35 lakh (Hyderabad) valued at `12 lakh. “The in six years. By then, his Esops should be jewellery is for personal use. It is not an worth at least `4 lakh (assuming 12% annual investment and the plot of land that we own returns) and the value of the plot will grow was a gift from Sudha's parents for their to nearly `16.8 lakh. Together, the two daughter,” says Chaitanya. If we keep these investments can be used for the down two possessions aside, apart from `1 lakh in payment of `20.8 lakh for the home loan. fixed deposit and shares worth `1.76 lakh as Chaitanya is comfortable with the idea of part of employee stock options (Esops), he selling the plot. “It is located in a far-off does not have a major investment. place. I don't expect to live there. So, I think This adds to the sub-optimal start to his fiI will sell that property,” he explains. SHOBHANA CHADHA

CHAITANYA’S BEST MOVES…

I

Saving about 56% of monthly income Opting for employee stock option scheme Opening a provident fund account last year

…AND THE WORST

Not having a systematic plan for investing monthly surplus Not having a well-diversified portfolio Buying traditional and expensive life cover Investing in tax-inefficient bank fixed deposits

The balance `14.2 lakh can be paid by a 20-year-loan. Its EMI will be `12,776 at the rate of 9% per annum. Chaitanya also wants to buy gold jewellery worth `2 lakh. We suggest that he defer the goal for sometime as his present cash flow does not permit him to do so. Also, gold prices are at an all-time high. So we suggest he waits for prices to fall. Although the couple have not planned a baby yet, they want to start saving for the education of their child early. Chaitanya is not worried about his child's primary education as it can be easily funded from the household savings. He will need a corpus of about `36 lakh for his child’s higher education. To build this amount, he must invest `7,195 a month in equity mutual funds through systematic investment plans. This can be divided into two equal amounts and invested in HDFC Top 200 and ICICI Dynamic, suggests Wealthcare Securities.

27

Both these are diversified equity funds with a proven track record and need not be monitored too regularly. The other long-term financial goal for Chaitanya is to build a nest egg for his old age. He wants to work for another 35 years and retire at 65. Given their current standard of living and expenses, the couple will need `3.73 crore to live comfortably after retirement. Six months ago, Chaitanya started saving money for retirement through a pension policy. It is a Ulip with an annual premium of `50,000 and a minimum investment period of five years. Wealthcare Securities recommends that he continue with this policy. However, he should opt for a life cyclebased portfolio strategy. This will ensure that as his risk appetite decreases with age, the equity allocation of the premium also wanes. Alongside, we suggest that Chaitanya invest `5,000 through an SIP in Birla Sunlife Equity fund. It is a diversified equity fund in the market for about 10 years. A steady performer, the fund is well suited for a longterm goal like retirement. Together with his pension policy and employee provident fund, regular investments in this fund should take Chaitanya comfortably past his retirement corpus. No financial plan is complete without a comprehensive life and health insurance cover. Chaitanya and his wife are covered by his employer-sponsored health insurance policy. However, Wealthcare Securities suggests that he should also buy a token health insurance policy of `1 lakh. This will act as a top-up to his present cover and will also ensure that his health remains insured at all times, even when he is not employed. The annual premium for such a policy should be around `1,500. Also, Chaitanya’s father will retire in a year and a half from now and we suggest that he buy a health cover for his father as well. This can also be a part of his tax-saving strategy as the premium of up to `15,000 is tax-deductible under Section 80 C of the Income Tax Act. For life insurance, Chaitanya has bought an endowment policy that covers him for `3 lakh. The annual premium is `15,980. This is a very expensive policy and the cover is inadequate for the sole breadwinner of the family. The returns from the policy are also very low—about 5% a year. Therefore, we suggest that he surrender this policy once it acquires a paid-up value after five years. The premium should be redirected to a 30-year term plan which covers him for `25 lakh. The premium for such a policy will be around `4,150. The surrender value of the endowment policy can be used to fulfil his ambition of buying gold jewellery. He can also invest in gold exchange-traded funds which do away with the hassle of storing gold safely. Chaitanya must resist the temptation to withdraw money from long-term products such as PF and the pension plan. For emergencies, it is best to stash away three months’ expenses in a sweep-in account (one that combines savings-current and fixed deposit features) and let other investments grow.

Financial plan by Mukesh Gupta, Director, Wealthcare Securities Need help with your family finances? Write to us at etwealth@indiatimes.com


28

Financial Planning

The Economic Times Wealth, January 10, 2011

THE MONEY

Paper Work

QUESTION

Change of address in fund investments

Aman and Deepa are nearly 35 years old and have worked for over 10 years but have been unable to save much. They love their lifestyle choices and are unwilling to cut back their expenses drastically. They do not have any long-term loans, though they do take personal loans or use credit cards whenever needed. A friend proposed that they buy a plot of land in the outskirts of the city by taking a loan. The idea appeals to them since it would mean a compulsory saving to repay the loan and acquisition of an asset. Should they buy the plot?

If an investor has changed his house and wants to update the new address in his mutual fund details, he will have to write to each fund house that he has invested in. Instead, if he just updates his address with a central agency named CDSL Ventures Limited (CVL), all his folios across funds would get updated. CVL is also responsible for processing the KYC (Know your Customer) details. Mutual funds have now made it compulsory for all investors to complete KYC formalities. This involves providing an acceptable proof of address and identity to the mutual fund. CVL updates the address of the investor centrally and the same is communicated to all mutual funds.

I

f Aman and Deepa have limited or no other asset, beginning with a large indivisible asset such as a piece of land is a bad idea. They need to build liquid assets in deposits, mutual funds, bonds and equities first. These assets can be sold in parts if there is a need for money. These can also be used as collateral if a loan has to be taken. There is a psychological satisfaction in owning a piece of land whose value is appreciating, but it translates into little or no value in day-to-day living. Taking a loan to buy the land will mean that the EMI will take a large amount, which the couple sees as compulsory saving. But it will also leave them with little leeway for any other loan, or for any other saving. If they like a compulsory saving, a systematic investment plan in a mutual fund will serve the same purpose, but with greater flexibility. They can skip an installment if they have a problem; they can draw from the investment in case of need; and the value of the investment will also appreciate over time. The loan against the land is very inflexible in comparison. If the intent is to simply buy the land and keep it for appreciation, Aman and Deepa also lose all the tax concessions that come with buying a house. Unless they actually construct a house on the land, they will not get the tax benefit on the principal repaid or interest paid on the loan. If the plot is over 500 sq m, it would also be liable for wealth tax. Therefore, Deepa and Aman should consider other investments instead, or buy a flat in which they could live, if they are keen on acquiring property as an asset.

Update of investor records for a change in address is done by CVL for free. It would normally take about 10 days for the records to be updated.

1 Fill up the form and submit documents for verification to the designated point of service (PoS). Forms can be downloaded from http://www.cvlindia.com/i nclude/pdf/Individual.pdf.

2

FIED

I VER

RAJ

3 If you want to change the address and also apply for redemption, give at least 10 days for the update before the redemption.

SMART THINGS TO KNOW: ELSS funds

1

2

3

TAX

Equity-linked saving schemes (ELSS) are mutual funds that give an investor a tax deduction of up to `1 lakh a year under Section 80C of the Income Tax Act.

4

5

6

` ELSS funds have a lock-in of three years. But this does not mean that the scheme matures in three eyars. The amount can remain invested until redeemed by an investor.

Investment in an open-ended ELSS can be made anytime during a financial year to be eligible for tax benefits for that year. Even those who don’t claim tax benefits can apply.

Dividends from an ELSS scheme are exempt from income tax. Since these are equityoriented schemes, dividends do not attract any dividend distribution tax as well.

The PoS will give an acknowledgement. A copy of this has to be enclosed with mutual fund purchase documents.

4 KYC is mandatory for all joint holders but address in a folio is only of the first holder. No need to make changes for all holders.

Points to note Redemption of ELSS investments is possible only after three years. There is no tax on the gain from an ELSS fund because long-term gains from an equityoriented investment are tax-free.

Avoid dividend reinvestment option in ELSS. Each reinvestment is subject to a 3year lock-in. You can switch from reinvestment option to payout option.

All content on this page is courtesy Centre for Investment Education and Learning (CIEL)

KYC first: Investors have to be KYC-compliant first before updating their address details. CVL is the only route: Fund houses and registrars will not accept change of address requests from investors. This is done only through CVL. PAN: Your PAN is used to identify all the folios held by you across funds. Quoting the correct PAN enables updating the records correctly. NRI: Those who provide overseas address will have to get it verified by their bank or consulate.


Guest Column

The Economic Times Wealth, January 10, 2011

29

FINANCIAL PLANNING

When being active isn’t lucrative Passively managed index funds barely attract investor attention though in the long term they deliver as much as actively managed counterparts, says Uma Shashikant

M

utual fund schemes sell on the basis of their performance. That’s true not just in India, but across the world. A fund that has posted a higher return than its peer group is the one that attracts investors and assets. Funds routinely advertise their performance as a means to attract investor attention. Research and other professional agencies that rate and rank mutual funds publish listings based on the performance. These pages are most sought-after by investors and advisors in selecting the right funds for investment. Why is it that “experts” suggest buying a passive index fund when the buzz seems to be around active funds that outperform the passive market indices? The fund management industry is primarily about active management. In India and elsewhere in the world, a large portion of mutual fund assets is actively-managed. Asset managers earn a higher fee for using their expertise to select the right stocks and sectors and actively manage a portfolio. A passive portfolio that simply mimics the index does not require selection and timing expertise and therefore costs less, both in terms of a fund manager’s fee and in terms of other expenses incurred to run the fund. The expense ratio of an index fund is usually 11.5% while that of an actively-managed fund can be 2-2.5%. Except for fund houses that specialise in passive funds, there is limited “push” of the passive fund by other fund

houses, though most have an index fund in their bouquet of products. One reason for experts leaning in favour of passive funds is the evidence from academic research. Those who have studied fund performances over a long period of time have held that active funds do not always outperform a passive fund or the market index and may not be worth the additional cost. Funds may do well in some years and not so well in others, thus ending up with a long-term performance that is just about the same as the passive market index. Studies have also shown that many actively managed mutual fund schemes tend to underperform the market index. Active fund managers use data from their own performance to counter this view. There is also the vague justification in the Indian markets that since we are an emerging market with structural gains to be made, our fund managers may outperform the index significantly compared to their developed market counterparts. The issue, to my mind, is not about the ability of the fund manager to deliver superior returns. It is about the ability of the investor to choose the right fund, to be able to participate in such outperformance. Funds taken as a whole deliver just about the same returns, or worse, than a passive index. Therefore, a portfolio of all active funds is likely to be expensive and worse off than a simple index fund. But there will always be specific funds that

would do significantly better or worse than the index. The practical question to address, therefore, is whether an investor has the ability to select the right fund well in time to participate in such outperformance. Or quit the underperforming fund in time to protect his investment. The sad answer to these questions is no. Investors buy well after a fund has shown the ability to beat its peers and stay with losing funds much longer, expecting a turnaround. The winners of the past are seldom able to repeat their outperformance. The case for passive index funds, therefore, is not about a fund manager doing better or worse. Someone or the other is doing better or worse at any given time. It is about the investor identifying the winning fund in time. It is about the investor’s—and not the fund manager’s—portfolio underperforming the index since it is holding duds. A portion of the core long-term investment should remain in index funds because investors may not have the ability to buy winning funds all the time. Our portfolio needs protection from our limitations before we argue about the limitations of a fund manager.

Five benefits of passive investing

The author is managing director, Center for Investment Education and Learning, and can be reached at uma.shashikant@ciel.co.in

Some funds will always do significantly better or worse than the index. But can an investor select the right fund well in time to participate in such outperformance? Or quit the underperforming fund in time to protect his investment? The sad answer is no.

GETTY IMAGES

Low cost: Index funds have expense ratios of 0.5-1% compared to about 2-2.5% of actively-managed funds. No nasty surprises: A passive fund will dutifully match the returns of the market index. Changing fortunes: Active funds seldom repeat performances. Last year’s winner could be this year’s laggard. Long-term stability: Over the very long term, an index fund will deliver returns equal to an actively-managed fund. Part of core portfolio: Core should include index funds, because it’s difficult to identify winners all the time.


30

Your Queries

The Economic Times Wealth, January 10, 2011

QUESTION OF THE WEEK 1

2

3

Q&A

4

5

PANEL MEMBERS 1. Taxation Vaibhav Sankla, Founder Director, ADROIT

2. Mutual Funds Dhirendra Kumar, CEO, Value Research

3. Insurance Amit Suri, CFP, AUM Financial Planners

4. Banking VN Kulkarni, Chief Counsellor, Abhay Credit Counselling Centre

5. Real Estate (Legal) Dhiraj D. Jain, partner (real estate), SN Gupta Company

ET Wealth brings the collective wisdom of five investing experts to help answer readers queries on various personal finance-related matters.

MUTUAL FUNDS I am 25 and I plan to invest in seven mutual fund SIPs—two funds each in ELSS, large caps, equity diversified and one in small cap. Is this the correct strategy? - Shankha

Investing through the systematic investment plan (SIP) is a good idea at the onset of your career. Since you have time, consider two tax-planning funds and two multicap funds. ELSS allows you to save tax and good multi-cap funds will help you with returns. You don’t need seven funds, especially when you are just about to start investing, as they may be difficult to manage. With fewer funds, you are not going to miss out on returns or style diversification. I am 29 and wish to invest around `5,000 a month. Please suggest some mutual funds through SIPs for my child's education and my retirement. - Shashank

You have time for both your financial goals son's education and your retirement. You should go for a portfolio with large and midcap stocks such as HDFC Top 200, Fidelity India Growth or Birla Sun Life Frontline Equity Plan A. All these funds are 5-star rated and have a proven track record. As you approach your financial goals, move it to debt-focused funds to cushion any wild swings in equity returns. Hence, you can track the performance of your portfolio and balance it from time to time.

TAXATION What will happen to existing policies—most of which have a cover of only five times the annual premium—once the revised Direct Taxes Code (DTC) comes into effect? If DTC allows tax-free returns on existing policies, can I get the relevant clause number? What will be the tax treatment on traditional policies? - Sudhir Goyal

The revised Direct Taxes Code does not specifically provide for exemption of proceeds of life insurance policy which meets the current criterion relating to the mini-

mum cover. However, the revised discussion paper specifically mentions that investments made before the date of commencement of the DTC in instruments which enjoy EEE (exempt-exempt-exempt) method of taxation will continue to be eligible for the EEE method of tax treatment for its full duration. Based on the above, I am hopeful that the final version of DTC will have a provision whereby maturity proceeds of such policies will be tax-exempt. If I take stamp valuation authority as the sale consideration, do I pay capital gains tax on a residential house sold at a value less than the stamp valuation authority? Can I avail benefits of exemption under Section 54 if I buy another residential house? Does the buyer also have to pay tax if he buys property at a value less than what is accepted by stamp valuation authority?- Neha Chaturvedi

Under Section 50C, you will have to consider higher of the stamp duty value and transaction value as sale consideration for calculating capital gains. You can still claim exemption under Section 54 if the property sold was a long-term capital asset and you meet all other conditions specified in Section 54. The buyer does not need to pay tax on the differential amount.

INSURANCE My health insurance expired recently and when I decided to renew it, I found that the premium had risen more than six times. Can a company do so? Do we have any recourse? - Rajesh S

Health insurance premiums are non-tariff products, so an insurance company can offer its own premium rates. Based on their claim experience, your insurance company has steeply revised the premiums on the upside, which does not seem to be reasonable to policyholders. The Insurance Regulatory and Development Authority has little control over the premiums being offered by a particular company. You can renew your policy with another company that offers you continuity and other benefits at an acceptable cost. However, shifting of health

insurance should not be done regularly and only in extreme conditions. I work in the private sector and my annual medical reimbursement is `15,000. Should I take a separate health insurance? - R Sharma

The health insurance provided by employer is only subject to employment with the respective company and shall not be applicable in case of job change or attrition. Moreover in your case, the medical reimbursement is only `15,000 annually, which is almost non-existent. Also, you can avail tax benefits under Section 80D.

REAL ESTATE My wife owned 300 sq yard of land before our marriage. Now, she wants to sell it. Do I also need to sign as a seller? - G Krishnan

Our building is under construction but we have taken possession. However, we have not received the occupancy certificate as the builder wants to avoid penalty for delay in handing over possession. The builder has also decided unilaterally to levy maintenance charges without completing the construction of all facilities.What should we do? - Residents, Esteem Apartments

As per Maharashtra Ownership Flats Act, it is the liability of the builder to not to allow persons to take possession until the completion certificate has been issued. So legally, flat buyers are not allowed to occupy the flat without the occupation certificate. If they do so, they are at their own risk. You must take legal action against the builder and dispute the payments till you receive the completion certificate. You should begin by sending a legal notice to the builder.

an application under the Right to Information Act with the municipal corporation as to how these two floors were allowed.

LOANS Since 2004, I have not withdrawn cash from my credit card. I have paid on time and used the card extensively. As I became a nonrevenue asset for the bank, it cut my limit to `7,000 from `87,000, which is not enough for my needs. What should I do? - S Sukumar

Normally, if your name has not been mutated jointly with your wife, then there is no requirement of signing any document. However in land matters, purchasers and/or their advocates may ask for all the heirs to be a party to the document. In case the same becomes an unavoidable situation, sign in as a confirming party.

In order to bring down the unsecured-loan portfolio, banks have started reducing the limits. In your case, if you have paid the amount on the due date and have maintained a clean record throughout and if you feel that you do need a specific limit, write to the bank clarifying your position. The bank may restore or increase the limit which they have now granted. Else, switch to another bank. Since your track record is good, it should not be a problem.

I booked an office where initially there were seven floors. However, the builder added two more floors for which he doesn’t have the required permission. The builder is now trying for a part-occupancy certificate. Can you please explain the implications? Secondly, what can be done about the two illegal floors added? - Raman

I had a savings account with a bank but forgot to close it and now I want to open a new account with an average quarterly balance (AQB) of `25,000. I think that the bank will deduct AQB non-maintenance charges for my previous account by tracing my details. Can a bank do so? Also, can I operate my account from different locations? - Pooja

Part-occupancy is issued by the authority concerned if the builder has completed the infrastructural work. Further, part-occupancy certificate should include the floor on which you have a flat and an architect certificate should be obtained for the same. About the two illegal floors, it’s the local authority which which should take legal action against the builder. You can also file

In all probability, the previous account may have been closed for recovery of charges out of the balance in your account. If a debit balance still remains, the bank has every right to recover the same. The other option for you is to get your dormant account activated. With the introduction of core banking, a customer can operate an account from any location.

Ask Experts

Have a question for our experts? Post it at etwquery@indiatimes.com


In This Section

smart stats

ET Funds 100 Insurance ranking Global investing

33 35 36

Loans and deposits City profile: Kolkata Property

37 38 39

ET WEALTH TOP 100 STOCKS Every week we put some 3,000-odd stocks through four key filters and rate them on a mix of factors. The end result of this exercise is the listing of the top 100 stocks based on the composite rating to help ease your fortune hunting.

Fast Growing Stocks Top 5 stocks with highest expected revenue growth (in %) Cairn India

OVERALL RANK

231

IRB Infrastructure

121

Gujarat NRE Coke

116

NMDC

114

See revenue column in the adjacent table

Least Expensive Stocks 5 stocks with lowest forward PE Prakash Industries

5.06

ICSA India

5.30

J Kumar Infraprojects

6.52

Texmaco

6.77

Ess Dee Aluminium

6.79

See PE column in adjacent table

Best PEGs Top 5 stocks with least price earning to growth ratio

3i Infotech

0.04

0.05

Jubilant Life Sciences

G

717

JSW Energy

Mercator Lines

Gujarat NRE Coke

0.07

0.07

0.07 Godawari Power

See PEG column in adjacent table

Income Generators Top 5 stocks with highest dividend yield Gateway Distriparks | 4.58 Oil & Natural Gas Corp | 3.83 Shipping Corp of India | 3.76 GE Shipping Co | 3.44 NIIT Technologies | 3.36 Dividend stocks are considered safe stocks during a downturn. Figures indicate what an investor can earn as dividend for every `100 invested.

See dividend yield column in adjacent table

Least Risky Top 5 stocks with lowest downside risk Bosch

0.86 Power Grid Corp of India

Bharat Heavy Electricals

0.89

0.87 Oil & Natural Gas Corp

0.95 Shiv-Vani Oil & Gas Explora

0.95 See downside risk and bear beta columns in adjacent table

Usha Martin Godawari Power Bombay Rayon Fashions Gujarat Industries Power Ashok Leyland Ess Dee Aluminium HDIL Pratibha Industries JSW Energy Tata Motors Bajaj Auto Sobha Developers GE Shipping Co 3i Infotech BGR Energy Systems Aditya Birla Nuvo Opto Circuits India Mercator Lines Deepak Fertilizers Oil & Natural Gas Corp KS Oils Cairn India Jubilant Life Sciences Unity Infraprojects Shiv-Vani Oil & Gas Sesa Goa Shipping Corp of India Parsvnath Developers Thermax Consolidated Construction NIIT Technologies Sterlite Industries India Rolta India Allied Digital Services JSW Steel Texmaco Strides Arcolab Torrent Pharmaceuticals Bharat Heavy Electricals Maharashtra Seamless Power Grid Corp of India NIIT EIH Gateway Distriparks Gujarat NRE Coke Everest Kanto Cylinder Orient Paper & Industries Reliance Industries Rallis India Cummins India Sarda Energy & Minerals United Phosphorus ICSA India Ahluwalia Contracts Dr Reddy's Laboratories Prakash Industries Redington India Hindustan Dorr Oliver Deccan Chronicle Holdings Escorts Hindustan Construction Co Ipca Laboratories Aban Offshore Petronet LNG Motherson Sumi Systems Sintex Industries Unitech Patel Engineering DLF

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69

R

Revenue

51.77 37.35 81.88 55.39 61.47 71.96 91.80 67.36 230.61 41.30 61.05 50.62 20.42 15.47 89.97 39.11 49.22 80.89 49.08 24.21 46.36 717.34 16.80 39.25 30.62 49.23 21.90 69.99 65.13 42.34 37.09 42.54 39.05 39.11 60.07 35.58 68.14 33.52 44.02 25.69 42.22 17.19 61.30 39.87 116.42 40.30 25.74 25.58 43.28 44.82 74.75 22.16 32.25 40.19 27.66 39.40 32.03 53.05 14.04 22.49 28.70 37.19 10.73 46.84 37.83 45.53 59.11 34.72 48.48

O

W

T

Net Profit

102.48 142.91 109.62 67.79 74.02 81.65 109.61 79.20 148.13 262.35 75.70 88.29 47.03 766.63 74.37 318.84 56.09 414.74 34.32 35.48 58.15 631.29 16.76 38.95 43.55 75.85 61.52 106.16 210.67 33.39 35.82 25.28 29.45 39.53 73.23 50.00 121.18 57.74 48.42 22.34 44.30 50.25 147.24 30.31 7979.57 109.25 21.89 50.36 69.32 75.63 25.99 47.31 42.84 39.58 292.12 50.99 46.59 44.75 53.20 59.12 2445.07 42.74 117.57 44.95 80.54 54.18 77.92 21.61 63.62

H

% EPS

98.77 128.95 117.77 67.83 75.39 53.29 59.85 55.95 149.90 200.68 73.78 78.41 54.87 716.64 74.58 281.59 54.68 367.60 32.47 35.97 50.12 629.60 224.43 36.60 34.11 60.61 58.56 89.12 211.11 63.60 35.21 69.40 27.42 38.03 35.54 43.62 63.77 61.63 50.34 22.52 33.83 50.24 160.09 28.50 2251.14 111.24 21.89 38.66 64.45 75.73 28.85 37.30 31.71 39.59 291.97 20.62 47.61 49.07 52.23 35.45 2162.08 42.47 114.32 46.36 74.33 42.55 55.92 21.17 66.68

V A L U A T I O N P/E

11.01 9.29 11.75 14.44 19.78 6.52 10.59 9.94 18.67 25.16 24.08 21.73 9.79 33.68 23.89 51.18 17.11 24.33 9.66 13.49 8.00 61.88 9.77 8.05 8.03 10.27 14.95 16.18 38.22 12.02 9.69 15.76 9.77 7.62 12.82 6.79 20.30 21.41 26.01 9.29 20.52 13.48 68.24 14.95 158.84 23.26 6.77 13.06 26.20 32.08 7.40 13.53 5.06 11.70 81.33 5.30 16.03 13.89 11.41 10.32 562.43 20.13 10.89 23.14 28.59 14.75 21.09 9.58 27.51

R A T I O S

P/B

Div Yield

PEG

1.28 1.07 1.20 1.24 2.28 2.49 0.94 2.04 3.31 8.52 14.13 1.83 0.88 1.15 6.81 1.50 4.26 0.60 1.73 2.58 1.24 1.92 2.01 1.31 1.40 3.49 0.89 0.99 9.19 1.87 2.11 1.67 1.55 1.33 2.23 1.19 2.20 5.96 7.08 1.16 2.63 1.88 3.24 1.78 2.68 1.56 1.37 2.27 6.40 10.00 1.64 2.38 0.87 3.78 7.58 1.03 2.75 3.49 2.17 0.89 2.16 4.79 1.82 4.19 5.96 2.51 1.47 1.52 1.94

1.40 1.27 0.72 2.46 2.30 0.44 0.00 0.87 0.77 1.19 1.51 0.77 3.44 2.44 1.05 0.63 1.62 0.35 2.51 3.83 0.41 0.00 0.72 0.98 0.26 0.95 3.76 0.00 0.60 0.84 3.36 0.51 2.07 0.55 0.86 1.72 0.35 1.02 1.01 1.60 1.52 2.44 1.06 4.58 1.43 1.23 2.80 0.65 1.13 0.79 0.94 1.24 1.21 0.52 0.66 0.00 1.33 0.72 0.91 0.59 0.86 0.85 0.45 1.41 0.94 0.33 0.32 0.67 0.72

0.11 0.07 0.10 0.21 0.26 0.12 0.18 0.18 0.12 0.13 0.33 0.28 0.18 0.05 0.32 0.18 0.31 0.07 0.30 0.38 0.16 0.10 0.04 0.22 0.24 0.17 0.26 0.18 0.18 0.19 0.28 0.23 0.36 0.20 0.36 0.16 0.32 0.35 0.52 0.41 0.61 0.27 0.43 0.52 0.07 0.21 0.31 0.34 0.41 0.42 0.26 0.36 0.16 0.30 0.28 0.26 0.34 0.28 0.22 0.29 0.26 0.47 0.10 0.50 0.38 0.35 0.38 0.45 0.41

R I S K Downside Risk

1.37 1.73 1.24 1.15 1.42 1.06 1.94 1.70 1.23 1.60 1.15 1.75 1.44 1.32 1.68 1.32 1.24 1.97 1.58 0.95 1.96 1.22 1.18 1.36 0.95 1.79 1.29 1.30 1.17 1.43 1.34 1.63 1.33 1.42 1.78 4.05 1.70 1.15 0.87 1.06 0.89 1.42 1.24 1.34 2.12 1.76 1.40 1.06 1.25 0.97 2.35 1.43 1.62 1.53 1.10 1.96 1.27 1.70 1.70 2.01 2.08 1.15 2.06 1.47 1.40 1.52 1.87 1.39 1.65

R A T I N G

Bear Beta

No. of Analysts

Consensus Rating

1.11 1.62 0.85 1.14 1.47 0.82 1.86 1.42 0.98 1.80 0.56 1.67 1.89 1.38 1.07 0.91 0.94 2.56 1.28 0.54 1.37 0.99 0.88 1.51 0.36 1.78 1.56 0.51 0.68 0.55 0.98 1.34 0.82 1.40 2.19 1.59 0.86 0.09 0.72 1.05 0.63 1.23 0.78 0.73 1.96 1.57 0.99 0.93 0.48 0.38 2.20 0.93 1.65 0.74 0.44 1.75 0.65 1.16 1.28 1.57 1.97 0.75 2.04 0.91 0.92 1.48 2.12 1.50 1.67

16 15 5 8 45 5 31 7 23 45 56 21 17 7 31 11 13 7 10 45 7 32 24 11 14 33 13 6 30 7 6 40 13 9 49 7 6 10 48 17 32 13 7 12 5 7 8 43 13 13 6 20 5 16 45 10 6 8 7 13 30 22 26 37 17 17 34 25 39

5.00 4.87 4.80 4.00 3.98 5.00 4.42 4.86 2.96 4.60 3.84 4.81 4.29 4.43 4.71 4.73 4.62 4.43 4.90 4.29 5.00 3.13 4.58 4.82 4.64 3.42 3.85 3.17 3.80 4.43 4.67 4.58 4.38 5.00 3.96 4.00 4.83 4.80 4.08 4.53 3.97 4.23 4.00 4.58 3.80 3.71 4.75 3.91 4.15 4.31 4.83 4.70 4.20 4.94 3.62 5.00 4.33 4.63 5.00 4.92 4.10 4.68 3.31 3.78 4.24 4.53 3.56 4.92 3.31


32

Smart Stats

The Economic Times Wealth, January 10, 2011

Analysts’ Pets

G OVERALL RANK

Top 5 stocks with only buy recommendation Jyothy Laboratories Exide Industries Godrej Consumer Products Nagarjuna Construction Co Bosch Apollo Hospitals WABCO-TVS India Gujarat Gas Co Simplex Infrastructures HCL Technologies McLeod Russel India Monnet Ispat & Energy Tata Chemicals Ratnamani Metals Indraprastha Gas Unichem Laboratories Glenmark Pharmaceuticals GVK Power Zee Entertainment Enterprises IRB Infrastructure Fortis Healthcare NMDC Tata Consultancy Services Ranbaxy Laboratories National Aluminium Co Sun TV Network Allcargo Global Logistics Sun Pharmaceutical Bajaj Hindusthan Infosys Technologies Polaris Software Lab

Usha Martin

16 Prakash Allied Industries Digital Services 10

9

Deccan Chronicle Holdings

KS Oils

7

7

Figures are number of analysts tracking the stock. See last column in table.

What is Hot Stocks that improved their analyst rating in 1 week

0.13

Power Grid Corp of India 0.13

0.11

Redington India

Aban Offshore

0.11 Petronet LNG 0.09 Everest Kanto Cylinder Figures show improvement in rating on a scale of 0-5

70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100

R

O

Revenue

W

T

H

Net Profit

48.07 40.24 99.05 41.39 57.81 44.90 69.14 48.26 31.96 41.17 23.04 59.63 17.28 27.93 86.37 32.70 34.78 28.22 42.90 120.98 104.77 113.57 43.97 30.10 28.31 45.06 34.21 56.08 23.34 41.65 21.19

56.36 58.86 66.23 20.28 74.45 59.88 83.56 51.57 45.36 50.97 29.01 35.87 43.51 22.06 33.93 39.65 64.54 141.59 42.71 38.85 187.19 127.79 34.70 305.67 67.59 56.25 37.34 45.09 24.77 30.49 19.18

What is Not

METHODOLOGY

Stocks that have gone down in analyst rating in 1 week

Four filters used to arrive at Top 100 stocks

%

V A L U A T I O N

EPS

P/E

P/B

45.98 48.42 58.03 19.56 69.65 58.37 83.63 50.14 44.09 47.50 35.42 24.20 36.59 19.91 34.26 39.75 62.08 88.99 23.69 38.00 90.93 126.16 35.46 336.96 71.24 56.81 28.64 46.47 89.44 30.26 18.65

26.50 26.06 35.29 12.09 34.62 40.69 24.99 28.70 15.56 25.95 10.28 10.80 15.05 7.05 22.18 17.43 29.14 40.74 19.29 19.42 55.66 31.88 32.96 84.57 31.07 41.00 13.33 39.15 11.10 31.60 9.95

5.08 7.11 12.91 1.55 7.28 3.39 7.23 6.48 2.02 5.23 1.73 3.68 1.99 1.57 5.79 3.81 4.15 2.07 3.11 3.67 2.46 7.70 12.53 5.77 2.43 11.30 1.92 6.73 0.96 8.64 1.85

1.48 0.79 1.08 0.92 0.46 0.77 0.24 2.05 0.49 0.94 1.84 0.88 2.33 1.75 1.32 1.68 0.11 0.00 1.45 0.65 0.00 0.63 1.70 0.00 0.64 1.38 0.67 0.55 0.59 1.58 1.89

Only traded stocks: Of the 7,000-odd listed stocks, only actively traded stocks were considered. Only big stocks: Companies with a market cap below `500 crore and annual revenues lower than `500 crore were dropped.

Unichem Laboratories -0.25

Only well tracked: We picked stocks that are tracked by at least 5 analysts. Only profitable and growing: We considered stocks expected to show revenue growth in the next 4 quarters, net profit growth in the next 4 quarters and EPS growth in the next 4 quarters were considered. The final filters were companies that made profits in past 4 quarters and have a positive net worth.

Monnet Ispat & Energy -0.20 Shiv-Vani Oil & Gas -0.09

R A T I O S Div Yield

PEG

0.58 0.54 0.61 0.62 0.50 0.70 0.30 0.57 0.35 0.55 0.29 0.45 0.41 0.35 0.65 0.44 0.47 0.46 0.81 0.51 0.61 0.25 0.93 0.25 0.44 0.72 0.47 0.84 0.12 1.04 0.53

R I S K Downside Risk

R A T I N G

Bear Beta

No. of Analysts

Consensus Rating

0.45 0.77 0.26 1.31 0.30 0.82 1.40 0.90 0.74 1.38 1.32 1.10 1.22 1.26 0.50 0.67 0.92 1.46 0.85 1.54 1.19 1.42 0.89 1.37 1.00 0.92 0.72 0.36 1.61 0.88 1.22

13 29 31 39 10 14 5 18 26 53 6 10 16 6 26 8 35 21 32 33 12 13 61 42 34 33 8 44 16 65 13

4.31 4.52 3.87 4.59 4.30 4.57 5.00 3.56 3.88 4.06 4.67 4.20 4.06 4.50 3.92 4.38 4.34 4.52 3.84 4.24 3.75 2.54 4.18 3.26 1.47 3.76 4.25 3.64 1.50 4.05 4.62

1.51 1.30 1.45 1.57 0.86 1.27 1.49 1.09 1.45 1.41 1.81 1.16 1.37 1.39 1.41 1.46 1.35 1.31 1.29 1.77 1.19 1.63 1.05 1.21 1.14 1.20 1.25 1.02 1.86 0.95 1.59

the better), 10% weight to net profit growth (higher the better) and 10% to growth in EPS (higher the better). Growth is calculated by comparing the "consensus estimate" for the next 12 months with the historical 12 month values. 2. ... But only at reasonable valuation Total weight: 40%, which comprises 10% weight to P/E ratio (lower the better), 10% to P/B ratio (lower the better), 10% to dividend yield (higher the better) and another 10% to PEG ratio (lower the better) 3. Analysts' views matter ... Total Weight: 20%—this consisted of 10% weight to the total number of analysts covering the stock (higher the better) and 10% to consensus rating (a composite rating based on the recommendations by all analysts who track a stock - higher the better). 4. ... So do the risks Total weight: 10% Two kinds of risks were considered. Downside risk (lower the better— 5% weight) and Bear Beta (lower the better—5% weight)

Rating rationale

Dr Reddy's Laboratories -0.09

Having arrived at the final stocks universe, we ranked them using the following four principles. A percentile rating (i.e. on a 1-100 scale) is given to each parameter and the composite ranking is arrived at using the weighted average of these parameters. 1. Growth is the key ... Total weight: 30%, which is further split into 10% weight to revenue growth (higher

Jubilant Life Sciences -0.08

The ranking methodology has been developed by Narendra Nathan.. A detailed explanation of the methodology is available at www.wealth.economictimes.com Please send your views about ET Wealth Top 100 to etwealth@indiatimes.com

Figures show dip in rating on a scale of 0-5

Sectoral Indices ET Hospitality

BSE Sensex

Top 5 Mid-Cap Stocks

Markets have seen some correction on rate hike fears

Top 5 weekly gainers (price)

-0.21

19691.81

-7.18

Jindal Saw CMP: 210.30 | % Chg: 14.98

1

-0.66 ET Oil & Gas

Bata India CMP: 386.45 | % Chg: 6.59

2

1.87

ET Pharma ET Power

Emami CMP: 427.40 | % Chg: 6.08

3

-0.77 30.04

1 year 11.79% 1 week -3.98%

17540.29

-1.09

Godfrey Phillips India CMP: 2182.35 | % Chg: 5.01

4

-14.98

ET FMCG

29.43 -6.35

ET Banks

Top 5 Large-Cap Stocks

Top 5 Small-Cap Stocks

Top 5 weekly gainers (price)

Top 5 weekly gainers (price)

22.34

1

-6.37 32.26

ET Fertiliser -6.54 21.42

ET NBFC ET Realty

Jain Irrigation Systems Price: 223.25 | % Chg: 5.91

2

Godrej Consumers Products Price: 395.55 | % Chg: 2.83

4 Percentage change

29.85

1 Week 1 Year

1

Satyam Computer Services Price: 69.70 | % Chg: 5.05

3

-7.03 -34.26 -7.74

ET Automobiles

Rajesh Exports CMP: 137.40 | % Chg: 4.65

5

-1.35

Mundra Port Price: 147.60 | % Chg: 2.75

5

GAIL (India) Price: 524.20 | % Chg: 2.62

Bellary Steel & Alloys CMP: 3.28 | % Chg: 33.88

2

Innovation Software Exports CMP: 9.28 | % Chg: 33.33

3

Encore Softwares Lts. CMP: 8.64 | % Chg: 30.91

4 Stock price as on 7 January 2011

RFL International CMP: 8.79 | % Chg: 30.03

5

Kinetic Engineering CMP: 205.15 | % Chg: 27.50


Smart Stats

The Economic Times Wealth, January 10, 2011

ETW FUNDS 100 B E S T

F U N D S

T O

B U I L D

Y O U R

LEADERS & LAGGARDS Taking a long-term view of fund returns, here is a list of 10 funds in each category — five leaders (worth investing in) and five laggards (that may be a drag on your portfolio)

P O R T F O L I O

LAGGARDS

ET Wealth collaborates with Value Research to identify the top-performing 100 funds across 10 categories. Equity funds and equity-oriented hybrid funds are ranked on 3year returns while debt-oriented hybrid and income funds are ranked on 1-year returns.

9.75

11.95 NET ASSETS (`CR)

R E T U R N S 3-MONTH

6-MONTH

1-YEAR

( % ) 3-YEAR

LICMF Index Nifty EXPENSE RATIO 5-YEAR

12.72 HDFC Index Nifty

Equity: Large Cap Franklin India Bluechip



3398.26

-2.00

15.09

19.87

4.89

19.24

1.85

HDFC Index Sensex Plus



56.27

-3.04

13.13

15.73

3.32

18.46

1.00

DSPBR Top 100 Equity Reg



2790.20

-2.23

12.65

14.03

3.19

21.34

1.86

IDFC Imperial Equity Plan A



486.35

-4.25

9.16

12.32

2.80

2.33

ICICI Prudential Growth



372.33

-1.14

14.35

15.13

1.42

16.15

2.28

Sahara Growth



11.87

-6.00

7.46

6.99

0.28

18.33

2.50

Reliance Equity Advantage Retail



1212.80

-3.27

11.99

15.89

0.27

1.95

ICICI Prudential Index Retail



88.77

-2.21

14.56

15.25

-0.04

17.19

0.67

IDFC Equity Plan A



551.06

-2.05

14.67

15.00

-0.91

2.21

20% 1-year return of Franklin Bluechip is the highest for the category.

12.81 LICMF Index Sensex

13.31 HDFC Index Sensex

7.44 Principal Growth



FT India Life Stage FoF 20s



UTI Equity Fidelity India Growth

9489.24

-3.37

14.04

20.86

8.53

22.06

1.79

9.43

13.92

-2.20

11.20

14.90

5.85

15.79

0.75

LICMF Opportunities



2187.44

-0.77

14.86

16.32

5.54

16.02

1.90



349.71

-1.64

14.15

24.23

5.52

2.31

9.95 LICMF Growth

UTI Opportunities



1587.40

-0.90

16.90

15.57

5.09

16.63

1.95

Fidelity Equity



3269.37

-3.15

12.96

23.42

4.60

20.31

1.85

10.53

Birla Sun Life Frontline Equity Plan A



2705.54

-2.61

13.28

14.66

3.83

21.79

1.88

Taurus Bonanza

Canara Robeco Equity Diversified



390.79

-4.20

8.25

17.86

3.22

18.45

2.32

Baroda Pioneer Growth



10.78

61.31

-3.83

12.38

10.54

2.67

18.62

2.50

Franklin India Flexi Cap



2286.06

-5.48

13.17

14.59

2.18

17.18

1.88

Franklin India Prima Plus



1871.51

-5.43

12.29

15.42

1.75

19.11

1.91

Tata Equity Management



176.96

-3.40

6.77

11.81

1.60

2.38

Magnum MultiCap



137.64

-3.56

11.19

16.71

1.58

20.05

2.43



227.24

-6.97

7.47

5.03

1.22

2.36

-17.73

Tata Pure Equity



668.38

-5.91

9.69

13.67

0.49

18.51

2.20

LICMF India Vision

Principal Large Cap



466.54

-2.37

11.62

17.51

-0.17

20.78

2.26

DSPBR Opportunities



866.88

-4.56

12.13

20.59

-0.45

17.94

2.08

-17.72 BNP Paribas Opportunities

Equity: Multi Cap Quantum Long Term Equity



61.78

-2.13

15.26

25.01

10.50

1.56



8353.26

-3.04

15.69

24.70

8.82

21.80

1.79

UTI Dividend Yield



2994.59

-3.33

12.96

20.39

7.19

20.15

1.88

Birla Sun Life Asset Allocation Aggressive



15.41

-2.23

7.70

13.20

6.35

17.47

0.35

Templeton India Equity Income



1200.52

0.08

21.86

18.62

5.86

2.01

Templeton India Growth



840.88

-4.85

12.73

16.11

5.49

20.02

2.19

Fidelity International Opportunities



480.92

-0.51

14.13

19.18

5.03

2.22

ICICI Prudential Dynamic



2771.16

-0.30

11.11

18.49

5.01

20.73

1.87

Reliance Equity Opportunities



2828.51

-5.34

12.93

24.99

4.71

20.59

1.88

HDFC Growth



1388.43

-3.22

12.65

22.34

3.76

21.40

1.97

DSPBR Equity



2326.20

-5.11

11.14

15.99

3.22

22.65

1.89

Reliance Regular Savings Equity



3391.56

-4.98

10.85

14.06

1.36

26.72

1.85

ICICI Prudential Discovery



1570.78

-3.61

10.60

21.68

9.19

18.46

1.99

Birla Sun Life Dividend Yield Plus



723.20

-5.95

10.28

24.45

9.06

17.43

2.27

11% 3-year return of Quantum Long Term Equity is the highest in category.



51.70

-5.23

10.52

23.15

7.33

17.57

2.50



1829.09

-4.57

14.20

26.33

6.63

27.40

1.93

HDFC Mid-Cap Opportunities



1195.10

-4.21

12.00

27.72

6.21

1.99

Tata Dividend Yield



179.66

-1.87

13.28

28.66

4.93

17.56

2.41

Religare Contra



70.45

-3.95

7.32

10.10

4.61

2.50

DSPBR Small and Mid Cap Reg



1179.14

-5.60

10.86

23.64

3.75

2.06

UTI Master Value



689.47

-4.14

11.46

21.97

3.52

14.65

2.24

Sundaram Select Midcap Reg



2333.32

-5.54

11.71

15.42

1.11

21.79

1.89

DSPBR Micro Cap Reg



454.90

-7.88

6.56

36.34

0.52

2.31

Sahara Mid-Cap Fund



13.01

-7.48

7.44

17.49

-0.45

15.77

2.48

ING Contra



12.25

-5.43

5.96

7.90

-0.84

2.50

Birla Sun Life Mid Cap Plan A



2013.44

-6.03

7.90

7.89

-0.99

18.41

1.91

Religare Mid Cap



48.55

-8.72

9.01

19.51

-3.31

2.50

-11.99 L&T Contra

-10.5 Taurus Starshare

-31.48 JM Small & Mid-Cap Reg

JM Emerging Leaders

-24.52 JM Contra

-20.26

36% 1-year return of DSPBR Micro Cap Fund is highest for any equity fund.

Taurus Discovery

-14.52 BNP Paribas Future Leaders



3421.45

-5.04

9.04

6.57

-4.90

21.06

1.82

6.93 JM Balanced

Baroda Pioneer Balance

22.68

-8.24

5.37

8.35

-6.43

2.50

9.21

524.95

-8.97

4.44

4.81

-6.53

2.22

LICMF ULIS



2791.57

-9.30

4.19

8.81

-7.63

17.12

1.84

9.91



1995.97

-9.71

4.71

4.22

-8.13

17.76

1.89

Taurus Infrastructure



Birla Sun Life Infrastructure Plan A



DSPBR T.I.G.E.R. Reg Tata Infrastructure

LICMF Balanced

10.52

Which funds should you invest in? See our Fund Portfolios on page 22 to know the funds that best suit your risk profile and requirements

Franklin India Bluechip

18.66 DWS Alpha Equity Regular

18.46 HDFC Index Sensex Plus

18.33 Sahara Growth

22.06 HDFC Top 200

21.79 Birla Sun Life Frontline Equity Plan A

20.78 Principal Large Cap

20.31 Fidelity Equity

20.05 Reliance NRI Equity

10.5 Quantum Long Term Equity

8.82 HDFC Equity

7.19 UTI Dividend Yield

6.35 Birla Sun Life Asset Allocation Aggressive

5.98 ICICI Prudential Dynamic Inst I

10.55 ICICI Prudential Discovery Inst I

9.19 ICICI Prudential Discovery

9.06 Birla Sun Life Dividend Yield Plus

7.33 ING Dividend Yield

6.63 IDFC Premier Equity Plan A

Hybrid: Equity-oriented 5-year returns

7.96

Equity: Infrastructure ICICI Prudential Infrastructure

-12.46 JM Equity

-25.5

IDFC Premier Equity Plan A

19.24

Equity: Mid- & Small-Cap 3-year returns

Equity: Mid & Small Cap

ING Dividend Yield

DSPBR Top 100 Equity Reg

Equity: Multi-Cap 3-year returns

Reliance NRI Equity UTI Contra

HDFC Equity

21.34

Equity: Large- & Mid- Cap 5-year returns

Equity: Large & Mid Cap HDFC Top 200

LEADERS

Equity: Large- Cap 5-year returns LICMF Sensex Advantage

VALUE RESEARCH FUND RATING

33

UTI CCP Advantage

20.23 HDFC Prudence

18.31 Birla Sun Life 95

18.14 Reliance Regular Savings Balanced

18.01 DSPBR Balanced

17.76 Principal Conservative Growth

As on 6 January 2011


34

Smart Stats

The Economic Times Wealth, January 10, 2011

ETW FUNDS 100

Top 5 SIPs

VALUE RESEARCH FUND RATING

NET ASSET S ( `CR)

Top 5 equity funds based on 10-year SIP returns R E T U R N S 3-MONTH

( % )

6-MONTH

1-YEAR

3-YEAR

EXPENSE RATIO 5-YEAR

Equity: Tax Planning Canara Robeco Equity Tax Saver



231.47

-5.58

8.78

21.15

6.51

21.44

2.38

Fidelity Tax Advantage



1282.87

-3.21

13.38

25.96

5.47

2.00

HDFC Taxsaver



2937.39

-4.87

11.36

21.34

5.35

16.84

1.86

ICICI Prudential Tax Plan



1320.28

-2.80

12.12

19.77

3.66

14.33

2.00

HDFC LT Advantage



1024.27

-1.46

15.76

23.60

3.36

13.78

2.02

Sahara Tax Gain



12.11

-4.39

10.34

17.09

3.08

17.97

2.50

Religare Tax Plan



109.28

-5.17

9.96

18.33

2.87

2.49

Taurus Tax Shield



65.53

-6.50

12.72

14.54

0.62

13.82

2.50

DSPBR Tax Saver



952.32

-5.05

9.27

18.42

-2.72

2.08

26% 1-year returns of Fidelity Tax Advantage is the highest for ELSS category.

Reliance Growth

37.66% Magnum Contra

34.50% HDFC Equity

33.45% HDFC Top 200

33.00% DSPBR Equity

32.25% SIP: Systematic investment plan

% annualised returns

as on 6 January 2011

Equity: Sectoral Franklin Infotech

Not Rated

144.23

12.51

27.75

33.91

18.02

12.91

2.43

UTI Banking Sector Reg

Not Rated

249.55

-12.22

15.49

27.42

6.33

20.80

2.39

Reliance Diversified Power Sector Retail

Not Rated

4603.27

-10.22

-1.19

1.19

-2.60

28.38

1.81

Reliance Regular Savings Balanced



806.31

-4.61

10.35

18.84

10.00

18.14

2.22

HDFC Balanced



HDFC Prudence



Equity: SWPs

Hybrid: Euity-oriented

Top 5 schemes based on 3-year SWP Returns 224.97

-1.78

9.51

22.05

9.95

16.55

2.15

5708.95

-2.68

10.39

22.79

9.21

20.23

1.82

Birla Sun Life 95



377.38

-2.90

9.39

16.77

5.00

18.31

2.33

DSPBR Balanced



792.66

-3.58

8.63

12.87

4.60

18.01

2.08

Canara Robeco Balance



186.46

-4.57

6.30

14.85

4.00

16.73

2.39

20% 5-year returns of HDFC Prudence is higher than average equity fund.

Hybrid: Arbitrage

Reliance MIP

13.99% Birla Sun Life MIP II Savings 5

11.70% HDFC MIP Long-term

10.76% HDFC Multiple Yield Plan 2005

HDFC Arbitrage Wholesale



39.21

2.33

4.67

6.72

6.80

HDFC Arbitrage Retail



76.18

2.27

4.53

6.44

6.53

0.83

168.70

2.24

4.18

6.24

6.44

7.18

0.95

89.72

2.06

3.88

5.73

5.93

0.76

Kotak Equity Arbitrage



SBI Arbitrage Opportunities



UTI SPrEAD



116.34

1.79

3.23

4.71

7.07

1.00

HDFC MIP Long-term



9862.95

-0.04

5.07

9.74

9.48

11.85

1.45

Reliance MIP



8321.99

-0.38

4.22

7.88

12.74

12.10

1.55

Birla Sun Life Monthly Income



692.70

0.38

3.74

7.18

6.78

9.97

1.98

DWS Money Plus Advantage Reg



117.57

1.64

3.40

6.89

8.23

1.99

UTI Monthly Income Scheme



Birla Sun Life MIP II Savings 5



L&T MIP

Hybrid: Debt-oriented Conservative

663.19

0.43

3.72

6.79

7.87

9.18

1.80

1224.27

0.97

3.13

5.83

11.39

9.79

1.38



112.43

0.20

3.35

4.84

7.74

9.66

2.23

9.57% UTI CRTS 81

9.57% as on 6 January 2011

10% 1-year return of HDFC MIP long Term is highest in the category.

Lowest Expense Ratio Top 5 equity diversified schemes with lowest cost of investment

0.50%

0.50%

AIG Short Term Inst

Escorts Short Term Debt

0.40%

Debt: Income IDFC SSI Medium-term Plan A



276.60

1.01

1.82

6.76

9.09

8.29

2.00

DWS Premier Bond Reg



13.97

1.81

2.27

6.67

8.36

6.79

2.04

BNP Paribas Bond Reg



38.32

1.24

2.69

6.02

1.99

Birla Sun Life Medium Term Retail



88.54

1.72

3.09

5.95

0.57

LICMF Bond



82.39

0.94

2.01

5.78

8.04

7.42

1.43

Birla Sun Life Dynamic Bond Ret



5305.17

1.05

2.22

5.66

9.18

8.59

0.98

Principal Income Long Term



32.86

1.15

2.18

5.58

7.07

7.55

2.25

Sahara Income



4.74

1.71

3.13

5.46

9.86

8.63

0.35

Canara Robeco Income



252.52

1.32

1.90

4.98

13.37

10.16

2.12

Reliance Regular Savings Debt Ret



1965.78

0.70

1.63

4.68

6.24

5.10

1.47

BNP Paribas Flexi Debt Reg



189.68

0.25

0.94

3.83

9.74

9.28

2.07

ICICI Prudential Long-term Reg



107.10

0.43

0.75

3.56

6.66

6.94

1.44

0.19% 0.01%

13% 3-year returns of Canara Robeco Income is better than equity funds.

HDFC Short Term Opportunities

HDFC Floating Rate Income LT

Peerless Short Term

Expense Ratio as on 30 September 2010

All equity funds including balanced equity funds sorted on 3 year returns, all others on 1-year return

Did not find your fund here? Log on to www.wealth.economictimes.com for an exhaustive list.

Methodology

EQUITIES (figures over past 3 yrs)

The Top 100 includes only those funds that have a 5- or 4star rating from Value Research. The rating is determined by subtracting a fund's risk score from its return score. The result is assigned stars according to the following distribution:

Large cap: More than 80% assets in large-cap companies



Next 22.5%



Middle 35%



Next 22.5%



Largest AUM Funds Equity-Large- & Mid-cap funds with largest assets under management

9,070

Large and mid-cap: 60-80% assets in large-cap companies Multi-cap: 40-60% assets in large-cap companies Mid & small-cap: At least 60% assets in small and mid-cap companies

Top 10%



Returns as on 6 Jan 2011; ratings as on 31, Dec 2010; Assets and expense ratio as on 30 Sep 2010

(Not covered in ETW Funds 100 listing)

Bottom 10%

Fixed-income funds less than 18 months old, and equity funds less than 3-year old, have been excluded. This ensures that all the funds have existed long enough to track consistency of performance. Given the focus on long-term investing, liquid funds, short-term funds and FMPs are not a part of the list. For the same reason, we have considered only the growth option of funds that reinvest returns instead of offering dividends that increase the NAV of funds. Despite these rigorous filters, the list includes 2/3 funds of each category to maximise choice from the best funds. The fund categories are:

3,662

Tax planning: Offer tax rebate under section 80C

3,307

International: More than 65% of assets invested abroad

2,648

2,529

Income: Vary average maturity as per objective Gilt: Medium & Long-term: Invest in gilt securities Equity-oriented: Average equity exposure more than 60 % Debt-oriented Aggressive: Average equity exposure between 25-60 % Debt-oriented Conservative: Average equity exposure less than 25 % Arbitrage: Seek arbitrage opportunities between equity and derivatives Asset allocation: Invest fully in equity or debt as per market

How about an inflation-proof investment? page 16

HDFC Top 200

Reliance Vision

Fidelity Equity

UTI Mastershare

Birla Sun Life Frontline Equity- Plan A

AUM, in ` crore, as on 30 September 2010. Methdology of selected Top 100 funds on www.wealth.economictimes.com


Smart Stats

35

The Economic Times Wealth, January 10, 2011

BEST HEALTH INSURANCE

Rating methodology Coverage: All health insurance products (individual) whose prices and features data are available in the public domain have been covered. Some plans have been excluded for not being comparable with the peer group, for example, where the plan is available only for a specific customer segment.

Every week ET Wealth will bring you the rankings of one financial product done by i-save*. We start with the best health insurance plans for individuals.

                

No Star

           No Star

      

  No Star

NA

       

  

Recent Launch

     

No Star

NA

No Star

No Star

No Star

Recent Launch

                   

     No star

High scores on pricing and servicing get Bajaj a Superior rating on Health Ensure

Superior product Excellent product Good product Average product Below average product Low rating

Parameters considered Price: (Lower premiums get higher scores). Premiums are compared across multiple age bands (young, middle and mature) and multiple sum assured (`1 lakh to `10 lakh) Product Features: Features are assigned a numerical score based on product benefits, customer availability and flexibility Servicing capabilities: Scores are awarded to customer servicing and claims settlement statistics. These are not product-specific and data published by Irda for the past 2 years (2008-09 and 2009-10) is used for comparison and allocating a relative numerical score, adjusted for age.

Max BUPA products make up for high pricing through superior features scores

For detailed methodology, visit i-save.com 

No Star No Star

A combination of low prices and high features scores gets Star a Superior product rating

  No Star

 Where service scores could not be calculated due to lack of data, service stars are marked as 'NA'. For such products, an overall product rating is also not available.  Where a company recently commenced operations, service scores have not been considered for rating.  i-save Ratings are at a product level across customer segments and provide a relative ranking to products in their peer group and do not take into account personal or

0



10

20

 

30

40

 Superior

                     

Ratings: i-save uses a relative rating methodology to grade health insurance products on a 1-5 star scale. The product ratings are a weighted aggregate of the product price, product features and company service data, each rated on a relative 1-5 star scale. The star ratings assigned correspond to the following:

High scores across all parameters helps Apollo Munich get Superior ratings in 3 products

Excellent

   

Overall Product Ratings

Good

Servicing Ratings

Average

Features Ratings

Below average

Apollo Munich Easy Health Standard Apollo Munich Insure Health Apollo Munich Easy Health Exclusive Apollo Munich Easy Health Premium Apollo Munich Maxima Bajaj Allianz Individual Health Guard Bajaj Allianz Health Ensure Bharti AXA Smart Health Insurance Base Bharti AXA Smart Health Insurance Premium Bharti AXA Smart Health Insurance Optimum Cholamandalam MS Individual Health Insurance Future Generali Health Suraksha Basic Future Generali Health Suraksha Silver Future Generali Health Suraksha Gold Future Generali Health Suraksha Platinum HDFC Ergo Health Suraksha Individual ICICI Lombard Health Advantage Plus Iffco Tokio Individual Medi Shield Max Bupa Heartbeat Silver Max Bupa Heartbeat Gold National Insurance Individual Mediclaim New India Assurance Individual Mediclaim Oriental Insurance Individual Mediclaim Reliance Healthwise Standard Reliance Healthwise Gold Reliance Healthwise Silver Royal Sundaram Health Shield Star Health and Allied Medi Classic Star Health and Allied Health Gain Insurance

Price Ratings

No star

Product Name

50

60

70

80

90

The relative position on the distribution curve highlights the overall "ranking" of the product relative to its peer group based on a comprehensive product score of its price competitiveness, features and flexibility, and servicing capabilities.

individual financial needs, circumstances or objectives. It is important to review and compare benefits, exclusions and limits on sub-benefits for each product.  i-save Ratings are not meant as financial advice or guidance and is not a recommendation to purchase, hold or terminate any insurance policy or contract.  If you have a comment on the coverage or ranking or need a clarification, please get in touch with etwfeedback@indiatimes.com * Data available as of 7 January, 2011.

PREMIUM RECKONER Premiums of individual health insurance plans of all companies Premiums in ` for 25-year-old males

`) Sum Assured (` Apollo Munich Apollo Easy Health Standard Apollo Munich Apollo Easy Health Exclusive Apollo Munich Apollo Easy Health Premium Apollo Munich Insure Health Apollo Munich Apollo Maxima Bajaj Allianz Health Ensure Bajaj Allianz Individual Health Guard ICICI Lombard Health Advantage Plus Iffco Tokio Individual Medishield New India Assurance* Individual Mediclaim National Insurance Individual Mediclaim Reliance Individual Mediclaim Standard Plan Reliance Individual Mediclaim Gold Plan Reliance Individual Mediclaim Silver Plan Royal Sundaram Health Shield Online Star Health Medi Classic Star Health Star Health Gain Insurance Future Generali Health Suraksha Basic Plan Future Generali Health Suraksha Silver Plan Future Generali Health Suraksha Gold Plan Oriental Insurance Individual Mediclaim Policy HDFC Ergo Health Suraksha Individual Bharti Axa Base Plan Bharti Axa Optimum Plan Bharti Axa Premium Plan Chola MS Individual Health Insurance Max Bupa** Silver Plan Max Bupa Gold Plan

1 lakh

2 lakh

1,208 N/A N/A 1,171 N/A 1,206 1,545 N/A 1,716 1,400 1,157 N/A N/A N/A 1,151 1,324 14,725 1,239 1,394 1,549 1,445 N/A 1,463 N/A N/A 1,782 N/A N/A

2,537 N/A N/A 1,758 N/A N/A 2,579 15,000 2,503 2,790 2,178 2,840 5,934 3,965 1,850 2,593 14,725 2,034 2,290 2,544 2,723 3,158 1,954 N/A N/A 3,127 3,373 N/A

3 lakh

3,626 4,302 N/A N/A 15,216 N/A 3,647 15,000 3,492 3,894 3,039 3,998 8,366 5,587 2,776 3,640 14,725 2,804 3,155 3,505 3,799 3,653 N/A N/A 2,729 4,377 4,189 N/A

5 lakh

5,625 6,453 8,066 N/A N/A N/A 5,784 N/A 5,223 5,824 4,544 6,646 13,925 9,293 4,038 5,405 14,725 4,686 5,271 5,857 5,681 N/A N/A 4,908 N/A 6,596 N/A 7,154

Premiums in ` for 35-year-old males 1 lakh

1,208 N/A N/A 1,171 N/A 1,398 1,924 N/A 2,203 1,400 1,519 N/A N/A N/A 1,861 1,324 14,725 1,467 1,652 1,835 1,445 N/A 1,463 N/A N/A 1,782 N/A N/A

2 lakh

2,537 N/A N/A 1,758 N/A N/A 3,622 15,000 2,860 2,790 2,859 3,392 7,032 4,715 2,947 2,593 14,725 2,161 2,430 2,701 2,723 3,158 1,954 N/A N/A 3,127 3,891 N/A

3 lakh

5 lakh

3,626 4,302 N/A N/A 15,216 N/A 4,887 15,000 3,990 3,894 3,988 4,715 9,811 6,568 4,420 3,640 14,725 3,146 3,539 3,932 3,799 3,653 N/A N/A 2,729 4,377 4,973 N/A

5,625 6,453 8,066 N/A N/A N/A 6,791 N/A 5,968 5,824 5,965 7,693 16,065 10,738 6,871 5,405 14,725 5,107 5,746 6,384 5,681 N/A N/A 4,908 N/A 6,596 N/A 8,334

Premiums in ` for 45-year-old males 1 lakh

2,868 N/A N/A 1,816 N/A 1,792 2,465 N/A 2,709 2,091 2,043 N/A N/A N/A 2,182 1,490 14,725 1,542 1,734 1,927 1,728 N/A 2,415 N/A N/A 1,979 N/A N/A

2 lakh

4,633 N/A N/A 2,343 N/A N/A 4,753 15,000 3,459 3,944 3,847 4,715 9,811 6,568 3,746 2,868 14,725 2,759 3,104 3,448 3,255 3,963 3,220 N/A N/A 3,482 5,250 N/A

* Rest of India premium taken into account ** Premiums as applicable for Delhi taken into account  Premiums are annual and have been sourced from quotation engines on company websites. They are inclusive of service tax except in cases where this information may not have been available.  The lowest five premiums in each column are highlighted. However, given the varied terms, it is important to see what each product offers.

3 lakh

6,618 6,618 N/A N/A 15,216 N/A 6,690 15,000 4,812 5,499 5,367 6,304 13,147 8,792 5,681 4,026 14,725 3,640 4,095 4,550 4,542 4,397 N/A N/A 3,622 4,884 6,948 N/A

5 lakh

9,817 11,912 14,560 N/A N/A N/A 10,563 N/A 7,197 8,223 8,027 10,230 21,393 14,289 8,734 5,957 14,725 5,672 6,381 7,089 6,792 N/A N/A 8,727 N/A 7,230 N/A 11,863

Health insurance buying guide  It is best to start your health insurance

cover early because:  With age, the risk to our health only

increases, making insurance costlier.  Most policies have an exclusion period

of 2-4 years for certain illnesses or medical conditions. One could live through this exclusion period without any complications in the early part of one’s life and be covered against them after the waiting period.  Consider the following when buying a plan:  Costs associated with the treatment of

major illnesses or conditions as well as your premium-paying capacity.  Do not restrict your cover to fit the

nominal tax exemption limit.  We recommend that you should:  Compare products not just on price but

also on features, benefits and term.  Read the key features and policy terms

carefully. Check for exclusions.  You get a 15-day freelook period in

which you can return the policy in case you do not agree with the terms and conditions or believe you were not sold a product with full information.

* i-saveTM ratings have been sourced from i-save.com, a unit of MAGI Research and Consultants Private Limited which analyses and rates financial products.


36

Global Stats

The Economic Times Wealth, January 10, 2011

GLOBAL INVESTING

Emerging Markets Emerging markets have risen faster than global markets in the past one year

Markets across the world started 2011 with a bang but high inflation played spoilsport in India, which pulled down the emerging markets index into the red. Japan and Hong Kong had a particularly good week.

France CAC 40 3,865.58 %

Canada S&P TSX 13,272.30 %

1.60

UK FTSE 100 5,984.33 %

1.43

China Shanghai Composite 2,838.80 %

Germany DAX 6,947.84 %

0.49

1.09

Japan Nikkei 225 10,541.04 %

1.10

0.13

Argentina MerVal 3,546.26 %

3.05

India BSE Sensex 19,691.81 %

Foreign investments continue to drive the markets

133,949.50 Avg Sensex value 17,260.41

20,247.48

Cumulative value -1,136.90

-3.98

Cumulative FII investments in ` cr

Jan ’10

Cumulative value

Brazil Bovespa 70,057.20 %

1.09

Hong Kong Hang Seng 23,686.63 %

2.83

Australia All Ordinaries 4,812.00 %

-0.72

All data on this page are as on 7 January 2011

High interest rates in India help control inflation—but also attract foreign capital

UK 3.51

France 3.32

Japan 1.19

Crude prices will add to inflation worries in emerging markets The unabated rise in crude oil prices is likely to fuel inflation in emerging economies.

India 8.17

Australia 5.47

Singapore 2.72

Germany 2.87

China 3.91

Greece 12.6

South Africa 8.08

New Zealand 5.74

10-year bond yield (%)

Currency Exchange Rate The dollar has bounced back against the rupee Currency

ere is some more says, adding that there could be some SLIPPING ON OIL worrying news from the psychological resistance at those inflation front. Crude oil levels. “However, once above that  Analysts fear that crude prices could cross prices are inching level, crude oil prices should the $100 per barrel mark in the near term. upwards and analysts comfortably edge higher towards $120 But they rule out a repeat of the 2008 spike fear that they could cross the $100 per per barrel in 2011.” that saw crude prices touch $145 a barrel. barrel mark in the near term. But they Meanwhile, the biggest fuel guzzler  Global oil consumption will rise by 2% in also rule out a repeat of the 2008 spike in the world, the US, has seen its 2011, led largely by a surge in demand from that saw crude prices touch $145 a consumption go up by 4.4% in the past emerging markets. China will account for barrel. In a report on global one year. The US uses nearly 25% of the nearly 25% of this new demand. commodities, India Infoline says that it world's daily petroleum production  On the other hand, demand from developed expects world demand for oil to even though it has only 5% of the markets will remain largely unchanged due increase by 2% in 2011. world's population. Increased US to the challenges confronting European According to India Infoline, much of demand, along with rapidly growing economies and a structural decline in the new demand for oil will be from demand in Asia, have combined to Japanese demand. emerging markets, with China push up petroleum prices. A few accounting for 25%. That will only fuel analysts fear that cutback in  The biggest fuel guzzler in the world, the inflation in emerging markets, says the production by key oil producers could US, has seen its consumption go up by 4.4% report. “As the use of transportation lead to higher prices in 2011. in the past one year. fuel surges in Asia, prices and There is a golden line to this cloud of  Rising oil prices could lead to higher prices production will likely rise in pursuit of gloom-at least for investors in gold. Risof gold. If oil crosses $100 a barrel, gold will the higher demand.” On the other ing oil prices could lead to higher attract investor interest as a hedge against hand, India Infoline expects the prices of gold. If crude oil prices rise inflation in 2011. demand from the developed markets above $100 per barrel, it is bound to atto remain largely unchanged due to tract further interest in gold as an inflathe challenges confronting some Eurotionary hedge in 2011, says the India Inpean economies and a structural decline in Japanese demand. foline report. It says gold is expected to gradually rise towards Technical indicators bear out this bullishness for black gold. $1,650 in 2011, with resistances likely at $1,400 and $1,450. But it The report notes that energy prices have not performed as much adds a caveat. “We expect the ascent in gold prices to be volatile as other commodities. “Therefore, we believe they could catch due to lingering sovereign debt risks, fears of policy missteps in up in 2011. Price structures look good for $98-100 per barrel,” it emerging markets, and bouts of dollar strength.”

Jan ’11

Avg Sensex value

Govt Bond Yield USA 3.33

H

I-year change 13.08% 1-wk change -0.37% Current value 1,147.14

FII Investments USA S&P 500 1,271.50 %

0.64

I-year change 7.42% 1-wk change 0.10% Current value 1,281.41

Bars plotted according to one-year change

-1.27 Mexico IPC 38,600.86 %

MSCI Emerging Markets Index

MSCI World

` value

% Change weekly

% Change annually

Dollar

45.39

1.52%

-0.63%

Euro

58.90

-1.50%

-9.92%

Pound

70.23

0.75%

-3.55%

Yen

0.54

-1.33%

11.01%

Yuan

6.84

1.14%

2.29%

Brent Crude Crude oil prices continue to inch up

$81.24/brl

$94.54/brl

7 Jan 2010

7 Jan 2011

Deposit Rates There is a wide variation between deposit rates Country

US UK Japan China India Russia Brazil Australia UAE

6 months (%)

0.46 1.04 0.34 2.20 9.00 4.38 12.25 5.01 0.75

1 year (%)

0.78 1.50 0.56 2.50 9.00 5.38 12.73 6.15 0.93


Smart Stats

37

The Economic Times Wealth, January 10, 2011

LOANS & DEPOSITS

ET Wealth collaborates with ETIG to provide a comprehensive ready reckoner of loans and fixed-income instruments. Don’t miss the information on investments for senior citizens and a simplified EMI calculator. What `10,000 will grow to

10,957.58 10,930.83 10,904.13 10,904.13 10,904.13

9.25 9.00 9.00 9.00 9.00

12,006.86 11,948.31 11,948.31 11,948.31 11,948.31

Tenure: 3 years IDBI Bank State Bank of B & J Indusind Bank Kotak Mahindra Bank State Bank of Hyderabad

9.00 9.00 8.75 8.75 8.75

13,060.50 13,060.50 12,965.02 12,965.02 12,965.02

9.00 9.00 8.75 8.75 8.75

15,605.09 15,605.09 15,415.42 15,415.42 15,415.42

Top five senior citizen deposits Tenure: 1 year Lakshmi Vilas Bank Axis Bank IDBI Bank Indian Bank State Bank of Mysore Tenure: 2 years+ IDBI Bank Lakshmi Vilas Bank State Bank of B & J State Bank of Patiala State Bank of India

Interest rate (%) compounded qtrly

What `10,000 will grow to

9.50 9.25 9.25 9.25 9.25

10,984.38 10,957.58 10,957.58 10,957.58 10,957.58

9.75 9.75 9.75 9.50 9.25

12,124.72 12,124.72 12,124.72 12,065.67 12,006.86

Tenure: 3 years IDBI Bank State Bank of B & J Indian Bank Kotak Mahindra Bank United Bank of India

9.75 9.50 9.25 9.25 9.25

13,350.81 13,253.39 13,156.62 13,156.62 13,156.62

Tenure: 5 years Karnataka Bank State Bank of B & J IDBI Bank Federal Bank Indian Bank

9.50 9.50 9.35 9.25 9.25

15,991.10 15,991.10 15,874.35 15,796.98 15,796.98

Top five tax-saving FDs Tenure: 5 years and + City Union Bank Central Bank of India Karnataka Bank Tamilnad Mercantile Bank Bank of Maharashtra

INTEREST RATE (%)

INTEREST RATE (%) 9.25 9.00 8.75 8.75 8.75

Tenure: 2 years State Bank of B & J IDBI Bank Lakshmi Vilas Bank State Bank of Patiala Tamilnad Mercantile Bank

Tenure: 5 years Karnataka Bank State Bank of B & J Federal Bank Kotak Mahindra Bank State Bank of Hyderabad

Cheapest Auto loans

Cheapest Personal loans ICICI Bank

14-18

Axis

14-21

SBI*

HDFC Bank

15.5-22

Standard Chartered Bank

15.5-22

LOAN AMOUNT: `5 LAKH

Tenure: 1 year State Bank of Patiala Tamilnad Mercantile Bank City Union Bank Indusind Bank State Bank of Mysore

Interest rate (%) compounded qtrly

LOAN AMOUNT: `2 LAKH

Top five FDs

15.75-18.75

Andhra Bank 14

16

18

20

22

24

26

28

30

32

34

* Monthly reducing

ICICI

9.5-13 9.75-10.25

Bank of Baroda*

9.75-10.25* 6

7

8

9

10

11

12

13

14

15

16

* Daily reducing

Cheapest Education loans

10 YEARS

Minimum Loan: `50,000; Maximum Loan: `2,00,000

20 YEARS

Margin Money: 15%

Interest rate (%)

Interest rate (%)

Up to `30 lakh Corporation Bank IDBI Bank Union Bank Of India State Bank of India Allahabad Bank

9.25-10.5

Bank of India

Cheapest Home loans Up to `10 lakh Allahabad Bank Corporation Bank IDBI Bank Dena Bank Union Bank Of India

8-9.75*

Axis

8.75 9.00 9.00 9.20 9.25

IDBI Bank Allahabad Bank Corporation Bank State Bank of India Dena Bank

9.00 9.25 9.25 9.35 9.45

9.00 9.25 9.25 9.35 9.50

Corporation Bank IDBI Bank State Bank of India Union Bank Of India P unjab National Bank

9.25 9.25 9.35 9.50 9.75

11.50%

12%

11.75%

11.25%

11%

United Bank of India

Punjab National Bank

Syndicate Bank

State Bank of Bikaner and Jaipur

Corporation Bank

* Daily reducing

These are average rates for the entire tenure. Teaser rates have not been included.

Postal Deposits Interest (%)

Minimum Invt. ( `)

Maximum Invt. (`)

Features

Tax Benefits

Sec. 80C

National Savings Certificate

8.00a

100

No limit

6-year tenure

Public Provident Fund

8.00b

500

70,000 pa

15-year term; tax-free returns

Sec. 80C

Kisan Vikas Patra

8.41b

100

No limit

Money doubles in 8.7 years

None

Monthly Income Scheme

8.00

1,500

Single a/c.: 4.5 lakh

6-year tenure; monthly returns;

None

Joint a/c.: 9 lakh

5% bonus after 6 years

None

Time deposit

6.25-7.50

200

No limit

Available in 1-, 2-, 3-, 5-year tenure

Sec. 80C

Recurring deposits

7.50c

10

No limit

5-year tenure

None

Sr. citizen saving scheme

9.00d

1,000

15 lakh

5-year tenure; minimum age 55*

Sec. 80C

a. Compounded half-yearly; b. Compounded yearly; c. Compounded quarterly; d. Payable quarterly; *also available with public sector banks Sec 80C benefit: Investments up to `1 lakh in specified securities (maximum of `70,000 in PPF) qualify for deduction.

Home loan Base rate (%)

Base rates are reference rates for all floating-rate home loans

As on 6 January 2010 7.6%

Interest rate (%)

What `10,000 will grow to

8.75 8.50 8.50 8.50 8.30

15,415.42 15,227.95 15,227.95 15,227.95 15,079.53

BANK

State Bank of India

8%

State Bank of Mysore

8.25%

Corporation Bank

8.25%

8.5%

Bank Of Maharashtra

8.5%

Union Bank Of India

Canara Bank

8.95%

Dena Bank

9%

9%

IDBI Bank

Punjab National Bank

9%

Bank Of Baroda

With food inflation crossing 18%, experts believe RBI may further tighten interest rates. This may force banks to hike their base rates.

Your EMI for a Loan of `1 lakh @ 8%

2,028

1,213

956

836

@ 10%

2,125 2,224

1,322 1,435

1,075 1,200

965 1,101

909 1,053

2,379

1,613

1,400

1,317

1,281

@ 12% @ 15%

Tenure

5

10

Choose this calculator to check your loan affordability. For example, a `5-lakh loan at 12% for 10 years will translate into an EMI of `1,435 x 5 = `7,175

15

20

772

25

All data sourced from Economic Times Intelligence Group (etigdatadase@timesgroup.com)


38

City Profile

The Economic Times Wealth, January 10, 2011

Kolkata

& Suburbs KOLKATA

In this series that evaluates the real estate markets of different cities across India, ET Wealth and Magicbricks take a look at Kolkata

AIRPORT

18%

PRICE CHANGE (Average percentage price change in different parts of the city)

HAORA

12%

11%

SALT LAKE

PARK CIRCUS

10%

ALIPUR

EM BYPASS

GARIA

5% North

1% East

1% South

2% Central

1% Others Map not to scale

-5%

6 months 3 months

BUYING OPTIONS (Average property rates in ` per sq ft) North

Others ■

AFFORDABLE Dumdum 1,700

PREMIUM Lake Town 3,200

AFFORDABLE Dhakuria 2,500

Central ■

AFFORDABLE Ballygunge Place 5,200 PREMIUM Park Street 11,700

PRICE APPRECIATION COMPARED TO OTHER METROS & CITIES AROUND Kolkata 2009 2010*

South ■

AFFORDABLE Behala 2,200

AFFORDABLE Rajarhat - New Town 2,000 PREMIUM Rajarhat 5,000

PREMIUM Alipore 11,500

Road infrastructure 3% 4%

Chennai 2009 2010*

10% 1%

Bangalore 2009 2010* 2009

Patna 2010*

EM Bypass:

Coming up as a premium residential location with several new projects.

Salt Lake:

Established infrastructure has kept demand for resale property and rental accomodation high.

Rajarhat:

Good connectivity to the airport and city and availability of land for development has fuelled affordable housing projects.

6% 9% -2% 6%

Jul-Sep'09 Average % change

While Kolkata has shown lower appreciation in price over the past two years compared to other metros, it has been one of the most stable markets in the country. Residential real estate prices have shown slow but steady appreciation over the years.

42

A 1,300m four-lane flyover, connecting EM Bypass with VIP Road and giving Ultadanga the slip is scheduled to open by March 2011. This will remove a major traffic bottleneck on the way to the airport.

Metro rail expansion

Jul-Sep'10 Average % change

LOCATIONS IN DEMAND

Next week: Ahmedabad

Some big infrastructure projects underway that could influence real estate prices in nearby locations

1% 1%

Mumbai 2009 2010*

Previous profiles of Mumbai, Delhi, Chennai & Bangalore available at wealth.economictimes.com

GROWTH DRIVERS

3% 2%

Delhi 2009 2010*

East

PREMIUM Gol Park and Gariahat 7,500

Apartments in the city have strong rental and resale value. The growth of the software industry around Salt Lake and Rajarhat has generated a strong influx of manpower resulting in demand for rental housing. The locations in eastern Kolkata are also expected to be the fastest-growing ones in 2011.

The work on expansion for the Joka-BBD Bag metro rail project (Phase-I) of the Joka-Majerhat section to begin in early 2011. Kolkata Metro has also been converted into a zone which would accelerate implementation of the four-phase expansion projects.

Circular railway The extension of the circular railway doubleline project from Princep Ghat to Majerhat and further to West Bengal's South 24-Parganas district will cover the periphery of entire Kolkata and improve connectivity to its south.

Public transport The 15-km stretch from Ultadanga to Garia to be widened to 8 lanes with a provision for two bus corridors. This will help decongest traffic on the stretch.

million square feet

of residential space is expected to enter the market by the end of 2011.

While most of these infrastructure projects promise some appreciation in prices, the extent of appreciation depends on their timely completion.


Smart Stats The Economic Times Wealth, January 10, 2011

REAL ESTATE

Chandigarh Delhi NCR Lucknow Jaipur

ET Wealth and Magicbricks track the rentals and prices of residential properties in metros, tier I and tier II cities. For those who dream of building their own house, a construction cost index comprising price changes of four key raw materials of construction is also calculated. The information on this page rotates by regions, covering every region of the country once in four weeks.

Delhi

NEXT WEEK: SOUTH ZONE Chennai, Hyderabad, Bangalore and Kochi

Chandigarh APARTMENTS

Locality

Rental Value ( `/month)

BUILDER FLATS

Capital Value ( `/sq ft)

Rental Value ( `/month)

PLOTS (`/sq yard)

Capital Value (`/sq ft)

APARTMENTS Locality

Capital Value

Affordable

Premium

Affordable

Premium

Affordable

Premium

Affordable

Premium

Affordable

Premium

North

12,000

36,000

3,700

13,000

12,000

28,000

10,500

37,000

1,03,000

2,75,000

Pitampura

12,000

22,000

7,500

11,000

12,000

20,000

20,500

37,000

1,27,000

2,18,000

Model Town

12,000

24,000

3,700

5,500

12,000

20,000

15,500

27,000

1,03,000

1,60,000

East

10,000

25,000

3,800

11,000

12,000

25,000

3,300

11,500

57,000

1,80,000

Preet Vihar

17,000

25,000

7,200

11,000

16,000

25,000

7,200

11,500

1,13,000

1,77,000

Shahdara

10,000

17,000

3,800

6,100

12,000

21,000

3,300

7,000

57,000

1,08,000

West

6,000

28,000

2,600

9,000

11,000

35,000

5,200

35,000

1,05,000

2,35,000

Janakpuri

16,000

22,000

5,600

8,800

15,000

22,000

15,500

33,000

1,28,000

2,16,000

Vikaspuri

11,000

21,000

3,200

5,500

19,000

28,000

5,200

9,300

1,05,000

1,70,000

Rental Value (`/month) Premium

Affordable

Premium

Affordable

Premium

7,500 8,500 8,500 4,500 9,000 4,500 8,000 8,500 8,000 8,500 8,500 8,500 8,500

14,000 14,000 11,000 16,000 16,000 6,500 15,000 11,500 10,500 13,500 13,500 13,500 13,500

7,600 7,600 7,600 1,600 4,600 1,600 6,100 6,600 6,100 5,100 5,100 4,100 4,100

8,600 8,600 8,400 5,600 5,600 2,500 7,800 7,800 7,600 6,000 6,000 5,600 5,600

51,000 51,000 51,000 11,000 31,000 11,000 41,000 61,000 41,000 NA NA NA NA

70,000 70,000 70,000 41,000 41,000 14,000 70,000 70,000 48,000 NA NA NA NA

14,000 1,10,000

15,500 46,000

14,000 1,00,000

9,500

43,000

1,52,000

5,30,000

Golf Link

50,000

1,10,000

34,000

46,000

26,000

35,000

21,000

29,000

2,53,000

5,30,000

Jangpura Extension 14,000

25,000

16,500

29,000

20,000

25,000

18,500

26,500

1,52,000

3,18,000

Apartment rental(`/month) 2 BHK=750-1,100 per sq ft

80,000

8,600 24,000

17,000 1,30,000

8,500

33,000

80,000

4,50,000

Vasant Vihar

22,000

40,000

11,500

17,500

85,000 1,30,000

21,000

32,800

3,00,000

4,30,000

Vasant Kunj

20,000

40,000

9,000

14,000

37,000

15,500

23,500

NA

NA

82,000

Capital Value

Affordable

Central

20,000

PLOTS (`/sq yard)

Capital Value (`/sq ft)

East Sector 5 Sector 7 West Mohali Shivalik City North Sector 21 Sector 25 Central Sector 51 South Sector 49

South

39

Lucknow

Apartment rental(`/month) 2 BHK=750-1,100 per sq ft

APARTMENTS

CONSTRUCTION INFLATION

Jaipur APARTMENTS Locality

Rental Value ( `/month) Affordable

North Bani Park Ajmer Road West

Locality

8,000

Premium

Affordable

20,000

1,600

Premium

4,200

Capital Value Affordable

4,200

15

Premium

63,000

10,000

20,000

2,500

4,200

41,000

63,000

8,000

16,000

1,600

3,700

4,200

36,000

9,000

25,000

2,300

5,000

36,000 1,08,000

C-Scheme

10,000

25,000

3,500

5,000

61,000 1,08,000

Civil Lines

10,000

18,000

3,000

4,700

41,000

10

Construction machinery

5

0

-5

South

61,000

8,000

21,000

1,600

5,000

4,500 1,00,000

10,000

21,000

3,500

5,000

50,000 1,00,000

Jagatpura

8,000

12,000

1,600

2,300

4,500

27,000

East

8,000

16,000

2,000

3,000

4,500

41,000

Vidhyadhar Nagar

8,000

16,000

2,000

3,000

26,000

41,000

Bapu Nagar

Agra Road

NA

NA

Apartment rental(`/month) 2 BHK=750-1,100 per sq ft

NA

NA

4,500

12,000

-10

Toughened glass

Aluminium pipe & tubes

Sponge iron

Nov 09

Capital Value

Premium

Affordable

Premium

Affordable

Premium

5,000

10,000

1,500

2,900

7,000

18,000

Mahanagar

5,500

10,000

2,000

2,900

11,000

18,000

Hardoi Road

5,000

9,000

2,000

2,900

7,000

12,000

East

4,000

12,000

1,500

4,200

9,000

30,000

Gomti Nagar

6,000

12,000

1,500

4,200

10,000

30,000

Khurramnagar

4,000

9,000

1,700

2,700

9,000

13,000

West

5,000

11,500

1,600

2,700

10,000

17,000

Vinamra Khand

7,500

11,500

2,000

2,700

13,000

17,000

Rajajipuram

5,000

9,000

1,600

2,700

10,000

16,000

South

5,000

9,000

2,000

3,000

7,000

16,500

Jankipuram

5,000

8,000

2,000

3,000

7,000

16,500

Naya Haiderabad

5,000

9,000

2,000

2,500

8,000

15,000

Apartment rental(`/month) 2 BHK=750-1,100 per sq ft

CONSTRUCTION COST MONITOR

-15

-20

PLOTS (`/sq yard)

Capital Value (`/sq ft)

Affordable

North

PLOTS (`/sq yard)

Capital Value ( `/sq ft)

Rental Value (`/month)

Nov 10

The trendlines show the rate of inflation according to the Wholesale Price Index (WPI) for specific construction materials

10.3% 1.5% Iron

Glass

1.1%

Construction machinery

0.6% Aluminium

Figures are year-on-year change in prices as on 30 November, 2010

Most locations in the aforementioned cities have both affordable as well as premium buying options. This also includes prices of resale property


40

Insurance The Economic Times Wealth, January 10, 2011

ULIPS

Though Ulips have changed for the better, the minimum premium payable under most new plans has risen. KHYATI DHARAMSI

W

more than 2.25%,” Irda had said. This is what is pinching the life insurers. “We have to work out the expenses according to the maximum 4% that Irda has suggested. The cost consolidation is working out only for that amount. If the amount is small, then per transaction costs turn out to be high,” says Bengani of ING Vysya Life Insurance when asked why the minimum premium for the new product had been pegged at `36,00048,000 per annum vis-a-vis `10,000 in earlier products. Nageswara Rao of IDBI Federal Life Insurance also feels the same: “It becomes uneconomical if it is below a certain size due to a cap on charges.”

e know that the new version of Unit Linked Insurance Plans (Ulips) offered by life insurance companies after September last year are more investor-friendly. First, they can’t be mis-sold as a short-term investment product anymore, as the minimum lock-in period has risen to five years from three earlier. Second, after the rationalisation of charges, they offer better returns. However, the minimum premium payable under most new Ulips has increased. “Generally, there has been a move towards Catering to a new segment increase in the minimum premium,” says GV Nageswara Rao, MD and CEO, IDBI Federal However, some insurers have claimed that Life Insurance. they are launching products with a higher tick“Right now, there are products that cater to et size because they want to target a particular a minimum premium of `18,000-24,000, but segment. “HDFC SL Crest is a niche product not below that,” says Vivek Bengani, viceaimed at a specific group of customers who president (product management), ING Vysya are comfortable with safeguarding their Life Insurance. Earlier, people who wanted investment with guaranteed returns and who to invest `5,000-12,000 still had understand the complexity of the options in Ulips. ING Vysya Life product,” says Paresh Parasnis, Health cover Insurance recently launched executive director and chief operating rankings and Market Shield, a Ulip with a higher officer, HDFC Life. “We have taken a premium reckoner minimum premium. conscious decision to keep it at Page 35 Companies such as Life `20,000, which was the minimum Insurance Corporation (LIC) too premium before the new guideline. have raised the minimum premium This is because the average ticket size in size. LIC’s new pension plan Pension Plus the segment we were targeting is `2,000 a asks for a minimum annual premium of month or `20,000 annually,” says Rao of IDBI Federal Life Insurance. `15,000-18,000 while the earlier plan Market It is not just about higher premium. Several Plus had a minimum investment size of only policies have only a yearly option of paying `5,000. State Bank of India Life’s new plan SBI premium and not the cheaper monthly, quarSaral Maha Anand has set `15,000 as terly or semi-annually mode available earlier. minimum investment, compared to the ICICI Prudential LifeTime Premier and HDFC earlier `6,000. Life Crest offer are notable examples. Max What has changed? New York’s Shiksha Plus II has a premium of `24,000 for a yearly option and `30,000 for Post its famous spat with the Securities and Exmonthly premium. change Board of India, Insurance Regulatory “Our traditional plans offer non-annual and Development Authority (Irda) had disconmodes of premium payment. Similarly, we tinued old Ulips and issued new guidelines, would soon be launching a new unit-linked which became effective from September. The product with both monthly and half-yearly insurance regulator was forced to act after premium payment modes,” says Parasnis widespread complaints of Ulips being sold as a of HDFC Life. short-term investment product rather than an What about the segment that buys products insurance product. The new guidelines with a premium in the range of `12,000stipulated the difference between the actual 15,000? “Segments starting from `12,000 per returns and returns after deducting the year up to `20,000 will be served by traditioncharges should not be higher than 4% at the al products,” says Rao. end of fifth policy year. “The net reduction in yield for policies with a term less than or equal to 10 years shall not be more than 3% at maturiPlease send your feedback to ty. For policies with a term above 10 years, the etwealth@indiatimes.com net reduction in yield at maturity shall not be

P I L U W E N

Be ready with a higher premium NEW product & minimum premium

OLD product & minimum premium

SBI Life Saral Maha Anand 15,000 Smart Elite 1,50,000

Maha Anand 6,000 Smart Ulip 50,000

ING Vysya Market Shield 36,000 (10 years) 48,000 (5 years) Prospering Life 48,000 ICICI Prudential LifeTime Premier 18,000-50,000 LIC Pension Plus 15,000 (non-ECS)/ 18,000 (ECS)

ING LifePlus 10,000 ING Positive Life 10,000

LifeStageRP/Life Stage Plus 15,000/ 20,000

LIC Market Plus 5,000

HDFC Life YoungStar Super Premium YoungStar Suvidha Plus 15,000 10,000 Figures in `

ALANKAR

Improved but at a premium


Guest Column

The Economic Times Wealth, January 10, 2011

TAXATION

This year don’t buy insurance to save tax Your life insurance plan will give you tax breaks this year but it might not be eligible for deduction after the proposed amendments in tax laws. Sudhir Kaushik tells you what to consider when you buy a policy.

A

lmost 70% of all insurance policies is bought in the last three months of a financial year. This indicates that many of these plans have been bought with the sole purpose of saving tax. The majority of buyers don’t care what they are buying as long as it helps them save tax. If you are such an investor, be careful when you buy an insurance policy. Your investment will give you tax breaks this year but may not be eligible for any deduction in the coming years. The proposed Direct Taxes Code (DTC), which comes into effect from 1 April 2012, has laid down very stiff conditions for the deduction of the premium from the taxable income and the exemption for income from insurance policies. One of the key insurance-related provisions of the DTC is that a policy will not be eligible for tax deduction if it offers a life cover of less than 20 times the annual premium. This means if the premium of an endowment insurance policy or a Ulip is `20,000, it should offer a life cover of at least `4 lakh to be eligible for tax deduction in the coming years. If this condition is not met, not only will the premium lose tax benefits but even the income accruing from the policy will be taxable. It has been often said that life insurance should be used as a wealth protector, not a wealth creator. One should have a cover big enough to settle all outstanding loans as well as create a corpus of 8-10 times the annual income. If a person’s gross annual income is `6 lakh, he should have a cover of at least `48-60 lakh. However, the average insurance cover per policy in India is less than `1 lakh. But instead of term insurance plans that provide a large cover at low cost, Ulips and endowment plans are more popular with investors. The bigger loss is that the risk cover these policies offer is so low compared to what an individual needs that it is almost meaningless. What’s more, since the premium of traditional insurance plans is very high, a policyholder is not in a position to buy more life cover for himself. A term plan for a risk cover of `50 lakh would cost a 25-year-old man less than `6,000 a year. A simlar cover from a Ulip or an endowment plan would come for at least `2-3 lakh. This may have to change after the DTC kicks in. A major game changer for

life insurance is that the tax deduction limit will get reduced from the present `1 lakh a year to only `50,000 a year under the DTC. That’s not all. This `50,000 limit would also include the amount paid for tuition fees of children as well as medical insurance. Hence, there won’t be too much head room left for a big premium paid on an insurance policy. There are other things to keep in mind too. Insurance agents like to lure buyers by saying they can withdraw from their Ulips after a few years. This lock-in period used to be three years but the Insurance Regulatory and Development Authority has extended it to five years. Nonetheless, it is a widely used ploy to sell Ulips because partial withdrawals are tax-free. Right now, any income from insurance is tax-free except the premature surrender of a pension plan or a Ulip before five years. But under the DTC, withdrawals from Ulips will attract capital gains tax on the basis of the holding tenure. If you still want to buy an insurance policy to save tax, make sure that the life cover it offers is big enough. This would be possible if you take long-term plans (at least 20 years). Your agent might try to dissuade you from opting for a higher risk cover in your Ulip. He would point out that a higher deduction for mortality charges would reduce the funds available for investment. Don’t let that make you opt for a plan that might lose all tax benefits two years from now. For investors who are comfortable taking risks, equity-linked saving schemes are a better way to save tax. These funds have given high returns in

If the premium of an endowment insurance policy or a Ulip is `20,000, it should offer a life cover of at least `4 lakh to be eligible for tax deduction in the coming years.

5

reasons why insurance won’t save tax

No deduction: Under DTC, an insurance policy that offers a cover of less than 20 times the annual premium won’t be eligible for tax deduction. Tax on maturity: If the 20 times life cover condition is not met, even the income accruing from the policy will be taxable. Lower limit: The tax deduction limit for life insurance will be reduced from the present `1 lakh to `50,000 a year. Tax on withdrawals: Partial withdrawals from an insurance plan before maturity will be taxable under DTC. Tax on surrendering: The surrender value of a plan will also be taxable. recent years and have a lock-in of only three years, which is the shortest for any Section 80C option. But being equityoriented funds, they are subject to market risks and one should enter only if he can stomach the ups and downs. For those with a lower risk appetite, the New Pension Scheme (NPS) is a great way to save tax. NPS investors have the choice of investing in funds managed by six mutual fund houses. The NPS allows up to 50% equity exposure and the charges are negligible compared to the terribly high costs of investing in a Ulip or a unit-linked pension plan from an insurance company. But NPS is not as liquid as ELSS funds and investments that get tax deduction cannot be withdrawn before retirement.

Sudhir Kaushik is co-founder & CFO, TaxSpanner.com Please send your feedback to etwealth@indiatimes.com

RAJ

41


42

Banking

The Economic Times Wealth, January 10, 2011

SMART BANKING

Future perfect

Pay through your mobile

Mobiles could soon help perform the following actions; the end of cash & cards is nigh Public transport: In China, users can get 10 yuan in public transport credit and a mobile phone acts like any other smart card

Mobile phones can now be used to transfer money besides paying for a number of services. NUPUR ANAND or Parag Darade, a marketing executive, the launch of Interbank Mobile Payment Service has made life much easier. The 28year-old can, besides keeping track of his bank balance and booking railway and theatre tickets, transfer money using his mobile phone. Darade is part of a growing tribe of individuals benefiting from interbank money transfer that takes place in real time. Seven banks— State Bank of India, ICICI Bank, HDFC Bank, Yes Bank, Axis Bank, Union Bank of India and Bank of India—use this service, launched by National Payments Corporation of India (NPCI), an umbrella body that facilitates payments across banks for retail customers. There is a daily transfer cap of `50,000 per customer, but with more banks due to join, the cap may rise. RBI says mobile banking services must be available across service providers. These are early days, but “mobile wallet” is poised for an explosive growth. A few basic services are already available. Customers can look forward to a more evolved, tech-driven ecology in the coming years. With the help of a smart card installed in a phone, a whole bouquet of financial services is for the taking. Paying for a Metro ride or toll tax on highways would be done through mobiles. There would be no need to carry cash or credit/debit cards. At a basic level, mobile banking allows you to check your balance, get a cheque book, pay utility bills, recharge pre-paid mobile phones and also book tickets for films and other shows. Some mutual fund houses allow their customers to buy and check the performance of funds. To avail of these facilities, all you need is a bank account and a GPRS-enabled handset. The first step is to register your mobile number with your bank. After that, send a text message to a number assigned by the bank. In reply, you get a link that has to be downloaded. Once the download is complete, you need to register and you get a mobile pin number or mPIN. This just like your ATM PIN and is required to carry out any transaction. Even if your phone is not GPRS-enabled, you can still avail of some basic banking services such as getting to know your balance statements and details about the last few transactions, among others. Yet another way to make your mobile phone into a wallet is to load your number with cash. For this, you have to visit an outlet your bank has partnered. This amount can

F

be transferred but not encashed. This means that say, if you transfer `2,500 to another person’s account, that person cannot go to the bank and encash it; the money can only be used to pay for goods or services. Charges: Unfortunately for almost all good things in the world, you need to pay a price. Banks don’t charge anything for providing this facility. But you will have to pay your mobile service provider for the text messages sent. The costs of these messages are normally a tad higher and they are also counted as two messages as you are charged for bank’s reply too. And if you are using mobile banking via internet, you need to pay according to the tariff plan charged by your operator. Dos and don’ts: Since your bank account is connected to your phone, you need to notify the bank in case you change your number. If you lose your phone, the first thing you do is to notify your service provider so that the SIM can be deactivated. You also need to inform your bank so that updates on the number can be stalled. If you have forgotten your mobile PIN, you need to answer a secret question. That done, you will receive your mPIN again.

Pay restaurant, grocery bills Consumers can pay for items merely by waving or tapping their smartphones near a register at a checkout

Mobile health monitoring IT and mobile telecommunications to monitor patients remotely; health-care costs related to chronic diseases will come down; improve quality of life

Please send your feedback to etwealth@indiatimes.com

Bank

NPCI

Bank NPCI passes information to receiver’s bank Bank checks details and debits money from account

Money credited to a receiver’s account

Sender

Receiver Customer uses registered mobile to instruct bank to transfer money

Real Time Money Transfer

SMS sent to beneficiary customary informinghim of the credit

ALANKAR


Bullion The Economic Times Wealth, January 10, 2011

43

GOLD

How to get most out of jewellery sale Follow these simple steps to avoid getting duped while buying and selling gold jewellery. close to the SMS rate or that indicated on AIGJF website www.gjf.in. A customer is notified the price at which a jeweller sells and buys back gold. Say, Sunita Sharma gets a message: “22K S:2033, 22K B:1911.” A jeweller will sell her a 22-karat (carat) jewellery piece based on `2,033 a gram. A jeweller will buy back from her at `1,911. Attuning yourself to market rates lessens chances of fraud.

KHYATI DHARAMSI

S

unita Sharma, 38, was elated to find gold prices at more than `20,000 per 10 gram in the first week of November, 2010. The 28-gram necklace bought for `3,700 per 10 gram was about to earn the homemaker five times the price. An LCD television was in order. Not so fast, Sharma would find out. She saw to her dismay that the necklace did not have a hallmark, or purity, certificate. Selling was going to be difficult because gold purity had not been ascertained at the time of purchase. The prices of 22-carat gold are staggering, but commonplace mistakes cost much. Here are some steps to make sure you don’t regret the decision to buy and sell jewellery. Check purity Sharma did sell the necklace, but had to be satisfied with the price the jeweller quoted. Most jewellers use a device called caratometer to check the amount of gold. Experts say this is a faulty practice. “Caratometers are not authenticated by the Bureau of Indian Standards,” says Rajiv Popley, director at Popley Group that runs a chain of jewellery stores. The devices cater to only surface testing, which can differ based on thickness, he says. The globally accepted method, including by BIS, is fire assay. Here, a part of the jewellery is melted and tested. Only a gram of jewellery with 91.6% of gold passes muster as 22-carat gold, says Popley. A person selling or buying gold can demand this type of testing for a nominal fee. The marking is done using punches or a laser-marking machine. The BIS website lists labs that provide hallmarking. “The All India Gems and Jewellery Trade Federation also lists labs in a locality and gives the current gold rate,” says Vedant Jatia, director at Indian Institute of Jewellery. You can also demand a hallmark certificate from a jeweller. Hallmarking cost varies. It is usually around `25 a unit. This holds true for a necklace or earring; a set of earrings will be considered as two units. The price depends on your relation with the jeweller as well. Don’t forget to haggle. Safe than sorry People often look to tweak the design of old jewellery to match the latest trends.

What to expect Buyers usually return to sell to the same jeweller from whom they bought gold. But brace for a price short of expectation.

Only a gram of jewellery with 91.6% of gold passes muster as 22-carat gold.” RAJIV POPLEY DIRECTOR, POPLEY GROUP

“A jeweller’s price will be around 5-10% lower than that quoted in newspapers or websites because of labour costs involved,” says Jatia. Sharma’s necklace fetched nearly `3,500 less than the price quoted in the market. “It depends on the purity of jewellery,” says Popley. The price would be same in the case of hallmarked jewellery at any store, he says. That is without counting deductions such as labour charges that jewellers levy.

GETTYIMAGES

jewellery,” says Popley. They could be in for nasty surprisIf 91.6 is mentioned as hallmarkes if there is no purity certificate. A portfolio that ing for a 22-carat gold, it means “I sold a 5-tola necklace (1 tola is a safe bet for retirement = 11.664 gram), but the jeweller there is 91.6% gold purity. Put Page 22 melted it and said it is just 2.5 another way, 916 points of gold is tolas,” says Ananya Mota (name present in every 1,000 points of an changed), a housewife. item. Similarly, 1,000 would mean Hallmark has long been used as a 24 carats, 750 equivalent to 18 carats safeguard to buyers of gold and gold artiand so on. cles in many countries. Experts advise buyers and sellers of gold to insist on hallmark Checking rates because it guarantees purity, or fineness, of An SMS should do the trick. Message jewellery. “GOLD RATE” to the All India Gems and “If it is hallmarked, the mark on the jewJewellery Trade Federation (AIGJF) on ellery is more authentic than paper (certifi575758 for the day’s gold rate. cate) as the paper may relate to any other The price quoted by most jewellers is

Retain the invoice Retaining a record of purchase is important while buying and selling gold jewellery. The invoice doubles as a record of gold purity. In case of doubt on the purity of gold, the retailer cannot contest the case after you produce an invoice. “A good jeweller usually demands an invoice when you want to sell,” says Jatia. Jewellery as an investment Buy jewellery only as a fashion accessory. Prices usually do not match expectation. To invest, turn to gold bars and coins.

Please send your feedback to etwealth@indiatimes.com


44

Alternative Investment The Economic Times Wealth, January 10, 2011

Coin collecting is illiquid and not institutionalised. As currencies take various shapes and forms, the potential for collectors will only increase over the years. HARSH DALAL REGIONAL HEAD, ALTAMOUNT CAPITAL

Collectors’ fortune

INVESTMENT

Cashing in on coins, notes That coin collection of yours can be a treasure trove, with returns ranging from 20% to 30%. But remember it is an interest-led investment.

NUPUR ANAND uhas Kadam, a private-sector employee, dreamt of owning a house. But money was a problem and there came a point where he was about to give up on his dream. He had no godfather, no windfall or inheritance that he could turn to. He turned to the small investments he had made over 25 painstaking years—a collection of 252 “error” coins. These are coins in which minor errors had crept in during minting. In 2009, he auctioned his collection for `6 lakh. This money he used as down payment for his house. Minting money: “The returns from investing in coins and bank notes can range anywhere between 20% and 30% on a yearon-year basis,” says Farokh S Todywalla, owner of Todywalla House, a Mumbaibased auction house. The same sentiment is echoed by Shamji Vinchhi, a coin dealer. Illustrating his own example, Vinchhi says

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an East India Company coin of 1808 that he had bought three years ago for `100 is now valued at `3,000. Experts say the astronomical returns are because of demand and supply mismatch. The number of people showing interest in numismatics (the study of coins) has been rising, but the supply of antique coins hasn’t increased in the same proportion. The other reason is that with the increase in the value of gold and silver, the intrinsic value of old coins also rises. All collectors and dealers stress on one point: It is strictly an interest-led investment. Most caution that it would be foolhardy to jump into coin collecting only because of the potential returns. “Unlike other investment classes, coin collecting is illiquid and is not institutionalised. Governments keep changing the size and shape of coins. So investors have more opportunity to increase their collections,” says Harsh Dalal, regional head (multi family office), Altamount Capital, a wealth advisory. How to begin: Experienced collectors such as

A George V, nickel coin with a fouranna denomination issued in 1919 is valued at 20,000 `2

An 1835 East India Company gold mohur with William IV would be valued in excess of ` 1,20,000

A 1957 `1 Nehru silver coin of 1964 valued at 2,00,000 `2

Vinchhi suggest start by investing small amounts—even `500-1,000 a month. The market in India still remains largely unorganised. So the problem for investors is where to source the coins from. “There are two ways of acquiring coins; first by purchasing them from a dealer and second by sourcing them from coin and paper money exhibitions that are conducted by private collectors and traders across the country,” says Dalal. Even while buying from a dealer you should check if he has a licence and permit as it adds authenticity. If the dealer is not licensed, you should always check the repute of the person before buying. Experts point out that buying from an auction is always a better option than an over-the-counter deal as the surety of the product being authentic increases. However, the prices generally scale up in auctions due to aggressive bidding. The other thing that you should keep an eye for is if the dealer offers a money-back guarantee if the coin is not genuine. If a coin has been bought at an auction, then only the minimum bid price will be returned to you. Family and friends along with jewellers are also good sources. When prices of gold and silver rise, people who are ignorant about the value of antique coins generally sell them to the local jeweller. Coins as investments: The first thing an investor has to remember is that the value of a coin does not necessarily depend on its age. There are other parameters such as condition, rarity, metallic value, supply and demand that also come into play and may add to the value. Uncirculated coins known as proof coins have a greater value. Proof coins are ones that

A `110 coin of 1854 valued at 4,00,000 `4 (uncirculated coin)

50,000 A `5 bank note of 1960 valued at 7,00,000 `7

A `11 note of 1949, signed by KRK Menon valued at `112,000

These are approximate values and may change depending on condition and availability

were minted for a collection or presentation. “A common silver British Indian rupee would be worth `500. But in proof condition, it would be `5,000,” says auctioneer Todywalla. Expert help: There are agencies that grade coins. This helps you to get a fair idea about the true worth of your collection. Apart from these, there are books and journals that give details on how to distinguish between an original and fake. And with social networking becoming such an integral part of our lives, you can always turn to sites such as Facebook for more information. There are various societies and groups that you can join. Apart from showcasing your collection, these clubs can also guide you in making investments. Selling: You can sell your collection to dealers or auction it. Auctioneers charge around 10% of the total sales. Keep in mind: “Like in other instruments, there are no guaranteed returns. Suppose you have a coin that is rare, its value would be sky-high. However, if similar coins come into the market, the value of your coin would fall,” says Todywalla. The other factor that can bring down the value of a coin or note is its condition. If it hasn’t been preserved well, its value is sure to go down. Lastly, remember there is a difference between an antique and a recently minted medallion. Many such medallions are touted as coins and sold in the market; it is advisable to stay away from them.

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My First Year

The Economic Times Wealth, January 10, 2011

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ENTREPRENEURSHIP

No income for nearly a year After spending a lifetime with start-ups, Dhiraj Kacker decided to launch one. Coffee-table books propped by India’s booming wedding industry were inviting, but the early days were a slog. SHOME BASU

I did not have a Plan B. Entrepreneurs cannot afford to have one

Dhiraj Kacker | 38 years Age at starting business: 35 years Company Name: Canvera Digital Technologies Seed capital:

`7 Crore

Source of money: Draper Fisher Jurvetson and Footprint Ventures (venture capital firms)

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ore than 19 years of working with start-ups in digital imaging and photography. Seven US patents to show for the effort. I decided in 2007 it was time to use the experience and expertise to turn decision-maker. Around the same time, my friend and IIT batchmate Peeyush Rai presented the idea of establishing our own business. I needed little persuasion. In no time, my wife and I quit our jobs in the US to move to Bangalore, where Peeyush and I founded Canvera. India was a new market. We took nearly nine months to study it. We found that professional photographers are a constant feature of most ceremonies, notably weddings, in India. Weddings spawn around 60% of their business. We had to find our niche in this vast business. We tossed around concepts like mobile photography. As our research progressed, we zeroed in on producing coffee-table books, or a digest of the work of photographers, after seeing a billion-dollar business potential.

We dug into our savings to meet expenses

After a tide of rejections, we gathered funds from Draper Fisher and Footprint Ventures

I took back home the first pay cheque after nearly a year

When to There was no need break a for research in a fixed deposit small but important Page 10 aspect of the business: The company’s name. I randomly produced the name by combining canvas and camera. The early days were difficult. There was no source of income for nearly a year. We dug into our savings to meet expenses. My family was supportive, perhaps because the experience was hardly new. I had spent a lifetime with start-ups even during the dotcom bubble. Here I was with another, albeit my own. The hunt for funds began in earnest, but was tough. There were many meetings with angel investors and venture capitalists to present the business model. After a tide of rejections, we finally managed to gather funds from Draper Fisher Jurvetson and Footprint Ventures. It was a great learning experience. Rejections were padded with criticism. “You have have no clue about doing business in India,” said one potential investor. “You have been working all your life in the US.” Not every rejection was futile. I decided to lower the demand for seed capital to `2 crore as `7 crore was beginning to look improbable. But one potential investor talked me out of it. Lower capital would mean entering the unorganised Indian photography market with a sub-standard product. He did not invest, but the advice was valuable. I made a fair share of mistakes in the first year. I bought equipment for making ancillary products and invested in inventory designs that were European in taste. The inventory drained our resources. The equipment is thankfully of use as we are increasingly developing products. We advertised mainly through trade shows, but decided against giving free samples. This led to a few embarrassing moments. People would scoff when asked to pay for samples. Our first customer was a fashion photographer. As I said earlier, I took back home the first pay cheque after nearly a year. Revenues began to trickle in slowly but steadily. As we expected, weddings seed most of the business. We charge nearly `7,000 for a coffee table book. The price can rise depending on the size of the book, number of copies and paper used. I have survived the journey thanks to perseverance. Did I have a Plan B? No. Entrepreneurs cannot afford to have one.

(As told to Shobhana Chadha) Please send your feedback to etwealth@timesgroup.com


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Senior Citizens

The Economic Times Wealth, January 10, 2011

A start-up in sunset years CK Matthews started his company at 63. Today, it is worth `10 crore. Retirement is far away.

N NARASIMHA MURTHY

CK MATTHEWS | 75 | Former nuclear scientist. Now MD of Indus Scientific

PLANNING WORK POST-RETIREMENT If you also feel that retirement is not the end of a working career, thinking a little out of the box will open new avenues. Are you ready to relocate, may be to a smaller city, where youngsters may not go due to lack of growth opportunities? Is there an idea that seemed financially viable, but you could not work on it due to family commitments and a regular job? What are the important roles within a company where your knowledge and experience can have a big impact? Can you work at odd hours that younger people avoid due to family or social commitments?

AMIT KUMAR

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ike many 75-year-old retirees, CK Matthews begins his day with yoga. There ends the similarity with septuagenarians. Most people of his ilk spend time with grandchildren and look back at the ‘good old days’. Matthews has a more chipper role: Running his own company. Matthews launched Indus Scientific, which makes emission-testing instruments, gas analysers and oxygen probes, in 1998 in Bangalore. Today, the company is valued at nearly `10 crore. Mathews started Indus Scientific three years after ending a long career as a scientist at the Indira Gandhi Centre for Atomic Research (IGCAR). Retirement was far from his mind even before Indus. “I was sure I would not idle away my time after retirement,” he says. A stint with Jawaharlal Nehru Centre for Advance Science followed but ended after three years as he was unhappy with the institute. Soon after, Mathews saw a powerful idea in making emission-testing instruments. With help from friends who collected `15 lakh and his own savings, he started Indus at a rented place in Peenya, an industrial suburb of Bangalore, with one post-doctoral student. He never doubted its success. “Not much had been done in the field of pollution in India and I knew if I work hard, it would be successful,” Matthews says.

At 75, I can work on my own, have my own money and provide direct employment to about 35 people. There were hitches too. “It is difficult for a 63-year-old to convince bankers for a loan. I had to pledge my house as collateral for a loan,” says Matthews. The big break came in 2001. State transport departments floated tenders for emission-testing equipment for automobiles. Products were selling at `2.3-3 lakh in the market. Sensing an opportunity, Mathews designed an indigenous automotive exhaust monitor which cost `65,000. Success followed. Indus bagged a tender from the Maharashtra government worth about `50 lakh. It changed the fortunes of the fledgling unit. Turnover amplified to `1 crore with profits of `11 lakh by March 2002. More success followed in 2004 when the company supplied four-gas analysers to the Delhi government for about `2 crore. “We were one of the few indigenous companies

that could have provided the equipment,” he says. Subsequently, the deal continued for the next two years. Not everything was rosy. There were teething troubles in marketing the products. “I can design and make products, but marketing is challenging,” he says. Mathews hired people for this role, but a few turned out to be unreliable. The debacle cost the company several promised contracts and payments. Plans to enter South-east Asia have been put on hold. These niggles apart, Matthews is confident that the business has a bright future. Despite his age, Matthews has no plans of slowing. “My health is not a serious problem and regular yoga plus a balanced diet is enough to keep me going,” he says. “I am a voracious reader and apart from my work, reading keeps me active and alert,” Matthews adds. Post-retirement life is satisfying to say the least. “At 75, I can work on my own, have my own money and provide direct employment to about 35 people.” And he is not finished. He has written to Prithviraj Chavan, chief minister of Maharashtra proposing an alternative to computer-based pollution under control certificates. “If I had to live a retired man's life, I could have done it long ago.”

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Last Word

The interview with the chief PF commissioner was an interesting read. The decision of stopping interest payment on accounts which are dormant for more than 36 months should not be applied in the present system. Rather, they should quicken the transfer process first, and then stop interest on dormant accounts. Vibhav Jindal At a time when withdrawing money from bank accounts takes a few seconds, a 180-day waiting period to get your savings when you need it most is archaic. Please ensure faster withdrawals before stopping interest on dormant accounts. Also, every person should have just one PF number, which can be forwarded to every new employer. Kunal Kalawatia The senior citizen section is a very welcome feature of the paper. Thank you for bringing out a regular column on us with bright colours and big pictures, which makes reading easy for us. PC Rao

What’s your Money Quotient? Are you a savvy investor or a dodo when it comes to personal finance? Take this quick test to find out your PF quotient

47

Financial Wizard of the Week Bring out the planner in you and suggest a strategy for a financial problem to one of our readers. The best solution will receive an Indiatimes gift voucher worth

1 There is no charge when you surrender a Ulip after the lock-in period

Y/N

2 It is safe to invest in a Ponzi scheme if it is from a registered company

Y/N

`5,000

3 You are eligible for gratuity if you have work experience of more than 5 years

Y/N

and will be crowned the ET Wealth Financial Wizard of the week.

4 A good index fund will not give returns higher than its benchmark

Y/N

5 Dividend from ELSS tax-saving funds is taxable

Y/N

Last week’s winner

6 The new Ulips are more investor-friendly but also more costlier

Y/N

AC SANGAL, Pune Solutions from the following were also useful:

7 The tax deduction for life insurance premium will come down under the proposed Direct Tax Code

Y/N

8 Premature withdrawal from an FD attracts a penalty

Y/N

9 The furniture and fittings are sold off separately when a bank auctions a house

Y/N

10 A hallmarked gold ornament will fetch a higher value than one without the certification

Y/N

Omkar Redkar, New Delhi Shrikanteshwara S, Bangalore

This week's situation:

Give yourself one point for every correct answer >> 8-10: You are a smart investor and know the tricks. Try fine-tuning your portfolio. >> 4-7: Well, your FP quotient is average. You know the basics but you have a lot to learn.

I am 55 and eligible for pension if I stay on till retirement. However, I want to take voluntary retirement, but the company says it will halve my pension. To compensate for that, I plan to give my second house on reverse mortgage. My children think it is an imprudent plan. What should I do? Pratap Singh, Noida

>> 0-3: You have a lot of catching up to do. Remember it’s never too late. Answers: 1 No. 2 No. 3 No. 4 Yes. 5 No. 6 Yes. 7 Yes. 8 Yes. 9 No. 10 Yes

Your feedback

The Economic Times Wealth, January 10, 2011

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HOBBY TURNED INTO BUSINESS

A passion takes off and how! N Adarsh quit as a marketing executive to establish a flying school for enthusiasts of radio-controlled aircraft. PRIYA KAPOOR

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Adarsh took a fancy for the world of flights as a child. He dreamt of becoming a pilot, but abandoned the ambition because the `20-25 lakh fee for a commercial pilot's licence was expensive. He turned his attention to what seemed like the best alternative: Flying radio-control (RC) aeroplanes. The links to aviation were intact. Better still, Adarsh found that an activity that began as a hobby could earn him a living. Soon, Adarsh, based in Bangalore, quit his job as brand manager with a leading newspaper and started Model Aviation, an academy that teaches enthusiasts to fly RC aircraft. “Initially, I was hesitant since it's a young sport and people were not keen. But interest is slowly picking up,” he says. He charges `15,000-25,000 a student and on an average, teaches nearly 20 at his twoyear-old academy. “Those who come with their own model are charged less. The higher

The Economic Times Wealth, published by Bennett, Coleman & Co. Ltd. exercises due care and caution in collecting the data before publication. In spite of this, if any omission, inaccuracy or printing errors occur with regard to the data contained in this newspaper, The Economic Times Wealth will not be held responsible or liable. The content hereof does not constitute any form of advice, recommendation or arrangement by the newspaper. The Economic Times Wealth will not be liable for any direct or indirect losses caused because of readers’ reliance on the same in making any specific or other decisions. Readers are recommended to make appropriate enquiries and seek appropriate advice before making any specific or other decisions.

fee is for those who are provided fee… anywhere between `10,000 and aircraft from the institute,” says `60,000 for a two-hour show just to recover Adarsh. Students are given 30 flight the money I had invested,” he says. Each lessons. model aeroplane costs around `30,000. The “One flight usually lasts for 15-20 money was spent on repairs and making minutes,” he adds. more and better aeroplanes. Adarsh also sells RC aircraft models Some of it went to his bank account, to various flying clubs and holds reguadding to the savings. Over the years and lar workshops in colleges. after much practice, he has honed his skills Adarsh has pursued the hobby and expanded his skills to helicopter flying with an equal measure of too. This field is difficult compared to flying vigour and diligent planning. fixed-winged planes. He started saving to buy With his flying school taking off, Adarsh equipment after he wants to now focus on aerial photograjoined the publication phy. “There is a big opportunity in as a marketing executive it, especially for films. Get `10 lakh in 1997. He also joined ENR Government rules prevent bigger for not hopping jobs Model Aircraft, a wellaircraft from flying below 1,000 Page 14 known aeromodelling m,” he says. “Model aeroplanes club, and learnt the basics can, and with cameras fitted, there of RC flying. is a chance to make a killing.” As his finesse grew, he was noticed and invited to perform at Have a hobby that earns you money? various air shows. “Initially, I flew for Tell us at etwealth@indiatimes.com free but later started charging a small

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ETWealth January 10, 2011