The Finapolis July 2016

Page 1

Two impediments to investment decisions


Two articles to guide your home purchases


Underwater hotels


How India was mapped and Everest was named


Finapolis The

1st July 2016 `60

Your Personal Finance Advisor

GST: Game changer on the way

JULY 2016 l The Finapolis



Your Personal Finance Advisor

Volume 10

Issue 04


July 2016

Editor Mandar M Bakre Associate Editor S Vijaykrishnan Correspondent Sukanta Kundu Editorial Board Phani Sekhar Amit Saxena KP Jeewan Jagannadham T Design & Production Vijayendra Kumar Ch Kerthi Saikumar Advertising & Circulation Shabna R Iyer Vijayendra Kumar Ch For Ad Sales Queries

Month of Many Happenings


une was busier than usual at the magazine. We watched as a number of big political and economic events played out, both on the domestic and global stage. Besides Prime Minister Narendra Modi’s

five-nation tour and a meeting of the Nuclear Suppliers Group, June saw the suspense end on Raghuram Rajan’s continuation as RBI governor. The government announced additional reforms, and GST was announced as being one state away from national acceptance. The GST truck has been a long time coming, but we believe its effect will be immediate. Which is why, we have it on our cover with a primer from Associate Editor S Vijaykrishnan. Everybody talks about India and America being natural allies. We got a sense of that at the Indo-American Chamber of Commerce’s conference on increasing trade between the countries five-fold to $500 billion, a target supplied by US Vice-President Joe Biden in 2013. Overseas, Britain said ‘bye-bye’ to the EU, al-

Printed & Published by Mubashir Ansari on behalf of Karvy Consultants Limited. Karvy House, 46 Avenue 4, Street 1, Banjara Hills Hyderabad - 500 034. AP.

Printed at Kala Jyothi Process Pvt. Ltd Regd.Office: 1-1-60/5 RTC Cross Roads, Musheerabad, Hyderabad - 500 020. AP. SVPCL Limited Regd.Office: 206/A, Concorse 7-1-58, Greenlands, Ameerpet Hyderabad - 500 016. AP. Published for the month of July 2016 Printed on July 1, 2016 Total No. of pages 68

All charts and tables are sourced from Bloomberg, unless otherwise indicated.

though the real Brexit is some years away, and the US Federal Reserve decided against a rate hike. For those who follow sport, Muhammad Ali passed away in June. In this month of high-stakes events, Subramanian Swamy supplied the high decibels. Agitator is a mild term with which to crown our Newsmaker, whose Twitter introduction says “I give as good as I get”. Numerous persons — notably, Raghuram Rajan, Arvind Subramanian and Arun Jaitley this month — could claim that they have been getting it good without having given any, but that is the burden of position. In April we introduced Pullouts. This month we add to the concept with a fun flowchart that tells you whether you should stay in your company or put in your papers. We also decode the meaning behind interview questions and tell you the best way to answer them. We conclude our series on the effects of urban migration on rural folk, and take a look at the changes in Monopoly, everybody’s favourite board game, whether you’ve played it in English or vernacular.

For Editorial Queries Please contact The Finapolis Karvy Centre, 8-2-609/K, Avenue 4, Street No.1, Banjara Hills, Hyderabad-500 034 Tel: +91 40 66072560 Copyright The Finapolis. All rights reserved throughout the world. Reproduction in any manner is prohibited. The Finapolis does not accept responsibility for returning unsolicited manuscripts and photographs. All unsolicited material should be accompanied by self addressed envelopes and sufficient postage.

As always, your Finapolis packs more: There’s a quiz on the RBI and currency, which ties in neatly with the ongoing news flow, and in Bookmark, we read about how India was mapped, and Mount Everest got its name. Happy Reading!

Mandar M Bakre


The Finapolis l JULY 2016


Cover Story GST Regime


With all but Tamil Nadu signed up, the pieces for the introduction of GST are slowly falling into place

Investment Advice

Builidng wealth SIP by SIP

24 Investment Advice

Beware of the terrible twins Outcome Bias and Endowment Bias



AN Shanbhag and Sandeep Shanbhag Minor Issues in Income Tax Computation


Adhil Shetty Buying a Cashless Health Policy? Here’s a Checklist


Stock Technicals

Picks for the next few months

Jown Browne Brexit Fears are Unfounded


JULY 2016 l The Finapolis

WE ARE DIGITAL With the proliferation of smartphones and tablet devices, reading habits are slowly but surely changing. We understand the importance of giving readers a cross-platform choice to access the magazine. The Finapolis is now available in a digital avatar as well via a global publishing platform such as Magzter and Indiamags. Besides allowing you to read on the go, the digital version offers an enhanced reading experience. It also eliminates delivery delays. You can download the digital magazine on the first day of every month. Go to, or Rockstand mobile app, search for ‘The Finapolis’, sample some pages of the digital magazine, and buy a subscription through your netbanking or credit card account. A one-year subscription for The Finapolis digital costs only Rs 540. You need to have a device that runs on Apple’s iOs, Android or Windows 8 operating system. Do let us know what you think of the digital experience by writing in to

30 Reporter’s Notebook Taking Indo-US Trade to the $500 bn mark

57 Brexit

26 Urban Effect

Spearheaded by Boris Johnson, the Leave side wins

Buy on

Rural people once travelled great distances to seek their fortune. But this takes a toll on their health

Follow us on



The Finapolis l JULY 2016

inbox Thundering Heard News of a good monsoon after two disappointing years is promising, and your list of stock recommendations was ideal for an avid investor like me. Hope the rain gods answer the bulls. — Avinaash Shah, Mumbai

When Less is More The piece carried on multiple savings accounts was very informative. At a time when one tends to open bank accounts as one buys clothes, I think that for middle-income readers like me, having less number of savings accounts is better even though it is good to maintain separate accounts to manage Disclaimer: The technical studies / analysis discussed here

investments. — Dharmendra Tiwari, Indore

can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we

Hollow Benefits

consider reliable. We, however, do not vouch for the accura-

The ‘Urban Effect’ was truly astounding. For most who dismiss rural-urban

cy or the completeness thereof. This material is for personal

migration as a mere statistic, this piece was an eye-opener on many fronts.

information and we are not responsible for any loss incurred

One, even as the divide between Bharat and India shrinks, everything

based upon it. The investments discussed or recommended

Bharat is not weak and neither is India totally healthy. Two, the rural-urban

in this report may not be suitable for all investors. Investors

migration can be alarming for India in the long term, as a smaller landmass

must make their own investment decisions based on their

sustains a much larger populace. Last, but not the least, a doctor’s efforts to

specific investment objectives and financial position and

single-handedly gain an understanding of rural child health, only bares the

using such independent advice, as they believe necessary.

government’s lacunae for all to see. It reminded me of a friend abroad who

While acting upon any information or analysis mentioned

asked me once, “How come that the best hospitals in India aren’t run by the

in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any

government?” Waiting to read the concluding part. — Ankit Kumar, New Delhi

associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details

Finapolis For the First Time I picked up a copy of the magazine for first time and liked reading. The column on LinkedIn mistakes was my favourite, I used it to correct problems in my profile. I hope you will continue to carry such articles. Best wishes. — Pawan Verma, Rajkot

of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been dis-

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ployees are further restricted to place orders only through

opted for a trading account as your advice on misleading claims seems to be

Karvy Consultants Ltd. This report is intended for a restrict-


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it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

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JULY 2016 l The Finapolis


 STOCK SCAN Sebi may allow start-ups to be ‘regulars’; scrap plans for separate trading platform


It seems to be a case of revise, relax and then…reject. After having hinted in April that listing norms for start-ups may be revised to easily allow serious, large investors, the Securities and Exchanges Board of India (Sebi) may altogether scrap the proposed capital raising platform. It is surprising that the institutional trading platform (ITP) set up exclusively for start-ups, has failed to see any listing, even after norms were made easier in August 2015 to prompt start-ups to list in India rather than seek capital overseas. Among others, the norms stated that the ITP was open only to institutional investors and high-networth individuals to safeguard against later risks. The Sebi had also fixed the minimum application size at Rs 10 lakh and a minimum trading lot of Rs 10 lakh, once the listing was done. Unfortunately, relaxed norms too seem to be of no avail. In June, the

Sebi again decided to tweak norms to permit easier exit for investors, including those from abroad. While a final decision was to be taken at the regulator’s board meeting in July, news has arrived that the Sebi may altogether scrap plans of a separate trading platform. At a May meeting, the Sebi’s primary market advisory committee (PMAC) advised that start-ups could be allowed to trade on the regular trading platform itself. Now, startups may be allowed to list on the main stock exchange for first three years, during which time, only a diluted version of the listing guidelines would apply, rather than the Issue of Capital and Disclosure Requirements (ICDR). Moreover, the minimum number of share allottees could be reduced from 200 to 50; while only 50% of the issue size will have to be allotted to qualified institutional buyers, compared with the 75% norm now.

HDFC Standard Life, Max Financial announce merger talks

Another new insurance giant may be in the making as HDFC Standard Life Insurance Co. Ltd, Max Financial Services Ltd and its unit Max Life Insurance Co. announced merger talks. The new entity would be worth almost Rs 1.1 trillion in assets, beating rival ICICI Prudential Life and becoming only second to state-run behemoth Life Insurance Corporation (LIC) in market share. Max Life sells policies in a tie-up with Axis Bank, while HDFC Standard Life markets its products through HDFC Bank’s branch network. The Insurance Regulatory Development Authority (IRDA) too seems to have noted the news stating that if suc-

cessful, the merger could indeed turn on the switch of consolidation in the Indian insurance space, where private players manage only one-fifth of the industry’s total assets (Rs 4.61 trillion out of Rs 22.4 trillion) and roughly onethird of total premiums (around Rs 88,000 crore of a total of Rs 3.28 trillion). Reportedly, HDFC Standard Life’s and Max Life’s shareholders have consented to the merger. It will be a two-step alliance wherein Max Life will be merged into Max Financial services, which then will be merged with HDFC Standard Life. The deal’s swap ratio and other details are yet be worked out, which will determine the cut for other shareholders such as Mitsui Sumitomo Insurance Co. Ltd, Standard Life, etc. The merger could also become a springboard for HDFC Life to announce its IPO through which the insurer plans to offload up to a 10% stake.

MF UPDATE Fund houses cannot restrict redemptions, decrees Sebi

Every investor can now withdraw up to Rs 2 lakh from their mutual fund holdings even in times of a market crisis, the Sebi has said. The regulator has introduced a new set of rules regarding redemptions that market experts say will make mutual fund houses introduce better liquidity management tools and employ proper research teams for evaluating companies that the fund house has invested in. The Sebi has also introduced new rules even on the exposure a scheme can have to a company or conglomerate.


The Finapolis l JULY 2016



Microsoft bolsters social play with $26 bn LinkedIn purchase

Raghuram Rajan will not have a second term at Reserve Bank

In what is touted to be the largest deal in the technology space ever, Microsoft acquired professional networking website LinkedIn, in a $26 billion all-cash deal. Microsoft CEO Satya Nadella said that through the acquisition, “Microsoft attempts to put itself at the center of people’s business lives,” and “that the buy is the logical next step to take.” “We believe we can accelerate that by making LinkedIn the social fabric for all of Office.” As per the terms of acquisition, LinkedIn will maintain its “distinct brand, culture, and independence” even after the deal.

Amfi writes to Sebi over MF disclosure norms The Association of Mutual Funds in India (Amfi) wrote to the Securities and Exchange Board of India (Sebi) that fund houses must be exempted from compulsorily disclosing details on commissions, in half-yearly consolidated account statement sent to investors, adding that such details be shared with individual investors upon request, after receipt of the folio number and the name of scheme. The Amfi’s move comes on the back of distributors writing to it that Sebi has failed to follow international standards despite being a member of the International Organization of Securities Commissions (IOSCO).

After months of suspense, RBI Governor Raghuram Rajan made it known in an open letter to the RBI staff that he will return to teach at the University of Chicago, once his term ends on September 4, 2016. The news sent shockwaves across political, economic and media circles. As to why the Governor decided against another term has been a subject of much speculation. One news report claimed Rajan was not interested in another full term and wanted a shorter duration. Finance Minister Arun Jaitley said “Dr Raghuram Rajan has announced his intention to go back to academics at the end of his current assignment. The government appreciates the good work done by him and respects his decision.” Jaitley’s predecessor P Chidambaram said in a statement, “This government did not deserve Dr Rajan. Nevertheless, India is the loser.” Ruing Rajan’s departure, Nobel Laureate Amartya Sen said, “We are losing one of the most skillful financial economic thinkers in the world. It is sad for the country and it is sad for the government of the country too. RBI is not a completely autonomous institution.” The gover-

nor’s mention that two tasks — inflation and reviewing banks’ asset quality — remained incomplete, fuelled much of the speculation that the governor was forced to exit over a multitude of circumstances, not the least the public attacks on him by Rajya Sabha MP Subramanian Swamy. The government’s lack of action over these attacks also drew much flak. With two months left for the maverick governor to finally call it a day, the world continues to debate the merits and demerits of his departure. There are also a fair number of names doing the rounds for a successor. While speculations were initially rife that a panel of experts will suggest the names (Economic Affairs Secretary Shaktikanta Das, Chief Economic Adviser Arvind Subramanian and former RBI deputy governors Subir Gokarn and Rakesh Mohan), latest updates confirm that the final decision will lie with Prime Minister Narendra Modi and Finance Minister Arun Jaitley and discussions have already been held in this regard. It is unlikely that government will let any further speculative fires be fanned, so as to demonstrate that it prioritises an independent and professional RBI. The idea may also be that Modi wants to depict a ‘swachh’ (transparent) policy making framework and RBI being a key to the process, there should not be any difficulty in the change of guard at the country’s apex bank.

“Long before assuming office, I travelled coast to coast, covering more than 25 States of America. I realised then that the real strength of the US was in the dreams of its people and the boldness of their ambitions.” — Narendra Modi, Prime Minister, in his address to the US Congress

Quote of the month

JULY 2016 l The Finapolis



EPFO moots social security coverage for all working citizens The Employees’ Provident Fund Organisation (EPFO) aims to implement mandatory social security coverage for all adult working citizens by 2030. If implemented, the move would help 50 crore workers and professionals obtain provident fund, pension and death insurance benefits. The EPFO plans to achieve this by doing away with membership threshold, wage ceiling and coverage span, by amending the EPF

FDI limits hiked for Defence, Retail, Pharma, Aviation, Food Processing, Broadcasting and Private Security The government has opened up the Foreign Direct Investment (FDI) floodgates in seven sectors —Defence, Aviation, Pharmaceuticals, Food Processing, Retail, Broadcasting and Private Security Services. This was the second set of changes in seven months in the FDI regime. Broadly, the reforms entail a hike in foreign investment caps and granting approvals under the automatic route (not requiring prior approval) across the stated sectors, in order to open up the Indian economy further. At a time when FDI inflows are at $55.6 billion (as of 2015-16, up from $36.04 billion two years ago), the government’s move seems timely in that it will create more jobs and boost investments at a time when India has to battle an increasing number of global and domestic headwinds. For the defence sector, the new policy means that foreign investors can hold up to a 100% stake (up from 49% now), through the government approval route. It also does away with the need for foreign players to have a joint venture with their Indian counterparts. While political circles saw this as a step for India’s defence requirements, prominent players such as

Tata viewed it as a key positive, in terms of sourcing new technology and serving the armed forces better, even as competition is set to heat up for domestic players. The 100% limit is also applicable for small arms and ammunition. In the aviation space, the government has permitted foreign entities (not foreign airlines) to hold own 100% in domestic airlines (under the automatic route), while NRIs will continue to be allowed the same limit. Investments by foreign airlines will be capped at 49% of paid-up capital. 100% FDI has also been permitted in case of airport modernization projects, as opposed to a 74% limit earlier. Similarly, in the pharmaceutical sector the 49% cap on brownfield investments has been raised to 74% under the automatic route, while in the broadcasting space 100% FDI has been permitted under the automatic route for direct-tohome (DTH) operators, cable operators and mobile television players. The government has also allowed 100% FDI under the automatic route for greenfield pharma projects. The government also allowed 100% FDI in retail for food products manufactured in India.

& MP Act, 1952. Currently, minimum pension payable under the New Pension Scheme (NPS) is Rs 1,000 per month, but the EPFO aims to offer an amount equal to half of the national floor level minimum wages for all.

Nikesh Arora steps down as CEO of Japan’s SoftBank Nikesh Arora announced he would step down as COO and President of SoftBank, on June 22, amid news that Masayoshi Son wanted to continue as CEO for the next 5-10 years. The news came just a day after Arora got a clean-chit from a special committee set up to probe allegations about a string of lacklustre deals and stringent opposition by investors, who questioned his track record.

LIC chairman resigns before completion of his term Two years before completing his term as LIC Chairman, S K Roy has resigned unexpectedly. According to finance ministry sources, his departure was for ‘personal reasons.’ The move surprised experts, as during Roy’s term LIC has reported a 25% growth in new business income to Rs 97,674 crore in FY16, surpassing private insurers. LIC’s market share has also climbed to 71% under his stewardship, after slipping to around 65%.



The Finapolis l JULY 2016



Cabinet approves spectrum auctions; Govt revenue could swell by Rs 5.66 trillion The Union Cabinet on June 22 approved a mega spectrum auction plan which could add Rs 5.66 lakh crore to the government coffers. A notice inviting application is likely to be issued by July 1, 2016, followed by pre-bid conference on July 6. Bidding may take place from September 1, 2016. The auction will see the debut of the most effective 700 MHz band. There are likely to be few takers for this expensive (with a base price of Rs 11,485 crore for 1MHz) slot as a player bidding for the 700 MHz band will need a minimum of Rs. 57,425 crore for a block of 5 MHz on a pan-India basis. Above all, this band alone can fetch bids worth over Rs. 4 lakh crore which is almost double of the telecom services industry’s gross revenue (at Rs. 2.54 lakh crore in 2014-15). Others that may be under the hammer are the 800MHz, 900MHz 1,800MHz, 2,100MHz, 2,300 MHz and 2,500 MHz bands. The auction will improve reach and quality of data services in India. While the Telecom Regulatory Authority of India (Trai) has given its approval, discussions are still on regarding the spectrum usage charges. Finance Minister Arun Jaitley has dubbed the auctions as the biggest ever in Indian history.

Govt changes flight plan on aviation, contentious 5/20 rule altered to 0/20 On June 15, the government finally partially scrapped the much-debated 5/20 rule, tweaking it to 0/20. While this does away with the requirement for airlines to have completed 5 years of operations before flying overseas, the stipulation on having at least 20 aircraft stays, leaving some players unhappy. On the brighter side, the policy also heralds other changes. Prominent among these are a proposed airfare of Rs 2,500 for one-hour flights connecting new, short-distance routes, through government and tax incentives. Such incentives will be funded by a new cess and will help boost regional flights between smaller cities and towns. World War era airports being used as agricultural land will be redeveloped as ‘no-frills’ airports, at a cost of Rs 50-100 crore. Airlines will also have to cater to underserved routes starting winter-2017 so as to better connect remote areas. Other prominent changes include a provision to determine user-development charges through a mix of aeronautical and non-aeronautical revenue, under the ‘hybrid-till’ model and compensating the Airports Authority of India (AAI), in case the policy leads to the creation of new airports at a distance of within 150 km from existing airports operated by the regulator. Moreover, the government has allowed airlines

to handle their own ground operations. Maintenance, repair and overhaul (MRO) operators will also be not required to pay airport royalty charges hereon, which is a big positive. The policy also allows for an open-skies agreement on a reciprocal basis between members of the SAARC. Responses from India Inc. were mixed. Most new players, such as AirAsia and Vistara, while welcoming the changes said that they would have preferred that the 5/20 rule would have been completely scrapped. Yet, the government in the interest of putting at least 300 million passengers on the skies by 2022, believes that airlines must pay equal attention to domestic operations. On the implementation front too, concerns were visible. While the government wants airlines to realign their networks by the winter of 2017, players who have already laid out plans may find it difficult to be back on square one again. Moreover, experts feel that the move from 5/20 to 0/20 isn’t much of a change, as an airline will take at least 4-5 years to expand its fleet size to 20, set up the requisite MRO operations and balancing their bottomline and keep operations viable. Factors such as a weak rupee and swinging crude oil prices will also be key monitorables, experts opine.

JULY 2016 l The Finapolis

 news scan


YOGI TAKES SANYAS Deveshwar to step down from ITC in 2017 In a week of high-profile exits, ITC Chairman Yogesh Chander Deveshwar also decided to hang his boots. Bringing down speculations of retirement, Deveshwar has indicated his decision to step down from his chairmanship and confirmed to continue as non-executive chairman until 2020. In his 20-year stint as Chairman, he transformed ITC from a tobacco company to a conglomerate doing robust businesses in consumer foods, hospitality and paper sectors. Under Deveshwar, ITC found true strength in an unassailable distribution

network that is linked to over 5 million outlets across India. Mr Deveshwar would also be mentoring his successor and new executive management that the company is going to put in place very soon. Deveshwar had joined ITC in 1968, as a freshman from IIT Delhi and turned director in 1984. When he took charge as chairman in January 1996, ITC’s gross revenue was less than Rs 5,200 crore, but grew tenfold to Rs 51,582 crore under his leadership. In 2011, for the first time he indicated that he would move into a non-executive role.

The non-tobacco businesses of ITC breached the Rs 10,000-crore mark in revenue in FY16. Even while stepping down, Deveshwar has indicated that he is aiming at Rs 1 lakh crore of revenue for the consumer foods business by 2030 and is formulating all appropriate strategies to achieve the same.


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The Finapolis l JULY 2016

 newsmaker

“ BJP should direct our Ministers to wear traditional and modernised Indian clothes while abroad. In coat and tie they look like waiters.

........................................... Raghuram Rajan is an employee of the Government of India. We don’t select employees on the basis of popular vote.

“ ........................................... I think that such people who can fail our government should be tossed out. Now, it’s been two years and I think it’s about time. I have a list of 27 people in the government and I will slowly, one by one, fix them soon.

........................................... Who said to US Cong on 13/3/13 the US should act against India to defend US Pharmaceuticals interests? Arvind Subramanian MoF !! Sack him!!!


JULY 2016 l The Finapolis


VARIETY KNOW YOUR COUNTRY Cheetahs once roamed India

ANSWER BACK # 5 It’s only a few questions long, but the Finapolis quiz will still test the mettle of the best: we ask anything on everything. This month, we pose questions on the Reserve Bank of India. 1) When was RBI nationalised?

A) 1949

B) 1947

C) 1956

D) 1966

2) In which year did the RBI central office move to ‘Bombay’ (from ‘Calcutta’)?

A) 1947

B) 1937

C) 1956

D) 1971

3) The RBI has acted as a central bank for two other countries. Which were they?


e know of cheetahs as mainly African animals, but there is a sub-species of the animals that resides in Asia. Just like the differences between the African elephant and the Asian elephant, the Asiatic cheetah is slimmer, lighter and slightly shorter than its African cousin. The two species are estimated to have separated between 32,000 and 67,000 years ago. In India, Asiatic cheetahs used to occur from modern day Rajasthan and Punjab to the plains south of the Ganga and the northern part of the Deccan Plateau, all the way up to Bengal. However, hunting them became a favoured sport of Indian royalty, which sent their population into decline. The last three cheetahs in India were shot by the Maharajah of Surguja (in modern day Chhattisgarh) in 1948. Today the Asiatic cheetah is confined to Iran’s central desert, with only 20 cheetahs identified as of 2013. However, certain areas of their habitat are yet to be surveyed, and the total population of the Asiatic cheetah is estimated to be between 40 and 70 individuals.

QUOTABLE “When money realizes that it is in good hands, it wants to stay and multiply in those hands.” — Idowu Koyenikan

A) Bangladesh (till March 1971) and Afghanistan (till August 1919)

B) Sri Lanka (till February 1948) and Tajikistan (till September 1991)

C) Pakistan (till June 1948) and Burma (till April 1947)

D) Bhutan (till December 1907) and Nepal (December 1923)

4) Name the only ‘internal’ RBI candidate to become governor?

A) Manmohan Singh B) Amitav Ghosh

C) M. Narasimham D) Osborne Smith

5) In which year did RBI introduce a Rs 10,000 note?

A) 1938

B) 1947

C) 1997

D) 2016

6) How many languages can be found printed on every Indian currency note?

A) 13

B) 15

C) 23

D) 17

-----------------------------------------------------------------------------------------------------------------------------------------------Send your answers to Answers to Answer Back #4 latest by June 1- B; 2- A; 3-C; 4-E; 5-D 30, 2016. Winners will be acknowledged in the Winners: B S R Murthy; Jitesh quiz section of the subsequent month’s issue.

Shah; Rajani Lakshmi N



The Finapolis l JULY 2016

company update

We take a look at some companies’ performance to figure out what impact they will have on the share prices KRBL

(Initiation report) KRBL is the largest basmati rice processor and exporter with great brand recall

seeds which may result

to focus on quality of produce

into fall in production

and which ultimately helps

and corresponding

improve realisation which is

rise in price, growing

around Rs 72/kg, much above

basmati consumption

average industry realization of

demand in Middle East,

Rs 53/kg. Basmati rice contrib-

Persian Gulf, Africa, US and Europe. KRBL, with the

utes to 97.5% of total agri-business revenue. The potential of

Current Market Price Rs 299 Target Price Rs 347 Potential Upside 16%

and enjoys 25% market share

help of its subsidiaries and

business in renewable energy

in export and 30% in domestic

with the highest rice milling

has driven management to

markets. It has experienced

capacities, is well placed to

venture into energy segments

top line growth at CAGR of

capitalise on growing demand.

with Solar Power, Wind Power

with wide network of distribu-

17.3% while bottom-line at

The company follows back-

and Bio-Mass which have been

tion, KRBL is better placed to

showing signs of great traction.

capitalise on opportunities. We

rice globally and domestically

CAGR of 22.8% during FY11-16

ward integration through part-

on the back of rise in rice con-

nership with farmers wherein

sumption demand in general

the company encourages con-

recall, on the back of quali-

and basmati rice in particular

tract farming, makes available

ty basmati rice and years of

at global and domestic levels.

with high yielding seeds and

experience at industry place

Growth trend is likely to remain

provides intensive training on

which result into its products

up on the back of constant

crop cultivation. Thus, the com-

attracting premium price.

the coverage on the stock with

rise in demand, about 29.5%

pany is fully integrated across

Given the backdrop of rising

the target price of Rs 347 for a

likely fall in sowing of basmati

supply chain which enables it

demand for branded basmati

perspective of 9-12 months.

tillers may turn out to be the preferred farm equipment by choice for domestic farmers. VST being the market leader in Tillers with a ~50% share is poised to gain. Empirically, a weak year (driven by subsidy issues at state government level) is invariably followed by a steep growth as pent up demand builds up. Dealers opine that clarity on the subsidy scheme in Orissa will bode well for revival of demand going forward, as is currently being seen in case of AP/ Telangana post the impasse last year. VST has tied up with private banks to expand footprint into other states. This initiative would address the key constraint of

retail finance in relatively lesser developed states. The dark clouds of rainfall deficiency (12% in 2014 and 14% in 2015) seem to be fading away for the Indian agriculture sector with both the Indian Meteorological Department (IMD) and Skymet forecasting above normal rainfall in the upcoming monsoon season 2016. More importantly, they forecast the onset of La Niña conditions at the end of the season leading to even better monsoon prospects in 2017. In good monsoon years, VST has been able to clock double digit volume growth. Hence, robust monsoon outlook bodes well for VST. VST is an attractive play on its debt-free status, healthy product pipeline, continuous emphasis on market-share in-

VST Tillers Tractors

Fragmented land holdings of farmers in India has opened up huge opportunity for power tillers as a power tiller costs ~Rs 1.25 lakh vs Rs 2.5-8 lakh for a tractor. Given government’s thrust on increasing farm productivity through greater penetration of farm mechanisation, power

Current Market Price Rs 1,875 Target Price Rs 2,250 Potential Upside 20%

KRBL enjoys great brand

value the stock at 12.5x FY18E EV/EBITDA which gives the target price of Rs 347 representing 16% upside. We initiate

crease, minimal capex requirements, healthy FCF, and superior return ratios, and resurgence of agriculture income on the back of above normal monsoon forecasts. We expect VST to clock sales, PAT CAGR of 13.8% & 17.3% respectively in FY16-18E. We initiate coverage with target price of Rs 2,250, assigning PE of 19x on FY18E EPS.

Tata Motors

Tata Motors’ (TTMT) Q4FY16 performance was way above our as well as street’s estimates. Operating margin expansion at JLR was on account of better product mix and favourable cross currency movement. Its consolidated Revenues/ EBIDTA/PAT grew 19%/ 35%/ 158% YoY and 12%/ 21%/ 35% QoQ to Rs 807bn/ Rs114bn/

JULY 2016 l The Finapolis

company update Rs47bn (our estimate of Rs 759 bn/ Rs 100 bn/ Rs 35 bn) in the quarter. Consolidated EBIDTA margin increased by 166 bps YoY and 113 bps QoQ to 14.1%, benefitted by margin expansion at JLR amid favourable currency. JLR’s EBIDTA margin expanded 179 bps QoQ (declined 123 bps YoY) to 16.2%. JLR’s margin performance was benefitted by higher ASP on account of higher contribution of high end products and currency. Its standalone business reported positive EBIDTA for the fifth consecutive time in last 14 quarters with EBIDTA of Rs

Apollo Hospitals

8.96 bn, up 464% YoY. It reported standalone net profit of Rs 5 bn as against net loss of Rs 10.6 bn in Q4FY15. JLR’s all new launches – New Evoque, RR Sports, Discovery Sports and new XF including the latest Jaguar XE – are well received in all major markets; it further plans a number of new launches (new XE, F-PACE, convertible Evoque) in all markets over the next one year. The company launched F-Pace in April 2016 and response for F-Pace is strong. We believe that lower volume from Chinese market and price rationalisation

Apollo Hospitals Enterprise Ltd is India’s largest private healthcare services provider with a network of 9,554 beds across 69 hospitals (61 owned & 8 managed). In FY16, AHEL derived 60% of its turnover from healthcare services segment. The healthcare services segment has posted strong revenue CAGR of ~13% over FY11-16. With current capex plans nearing completion (over the last 3 years, it has added 1,725 beds), we expect this segment to grow at a CAGR of 16.7% over FY16-FY18E primarily driven by operationalisation of new capacity. While ARPOB (Average revenue per occupied bed day) is estimated to rise from Rs 28,036 per day in FY16 to Rs 33,307 per day in FY18E, ALOS (Average length of stay) is expected to fall from 4.17 days in FY16 to 4.05 days in FY18E. Importantly, EBITDA margin in this segment is expected to remain under pressure in the near term (from 20.8% in FY16 to 20.5% in FY17E due to commissioning of Navi Mumbai facility in FY17E). However, in FY18E we believe margin to expand by 40 bps YoY to 20.9% on the backdrop of AHEL’s focus on operationalising and stabilising the new capacity for the next two years. AHEL is in a sweet spot given its leadership position, strong brand equity and underpenetrated nature of the healthcare Current Market Price sector. We expect revenue and Rs 1,328 PAT to grow at a CAGR of 17.6% Target Price and 32.3% over FY16-FY18E. Rs 1,497 Further, we assign a FY18E EV/ EBITDA of 20x arriving at a Potential target price of Rs 1,497 which Upside implies potential upside of ~13% 13% for next 12 months.

would be completely nullified by new products at higher ASP and favourable cross currency movement. We believe the company’s strategy on new products and its huge investment on R&D have started paying off. Its healthy growth despite the China slowdown is commendable and justifies the company’s high capex plan. Moreover, China JV has witnessed strong sequential improvement in profitability, ahead of targeted time frame. In view of JLR healthy volumes and margins, we increase our estimates for

JK Cement


Current Market Price Rs 460 Target Price Rs 550 Potential Upside 20% FY17E/ FY18E. On SOTP basis, we increase our target price from Rs 450 to Rs 550, valuing its standalone business at Rs 106, JLR at Rs 519 and other subsidiaries at Rs 52 based on FY18E EBITDA, post excluding net debt of Rs 127 per share.

JK Cement’s Q4FY16 operational performance was better than our estimates, led by lower than expected costs. EBITDA came at Rs 1.73bn against our estimate of Rs 1.46bn. Blended volume growth at 13.4% YoY and net realisation decline of 8% were in-line with Current Market Price our estimates. Blended EBITRs 582 DA/t declined 4% YoY (despite Target Price 9% YoY decline in total cost/ Rs 765 ton) due to lower realisation. Going ahead, we revise upPotential wards our EBITDA estimates by Upside 3-4% for FY17E/18E to factor 31% in higher margin (led by lower P&F cost). Valuations look attractive at 7x FY18E EV/EBITDA considering strong operational performance expected during FY17-18E. We revises target price to Rs 765. Net sales increased by ~4% YoY to Rs 9.5 bn, as the strong blended volume growth of 13% YoY (led by capacity expansions in grey & white cement segments) was partially negated by 8% YoY decline in realisations. Grey volumes increased 12.3% YoY to 1.89 mt while white cement (including wall putty) volume grew by 22% YoY to 0.28 mt. The grey cement realisation declined 12.8% YoY on account of decline in prices in north/central regions during the quarter. EBITDA at Rs 1.73 bn grew 8.7% YoY, on account of operating margin expansion led by moderation in variable costs. Blended EBITDA/tonne declined 4.2% YoY to Rs 797/tonne. Grey cement EBITDA/tonne stood at Rs 476/tonne ( 12% YoY) due to muted realisations.


The Finapolis l JULY 2016

the chartist Private Equity by the Numbers The first quarter of 2016 has underlined the continued interest of private equity firms in India. The year has started the year off well, with $3.1 billion investments in 160 deals. That, and other notable numbers for the quarter are covered here, with y-o-y and q-o-q comparisons.

PE investments in India, Quarterly

184 deals


2 01 5

3.78 bn

Q1 2016

Q1 2015 3.16 bn

3.1 bn

211 deals

160 deals

Investment by Industry (in $mn)

Q1 2016

Media & Entertainment

Q4 2015 Q1 2015


Foods & Beverage

Healthcare & Life Sciences


IT & ITeS 0








JULY 2016 l The Finapolis


The Chartist Investments by Stage of Development (in $mn)

Region-wise Investments (in $mn)

Q1 2016

Q4 2015

Q4 2015

1320 1729 1433


Q1 2015 729



Q1 2015


Q1 2016



48 76 121


709 667



69 68 48

918 1099

875 687 785








152 284 303

Exits by Industry (in $mn) Others Healthcare & Life Sciences Energy Manufacturing

IT & ITeS Q1 2016 Q1 2015




Telecom 800





Source: PwC


Q4 2015


The Finapolis l JULY 2016


So Close to the Finish Line With all but Tamil Nadu signed up, the pieces for the introduction of GST are slowly falling into place, says S Vijaykrishnan

JULY 2016 l The Finapolis




he juggernaut that is the Goods & Services Tax (GST) Bill moved one step closer to fruition on June 14, 2016, when the Empowered Committee of State Finance Ministers released the model GST law for the public eye. Much yet remains to be done, however, and on multiple fronts — setting the GST rate; amending the constitution as necessary; laying out the back-end infrastructure for ensuring efficient tax collection, etc. Still, the approval of most states creates some common ground between themselves and the Centre. Tamil Nadu remains a sore point, but more on that later. While the GST will essentially have a more pronounced impact on how businesses will be taxed, the effect is not lost on common consumers. This article will look at what makes the GST tick not only for the economy, but for the aam aadmi as well.

From multiple taxes to one How much better for us to have a single item termed ‘taxes’ in all our bills, whether for utilities, shopping, at hotels, or even buying a home. It is this that the GST will do — subsume the current long list of taxes and duties that industries (and indirectly us) shell out (see chart). While items such as excise, customs, countervailing duty and special additional duty, etc. do not feature in our bills directly, an increase in their rates translates into higher prices for us. Others such as the service tax, the value-added tax, octroi, local body tax, etc, have a more direct impact. Much of the pain is caused by the ‘cascading effect’

from these myriad taxes, which not only increases the tax bill for India Inc. in general, but also many-a-times leads to double taxation. So, how does the system work? Currently, any dealer/ manufacturer is liable to pay a 2% Central Sales Tax (CST), besides the relevant excise duty and value-added tax in both states (in effect a CST of 4%). For example, a car manufacturer in Maharashtra shipping his vehicles to a dealer in say, Karnataka, will have to pay tax — excise duty or value-added tax — on the finished good (car) to the governments of both states, unless he maintains a warehouse in each of these states, or ‘last-mile’ destinations.

Fragmented manufacturing The multiple tax structure has a twofold effect: it fragments India’s production base, disallowing synergies between goods manufactured in different regions. Such a skewed system also fractures manufacturers’ logistics and transportation processes, forcing them to maintain multiple warehouses in each state. While this turns an inter-state sale into a stock transfer, helping companies reduce their tax bill, the concomitant rise in logistics and transportation cost offsets any benefit from tax savings. The report submitted by the GST committee in December last year points out that such stock transfers lead to a massive distortion, of almost 50% of total trade between states. Sample this, from the World Bank’s India Development Update (2014): The GST will free up decisions on warehousing and distribution from tax considerations

The taxes long-list Centre


Local Bodies

Excise Duty

Value Added Tax

Local Body Tax

Additional Excise Duty

Entertainment Tax


Service Tax

Luxury Tax

Countervailing Duty

Tax on Lottery

Special Additional Duty

States Cess

Surcharge & Cess

Entry Tax

so that operational and logistics efficiency determines the location and movement of goods. Freight and logistics networks will realign according to the location of production and consumption activities, creating the hub-and-spoke models that are needed to improve freight and logistics performance. Simply halving the delays due to road blocks, tolls and other stoppages could cut freight times by some 20-30% and logistics costs by an even higher 30-40%”. So, how will the GST’s implementation make it any different? First, we end

In mid-June, Finance Minister Arun Jaitley claimed that all states except Tamil Nadu had given their assent to the new tax regime up having a single tax across all states. However, the GST will have three components: a Central GST (for items that will be exclusively taxed by the Centre); a state GST and an integrated GST that will cover items that can be concurrently taxed by the Centre and the states. Second, the GST will eliminate the cascading effect of the current tax system. While the current system allows companies a rebate of tax paid on manufacturing plant and equipment, there is no similar concession on excise duties or on the state VAT for capital acquired by the services sector. This drives up the bill for a host of goods and services across sectors such as FMCG, pharmaceuticals, automobiles, etc., ultimately affecting end-consumers. However, it is pertinent to note that even the GST (as per the model GST law) moves from a maximum retail price (MRP)-linked taxation system to one based on ‘transaction value’. This, experts believe, could also impact sectors such as FMCG, retail and pharmaceuticals. How does the GST aim to remedy the tax anomalies? While having a single rate does

20 The Finapolis l JULY 2016

COVER STORY away with regional tax disparities and the issue of multiplicity, arriving at such a uniform rate is no mean effort. The GST committee had suggested various bands of rates based on three approaches.

RNR: Unravelling the math behind the GST

Drawing from a sum total of three approaches, based on collection of direct taxes, indirect taxes and a macro approach, the GST committee has recommended a range of 15-15.5% for the revenue neutral rate (RNR; See table). An RNR ensures that there is no immediate loss of tax revenue to any state. The estimates presented for the national RNR range from about 11.6% under the macro approach to 17.7% under the ITT approach. Assuming that India follows a dual-rate GST to maintain the autonomy given to states, the committee pegs the RNR at 15-15.5%, while the standard rate at which both goods and services would be taxed would hover around 17-19% (under this mechanism , certain classes of essential goods will be taxed at a lower rate for 12%). This leads to some amount of departure from the current system, where the sum total of indirect taxes paid by consumers on goods hovers at anywhere between 12% and 25%, while services are taxed at 15% (as effective June 1, 2016, as per the provisions of the 2016-17 Union Budget). Thus, GST will level the field for taxes on goods and

Recommendations on RNR Approach

GST Base (In lakh crore)

RNR (in%)










Committee’s Preffered Date



Committee’s Alternative



Source: Different approaches and committee's calculation

services. According to the committee, the recommended rates would also put India on par with emerging economies that have a GST/ VAT-based system, such as Russia and Brazil. The above GST model and the calculations also take into consideration the fact that several sectors will be exempt: petroleum, land (but not housing), the interest component in the financial sector, electricity, gems & jewellery, education & health services, and food items. To buttress its claims, the committee’s report also points out that “an RNR of anything beyond 15-15.5% will likely result in a standard rate of about 19-21%, which would make India an outlier amongst comparable emerging economies. This

could also lead to issues in compliance and collection”. It is also noteworthy to mention in this context that in early 2014, the government had eyed a flat RNR of 27%, which was rejected outright by most states. Industry experts also opine that such a high RNR, just for the sake of bridging any tax shortfall, will be untenable. The experts cite non-compliance, distorted tax rates for similar goods as reasons to why such a high RNR will only lead to a vicious circle and affect tax collection, and instead, have states reporting huge revenue losses. Greater clarity on the RNR and the other rates will emerge once Chief Economic Advisor Arvind Subramanian makes a presentation on the RNR to the government in July.

It has been agreed that for turnover amounts of up to Rs 1.5 crore, GST will be administered by the states. More importantly, the Centre will compensate states for any loss of revenue for five years from the introduction of GST

JULY 2016 l The Finapolis


COVER STORY GST: A timeline 2006

Budget 2006-07- FM proposed introduction of GST from April, 1 2010


Phasing out of CST began from April, 2007 with the reduction in CST rate from 4% to 3%


Empowered Committee of State Finance Ministers Constituted Joint Working Group in May, 2007


Study Paper on GST authoried by Dr. Parathasarathy Shome was released.



EC Finalized its views on broad GST structure-consensus on Dual GST (Central & State GST), Separate legislation, levy and administration. 2011

Constitution Amendement Bill to enable roll out of GST was tabled in Parliament. 2014

Source: EY

Revised Constitution Amendment Bill tabled in Parliament on 19 December,2014

End-game: Will GST be a reality soon? It is pertinent to note here that the GST has been in the making for almost a decade now (See Timeline). The multiple roadblocks, including opposition from states on the grounds that it would affect their tax kitty, seemed to have been resolved, and in mid-June, Finance Minister Arun Jaitley claimed that all states except Tamil Nadu had given their assent to the new regime. Major agreements with states include the dual-rate GST system, wherein states are allowed to charge an SGST on certain goods and services, and the calculation of the RNR. It has also been agreed that for turnover amounts of up to Rs 1.5 crore, GST will be administered by the states, though consensus is pending for amounts greater than this threshold. More importantly, the Centre will compensate states for any loss of revenue for five years from the introduction of GST. The Centre is also mulling over the possibility of allowing states to charge an additional 1% tax over and above the standard rate decided, as compensation.

While revenue loss compensation has been an insurmountable roadblock for some time now, M Govinda Rao, Professor Emeritus at the National Institute of Public Finance and Policy (NIPFP) feels that Tamil Nadu, the only state yet to give its assent, is merely using the GST as a bargaining counter. “With the Centre promising to compensate the states for any revenue loss for the first five years, Tamil Nadu has little to worry. Moreover, in a scenario where 50% of India’s GDP comes from services, erosion of tax base will be a significant issue under the GST regime. I believe that the Empowered Committee of State Finance Ministers has done a commendable job in addressing most issues relating to the GST, though it is still a bit early to discuss on issues such as the minimum threshold for the GST and the RNR,” he told the Finapolis. Another point of contention is that as the GST is a ‘destination-based tax’, as against the current, ‘origin-based’ tax system, states which are manufacturing


CST rate was further reduced from 3% to 2% in June, 2008


Standing committee on Finance tabled its Report on GST Bill in August, 2013. 2015


The 13th Finance Commission released its report on GST in December, 2009.

First Discussion Paper on GST was released by EC.

On Oct 2015, the joint Committee constituted by EC released business process reports related to Payment, Registration, Refund and Return in Public domain for comments.


EC rejecetd Central Govt’s proposal to include Petroleum products under GST in November,2013.


Passage of Constitutional Amendment Bill on GST in Lok Sabha on 6 May 2015. Select Committe Presented it’s report to the Rajya Sabha in the monsoon session.

hubs, (such as Tamil Nadu) stand to lose out on revenue. However, in the event of compensation by the Centre, this may not be an immediate worry. Prof Rao also stated that the move to keep the minimum threshold for registering under the GST at Rs 9 lakh and at Rs 10 lakh for paying taxes is a positive as it widens the tax net to cover traders and dealers at the lowest level. However, he pointed out that it was equally important to get make systems for registration and collection seamless, so as to avoid multiple registrations across states. Other experts the Finapolis spoke to were less optimistic. They said that the possibility of the GST Bill’s implementation being discussed in the Budget 201718 itself was a miracle and that any fresh development would be not visible until December this year. Overall, they see the GST getting implemented only over a broader horizon of two years. Irrespective of whether it comes sooner or later, it looks like the shape of GST seems to have crystallised. F


The Finapolis l JULY 2016


Freedom for children, SIP by SIP

Understanding how mutual funds increase wealth in the long term will encourage you start an SIP for your children’s needs, says Balaji Rao


ver wondered why we avail loans? We avail loans because owning a product that is essential for our lives is beyond our reach and financial capability. We think of taking loans for every reason — for a house, for a two-wheeler, for a car, for consumer durable, for a vacation, for education and, funnily, even to clear a loan we avail a loan! Perhaps, the system and practice of giving loan by financial institutions has made a common man lazy and complacent. A loan can be definitely avoided if we display financial prudence, but the problem lies in our approach towards events of our lives for which we either do not plan early or we choose wrong investment opportunities to achieve them. In today’s time, a two bedroom house/

flat costs about Rs 50 lakhs in Bengaluru city. If a loan is availed, a minimum down payment of Rs 10 lakh is required, and the rest is funded by a bank or a home finance institution (HFI). Normally, loans are availed between the age group of 25 to 35 years and an individual struggles to mobilise the 20% down payment amount and runs from one lender to another in search of a loan for the balance amount and further struggles to clear the loan over the next 20-odd years. Would there be an ideal situation to have avoided the loan or at least reduce the burden of the size of the loan? The possible solution would have been a simple plan by this individual’s father/parent. The father or the parent of the person who is borrowing today, had he invested an amount of Rs 1,000 per month some

20 or 22 years before (during 1993-1996) in chosen diversified equity mutual fund schemes, he would have comfortably created a corpus ranging from Rs 25 lakh to Rs 52 lakh by now (investing Rs 1,000 each month between 1993 and 2015). Evidences by way of Franklin India Bluechip Fund, Franklin India Prima Fund, HDFC Equity Fund, HDFC Prudence Fund, Reliance Growth Fund (diversified equity mutual funds) are proof enough (see Tables 1 and 2). That would have been the perfect gift the parent could have given to the son or daughter by enabling and empowering the now-adult child to not avail a loan. What excuse can one possibly offer to nullify this opportunity? I did not know about this opportunity; I did not believe that equity mutual funds had this ability; nobody told me about this; I invested

JULY 2016 l The Finapolis


INVESTMENT ADVICE in a post office savings instrument for the same period; there were no instruments of such long tenure to invest so on and so forth, but such excuses are not enough to avert the loan taking possibility. Let’s give due credit for what really has happened over the years with equity mutual funds and accept the fact that “ignorance cannot be bliss” and let’s also

not forget that there are a handful of investors who indeed invested on a monthly basis and/ or by way of lump sum and created wealth. The biggest asset when it comes to meeting long term goals is time. If one has 20 to 25 years of time to meet events, then adopting risk into the overall investment plan would be a good idea. Just

like a cricket team has 20 overs to chase a daunting total made by the opposition, the team believes it can overhaul the total because it has time and resources by way of capable batsmen, but at the same time not playing well for the first couple of overs would put them under pressure; life events and investments too are similar to this.

Table 1: Returns of Select Diversified Equity Schemes, SIP Launch Date


Per Month (Rs)

No. of Months Invested

Value as on March 2016 (Rs)



Franklin India Bluechip Fund






Franklin India Prima Fund






HDFC Prudence Fund






HDFC Equity Fund






Reliance Growth Fund





Table 2: Returns of Select Diversified Equity Schemes, lump sum Launch Date


Lump Sum Invested (Rs)

No. of Years Invested

Value as on March 2016 (Rs)

CAGR (rounded-off)


Franklin India Bluechip Fund

1 lakh

22 years & 3 months




Franklin India Prima Fund

1 lakh

22 years & 3 months




HDFC Prudence Fund

1 lakh

22 years & 1 month




HDFC Equity Fund

1 lakh

21 years & 2 months




Reliance Growth Fund

1 lakh

20 years & 4 months



The point is not only about planning for the child to be born, but about planning well for the big expenses that would arrive in the life of the child. When you start with 25 years of time, you would need very small amounts of money to build the corpus for each life event. It is not prudent to think that a lending institution would take care of your life needs because you can avail a loan easily. Do you want your child to pay hefty EMIs for 20-odd years when you could have given him/ her a debt-free

life by investing very small amounts to create the desired corpus? For the sake of calculation, if one avails a loan of Rs 40 lakh to buy a house at 9.50% rate of interest for a period of 20 years, the EMI works out to Rs 37,285. Paying this for a period of 20 years, the total outflow on the availed loan (including the interest component) would be approx Rs 89.48 lakh. Instead, 20 years ago, if the parent had invested an amount of Rs 1,000 every month, a corpus ranging from Rs 25 lakh to Rs 52 lakh

Note: Computation based on external NAV sources and CAGR calculator

would have been created and the loan requirement averted. We can award some benefit of doubt for not having planned 20 years ago, considering there was hardly any knowledge about equity or mutual funds at that time, but the same excuse would be foolish today with all the evidences and access to knowledge and information across all types of asset classes. It would definitely be financial prudence for today’s young father or mother to start an SIP to ensure a debt-free life for their child. F

Balaji Rao, with 23 years industry experience and six years in academics, is the author of six books on investing and personal finance.

24 The Finapolis l JULY 2016


Steer Clear of These Terrible Twins Outcome Bias and Endowment Bias affect an investor’s ability to think clearly, says Dharmendra Sathpathy


utcome Bias is the most common enemy of our decision making process. The root cause of outcome bias is because generally people find it tedious to process information and instead prefer coming to a conclusion based upon an end result. We rate a cricket team’s captain based on the end result instead of evaluating his decisions, his discipline, his ability to motivate and make players play as a team etc. What we see is that even if the game was won or lost due to one freak incident, the captain gets defined by it. Think of the final of the T20 World Cup where England had the match in control for 99% of the time with no one giving West Indies a chance in the last over. Who would have thought of four consecutive sixes in the last over of a World Cup final by a ‘non-batsman’ with hardly any past performance to boast about. One last over changed the outcome and Carlos Brathwaite, who did precious little throughout the tournament, became a hero, while England bowler Ben Stokes was made to look like a disaster. In the investing business, we are constant prisoners of outcome bias. Good fund managers are heroes but the moment their fund performance slips, they

Defeating Outcome Bias isn’t easy. It calls for dispassionate decision making by keeping emotions at bay

became ‘zeroes’. All the blame shifts to one person. This is outcome bias at play. It has become so much a part of our personality that it is even difficult to accept it and separate it from our decision making process. Taking decisions based on results isn’t the right approach because ‘results’ are a function of many variables beyond anybody’s control, such as changes in macroeconomic conditions, political conditions, economic conditions etc. In the same breath, results are also based on one’s outlook and decision making process, which may work at times and may not at other times, or may work, but only over the longer term. Hence, when we say past performance isn’t an indicator of future performance, it is perhaps the greatest truth of investing (In fact, a great performance actually

might indicate that the future might not be so great after all). ‘Star Ratings’ are popular only because of Outcome Bias. Star ratings are like the rear view mirror of a car, not like the wind shield that shows the road ahead. Often, the nature of the road changes as we drive on. While the rear view mirror may show you a plain road, the windshield may present mountainous terrain. So, the question for investors is, “How can we handle outcome bias?” Defeating this bias isn’t easy. It calls for dispassionate decision making by keeping emotions at bay; something that sounds easy, but is extremely difficult. Equity investments are not to be seen as great because of past returns, but because the Indian economy has

JULY 2016 l The Finapolis


INVESTMENT ADVICE certain long-term structural economic advantages: 1) Large and young population, which will consume goods and services in huge volumes for many years to come. The logic is simple. If there are consumers, goods and services will thrive and grow. Hence, returns would follow. 2) India is a developing economy where even the older population still aspires to consume because they had been deprived of many goods and services earlier. Again, this is a good situation for manufacturers as they can expect strong demand. In such a climate, growth will translate into returns in shareholder hands. 3) Reasonably large educated population supplying both skilled and unskilled labour. The government’s focus on lifting the masses out of poverty through skill and social development programmes is a strategy to grow economic resources to meet future demand. This will make the economy more productive and provide higher shareholder returns. 4) Economic growth gets a boost by enhancing economic productivity. The government’s focus on digital infrastructure development will make the economy more productive and remunerative for investors. The move towards more bank accounts and direct money transfers to people deserving subsidies will reduce leakage and enhance productivity. All these actions will produce returns over the long term. 5) In the future, the entire world’s energy demand will be met by solar energy. India being an oil deficit nation has been spending large amounts on imports to meet its energy needs. Imagine the savings if solar energy were to be replace traditional energy, which depends on imported crude. All these savings will be ploughed towards economic growth and improvements in economic productivity. 6) Reasonably stable political establishment too should help in ensuring that macro conditions do not turn hostile.

7) Well-established institutions such as judiciary, regulators, auditors, etc., ensure that the country does not become a banana republic (something one may see in a dictatorship). In India, despite a strong mandate, the PM cannot do whatever he wishes. He has to follow rules and processes. A system where power is not in the hands of a single person augurs well for the economy from a long-term perspective, because it predicts stability in the future, which is a key requirement for investment. Therefore, it is crucial to free yourself from any ‘outcome bias’ when you invest in Indian equities. Instead of looking at past performance and current star ratings (which incidentally, are nothing but past performance), look at the potential of the economy. Like the shining sun, the future too is bright.

Endowment Bias, and How it Affects Us Eight years ago, he had purchased his flat for Rs 1.5 crore. Now his flat is up for sale. He wants a total of Rs 4.5 crore. Next day, he gets an offer of Rs 4.4 crore. He gets enraged at the audacity of the buyer and in a fit of rage shows him the door. Six months later he finds a buyer who offers Rs 4.5 crore. He sells the flat and displays a victorious grin. The question to be asked here is whether he is truly a winner? Had he sold the flat for Rs 4.4 crore,

Endowment Bias is the tendency of valuing a product higher than its intrinsic value while selling and lower than its intrinsic value while buying. It explains why people hold on to an investment whose value is dwindling his return would have been 14.4%, but at Rs 4.5 crore six months later, his return had reduced to 13.8%, which of course our friend never realised. This tendency of valuing any product/ asset higher than its intrinsic value while selling, and valuing it lower than its intrinsic value while buying, is known as ‘Endowment Bias’. This is precisely the reason why people hold on to an investment even though its value is dwindling. This is precisely why people do not get rid of old things that litter their home. Human beings have never learnt to ‘let go’, whether it relates to things or people. They just do not want to sell anything cheap even though they themselves wouldn’t purchase the item at the price that they are quoting. Such tendencies cost people a lot in their lifetime. When it comes to our own money, all our decisions pertaining to it are influenced by our emotions. The problem is that the moment one brings the heart into the equation, rationale flies out of the window. It is precisely for this reason, one needs a financial advisor who is able to stay dispassionate because the money isn’t his (the most important criteria) and thereby present solutions that are based upon reason and logic. Endowment Bias is an extremely sticky problem and hurts our investing decisions over our lifetime, thereby costing us dearly. F

26 The Finapolis l JULY 2016


The Cities Take Their Toll – II Rural people once travelled great distances to seek their fortune in Hyderabad. Michael Regnier looks at the toll this takes on their health


yderabad was founded in the 16th century. It is still known as the City of Pearls, despite recent attempts to rebrand it ‘Cyber-abad’, but is more famous today for its biryanis and its traffic. The centre is a constant crush of cars, lorries, auto rickshaws, motorbikes, bicycles, carts, cows and pedestrians, all weaving around each other, continually sounding their horns, congesting but seldom coming to a complete stop. Constant noise and motion. The city is home to 8 million people today. As it has grown in population, so it has pushed out its boundaries, swallowing outlying villages and making them urban. To the west, the flourishing Financial District looms over a community that still looks rural: cows wander by, hens peck in the dirt at the roadside. But, whether they liked it or not, the people here had to adapt as the city engulfed them. They sold their farms to developers hungry for suddenly prime real estate, and found new occupations that yielded cash instead of crops. New people have moved in to set up

Within a few years of moving to Hyderabad or the other cities in the study, migrants’ levels of obesity, high blood pressure and diabetes were closer to those of lifelong city dwellers than their rural siblings

shops and small businesses. The better-educated commute to work for the big Indian corporates and multinational giants like Microsoft who now have offices here. They can eat lunch at a new branch of Domino’s Pizza, if they want. Casual labourers – all migrant workers – spend their nights in blue and brown tents or makeshift shacks they have built from corrugated iron, and their days building glass and steel edifices. A village goat grazes nonchalantly in front of what will soon be a Holiday Inn Express. This is the global village, and it has been urbanised. In Aravind Adiga’s novel ‘The White Tiger’, the main character compares the plight of 99.9% of Indians to that of chickens caged in the ‘Rooster Coop’ in an Old Delhi marketplace: “They know they’re next. Yet they do not rebel. They do not try to get out of the coop.” The people in this ‘village’ within the city have been released from traditional rural subsistence and forced to fend for themselves in a modern, free-range, urban economy instead. Of course, it may turn out to be just another type of poverty trap. Like most cities, Hyderabad is a patchwork of communities that bear witness to its history. Rural people would travel great distances to seek their fortune in the city, but if they couldn’t find a foothold there, they would settle at its margins. Relatives and former neighbours from the same village would follow suit, and set up in the same place. Unsanctioned by the city authorities, and therefore lacking basic services like water and sanitation, these informal communities sometimes survived the city’s expanding sprawl, and would

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URBAN EFFECT become its slums – yet still people would come, choosing to scratch out a living here rather than in the fields. Other settlers were made to feel more welcome. When Bharat Heavy Electricals Limited (BHEL) built a factory at the western edge of Hyderabad, the company was able to provide more than just a job for its workers – it established a whole new suburb. The BHEL township has housing, but also parks, shops, an athletics stadium, schools, colleges and a general hospital that

provides free healthcare to employees and their children. It was the perfect site to study the health of migrant factory workers, and so the Indian Migration Study team set up a clinic in the BHEL hospital to assess their Hyderabad participants. The overall findings, published in 2010, showed that the urban environment was indeed a significant factor in the development of serious chronic health conditions. Within a few years of moving to Hyderabad or the other cities in the study,

migrants’ levels of obesity, high blood pressure and diabetes were closer to those of lifelong city dwellers than their rural siblings. Migrant men were more likely than women to have an increase in blood pressure and their risk of heart disease was higher, too. Women were more likely to have put on weight. Whatever the gender difference, internal migrants quickly acquired higher risks of heart disease and related conditions as they adopted the city lifestyle.

28 The Finapolis l JULY 2016

URBAN EFFECT Migrant men were more likely than women to have an increase in blood pressure and their risk of heart disease was higher, too. Women were more likely to have put on weight. Whatever the gender difference, internal migrants quickly acquired higher risks of heart disease and related conditions as they adopted the city lifestyle As the nature of migration and mobility in India develops and changes, the question becomes whether the modern urban habitat will do more harm than good in the long run.

Here For Good High-school physics teacher Vijaya Jyothi lives in a quiet middle-class suburb of Hyderabad. Originally from one of the 29 villages in Sanjay Kinra’s study, she moved with her husband and two children, first to a nearby town in 2003 and then to Hyderabad in 2011. Living in the city means running water (albeit on alternate days), a reliable electricity supply (daily power cuts of two hours in summer and four hours in winter, compared to 12-hour outages in the village), better education for their children, now aged 13 and 11, and better access to healthcare. Like many rural-to-urban migrants, however, Jyothi says the village was a healthier place to live because there was less pollution. The family’s diet, too, changed when they moved here: no more plain cereal rotis for breakfast but rich dosas (stuffed rice and lentil pancakes), and while there is a greater variety of vegetables available than in the village, where they could only really eat what they grew themselves, there is also more fast food. They are less physically active than when

they cycled to work in the family fruit orchards. They even have a servant now who does the cleaning, freeing up more time for Jyothi to spend with the children. Life is indisputably better for the family, but they have begun to feel their health deteriorating. Many people lament current trends towards eating more white rice, inactive lifestyles and the lack of clean air in the cities, but it seems harder to do anything to resist them. Jyothi is trying: she has decided to switch back to a more traditional breakfast, and has started doing yoga and taking regular morning walks. Despite their conviction that village life is healthier, few rural-to-urban migrants entertain any thoughts of moving back. Health is still a price they are willing to pay for a better life in the city.

Tracking Trends The 29 villages in Kinra’s study are not typical of rural India. They lie close to a major city and got the unique boost of Film City on their doorstep. It opened up new options, though not everyone has elected to take advantage. But despite their unusual circumstances, these villages might just be a microcosm of India’s future. The largest village has already grown into a bustling town, attracting people from the other villages, which are themselves develop-

ing. It might take longer in other parts of the country, but India’s villages are all somewhere along this path. At the same time, people are more mobile than ever before – young men give rides to family and friends on their motorbikes, while others use the (admittedly capricious) local bus services to travel between villages, towns and the city. It is much easier to find work beyond your village and easier, too, to find a home and a job in the town before making the move there. The result is that more people have more of a say about where and how they live. By following the health of people in 29 relatively rapidly developing villages, Kinra will see how our health is affected by changing environment, whether through migration, urbanisation or even, by extension, phenomena like climate change. To generate strong evidence, though, he is not content with a sample of 7,000 villagers – he wants them all. Today, the project is run from the National Institute of Nutrition, home of the original Hyderabad Nutrition Trial – Kinra has renamed it the Andhra Pradesh Children and Parents Study (APCAPS). The team is based in house A7 on the institute’s leafy suburban campus. Almost every room in the building has stacks of files teetering on shelves, tables, filing cabinets – anywhere there is a scrap of space. The information

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URBAN EFFECT will eventually be recorded on tablets, but for now the database is still paper-based. Among the records are the files belonging to science teacher Vijaya Jyothi, Mahmad Babumia and his five sons, and the farmer Narasimha Reddy. From the first follow-up in 2003, a second round in 2009 and a third in 2010, the team has gathered information about all the participants’ diets, physical activities and lifestyles, as well as measuring body size and composition, lung function, blood pressure and the levels of various proteins in the blood. Kinra and his team could now wait and see what patterns emerge as some of these people start to develop chronic health conditions. But instead, they are adding to their data. They have installed air quality monitors and mapped the location and use of every building in the villages, and are recording the price of food in all the shops. All this in preparation for extending the study to every inhabitant, a potential group of 60,000 people in all. Kinra describes APCAPS as a “natural experiment”. Unlike the Indian Migration Study, it will follow changes in health before, during and after changes occur to people’s environments. He believes it will reveal the reasons why some people develop chronic diseases and associated risk factors, such as smoking, high blood pressure and overand underweight, and others don’t. The twin trends of urban development and increasing mobility are likely to be playing a role, but not everyone in the same situation develops diabetes, for example, so understanding the balance of factors is essential. Because the villages will not urban-

Despite their conviction that village life is healthier, few rural-tourban migrants entertain any thoughts of moving back. Health is still a price they are willing to pay for a better life in the city

ise all at once, but with different elements of urban life – changes in diet, air quality, physical activity and so on – developing at different times, the study should be able to identify which factors are most important. Ultimately, Kinra hopes the findings will help to reduce the negative effects of modern living as the next generation of Indians seek better lives. “It is not a choice between urbanising or not,” he says. “It is a question of how to go about it so as to minimise the health impact on people.”

Temptation’s Siren His parents named him Sainath but he prefers to be called Dileep. Aged 16, he lives in the very smallest of the 29 villages, home to just 500 or so people. The family home is set back from the main road that runs between rows of concrete houses painted with pale washes of eggshell blue. A line of electricity pylons runs alongside the road but there is no running water here. In patches of ruddy soil around the house, Dileep’s mother, a seamstress, grows onions, tomatoes, papaya, custard apples, chilli peppers and curry leaves, and each night his father and the other daily labourers bring back food crops from the fields. They say they are healthier and happier here than they could be in the city, but Dileep will almost certainly forsake village

life in order to achieve his ambition of becoming an accountant. Dileep goes to a school on the outskirts of Hyderabad. The urban environment holds many temptations for a young man beyond education and future employment – street stalls selling Chinese-style fried rice, Internet shops to check Facebook, tea shops with their ubiquitous speak-yourweight machines. For Re 1, you can find out your weight and your fortune while you wait for a glass of coffee, tea or hot almond milk, all invariably served with heaps of added sugar. When Kinra asks him about his diet, Dileep confesses a fondness for egg puffs from the baker’s in town – but he says he doesn’t indulge very often. It will become harder to resist if he lives there, gets behind an accountant’s desk and starts earning a disposable income. Not everyone will move. We each have our own reasons for staying or going; our own balance of vulnerability, resilience and response; our own story. APCAPS aims to help reveal the physiological consequences of migration and urbanisation, so that we can make more informed, more confident decisions about where to live. If Dileep’s generation can take more accurate account of how their choice of home will affect them, India could be transformed into a country where health no longer has to be sacrificed for a better life. F

30 The Finapolis l JULY 2016


Taking Indo-US trade to $500 bn An IACC seminar brought together business leaders in Hyderabad to identify the way forward. By Team Finapolis

MONEY MATTERS: The banking panel in discussion


id you know that India’s position via-a-vis the US is trade positive? That is, we export more to America than we import from it? To the tune of ~$20 billion a year. Indo-US trade touched $100 billion in 2014, but US Vice-President Joe Biden had earlier stated that this could be taken to $500 billion through close cooperation. For comparison, China’s trade with the US currently stands at ~$600 billion. The Indo-American Chamber of Commerce (IACC) has come out with a trade book on just this theme. Helmed by the chamber’s knowledge partner KPMG, the

report identifies several sectors where bilateral cooperation could be increased and opportunities tapped for greater trade. Towards this aim, the IACC organised seminars at different locations to source recommendations from business leaders. The Finapolis attended the event at Hyderabad, and culled from the panel discussions are the following points to note. This list comprises observations, recommendations, and historical information, all culled from the panel discussions. They are arranged sector wise:

Remarks by Home Minister Rajnath Singh s To achieve $500 billion trade, we need

to think of opening all sectors, including rural development (irrigation, etc). For example, to achieve Digital India, we need to deliver optic fibre to the villages, which the US can help with. s The agriculture sector is not dead. We need investment there. New technology and value addition will allow greater returns.

s Take the example of how Indian Pharma has benefited the US healthcare industry. Further opening up will enable more lowering of costs; both countries need to beware of protectionism. s We have extended duration of security clearance [for foreign companies]

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REPORTER’S NOTEBOOK from three years to 10 years. Soon, this could be permanent. Once you get a security clearance, there shouldn’t be requirement of renewal. s We are looking at Police Smart Evaluation and modernisation. There is great scope there. Also, homeland and cybersecurity are two other big areas of focus.

Pharmaceuticals s

Unless India is ready for a zero tax regime, innovation outright is unlikely. s A unified pharma ministry has been mooted. s One of the things we are late on is traditional medicine. TCM (Traditional Chinese Medicine) has been a step ahead of us (Ayurveda, Homeopathy) in the US.

Finance and Banking s The $500 billion target is not achievable without the financial sector’s support. India has 200 million unbanked, a life insurance penetration rate of 3% and insurance penetration for property/ natural disasters 0.7%. In healthcare, 70% of expenses are currently self-funded; of this, 10% is insured while the rest is borne out-of-pocket. s Core competency has to give way to more competency — we only have four US banks in India. Why aren’t the others coming? Same with insurance companies. Too often, we miss the wood for the trees and say ‘the sector is this big’. But what about opportunities we haven’t tapped? s India’s start was mainly labour arbitrage. But that will vanish in our lifetime. We need to bring other companies over, and we need to do it via value addition. s We used to have the Indian Bank for Reconstruction and Development, which had a great nursing programme for companies in trouble. They would put nominees on your board and you would have people from the IITs and IIMs offering support. The bank was shut in 1982.

Aviation s India is estimated to spend $250 billion over the next seven years. Majority of this would be capital expenditure. s We need to become interdependent: many companies we used to trade with during the 80s vanished in the 90s, so a lot of trade has been lost in this sector. s US companies need to see Indian companies not just as a local partner or supplier, but also as a global supplier, because the technology is now horizontally deployable. One way to do this is tierisation of aerospace companies (Tier 1, Tier 2, Tier 3) like the auto sector, to ‘formalise’ and ready a strong supply chain.

Labour Laws s India has 44 laws related to labour in some way or the other; the government is trying to put this in four codes.

s Currently,

if you have more than 100 employees, you need permission to remove people. The government is trying to increase this number to 300. We need a dispute resolution mechanism. s The US viewframe turned negative after pharma issues [manufacturing problems] were discovered and retrospective tax was introduced. s A committee by the Janata government constituted under Ram Arjun on INTUC, had said that we should have temporary workers, contract workers and permanent workers and develop our [business] model accordingly.

Startups and SMEs s Very

few digital brands are coming out of India. Innovation around technology products can be a serious game changer for us. s If people do not get smart enough, soon, machines will. s Our SME base is Rs 5 crore; in the US, SMEs are companies with Rs 30 crore. s It would be easier for banks if the SMEs would come in a cluster. It would also be easier for the banks’ risk management policies.

s Startups are not geographically bound; they always look for markets beyond home shores.

Textile and Industrial s India’s

textile exports to the US total $25 billion; China sends out $300 billion. 32% of the Airbus A380 is textile — its carbon fibre, which is a textile. s Intel set up a $1 billion plant on 7 acres of land. Why do people here need 1,000 acres? It’s because they want to leverage the land for a bank loan.

Smart Cities and Solar Power s At the moment, different cities have got different parts of the ecosystem right.

s We are only targeting retrofit solar installations. But how about integrating the solar plant with the building itself? Aesthetic integration isn’t happening.

s The National Framework of Energy is a big positive.

Dr. Lalit Kanodia, IACC President

Closing Remarks by the IACC President s India’s per capita is $1,600 per person, against the average global per capita of $10,000. s At 7.5% growth, it will take us 10 years to double our per capita.

s At

its peak, China was growing at ~14% a year; this allowed it to double its GDP in five years. s Solar and Wind power are only ‘addons’ to our permanent sources of energy. After all, what can you do when the sun and wind are subdued? One good alternative is hydropower. F


The Finapolis l JULY 2016


Tell Them The Right Answer Interview questions are not as straightforward as they seem, says ZipRecruiter. Here are seven common questions, and they really mean


nterview questions are not as straightforward as they seem, and answering just one question incorrectly may put you out of the running for a job. The moral of the story? Be ready to read between the lines. Here are seven of the most common interview questions, what the hiring manager is really asking, and how you should respond:

1. Tell me about yourself What the hiring manager is really asking: “How do your education, work history, and professional aspirations relate to the open job?” How to respond: Select key work and education information that shows the hiring manager why you are a perfect fit for the job and for the company. For example, a recent grad might say something like, “I went to X University where I majored in Y and completed an internship at Z Company. During my internship, I did this and that (name achievements that match the job descrip-

tion), which really solidified my passion for this line of work.”

2. Where do you see yourself in five years? What the hiring manager is really asking: “Does this position fit into your long-term career goals? Do you even have long-term career goals?” How to respond: Do NOT say you don’t know (even if you don’t) and do not focus on your personal life (it’s nice that you want to get married, but it’s not relevant). Show the employer you’ve thought about your career path and that your professional goals align with the job.

3. What’s your greatest weakness? What the hiring manager is really asking: “Are you self-aware? Do you know where you could stand to improve and are you proactive about getting better?” How to respond: A good way to answer this is with real-life feedback that you received in the past. For instance, maybe a former boss told you that you needed to work on your presentation skills.

Note that fact, then tell the employer how you’ve been proactively improving. Avoid any deal breakers (“I don’t like working with other people.”) or cliché answers (“I’m a perfectionist and I work too hard.”).

4. What motivates you to perform? What the hiring manager is really asking: “Are you a hard worker? Or am I going to have to force you to produce good quality work” How to respond: Ideal employees are motivated internally, so tell the hiring manager that you find motivation when working toward a goal, contributing to a team effort, and/or developing your skills. Provide a specific example that supports your response. Finally, even if it’s true, do not tell an employer that you’re motivated by bragging rights, material things, or the fear of being disciplined.

5. Tell me about a time that you failed What the hiring manager is really asking:

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CAREER SCOPE “How do you respond to failure? Do you learn from your mistakes? Are you resilient?” How to respond: Similar to the “greatest weakness” question, you need to demonstrate how you’ve turned a negative experience into a learning experience. To do this, acknowledge one of your failures, take responsibility for it, and explain how you improved as a result. Don’t say you’ve never failed (Delusional, much?), don’t play the blame game, and don’t bring up something that’s a deal breaker (“I failed a drug test once…”)

6. Why do you want to work here? What the hiring manager is really asking: “Are you genuinely interested in the job? Are you a good fit for the company?” How to respond: Your goal for this response is to demonstrate why you and the company are a great match in terms of philosophy and skill. Discuss what you’ve learned about them, noting how you align with their mission, company culture, and reputation. Next, highlight how you would benefit professionally from the job and how the company would benefit professionally from you.

7. How many couches are there in the country? What the hiring manager is really asking: “Can you think on your feet? Can you handle pressure? Can you think critically?” How to respond: When faced with a seemingly absurd question like this (there are many variations – just ask anyone who interviewed at Google before December), it’s important you not be caught off guard. Resist your urge to tell the interviewer the question is stupid and irrelevant, and instead walk him through your problem-solving thought process. For this particular question, you would talk about how many people are in the US where couches are found (homes, hotels, furniture stores), etc. As with other parts of the job application process, it’s a good idea to solicit feedback from family, friends, and former colleagues. Try out your answers to each of these questions on at least two people, then revise based on their feedback. F

Published by agreement with, a leading global jobs and career advice website.

Ace These Five Phone Interview Questions Some tips from expert Peggy McKee

Phone interviews are really phone screens. Employers are looking for reasons to cut you from the list of people they’re interested in (because it cuts time and expense from their interviewing process). No matter what career field you’re in, there are several common phone interview questions employers like to ask to get a feel for you as a candidate. Answer these well and you’ll set yourself apart and have a much greater chance of making it through this hurdle and into a face-to-face interview.

1. Tell me about yourself This is your first chance to sell yourself for the job. Start with your education, which means what degree you have or recent (relevant) classes or certifications. Then, mention a few noteworthy accomplishments that would be especially interesting to someone hiring you for the job—check the job description if you need help.

2. Why are you leaving your current job? While you might be leaving your job for negative reasons, it’s important not to mention anything negative in this answer. Answer why you are running to this job, instead of why you are running away from your old job. For instance: “I’m looking for an opportunity to better use my skills, and I think that [this position] at [this company] will allow me to do this.” Or, “This job is such a perfect fit for me that I couldn’t pass it up. I believe I could be very successful in this role because of my skills in X, Y, and Z, and I am excited about the opportunity.” If you were let go at your last job and

you can truthfully say it was a mass layoff/ organisational shakeup that didn’t have anything to do with your job performance, mention that.

3. Why did you apply for this job? The interviewer wants to know your level of interest and your motivation for wanting to be there. A good answer would sound something like: “This job is a great fit. My skills and background in A, B, and C mean that I would be successful.” As much as you can, talk about how you not only meet their qualifications for this job, you exceed them in some way.

4. Where do you see yourself in five years? Stick with the safer answer that mentions how you expect to have honed the skills you have now, developed new ones, and contributed in a meaningful way to the company.

5. Why should we invite you for an on-site (face-to-face) interview? This is the phone interview version of, ‘Why should we hire you?’ Answer along the lines of, “I believe I can contribute in a meaningful way to the success of [this company], and that my skills and personal values match this position perfectly. When we meet, I think you’ll see that I’m a great fit for this job and the company.” F

Peggy McKee is a career coach and an expert resource with years of experience as a recruiter for sales and marketing jobs. Published by agreement with, a leading global jobs and career advice website.


Ar you challenged by your job?


Do you want a career path?

Aspirations are for suckers

Not in a good way

Do you like it?







Do you have a career path?


Are you Star?

Do you have big goals? Like VP by 35




Its time to go

Does your company have 35-year-old VPs?

Is a career path important to you? How about goals? How important to you are a company’s culture and perks?

Should you stay put in your job or start getting your act together or find yourself a new one? Use this handy, dandy little infographic to find out. We also hope this graphic helps you to figure out what you’re looking for in your next job.

Stay, Play or Go Away? 34 The Finapolis l JULY 2016


Stay put. Start thinking about actively managing your career.

They’re awesome becasue my actual duties suck

Yes, and...

Are other duties as assigned the bulk of your work?


By lunch



Get your best work samples together this weekend! You need to start hunting


The minute my eyes open

At the sound of my boss voices


Do your company perks make it all worth it?

What time of day are you officially “over it”?

Start building a file of your best work samples, you will need it soon

At the end of the day

it’s not the “other duties” that bug me

Yes, but...


Does your boss drive you to drink?


Do you have a job offer?

Bwahaha, Daily.

How often do you say, “When <blank> is over it’ll better”?



So, should you get your career experience and accomplishments organised in the next few months or days? Should you be updating your personal brand now, or next week? Find out here. A caveat, though: it lacks any basis in science, and is prepared on the belief that life is too short to be in a job that doesn’t meet your needs.

JULY 2016 l The Finapolis



expert speak

Minor Issues in Income Tax Computation


id we tell you about this terrific book that we have been reading? It’s got all the essential ingredients that a potboiler needs to have – drama, intrigue and suspense. The plots and sub-plots are so intricately woven by the author that each page will leave you guessing. We won’t give away more but we fully recommend reading The Income Tax Act, 1961. This week we are going to examine one of the abovementioned subplots of this thriller that deals with capital gains and clubbing. It was actually Mr. Shiavux Mistry author as well as a dear friend who brought this issue to our notice first. Mr. Mistry is an authority on tax matters and the author of a book, ‘Employer-Employee Guidelines’. Take a situation where a minor has made sizable long-term capital gains through sale of jewellery inherited by him. The gains will be clubbed in the hands of the father whose income is higher than that of his wife. The father desires to take advantage of the exemption from longterm capital gains available u/s 54F by purchasing a residential house within the stipulated time. The issue is — should this new house be bought by the minor, since it is he who has earned the capital gains or should the father buy the house since the income is clubbed in his hands and it is he who is required to pay income tax thereon? If the answer is that the minor should buy the house, then it would be difficult to sell it during the minority of the child. Allahabad High Court in the case of CIT v Lalji Agarwal – (1993) 153CTR500 has given a landmark decision. Here the wife was a director of the company in which her husband was the managing director. Her salary was clubbed in the hands of the husband without allowing standard deduction. The learned judge held, “If the wife herself had been the assessee, there would not have been any doubt as to her

right to compute her net income. She is entitled to standard deductions and permissible other expenses. If that is so, we fail to see any good reason why gross income be clubbed u/s 64.” 22taxmann.com34 (Kolkata - Trib) 2012 DCIT Circle-8 v Rajeev Goyal has given the final solution.

It is important that certain lacunae be addressed and income tax laws be suitably amended so that tax officers do not have to exercise ‘discretion’ but act according to the law Assessee, his minor daughter and minor son earned LTCG of Rs 551.27 lakh, Rs 49.74 lakh and Rs 39.57 lakh, respectively He invested Rs 50 lakh in his own name, Rs 49.50 lakh in the name of minor daughter and Rs 39.50 lakh in the name of his son in REC bonds to save tax on long-term capital gains. The Department clubbed LTCG earned by his minor children in the hands of the father but limited deduction u/s 54EC only to investment of Rs 50 lakh in his name and did not allow deduction for his minor children. The honourable judge observed that a minor is an assessable entity distinct from his parents even though the income of the minor is clubbed in the hands of one of his parents. Thus, all the eligible deductions are to be allowed in the hands of the minor while computing the income of the minor and only the net taxable income is to be clubbed u/s 64 (1A). This Section says that in computing the ‘total income’ of an Individual all such income as arises or accrues to the minor child . . . .” The word ‘such’ means the total income of the minor, because ‘such’ is preceded by ‘total income’. Therefore, unless and until the income of the minor child is computed, the clubbing provision will not apply.

We would like to point out that Section 80A(1) of Chapter VIA states, — “In computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deductions specified in Sections 80C to 80U.” It is clear that for the purpose of taxation, the total income is arrived at by subtracting deductions from gross total income. This decision has been extended by Madras HC to a discretionary trust in which shares of beneficiaries are ascertained, the net income of each beneficiary is to be aggregated and maximum marginal rate has to be applied on it CIT Chennai v Vummudi Bangaru Chetty [2012] 17 196 (Madras). Finally, N. Ram Kumar v ACIT Circle-6(1), ITAT Hyderabad Bench ‘A’ 2012 has observed that a bare reading of Sec. 54F(1) makes it clear that there is no requirement that the house has to be purchased in the name of the assessee only. It only requires that the assessee must purchase a house. In this case, it was he who had earned the capital gains and the house was purchased in the name of his minor daughter. This means that he could have purchased the house even in your or my name and claim the benefit! This surely cannot be the intention of the law!

To Sum Through these columns we have been regularly pointing out the loopholes and lacunae that have crept in into the Income Tax Act over time. Earlier, the Act itself was going to be completely scrapped and replaced with a brand new Direct Tax Code. However, subsequently the authorities scrapped the idea of the Code itself. Be that as it may, we think it is important that these lacunae be addressed and the law suitably amended such that tax officers do not have to exercise ‘discretion’ and instead act as per what is spelt out in the law.

The authors are leading financial advisors. Write to them at

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Technical Analysis Our team of analysts pore through technical charts to offer some smart trading tips for the next couple of months By Team Finapolis


ech Mahindra, is an Indian MNC which provides networking technology solutions and BPO services. A specialist in digital transformation, consulting and business re-engineering solutions. In the recent times the company has made its presence felt in the global arena by acquiring firms and foraying into areas, in December, 2015 it acquired Pininfarina for a controlling stake. In June, 2016 it acquired The BIO Agency at a deal valued around 112 million pounds. 574 547 520 493 466 439 412 Jun-15





Current Market Price

Rs 533

Stop Loss

Rs 415

Target Price 1, 2

Rs 650, Rs 760

Points of Observation XXTech Mahindra in the recent times has started to outperform the Nifty IT index and Nifty IT heavyweights such as Infosys and Wipro from a medium to long term perspective which suggest that long term investors are bullish on the counter. XXThe stock is currently trading above all of its major moving averages which suggest that the stock has strength to start a fresh journey which might lead to make the stock make new highs. XXThe stock was consolidating in a range of 30 points spanning across 159-189 levels and gave a breakout on the charts with notable volumes and since then it has given a staggering return of around 274%.

XXThe stock was facing a stiff resistance placed around 484 levels and was not able to surpass the said resistance level on the daily charts. The stock gave a breakout on the daily charts from the said level on account of good results declared by the company. XXWe recommend medium-to-long term investors to buy the stocks at current levels and accumulate the stock on dips by holding the stock with a stop loss placed around 415 levels.

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EQUITY Current Market Price


BB the parental company of ABB India is one of the global leader in power and automation technologies with an employee base of nearly 1, 40,000 and operates in approximately 100 countries. ABB India has been successfully investing and steadily expanding its manufacturing, engineering and R&D footprint. Currently it is managing the power network management for Delhi Metro and Delhi Airport; it also runs the world’s largest HVDC Project and transnational conveyor belt. The stock price has seen a rally from the levels of 430 in the month of August 2013 to the levels of 1526 in the month of February 2015 giving 1430 1350 1270 1190 1110 1030 950 Jun-15






he monthly c h a r t structure of this fundamentally strong stock, suggests formation of cycles of higher highs and higher lows, supported by consolidation in the past few months, clearly indicating there is a lot of demand for the stock even at higher levels which is a positive sign in itself. COAL INDIA is in a structural uptrend and looks well set to march steadily towards the Rs.380-400 mark over the next 9-12 months. The stock has been relentlessly rallying from its Aug, 2013 low of Rs.187.47 to a lifetime high of Rs.415.9, which was clocked in the month of August, 2015. Points of Observation XXOn the weekly charts, the stock is trading above its short and long term moving averages, indicating the bullishness in the counter.

Rs 1212.35

Stop Loss

Rs 990

Target Price 1, 2

Rs 1450, Rs 1550

a whopping move of more than 250%. After clocking the said highs, the stock has been consolidating in a band of 950-1525 over last one and half year, indicating a pause in the ongoing long term up trend, and shall move into unchartered territory on breach of the current trading range. Going forward, until the stock is holding above 950-1000 levels, it has the potential to rally towards its all time highs of 15001550 and above it to unchartered territory in the coming months. Points of Observation XX During the current consolidation phase, the stock on weekly chart has been respecting its medium and long term moving averages and is bouncing back with decent volumes, indicating strong hands are playing in the counter. Even the trading and deliverable volumes on the

Current Market Price

Rs 315.50

Stop Loss

Rs 275

Target Price

Rs 400

403 380 357 334 311 288 265 Jun-15





XXOn monthly charts the stock is finding support at the lower Bollinger band (20, 2, S) and stock has formed a bullish hammer on the monthly charts; coupled with tweezer bottoms formation on candlestick charts. XXThe stock has seen fresh accumulation in the recent past as it has witnessed a rectangle pattern and currently prices are trading above its upper resistance zone validating the breakout.

down move are on the lesser side compared to the up moves in the current consolidation phase, indicating the probability of breaking the trading range on the higher side is high. XX On the Bollinger band set up on weekly charts, the bands started contracting, indicating the cooling of volatility and the volatility can expand once the stock breaches and sustains beyond the band. However we expect the stock to break on the upside of the Bollinger band and volatility to burst on the higher side. XX Among oscillators on weekly charts, the 14-period RSI line is trading at a reading of 53 and MACD setup is also above the zero line and the signal line is below the MACD line, both indicating the stock has more upside and any dip in the counter can be used for fresh accumulation. XXWe therefore recommend participants with a time frame of 8 to 12 months to buy the stock in the range of 1200-1220, and average on dips towards 1070-1080 for the mentioned target levels with a strict stop loss placed below the level of 990. XXOn Elliott wave front, the stock has completed wave 4 at the lows of 266. From there the stock has seen an impulse which indicates fresh up trend has resumed after the corrective phase. XXAmong oscillators, the MACD is in buy mode in daily and weekly time frame indicating bullish bias. XXWe therefore recommend long term investors to go long in the stock around Rs.315, and average the long position on dips, if any, around the level of Rs.300 for the above mentioned target levels with a strict stop loss placed below the level of Rs. 275 on a weekly closing basis.

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EQUITY Current Market Price Stop Loss


enturyPly is India’s leading plywood brand in the organized plywood market. The company is engaged in the manufacture of plywood, laminates, veneer, MDF, blockboards and doors. Indian Plywood & Panel Industries market share of organized sector is around 30% and around 50% of organized market is controlled by two national players, one among them is Centuryply. Overall industry is expected to grow at 10% and organized sector is expected to grow at a faster pace of 25%-30% in next two years. And even GST implementation is expected to lead to a shift from the unregulated to the 210 198 186 174 162 150 138 Jun-15





Target Price 1, 2

Points of Observation XXThe counter is in structural uptrend mak125 115 105 95 85 75 65 Jun-15





Rs 260, Rs 300

Points of Observation XXThe stock made its dream-run from the low of 22 formed in mid of Feb’14 towards 262 cloaked in the month of March’15, whopping gains in period of one year. Post forming a high, stock entered into a period of price correction on account profit booking and subsequently turned sideways, wherein it retraced 50% of said rally and started recovering. XXIn the mid of Feb’16 stock confirmed a double bottom formation by placing a low of 135 and witnessed smart rebound in last couple of months. From the low stock rose over 50% in near about 5 month’s time.

Stop Loss


Rs 135

regulated sector, adding to the company’s prospects. Technically at current juncture stock is well poised with bullish bias, and likely to surge towards 260-300 levels over coming 4-6 months time frame.

Current Market Price ISHTV is Asia’s largest Direct to Home Entertainment Company. It has earned a prestigious place of being World’s third largest DTH Company. Being the leader in DTH services, Dish TV has changed the face of Indian Television by making it possible for every customer to have access to premium quality digital entertainment. The company is also a division of Zee Entertainment Enterprises.

Rs 201.20

Target Price 1, 2

Rs 93.90 Rs 75 Rs 125, Rs 130

ing higher highs and higher lows on the daily charts. The stock had made a spectacular run from the lower levels of 40 to all time high levels of 121.65 in just a small time frame of two years. After the said stellar rally, the counter witnessed a round of profit booking which dragged the stock towards the levels of 65. The stock later consolidated for few trading weeks forming a good base around the same and started moving higher. XXCurrently, the counter is looking strong and is all set to move higher in the coming months and may test its swing high of 120-121 levels made in the month of August 2015 and also has the potential to surpass the same. XXOn the other hand, the counter is trading with bullish bias and is hovering in be-

XXTechnically, stock price is well poised above its major 200-DEMA and also above its 21 & 50-DEMA, depicting underlying positive bias in the counter. XXOn the technical setup momentum oscillator 14-period weekly RSI is formed base above 40-level and gradually inching higher from equilibrium level, reaffirming bullish undertone. XXFrom the above observation, technically stock is well poised to surge higher towards its life time high of 262 and eventually in an uncharted territory over coming months. Hence, one may buy stock near 195 levels and average the stock price on any dip towards 160 levels keeping a stop loss below 135 levels, for an upside target of 260 and 300 levels over next 4-6 months time frame.

tween its short & medium term moving averages. Among indicators, the 14-day RSI line is trading above the 9-day EMA signal line pointing northwards and, the MACD line is trading in the positive territory, reflecting the positive sentiment in the counter. XXConsidering the above data facts, we expect the stock to continue its bullish trend from current levels and may test 125-130 levels in 9-12 months time frame. Any dips towards 84 levels may be utilized for adding further with stop loss placed below 75 levels. F

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Are you Buying a Home You Can Grow Old In?

Housing is the largest single factor in most Indians’ household budgets and has a direct impact on our capacity to gather capital which can be drawn on in the retirement years, says Kishor Pate

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ood, affordably-priced housing is the essence of a happy and secure life for people of all ages. However, this is especially true for older citizens, or people aged 50 and above. Because housing is the largest single factor in the household budgets of most Indians, the cost of housing has a direct impact on day-today financial security and the capacity to gather capital which can be drawn on in the retirement years. In the Indian context, affordability is not the only criterion that drives the demand for homes which people can occupy with dignity in their advanced years. Their homes must also be supportive of health, safety as physical comfort. This means that homes suitable for the elderly must have good access to shops catering to the necessities of daily living, essential services, public transportation and healthcare facilities. These aspects are important when it comes to older adults being able to maintain a comfortable and active lifestyle. The elderly must be able to meet their basic needs and also maintain social connections. Because of this, low-cost housing in small standalone projects is not suitable for senior citizens. They require the benefits of larger residential complexes which have communal facilities such as gardens, clubhouses and open spaces, so that they can meet other members of the community in a safe and wholesome environment. However, the tragedy in India is that most of the existing supply of housing is not geared towards meeting the requirements of senior citizens. Housing that is affordable tends to lack good access to the elements that contribute to a healthy and fulfilling lifestyle for the elderly. The available options that do offer proximity to stores and healthcare and also a means to socialize within the residential project are priced beyond the affordability of family wage-earners. Much is being currently written about senior living projects being the new trend in India. Senior living projects do

A majority of Indians don’t like to change homes as they grow old, meaning it is important that the home purchased when young offers support to senior citizens have their merits; however, what is being overlooked here is the fact that Indians do not, as a rule, prefer to shift to new homes of any kind when they grow old. They prefer to ‘age in place’ — meaning that they would like to continue occupying the homes in which they have been living all along. The demand for homes in senior living projects is limited to a small margin of India’s ageing population. While choosing a home during the productive years, it is important to ensure that: s Financing the home does not overly strain the budget, so that enough sav ings towards retirement are possible s The home has existing access to all the necessities of the elderly. One cannot depend on the possible arriv al of shops and hospitals at a future date. Because of inherent lack of development potential, some areas will always remain detached from such facilities even years after their emergence from obscurity s The project has existing facilities for meeting the social needs of the elder

The writer is Chairman and Managing Director of Amit Enterprises Housing Ltd.

ly. Small projects, though cheaper, do not have these facilities s The home is not in a skyscraper, since these have the highest incidence of social disconnect and generally also the lowest assurance of safety and in ternal mobility Given the fact that a majority of Indians prefer to continue living in the same homes as they age, it is important that homes purchased during the productive years have the above elements in place. While affordability will always be a very important criterion, it is not a wise choice to make it the sole consideration while buying a home. A home must be also ‘retirement ready’ in all respects. Lack of access to good hospitals can be a serious setback in case of medical emergencies, and the absence of a means for socializing will mean a limited and uncomfortable experience in later years. A home must be and remain conducive to an active, healthy and comfortable at every stage of life. These qualities must not be sacrificed solely to achieve the objective of affordability. F

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Real estate investing remains all about ‘location, location, location’ Kishor Pate lists the important factors to consider before buying a house


hile looking for a suitable property either for investment or personal use, there are many factors that should be on one’s checklist before arriving at any decision. One way or the other, location plays an important role in all of them:

Look for a safe neighbourhood Certainly, you should look for the basic amenities that will provide comfort and convenience to your family or tenants. However, it is even more important to gauge the safety of the neighbourhood. A safe neighbourhood is one where one can move about freely and not remain confined indoors, regardless of the time of day. Pertaining to today’s job environment and also social preferences in terms of enjoying the nightlife, home seekers require a locality where returning late at nights will not be an issue. This parameter should be the first to check while choosing a location. The most attractive property prices and amenities are of no value if one has to live in fear.

Distance from basic necessities of daily living It is a fundamental fact of the property market that a locality with all the basic amenities within a couple of kilometers ranks higher on the desirability scale. These amenities should include a properly equipped hospital and a good school or college, but social infrastructure

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HOME TRUTH such as supermarkets, malls and places for leisurely activities must also be counted among the basic requirement of daily living.

Ease of commuting It is common knowledge that the closer the property is to railway stations, metro stations or bus terminals, the more valuable it becomes. Today’s society is perpetually on the move, with at least one family member having to travel a certain distance to work and back every day. With the dual income family becoming more common, the importance of an area’s ’commutability’ rises.

In any case, the distance from a public transit facility plays a pivotal role in the cost of a property. If a family is not dependent on mass transit options, it is a given that it uses a personal vehicle. Also, many families have members who travel between adjoining cities like Pune and Mumbai regularly. In other words, good road connectivity and proximity to expressways and highways is important, and will play a role in the pricing of a property. In every city, there are localities that are defined by the type of office hubs or industries they host. Most cities will have areas where a number of Govern-

ment offices or bank head offices are located, and others which have a high saturation of InfoTech firms. From a residential demand perspective, these localities are obviously always the most preferred ones if they have attached residential catchments. If a walk-to-work option is not available, people working in these areas will definitely prefer the shortest possible commute.

Future developments If one is on a constrained budget, then the best areas to invest in a property are those which are not fully developed yet. Homes in such areas are cheaper when compared to their counterparts in fully developed localities, but will see higher property valuations over the mid-tolong terms. The localities that have been earmarked for future infrastructure developments are the best to invest.

High-value locations – pros and cons It is definitely not true that the cheapest properties are always the best to invest in. Going by the location yardstick which holds true in all real estate investment, the cheapest locations are usually the most remote or least likely to see future development. However, it is definitely true that the costliest properties will usually see the least capital value growth in the future. Invariably, such properties have seen saturation of price growth and are less likely to offer any positive returns in terms of capital appreciation even though they tend to be located in high-value areas. However, extremely costly properties are very likely to give very good rental returns, because people who want to live in these areas but cannot afford to buy properties there will choose the rental option. The tenants who prefer such properties would be highly-paid corporate executives and even firms who are looking to lease such a property as their company guest house. F

The writer is Chairman and Managing Director of Amit Enterprises Housing Ltd

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Monopoly’s Second Coming The next version of the classic board game called, Monopoly Electronic Banking edition, replaces paper bills with debit cards. But the differences may do more than just make it more modern. They may make it less educational — and perhaps less fun.


ust about every adult has played Monopoly — or its derivative— at some point. In India, clones were sold under the name Business, or, if you bought your board in vernacular, under the word for business or trade in the local language (the Marathi version was called ‘Vyapaar’). But in our increasingly digital, screen-focussed era, Hasbro, the game’s maker, feels it has to shift with

the times. So the next update will replace paper money with debit cards and scanners, among other changes. What impact will changing the game really have? To find out, Knowledge@Wharton talked to Mary Pilon, author of the best-selling book “The Monopolists,” about the history of the game, and Geetha Ramani, an assistant professor specialising in human development and quantitative methodology

at the University of Maryland, and director of its Early Childhood Interaction Lab. Edited excerpts:

Is it a surprise to see this happen with such a legendary game as Monopoly? Mary Pilon: No, not at all. Hasbro has actually done this a few times. They acquired the Monopoly brand when they

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GAME THEORY acquired Parker Brothers in 1991. They will revamp it to add things like debit cards, credit cards. There are all of those different “opoly” games, often times based on your alma mater, different cities and things. But what’s so ironic about this is, Parker Brothers acquired Monopoly in 1935 as a brand, but the game had a full life before that. It was invented by a woman in 1904 as kind of a left-wing protest against monopolies. It was played as a folk game for 30 years before Parker Brothers even touched it. And one of the things that those early folk players did was, they modified the game to make it their own, to reflect their times. They put their own cities in. They made it their own. So it’s funny to me that over a century later, we are going full circle again, and the game’s still evolving.

We’ve talked on this show about financial literacy and the problems that we have with it. Will the learning element of Monopoly, in some respects, be taken out if there’s not any more money in the game, and it’s all debit cards? Geetha Ramani: That’s right. I think part of the beauty of Monopoly is the simple things, like making change and understanding whether you have enough funds. And all of that, it’s my understanding, is going to be done by the machine. So even though that there’s a lot of complexity that’s being added to the game, some of the simple components that are being removed, I think, are going to hurt the learning elements that Monopoly has built into it.

Do you think there’s a possibility this version of the game may push a lot of people back to the old version, especially parents that are playing it with their kids? Pilon: I think that’s true…. On the book tour, I was really surprised at how many parents came up to me and said that they use Monopoly with their kids, not only as

a bonding tool — which it is, you know. That was the case in my family — I think it’s been the case for generations. But their kids — I hate to use the expression “kids today” — but kids today don’t understand cash because they see their parents use credit cards and debit cards wherever they go. That’s something that I think that all of us take for granted — that there is a generation gap. In a previous life, I wrote about credit cards and banking at The Wall Street Journal, which is actually, ironically, how this whole Monopoly thing came about. It’s a really good point, that it is a game where you can use cash — you can count things out. I think with kids, that tactile piece is a huge part of it. But at the end of the day, it’s the parent who has to buy the set. So, presented with two options, I think that the parents who are buying the game are going to veer towards the more traditional option.

Even not having the “cash” in there, the game will still offer kids and teens some financial literacy education. It’s just going to be a little bit different, correct? Ramani: I agree. I’m sure it’s going to be very interesting and novel at first. Having the concrete dollar bills there, having the money that you can work with, is really important. The numbers that might show up on the screen, that you use with the cards, are going to be really abstract for younger kids to understand. Having concrete cues about the money and how much you need, and how much you have, is really important for kids if you’re trying to teach them about the worth and how much things cost … and what’s more and less than other things. There will still be opportunities there, with the card and the electronic billing and talking about these kinds of things. But removing the concrete materials is going to make it harder for lots of kids to understand.

From what I understand, there also is the possibility of raising and low-

ering the prices of the properties. So, in some respects, this is going to be a little bit more of a learning process about wealth in general. Ramani: Absolutely. And I think that will definitely add an interesting component to it. But it might depend on how old the kids are. For younger kids, that element’s going to be really challenging, I would imagine. Even for adults, right? But for older kids, perhaps maybe it’ll make an interesting piece of financial information to talk about while they’re playing the game.

What are some of the other changes they made? We’ve talked about debit cards, and that they’re going to have a scanner. Did they change any of the properties? Pilon: Those are the biggest changes. As far as I know, the properties are the same. The design of the board itself is quite different. And Mr. Monopoly himself got a revamp a few years ago. So, it’s visually quite different – [along with the colors of the] houses and hotels. But it’s really the digital piece that you two have been talking about. I heard from a few readers who would joke about Monopoly — where do you draw the line? Are we going to have a Monopoly with securitization and bundles of mortgages? There’s also a whole school of thought that Monopoly itself doesn’t actually teach people the right things about capitalism, which is probably a whole other book — the idea that it’s a winner-take-all, as opposed to real life, where you can have more than one billionaire.

Monopoly is still the number one game in 20 or 25 different countries around world. So, while we’re talking about this in a US context, it’s going to be interesting to see how this plays out across the globe. Pilon: Right. I was just in Cambodia and Thailand a couple of weeks ago. And it’s

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GAME THEORY funny you mention this, because payment processing and the use of cards and such, that’s everywhere now. It’s so ubiquitous. In some ways, the US is actually behind. You see this with the chips in credit cards; in Europe, that’s been around for a lot longer. So if that’s the case, and that’s the trend that the game is mimicking, then absolutely, I think it will do well globally.

Geetha, you have done some research into how some of these board games — especially ones like Monopoly — can really help kids that may come from disadvantaged backgrounds. Correct? Ramani: Yes. We’ve done some research with simple board games, mostly that we’ve designed, to look at children’s early numbers skills, to try to promote those skills, thinking that giving kids a fun way to learn about numbers and their magnitudes, or how big and small numbers are, can be a fun and developmentally appropriate way to teach kids about numbers. So we develop games and think about the design, and try to use as many cues about the numbers and their patterns, to really help them to understand them.

Would it surprise you if it would be a success, given that so many people are so reliant on their debit cards these days? Ramani: I bet it will be successful in the sense that it will be novel and interesting. There was a previous version with electronic banking, and that was also successful and popular. But in my household, that novelty wore off very quickly, and the regular versions with the dollar bills get played a lot more, because that one was just too challenging to understand. Having the concrete dollar bills keeps it more engaging for the kids. Pilon: But also think about this: We’re talking about debit and credit cards. You and I, and a lot of your listeners know the difference. One is a line of credit, and you can acquire debt. One is a check card. That’s a fundamental difference in your financial life, how you use those. But again, they’re two pieces of plastic. They’re indistinguishable, even though the consequences of using them are so different. So in the game, I do think there’s a really good point to be made. I think parents’ trouble with it is you have to teach kids the difference between credit and debit, but if in a game they’re all the same — then yikes! –that raises a lot of questions.

This digital banking version without the physical cash — that style of game, you obviously believe, presents a bit of a negative issue for kids going forward. But are there other pieces that you see Hasbro is still missing? Maybe changes that they still need to make to this new version? Ramani: I think that there are a lot of things that Mary said that are right. Like, trying to keep promoting family game nights is a really good idea. Trying to teach kids about different skills in the game is not a bad idea. Thinking about certain math skills, or even certain literacy skills, while keep-

Kids today don’t understand cash because they see their parents use credit cards and debit cards wherever they go. Mary Pilon ing them fun and engaging is a nice way for family game nights to be more than just fun. They can be important, a learning opportunity as well. I think those are always things that could be further built into games.

Did I read that they’re also talking about adding some sort of auction function to this new version of the game? Pilon: Here’s what’s funny about that — I’ve written about this in the past, and it goes to why Monopoly is a unique game. Most people play the game incorrectly. And one of the reasons why is, they don’t read the rules, because you learn it from your mother or your father and aunt and uncle — whoever played it before. In the actual Monopoly rules, that have been around for years and years and years and years, there is a rule that says if you land on property and you don’t buy it, it should go up to auction anyway.It’s always so funny that people don’t realize that, because people play with their own house rules. That’s part of why the game gets a bad rap for lasting so long, because if you don’t auction off the properties, it takes longer to unload them all. People also have this tendency to inject a lot of cash into the game, which also makes it longer, because it takes longer to bankrupt people. So, every now and then, Hasbro decides that’s worth highlighting again —

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People walk across a giant size Monopoly board game built in the middle of Trafalgar Square, London, in April 2, 2016.

Part of the beauty of Monopoly is the simple things, like making change and understanding whether you have enough funds. And all of that…being removed, I think, are going to hurt the learning elements that Monopoly has built into it. Geetha Ramani

and I have to give Hasbro props for this. Because whenever people say Monopoly is a long game, I’m like, “No, it’s actually not. If you play it by the rules, you’re in and out in under two hours, if that.”

It truly is a generational game. You play it as a kid and you pass it down to your kids. I know I play it with my son. And that’s I think a little bit unique in this realm of games. Pilon: I think so too. To go back to what it teaches kids, I think that a huge part of it is teaching cooperation and getting along with people, and the deal-making aspect of the game, the social aspect. What I love about games, in particular — this is the case in my family, but I think it’s true with any group of people — is they bring out a side of people that you don’t see ordinarily. I feel like I’ve learned so much about my aunts and uncles and my siblings, and a lot of it is because of having a game like this. I’m the youngest in my family, so having an arena where I actually had a shot at winning was really

exciting. Still is. So I do think that it’s going to be with us for a long time, for a lot of those reasons.

One of the articles I read noted how not having the money in this particular version of the game may actually cut back on the potential for cheating. Ramani: That probably is true. But part of the fun is having a banker who counts out the money and can make the change and watching them and talking about whether that was right or wrong or how much you still owe me. There’s a component of that where it involves discussing the money, and the social interactions, and talking about how much, and how much less, and how much more, that is an important part of the learning. That’s all going to be taken care of now, by the machine. Yes, it’ll speed things up and prevent some cheating. But in some ways, it’s part of the fun and the learning that goes on with that game. F

Republished with permission from Knowledge@Wharton (, the online and business analysis journal of the Wharton School of the University of Pennsylvania.

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by invite

by invite


Buying a Cashless Health Policy? Here’s a Checklist


aising money for costly medical treatments is not easy. Hospitalisation, surgeries and prolonged treatments can cripple your finances, especially with rising medical costs. Which is why you have health insurance to help you deal with the burdens of planned and unplanned medical expenses. Health insurance covers treatment costs and helps you get the best treatment at hospitals. Earlier, under the reimbursement health policy, it was cumbersome to make claims from insurance companies. Now, cashless insurance has made things much easier, offering peace of mind to the customer who must only concern himself with the line of treatment.

What is a Cashless Health Policy? Under a cashless health policy, the insurer directly settles the amount of claim with the treatment providers: the hospitals. This lets the insured get better treatment without incurring huge out-of-pocket expense. Whatever bill is raised by the hospitals is directly settled through a Third-Party Administrator (TPA). These TPAs act as mediators between the insurance company and the hospital. Before buying a cashless health plan, one must look at some of the important aspects related to it.

What To Look For: The brochure or details of a health policy should be read carefully. Every company offers different packages. One should analyse their requirement before selecting the plan best suited to them. Here are some key aspects to be looked at before buying a health policy.

Amount of Sum Insured Before buying a health policy, you should know the amount of sum assured under

Adhil Shetty is the CEO of

Under the earlier reimbursement health policy, making claims was a cumbersome process. Cashless insurance has made things much easier

Some items not covered in health insurance claims are: attendant / visitor fees (some insurers allow within cash limit); ambulance charges (limited charges are paid by some insurers); toiletries; service charge; expenses for the oxygen mask, diapers, nebulizers, etc. (some insurers allow in specific policy plan) and documentation charges.

the selected policy scheme. The assured amount should be one that fulfills all or most of your needs during an illness. If you are selecting a family plan, then a big cover should be taken as all the members will rely upon the same policy and sum assured.

Products in the Market

Age Limit The policy should be taken at an early age. This is because after the age of 50, many insurers don’t allow fresh entry into a policy without a thorough health check-up. Some companies offer senior citizen health policies, but their premiums are comparatively higher and pre-existing diseases are not covered for some years.

Network Hospitals Insurance companies provide a list of their network hospitals. You should prefer insurers that have tied up with the best hospitals of your city or region, and avoid policies that haven’t. Remember that cashless treatment is allowed only at hospitals on your insurer’s network.

Exclusions & Waiting Time Many insurance companies have a list of disease or treatments which are not covered under their health policies. There are certain exclusions too, like the cost of spectacles, stockings, etc. Some companies have a long waiting period to cover pre-existing disease. These conditions should be carefully noted before taking a policy.

There are many health insurance products available in the market. There are individual plans, family floater plan, senior citizen plan, and many more. A family floater plan covers a whole family and its premium is also low in comparison to individual plans. If you are single, then you should go for an individual health policy.

Portability If you have purchased a health policy and you are not satisfied with its services or its offers, you can easily change the insurer by applying for portability to the insurer you prefer.

NCB Most health insurance companies offer ‘No Claim Bonus’ (NCB) to policyholders who don’t make any claims during any part of their policy tenure. The bonus could be in the form of an increase in basic sum assured or a discount in the premium amount at the time of renewal. Medical expenses can drain your financial resources, but cashless insurance policies safeguard you and cover nearly all types of illnesses without requiring you to spend huge amounts of money. Having a health cover is an absolute necessity and the selection of a cover best suited to you and your family will ensure a problem-free ride through most medical emergencies without hitting your bank balance. F

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50 The Finapolis l JULY 2016

STAT DOSSIER All figures as on June 24, 2016

Indian Indices: Performance Close June 24, 2016

Close May 31, 2016

Return (%)

Return 6 M (%)

Return 12 M (%)

PE Ratio















BSE 500







BSE Auto







BSE Bankex







BSE Capital Goods







BSE Consumer Durables







BSE Oil & Gas







BSE Metal







BSE Realty














BSE Power







BSE Teck







Global Indices: Performance Close June 24, 2016

Close May 31, 2016

Return (%)

Return 6 M (%)

Return 12 M (%)

PE Ratio



















Singapore Straits Times (STI)







S. Korea



















S&P 500



























DAX 30







CAC 40







MSCI World Index MSCI Asia Pacific Ex Japan ASIA Hang Seng

Nikkei 225 AMERICA Dow Jones

Brazil Bovespa EUROPE

JULY 2016 l The Finapolis


STAT DOSSIER All figures as on June 23, 2016

June International Commodity Futures Price Trends Close June 23, 2016

Close May 31, 2016

% Change

52 Week High

% Change from 52 Week High

52 Week Low

% Change from 52 Week Low

LME Lead 3 Month ($/t)








LME Zinc 3 Month ($/t)








LME Nickel 3 Month ($/t)

























































ICE Coffee (cents/lb)








ICE Cotton (cents/lb)






















CBOT Soybean (cents/bushel)








CBOT Corn (cents/bushel)
















CBOT Soy Meal ($/t)








CBOT Wheat (cents/bushel)








Comex Silver (S.oz) LME Copper 3 Month ($/t) Nymex Crude Oil (S/bbl) LME Aluminium 3 Month ($/t) ICE Sugar (cents/lb) Comex Gold (S/oz) CBOT Soy Oil (cents/lb)

LIFFE Sugar (S/t) Nymex Natural Gas ($/mmbtu)

Commodities: June Gainers and Losers (%) MCX


Natural Gas 17.5%

Nickel, 8.2%

Maize 18.2% Jeera, 8.1%

Silver, 7.3% Cotton, 6.9% Cardamom, 6.6% Zinc, 6.0% Aluminum, 5.3% Gold, 3.4% Copper, 2.8% Lead, 1.7% Crude Oil, 0.7% Mentha Oil, -4.7%

RM Seed 6.3%

Chana 15.5% Cotton Seed Oil Cake, 6.7% Dhaniya, 6.1%

Wheat, 5.5% Turmeric 2.9%

Guar Gum, 4.8% Sugar, 0.9%

Barley, 0.2% Soybean -0.6%

Guar Seed, -0.4% Soy Oil, -2.2%


The Finapolis l JULY 2016

STAT DOSSIER All figures as on June 24, 2016




June 24, 2016

Punjab National Bank


Hindalco Industries Ambuja Cements Vedanta Coal India


June 24, 2016

IDEA Cellular Cairn India IDFC

May 31, 2016











May 31, 2016

(%) Change












TECH Mahindra







8670 8375 8080 7785 7490 7195 6900


14150 13700 13250 12800 12350 11900 11450 Sep-15







TATA Steel


(%) Change









Gain in MCX Natural Gas.


BSE CAPITAL GOODS 18800 17525 16250 14975 13700 12425 11150

22250 21100 19950 18800 17650 16500 15350 Jun-15















HANG SENG 28500 26750 25000 23250 21500 19750 18000

18310 17875 17440 17005 16570 16135 15700 Jun-15

Prices rallied on forecast to hot weather condition across US






JULY 2016 l The Finapolis




Rupee Movement

Brent Crude (US$/bbl) 70.0 63.5 57.0 50.5 44.0 37.5 31.0

68.6 67.7 66.8 65.9 65.0 64.1 63.2 Jun-15












Gain in NCDEX Maize.

Silver (US$/OZ)

1310 1265 1220 1175 1130 1085 1040

Prices rallied on supply shortage and higher demand

17.80 17.10 16.40 15.70 15.00 14.30 13.60












Real GDP Growth 7.4



Prior (%)

6.75 6.50









10500 7000 3500 0 -3500 -7000 -10500 -14000

surged owing to increased demand of stainless steel from China

RBI Monetary Data

7.94 7.85 7.76 7.67 7.58 7.49 7.40 Dec-15



10-year bond yield (%)



22500 14500 6500 -1500 -9500 -17500

Mar-15 Jun-15 Sep-15 Dec-15 Mar-16



FII vs. MF (Rs cr)

Gain in MCX Nickel.

Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16





10 8 6 4 2 0 -2 -4 May-15














1.0 0.0 -1.0 -2.0 -3.0 -4.0 -5.0



IIP (%)

Inflation (%)



Latest (%)

5.75 6.00

Reverse Repo

21.50 21.25

4.00 4.00

Cash Reserve Ratio


All figures as on June 24, 2016

54 The Finapolis l JULY 2016

STAT DOSSIER Performance of Mutual Funds Equity Diversified


Mutual Fund Scheme


1 yr 2 yr 3 yr

Mutual Fund Scheme

DSP-BR Micro Cap Fund - Direct (G)


16.0 33.3 47.2

Axis Long Term Equity - Direct (G)


15.1 32.3 46.2

Axis Long Term Equity Fund (G)

DSP-BR Micro Cap Fund - RP (G)

1 yr 2 yr 3 yr



19.2 30.7



17.8 29.2

SBI Tax Advantage Sr-2 (G)





Reliance Small Cap - Direct (G)



Reliance Small Cap Fund (G)


11.2 20.4 43.1

Escorts Tax Plan - Direct (G)


15.1 26.4 28.8

Sundaram SMILE Fund -Direct (G)


4.8 20.6 40.4

Reliance Tax Saver(ELSS)-Dir (G)



Franklin (I) Smaller Co -Direct (G)


13.5 26.6 40.0

Escorts Tax Plan (G)


14.8 25.7 28.6

Can Robeco Emer-Equities-Direct (G)


5.6 23.0 40.0

SBI Tax Advantage Sr-1 (G)



14.1 27.9

HSBC Midcap Equity - Direct (G)



Reliance Tax Saver (ELSS) (G)



11.6 27.9

Sundaram SMILE Fund (G)


4.4 20.0 39.7

Birla SL Tax Relief 96-Direct (G)



Mirae Emerging Bluechip -Direct (G)


10.6 25.9 39.3


29.47 -4.0

13.3 27.3

SBI Midcap Fund - Direct (G)


8.5 26.9 39.1

Birla Sun Life Tax Plan-Direct (G)



18.2 26.9

HSBC Midcap Equity Fund (G)



17.6 38.9

Birla SL Tax Relief 96 (G)



17.9 26.8



21.9 38.8

ICICI Pru L Term Eq-Tax Svng-DP-G 284.22


10.7 26.4

Invesco India Tax Plan - DP (G)



17.2 26.2

Birla Sun Life Tax Plan (G)



17.1 25.8

L&T Long Term Adv. Fund - I (G)



15.5 25.5

Franklin (I) Tax Shield -Direct (G)



17.9 25.5

ICICI Pru L Term Eq (Tax Svng)-G



9.6 25.2

DSP-BRTax Saver Fund -Direct (G)




L&T Tax Saver Fund (G)



14.3 24.9

Can Robeco Emerg-Equities (G)

21.4 44.3


18.5 39.9

Franklin (I) Smaller Cos (G)


12.0 24.8 38.5

UTI Mid Cap - Direct (G)


4.6 22.0 38.1

Mirae Emerging Bluechip Fund (G)


9.6 24.7 38.0

SBI Magnum Midcap Fund (G)


7.2 25.6 37.9

UTI Mid Cap (G)



Kotak Emerging Equity - Direct (G)


9.9 26.8 36.0

Birla SL Pure Value - Direct (G)



L&T Midcap Fund -Direct (G)




11.8 35.4

4.8 20.2 35.4

12.4 28.8




Equity (Banking)

Franklin Build India - Direct (G)



23.1 35.1

Mutual Fund Scheme


1 yr 2 yr

3 yr

ICICI Pru MidCap Fund - Direct (G)



15.1 35.1

ICICI Pru Bkg&Fin Serv -Direct (G)


5.8 14.4


DSP-BR Small & Mid Cap -Direct (G)


10.4 20.0 34.6

ICICI Pru Bkg & Fin Serv-RP(G)



Kotak Emerging Equity - Regular (G)


8.2 25.2 34.6

Reliance Banking Fund - Dir (G)

Birla SL Pure Value Fund (G)



10.8 34.3

Invesco India Banking - Dir (G)

L&T Midcap Fund (G)



19.2 34.3

Reliance Banking Fund (G)

Reliance Mid & Small Cap - Direct (G)



18.4 34.2

UTI Banking Sector - Direct (G)




23.1 34.1

Invesco India Banking - RP (G)

JPMorgan (I) Mid & Small Cap-DP (G) 20.05


19.4 34.1

UTI Banking Sector (G)

Franklin (I) Prima - Direct (G)


13.3 24.0

-1.3 10.0










3.6 10.9










Source:; Note: All returns are annualized and expressed in percentage; all NAVs as on June 22, 2016

JULY 2016 l The Finapolis


STAT DOSSIER Performance of Mutual Funds Equity (FMCG)

Equity (Tech)

Mutual Fund Scheme


1 yr 2 yr 3 yr

Mutual Fund Scheme

SBI FMCG Fund - Direct (G)





ICICI Pru Technology - Direct (G)



14.5 29.9





ICICI Pru Tech. Fund (G)



13.5 29.0

9.5 16.4 14.7

Birla SL New Millennium-Dir (G)


11.8 16.9 27.8


Birla SL New Millennium (G)



SBI IT Fund - Direct (G)


4.7 14.6 26.4

SBI IT Fund (G)


3.8 13.5 25.4

DSP-BR Technology.Com -Dir (G)

57.33 10.8 14.3 24.7

DSP-BR Technology.Com -RP (G)


ICICI Pru FMCG Fund - Direct (G) SBI FMCG Fund (G) ICICI Pru FMCG Fund (G)

78.51 165.27

17.0 14.5

Equity (Pharma) Mutual Fund Scheme


1 yr 2 yr 3 yr

SBI Pharma Fund - Direct (G)


-3.1 25.3 29.5

SBI Pharma Fund (G)

131.82 -4.3 23.7

Reliance Pharma Fund - Direct (G)

133.31 -0.6 19.4 24.2

Reliance Pharma Fund (G)


-1.5 18.4 23.3

UTI Pharma & Health - Direct (G)



UTI Pharma & Health (G)

86.32 -6.5 16.5 20.4




Balanced Mutual Fund Scheme


1 yr 2 yr 3 yr


1 yr 2 yr 3 yr


16.1 26.9

13.7 24.0

Miscellaneous Mutual Fund Scheme


1 yr

2 yr



22.2 45.0



20.9 43.6

Birla SL Buy India -Direct (G)



36.5 24.8

Birla Sun Life Buy India (G)



35.7 24.0

JM Basic Fund -Direct (G)









Reliance Diver. Power -Direct (G)





Reliance Diver. Power - RP (G)





Reliance Media & Enter. -Dir (G)





UTI Transport&Logistics -Dir (G) UTI Transport & Logistics (G)

JM Basic Fund (G)

3 yr

Escorts Balanced Fund - Direct (G) 108.07


12.9 25.6

Escorts Balanced Fund (G)



12.7 25.4

ICICI Pru CCP - Gift Plan -Direct



9.3 24.9

HDFC Balanced Fund - Direct (G)



13.3 24.3

ICICI Pru CCP - Gift Plan



8.4 23.9



15.0 23.6

HDFC Balanced Fund (G)



12.3 23.3

Mutual Fund Scheme

SBI Balanced Fund - Direct (G)



16.4 22.9

Tata MIP Plus Fund - Direct (G)





Tata Balanced Fund - Direct (G)



15.0 22.8

Tata MIP Plus Fund (G)





Birla SL Bal. 95 Fund -Direct (G)



14.9 22.6

SBI Magnum MIP Floater -Direct (G) 22.97 10.6



L&T India Prudence Fund (G)



13.9 22.4

ICICI Prudential Reg Income-Dir (G)





L&T Dynamic Equity Fund -Dir (G)



11.8 22.4

SBI Magnum MIP - Direct (G)

33.85 10.0



Tata Balanced Fund - Regular (G)



14.5 22.2

Franklin (I) Low Dura. -Direct (G)

ICICI Pru Balanced Fund- Dir (G)



13.2 22.0

Franklin India Bal Fund-DP (G)




L&T India Prudence Fund -Dir (G)



1 yr 2 yr 3 yr



9.9 10.0

Kotak Mnthly Income Plan - Dir (G)





Sundaram MIP-Conservative-Dir-G





Source:; Note: All returns are annualized and expressed in percentage; all NAVs as on June 22, 2016

56 The Finapolis l JULY 2016


Scheme Performance as on June 22, 2016 Period

Fund Objective/Mission To provide the investors maximum growth opportunity through equity investments in stocks of growth oriented sectors of the economy. There are five sub-funds dedicated to specific investment themes viz. Information Technology,Pharmaceuticals, FMCG, Contrarian (investment in stocks currently out of favour) and Emerging Businesses.

Fund House Details AMC Name: Website:

SBI Funds Management Private Limited




3 Months




6 Months




1 Year




3 Years




5 Years




Since Inception




SIP Details: Invested Rs 5000 Every Month

Financial Details


AUM As On (May 31, 2016) NAV As On (June 22, 2016) Min Investment (in Rs.) Lumpsum SIP NAV (52WeekHigh){August 06, 2015} NAV (52WeekLow){February 25, 2016}

1741.46 88.27 5000 1000 92.09 74.49

Total Invest (`)

1 Year

Investment Information

Scheme (`)




3 Years




5 Years




10 Years




Fund Structure


Open ended scheme

Launch Date

July 14, 1999

Fund Manager

R. Srinivasan

Bench Mark

S&P BSE 100

Max.Entry Load(%)


Max.Exit Load(%)


Bench mark

Total Stocks


Total Sectors


P/E Ratio


P/B Ratio


Avg. Market Cap Rs. On (May-2016)

Top 10 Companies


Volatility Measures Fama




Std Dev




Top 10 Sector Wise Holding



Industry Name






Bank - Private


IT - Software


State Bank Of India


Bank - Public


Procter & Gamble Hygiene & Health Care




Coal India




Axis Bank


Mining & Minerals


Kotak Mahindra Bank


Pharmaceuticals & Drugs





Divis Laboratories


Compressors / Pumps


Elgi Equipments


Engineering - Industrial Equipments



5 Years History Financial Year






















CNX NIFTY Returns(%)










NAV in ` (as on 31st March) Net Assets (` Crores.) (as on 31st March)

Category Rank Latest As on 18 March, 16

*Absolute Returns

25/(41) Source: ACEMF

JULY 2016 l The Finapolis



Britain Bids Adieu to the EU The ramifications of the exit from the European Union By Team Finapolis


hockwaves reverberated through the global economy on June 24, when India and the world received the results of a British referendum that showed Great Britain wanted to exit the European Union. ‘Brexit’ polls had showed the Leave side to be having a slight advantage as the poll drew near, but few had imagined it would become a reality. UK Prime Minister David Cameron had called for a referendum in 2013 only to placate a few backbenchers within his party. He then dragged his heels on the vote, using it to shore up his demands for ‘renegotiation’ with the EU. By the time the vote rolled up on June 23, 2016, his gamble had backfired, and the unthinkable had become the inevitable. Cameron also become the referendum’s first casualty: having championed staying, the prime minster announced his resignation and is expected to stay on till October, when a new leader is likely decided. What now happens to the EU? Britain is the first nation to leave the political bloc that was formed in 1957; its exit has already sparked calls within other countries interested in heading for the door. Terms like Nexit (the Netherlands), Frexit (France) and Italeave (Italy) are already doing the round. But a bigger, more pressing question for the British would be what now happens to the UK? Scotland has been indicating for some time now that its future lies within the EU, and the country’s vote revealed that. Having narrowly stayed with the UK in their own independence vote last year, Scotland might have to choose a side, which is creating concern the UK could crack from within.

it may cause the US Federal Reserve to postpone a rate increase to December. Ratings agency Standard & Poor’s has hinted that the UK may lose its ‘AAA’ rating. In the eventuality that the UK will now have to renegotiate trade ties and concessions with major partners, including India, its current account deficit will also come under pressure.

Impact on India

Boris Johnson spearheaded ‘Leave’

Next is What? Cameron is expected to leave the task of triggering Article 50— which lies at the heart of Britain’s goodbye — to his successor. It requires a clause-by-clause renegotiation process and a vote from each EU member assenting to Britain’s exit. The EU’s leadership stressed the importance of kickstarting the exit process as soon as possible, so as to end uncertainty surrounding the bloc. However, the embers surrounding Brexit will take time to settle down, as exit negotiations could take years to end. British MP Lord Meghnad Desai believes the full impact of Brexit would be visible only by 2020. He believes it would be pointless to revalue the UK economy in the near term. Some market mavens believe Brex-

A report by Axis Capital reveals that as many as 16 Indian firms stand to be adversely impacted by Brexit, although the impact on their revenues would be difficult to ascertain. Of these 16, seven companies have assets in Europe, while nine export to the continent. The 16 include tech majors such as HCL Tech, Wipro and Infosys; Tata Group companies such as Tata Motors and Tata Steel; and others such as Bharat Forge. There are almost 19 Tata Group companies in the UK, and Brexit will delay the sale of Tata Steel’s UK unit. Also, India Inc. will have to make alternative arrangements for trade with Europe.

India is Safe Finance Minister Arun Jaitley told reporters in Beijing that Brexit would have no impact on the growth of India’s ‘real economy’. His views were echoed by the Banking Secretary and the Economic Affairs Secretary, who denied any medium- to longterm impact from Brexit. RBI governor Raghuram Rajan stated that the central bank was watching both domestic and global market developments, and will take steps including liquidity support to ensure orderly conditions in the financial markets. F

58 The Finapolis l JULY 2016

foreign eye


Brexit Fears are Unfounded


hen Britain first joined the European Economic Community (the precursor to the EU) in 1973, the primary motivation was the hopes of increasing British trade through participation in the world’s largest freetrade zone. However, the hope that the union would simply be a free-trading zone of sovereign countries has morphed into a drive for an EU superstate that has relentlessly pushed for greater regulations on businesses and people and greater control of local laws that have nothing to do with trade. It has been kept remarkably quiet, for instance, that the EU intends to divide the UK into eleven administrative regions, all reporting directly to Brussels. Although Scotland, Wales and Northern Ireland will remain intact as individual national regions, England will be split into eight regions. Worse still, the coastal counties of England will be teamed with regions in Portugal, France, the Netherlands and Germany, where they will remain in a minority role. Even the English Channel is to be renamed. Very little mention is of the EU proposal for EU-wide ID and tax numbers, likely heralding a heavy EU taxation regime. Likewise, the proposals to create EUwide armed forces have been put quietly on the back burner. England has a long and proud history of struggling for its sovereignty. In just the past two centuries she has stood alone against Napoleon and Hitler, before inspiring other nations to join the fray. The presence of French or German armed forces used to support a European police force in the UK will not sit well with the English. All this and many more threats to the British people have been kept largely quiet. Instead, the main activities of the Pro-EU group have been concentrated on the economic and monetary catastrophe that would face the UK if it were to

POSTCARD FROM PARIS: A French pro-Remain group handed out messages from Parisians urging Britons to stay cut itself off from trading with the EU. Some call this, ‘Project Fear’. The actual underlying facts paint a somewhat different picture, one that makes the ProEU case appear misleading, even deliberately so. The basic argument is that with about 50% of its current trade with the EU, the UK would face a catastrophic economic and monetary collapse if it left the EU. As a threat, this sounds potentially devastating. Doubtless it has persuaded some. But in the light of reality, a different and far less worrying image emerges. The UK has the fifth largest national economy in the world, according to 2015 figures compiled by the International Monetary Fund. In its present state of economic stagnation, the EU can ill-afford to lose the UK. According to the March 2016 Statistical Bulletin from the Office for National Statistics, the UK has had a negative trade balance in goods with the EU that has averaged about $8 billion a month this first quarter. If the UK were to leave without being able to

The UK would be enabled to negotiate freely to trade with the entire world and be unfettered by the EU, where it has a muted voice of one among 28 members negotiate an independent trade deal, the EU economy might shrink by some $96 billion a year. The UK was the second largest net contributor to the EU budget last year. It follows that the eight English regions (with Scotland, Wales and Northern Ireland considered as ‘relatively poor’) may in aggregate be the second largest suppliers of future intra-EU money transfers from the so-called ‘rich’ to the poorer southern and eastern regions of Europe. In that sense, the EU needs the UK more than the other way round. The Pro-EU camp ignore the trade balance issue completely and threaten, as did US President Barack Obama, that

JULY 2016 l The Finapolis


Cameron announces his resignation in front of 10, Downing Street

the UK would be left out in the cold, like Switzerland, and unable to negotiate its way out of a disaster. Switzerland is not an EU member and has an economy of less than a quarter the size of the UK’s. And yet, from 2009-2013 she exported, on average, 4.6 times the value per person to the EU than does the UK (The Truth About Trade Outside the EU, William Dartmouth MEP, June 2015). With a negative EU trade balance, why would the UK be unable to negotiate, from outside, a trade agreement at least as good as that achieved by Switzerland? [As an aside, over dinner many years ago, my occasional Lords and Commons golfing partner Dennis Thatcher asked me how the UK would survive alone in an era when world power blocks and corporations were getting bigger? I replied, “In the same way as Switzerland.” He retorted while hitting the table hard with his hand, “That’s just what Margaret thinks!”] Further, the EU negotiates international trade agreements under the auspices of the World Trade Organisation (WTO), in the primary interests of the EU, not of the UK. England has flourished by trading globally, especially with the US and the British Commonwealth. The EU has no trade agreements yet with China or Japan.

Countries like Greece, Spain and Portugal are becoming very unhappy about the implications of Eurozone membership Outside the EU, the UK would be enabled to negotiate freely to trade with the entire world and be unfettered by the EU where it has a muted voice of one among 28 members. Furthermore, free of burdensome and costly EU regulations, the British economy likely would be re-energised, particularly among the vital job-creating small business sector. In addition to economic collapse, the Pro-EU camp postulates that the British pound sterling, still one of the top five global trading currencies, would plummet following a Brexit. However, many informed observers believe the international monetary system is on the cusp of a major collapse. In these circumstances, the vital interests of the Federal Reserve, European Central Bank, Bank of Japan and even the Bank of China would be to steady the ship to avert a collapse of fiat currency. Unimaginable amounts of

John Browne is a Senior Economic Consultant to Euro Pacific Capital.

central bank money could be deployed to save the pound, rendering it a false scare. On the other hand, although the UK is not a member of the euro, a Brexit indirectly could threaten the euro, now the world’s second currency. Already a number of EU members are experiencing anti-EU sentiments among their people. The United Kingdom Independence Party (UKIP), which helped force the Brexit vote, is not alone. It is part of a sizable block, styled the Europe for Freedom and Direct Democracy (EFDD) group, in the EU parliament. It is comprised of representatives from the UK, France, Sweden, Italy, Poland, Lithuania and the Czech Republic. In addition, countries like Greece, Spain and Portugal are becoming very unhappy about the implications of Eurozone membership. Brexit will cause some short-term shock and disruption in currencies, equities, bonds, precious metals and possibly employment. However, the global central bank and political elites could be expected to move very fast to avoid the development of deeper problems. Negotiations likely would be concluded very quickly to calm things down with minimal damage to the UK economy or its currency. F

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Hotter Under the Water A look at some of the most interesting underwater hotels in the world today.


ubai already boasts a bevy of architectural wonders. It’s got the world’s tallest building—the 2,722-foot Burj Khalifa. It’s also out in front of the rest of the world when it comes to man-made islands, from the frondshaped Palm Jumeirah to The World, an archipelago currently under construction that will form a world map when viewed from above. Such architectural excesses have helped make the emirate a go-to destination for well-heeled tourists. Having conquered both the land and the sky, developers are now planning to bring Dubai’s particular brand of glitz underwater. The Water Discus Hotel is Dubai’s latest attempt to wow novelty-seeking travellers. Billed as the world’s largest underwater hotel, at this point the resort, which is being developed by Polish developer Deep Ocean Technology, is little more than a series of renditions of a structure that would not look amiss in a 1960s sci-fi television show. The plans call for 21 suites spread across two main discs—one above water and another immersed about 38 feet under the waves. Special lighting technology will allow guests in underwater suites to observe the flora and fauna outside their windows. While there’s no official opening date for the hotel as yet, it seems likely that the underwater accommodations will be popular. The Palm: Atlantis in Dubai already includes two underwater suites for which it’s able to charge as much as $17,000 for a single night.

If you’re yearning to live it up in submerged luxury, help is on the way. From the quaint to the sublime, take a plunge with the Finapolis to explore the world’s existing underwater hotels, as well as a few that are currently in the works.

Atlantis The Palm While The Palm is anchored on terra firma, the Dubai offshoot of the famed Bahamas resort includes several underwater suites. These luxurious accommodations come with a private butler on-call 24 hours a day, seven days a week, as well as an up-close view of the aquatic life in the hotel’s gigantic, man-made Ambassador Lagoon. And when you picture the suites, don’t think of a submarine’s cramped quarters. The rooms, which can sleep as many as five people, spread across three floors and feature a full living room. And while booking one of the suites can run you just over $17,000 per night, that fee also includes free massages, personal trainer services and complimentary access to the resort’s night-club. You’ll also have your own private cabana at the hotel pool or beach if you’d like to surface during the day, as well as free admission to the underwater Lost Chambers aquarium, a labyrinthine structure with views of sharks, eels, seahorses and piranhas, and the 42-acre Aquaventure water park. WOWED UNDER THE WATER: An aquarium at Atlantis The Palm hotel in Dubai, UAE, one of the best underwater hotels in the world

From The Financialist – Presented by Credit Suisse (

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COME BY CHOPPER: The Water Discus Hotel is under water, but there’s a helipad above to handle arrivals

Conrad Maldives Rangali Island – Ithaa Undersea Restaurant

The Conrad Maldives Rangali, which has 50 water villas and 79 beachside villas near Rangalifinolhu Island in the Maldives, is dipping its toes underwater with its Ithaa Undersea Restaurant. From 15 feet below the sea, patrons can indulge in the restaurant’s six-course menu. Don’t tell the creatures swimming by the windows,

but seafood is a specialty, including a yellowtail kingfish accompanied by saffron champagne risotto and beurre blanc foam.

The Water Discus Hotel The project’s developers have teamed up with Big Invest Group, a Zurich-based consultancy, to help it raise financing for the project, which according to its developers could cost between $50 million and $120 million to build, depending on the hotel’s final design. The futuristic plans include a bar, restaurant, swimming pools and spa. Don’t worry, though—the helipad is above water.

The Poseidon Undersea Resort

CORAL CALLING: At the Poseidon, stunning beauty beckons

Developer Bruce Jones envisions the Poseidon, located off a private island in Fiji, as the launchpad for a chain of five-star underwater hotels. For couples searching for a wedding venue that will really set jaws agape, the Poseidon is also planning to include an undersea chapel complete with views of a coral reef. Complementing the hotel’s 25 underwater suites will be 51 suites for landlubbers, tennis courts and a nine-hole golf course, all located on the resort’s private island. The idea of a chain of luxury underwater

resorts is certainly novel, but Jones first floated this bold vision more than a decade ago and construction has yet to start on a single resort. Building costs, which Swiss firm Strategic Hotel Consulting recently estimated at roughly $11.4 million per underwater suite, could prove prohibitive.

Hotel Otter Inn The Otter Inn, created by Swedish artist Mikael Genberg, actually houses paying guests, an achievement worth noting given the track record other developers are having building underwater accommodations in natural habitats. (Don’t forget, the two suites that actually exist at the Palm in Dubai are submerged in a man-made lagoon.) However, unlike its would-be underwater competitors, the inn is not a five-star masterpiece, but rather a single, soberly decorated room— available for $168 per night—that’s submerged in nine feet of water in the middle of Sweden’s Lake Mälaren. Guests access the hotel by taking a boat from the city of Västerås, which is about 62 miles west of Stockholm. They also receive an inflatable boat with their booking that they can use to visit islands along the lake. F

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Men, Maps & Mountains John Keay’s book recounts the dramatic tale of how the country was mapped and Mount Everest got its name. Mandar M Bakre reads through its 175 pages


here are two things in this book that strike you. Mount Everest was named after a man who had not even seen the peak, let alone climbed it. And the mountain is being mispronounced: In 1865, when the Royal Geographical Society named the world’s tallest peak after George Everest, the surname was not pronounced ‘Ever-rest’ (like cleverest) but ‘Eve-rest’ (like cleave-rest). Author John Keay notes that “Everest saw the Himalayas only towards the end of his career, and he does not seem to have been particularly curious about their height.” In the book, the former Surveyor General of India comes across as a competitive individual, but one prone to pettiness. The Colonel’s vicious drive brooked no resistance: When troops lent to him by Nizam Sikandar Jah of Hyderabad refused to go further, he ordered his own escort of 12 men to raise muskets and take aim. The mutineers, 40 in number, duly surrendered. Among Keay’s wry observations is that during 30 years in India, Everest himself never actually encountered a tiger, which supposedly so impressed his staff that they credited him with superhuman powers. “Either that, or tigers knew from whom to keep their distance”. Keay begins his book with The Great Arc, the brain child of Charles Lambton. In simple-speak, it was an attempt to map India. Except that Lambton had greater talent and bigger dreams, so that the whole actual undertaking was not just about measuring the subcontinent, but incredibly, to measure and compute the precise curvature of Earth.

Keay explains Lambton’s process, What was the possible difference? A which involved the use of a theodo1 degree change in temperature would lite, an instrument that relies on trimean a 0.00742 inch expansion in the 100angulation and trigonometric calcufoot chain. Lambton wouldn’t stand for it. lations to measure distances. This Reading the book offers historical gems. half-tonne contraption still stands; Lambton’s knowledge of the stars helped it is housed at the Survey of India the British during the Anglo-Mysore war in Dehra Dun. in 1799, when he discovered during a The scale of the undertaking and night march that the general was leading Lambton’s insistence for precision can his troops towards the enemy, not away, be gauged by one fact: To measure the as intended. seven-and-a-half mile baseArthur Wellesley, later Duke line of the Arc in ‘Madras’ of Wellington, recalled his suctook 57 days. cess at Assaye in the second The dedication shown by the Anglo-Maratha war as a finer men running the show is rivmilitary victory than Waterloo. eting. Lambton had a backup There are times when the chain against which measurebook plods, when the narrative ments were verified, to check of grand adventure gives way whether the original chain had to boring trigonometric explaexpanded due to heat or wear nations. But although dense, The Great Arc and tear. these are not long. Author: John Keay To ensure accuracy, the Altogether, this is a suPrice: Rs. 299 backup chain was kept in a perb chronicle of the pioneerbox with thermometers. But ing enterprise that gave one Lambton fretted perpetually about man the honour of having his name whether the thermometers themselves “placed a little nearer the stars than were accurate. that of any other”. F

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advisor Every month an expert on personal finance will answer all your queries related to the world of investments, taxation and financial management. The personal finance advisor will diagnose the health of your portfolio and offer better advice. In current edition, your questions have been answered by Col. Sanjeev Govila (retd), CEO, Hum Fauji Initiatives. He is Certified Financial Planner and SEBI Registered Investment Advisor. Write in to I was not able to file my income tax returns for last two-three years because of pressing personal problems. Now I can file my tax return and want to know, can I file all four years returns in one go? – Sohoni Joshi, Jaipur In the normal course, you are required to file your income tax return (ITR) by 31st July of the end of financial year. Eg, ITR for the financial year ending 31 Mar 2016 (FY 2015-16) is to be filed by 31 Jul 2016. However, a belated return can still be filed within the next two financial years. Hence, you can currently file your ITR for FY 2014-15 and 2015-16 online or otherwise comfortably.IT Dept may put some interest and penalties on you, if due. For the years previous to these two financial years, an application to condone the delay has to be made to your Assessing Officer in writing giving reasons why the ITR was not filed. The IT Dept will give their permission to file the ITR in writing which then has to be enclosed while filing the ITR of those previous years. Such filing can only be

done manually with IT authorities. Disadvantages of not filing your return in time are: hh If you do not file your return in time, you will have to pay interest on your tax dues when you file at a later date. hh If you have incurred losses, you cannot carry forward the same to subsequent years, if you do not file your return. hh You could become liable for a penalty or prosecution by the income tax department if you conceal or fail to disclose your income. Is there a way one can adjust SIP so that payment is always made on the day market point was at lowest in a month? – Rajesh Peri, Kakinada This is utopia and who would not like to be able to do that! But alas, no such ‘facility’ exists in stock markets. Coming back to your question, there seem to be two aspects to your question – whether an SIP can be made to go in on a retrospective basis on a date when market was at the lowest; alternately, can we predict when the market is going to have its lowest point in the coming month? You cannot invest in markets at a rate of a previous day. Whenever you make a purchase, SIP or otherwise, that day’s NAV (Net Asset Value) gets allocated to your money and all similar moneys that came that day from other people. This process is repeated every day. To be able to buy today of a previous day and rate, implies being able to buy something which actually was not bought on that date. Obviously, this is not possible. Any amount of research in any market has established no specific pattern when the markets are the lowest on a particular day of a

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week or month. Thus it is extremely difficult to predict the best day for your SIP to go in. Since SIP is by design an automated regular purchase, it is not possible to choose a best day for your SIP on a long-term basis. Even otherwise, it has been time-and-again established that, in the long term, there is almost negligible difference between SIPs going on different dates of a month. I want to invest in National Pension Scheme. Please tell, when I can start withdrawal from NPS? – Aruna Iyer, Hyderabad There are four types of NPS schemes available – equity, corporate, Govt securities and auto allocation as per age – which should meet requirements of most of the people. The only negative points that I can think of is that you cannot go for more than 50% equity, withdrawal rules are tough (which is good in a manner), you have to take compulsory annuity (pension) with at least 40% of your corpus on reaching 60 years of age (relaxable by few years) and that the withdrawn corpus and the annuity are taxable. As far as the last point is concerned, it is expected that the Govt will relax the tax rules in due course of time. Under the new rules, a subscriber who

has contributed for at least 10 years will be allowed to withdraw up to 25 per cent of the contribution for specific purposes, including children’s higher education or marriage, construction or purchase of first house and medical treatment of self, spouse, children or dependent parents. The medical treatment is only for 13 critical illnesses and life threatening injuries

cured loans, responsible credit usage and most of all, ensuring a good final settlement of loans. You may read the article Six Ways to Improve Your Credit ScoreBefore Submitting Your Loan Application which appeared in this magazine’s Feb 2016 edition, written by one of my team members.

sustained in an accident. An investor can withdraw three times during his tenure in the scheme but there should be a gap of at least five years between each withdrawal. However, this gap will not apply in case the withdrawal is for a medical treatment.

The SEBI (Securities and Exchange Board of India) has restricted a mutual fund from giving guaranteed returns in a scheme unless such returns are fully guaranteed by the sponsor or the AMC (Asset Management Company) or a statement indicating the name of the person who will guarantee the return is made in the offer document or the manner in which the guarantee to be met has been stated in the offer document. Thus effectively and practically, no mutual fund scheme guarantees any return and all schemes – debt, equity and hybrid mutual funds – are covered under these guidelines without any exception. Hence, your broker is not correct when he represents to you that a mutual fund scheme is offering guaranteed returns. F

Please tell me, I want to improve my CIBIL score desperately. How can one do it fast? – Jatin Patel, Surat Your credit score, or the CIBIL score, is built up over a period of time and has components of the past history of the loans taken and therepayment pattern in relation to them. It can only be built up over a period of time by actions like repaying EMIs on time, getting out of unse-

Recently, my broker introduced me to some mutual fund schemes that are offering guaranteed return. He says they are normal schemes and not frauds, but I said no to him anyway. Does any such scheme really exist? How it is possible to guarantee return in a market? – Harish Rajaram, Kolkata

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LEARNING CURVE We all come across issues and ideas related to the world of finance that sound Greek and Latin. Worry not. We are here to guide you through the maze

Repo and Reverse Repo Rates


e all come across issues and ideas related to the world of finance that sound Greek and Latin. Worry not. We are here to guide you through the maze. As Raghuram Rajan, RBI chief and among the world’s most renowned central bankers in recent times, bids adieu, we decode two terms for you from the apex bank’s lexicon itself.

What is the repo rate? The repurchase (or repo rate) is the rate at which banks can borrow money from the Reserve Bank of India (RBI) for short periods by parking government bonds, to meet any shortfall in funds. In other words, an increase in the repo rate will lead to liquidity tightening and vice-versa, other things remaining constant. A global parallel can be the US Federal Reserve’s fed funds rate. The repo rate is also used as a tool to control inflation, as was most visible in recent years, when successive rate hikes helped reduce retail inflation from double-digit levels to 5-6% levels currently. The repo rate is therefore the benchmark interest rate that is used to adjust liquidity levels in the market, in line with inflation. The repo rate along with the re-

How does it affect you? The repo rate sets the tone for all commercial banks to lower or raise individual lending rates as the case may be. The overnight repo rate is considered the key policy rate that determines the trends in all other short-term interest rates, there-

The repo rate is the benchmark interest rate that is used to adjust liquidity levels in the market, in line with inflation. The repo rate along with the reverse repo rate, bank rate and the marginal standing facility (MSF) rate forms a part of the RBI’s liquidity adjustment facility quartet

Repo rate

Reverse Repo

Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Nov-15 Apr-16

8.75 7.25 5.75 4.25 2.75

verse repo rate, bank rate and the marginal standing facility (MSF) rate forms a part of the RBI’s liquidity adjustment facility quartet.

by influencing demand and inflation. Higher interest (repo) rates imply that the central bank has driven up funding costs, which in turn affects consumerism and GDP growth at times. This probably explains the government’s constant clamour to lower rates, citing harm to economic progress. However, the RBI must make a balanced call to prevent any sudden spike in inflation well.

How frequently has it changed? Traditionally, decisions on altering key policy rates were made at the RBI’s quarterly review meetings. However, in order to align itself with global trends, the central bank started reviewing policies once every two months since April 2014. The quarterly review itself was an improvement made by former governor Bimal Jalan in 1997. The central bank can also choose to review rates out of turn given a sudden surge in inflation.

What is the reverse repo rate? A now lesser known metric, prior to FY12, the reverse repo rate was also a key policy rate, when the RBI effectively jettisoned it. Essentially, the reverse repo was the rate at which banks could park their excess funds with the RBI for short periods and earn interest on the same. However, to increase the effectiveness of its monetary policy moves to the market, the central bank decided to keep the repo rate as the only independently varying rate. Consequently, the reverse repo rate was pegged at a fixed 100 basis points below the repo rate. In April this year, when the RBI decreased the repo rate by 25 bps, it increased the reverse repo rate by 25 bps, bringing down the difference between the two to 50 basis points. F

Published on 1st July 2016 Total No. of pages 68, including cover pages

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RNI No: APENG/2007/20461 Regd. No.: L II/RNP/H-HD-1087/2014-16

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