ETWealth December 13, 2010

THE ECONOMIC TIMES

wealth

CHECK YOUR WORTH… ..and start the journey to retiring rich PAGE 24

www.wealth.economictimes.com | Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, New Delhi, Pune | December 13, 2010 | `5 (Free sample), 48 pages

Sensex 19,508.89

US (Dow Jones) 11,410.32

Gold `20,430 per 10 g

Silver `44,000 per kg

Currency `45.06 per $

● Weekly -2.29% ● Yearly +13.49%

● Weekly +0.25% ● Yearly +9.6%

● Weekly -0.10% ● Yearly +19.65%

● Weekly +0.46% ● Yearly +59.42%

Scams continued to cast a shadow on the market

Top US stocks battered after the Lehman collapse have recovered

Chances of further devaluation of currencies continue to push up gold

Silver prices are at an all-time high due to a sustained increase in demand

● Weekly -0.11% ● Yearly -3.42% Euro shakeup halted dollar’s slide, but the greenback is weak again

INSIDE INVESTING Best stocks in worst sectors PAGE 10

How long will gold shine PAGE 18

When to buy a second home PAGE 16

When low risk is high return PAGE 13

Welcome to

Golden Period of Investing MAKE THE MOST OF IT The coming 20 years will create more wealth than ever.

ET Wealth tells you how to profit from India’s richest years Turn the page to know how

ry hes ste atc g y c M er llin p e op is-s E 30 h s m AG P

Make the most of multiple health plans PAGE 22 Fund manager’s wisdom PAGE 12

Pick a fund portfolio PAGE 14 Financial planning PAGE 28 Last week, This week PAGE 6

EARNING & SPENDING Maximise your take-home salary PAGE 42 Limits of unlimited Internet plans PAGE 44 Lucrative hobby PAGE 45 Rich & Retired PAGE 46 Success in starting up PAGE 41

INTERACTIVE Q&A PAGE 31 Test your MQ PAGE 47 Be a Financial Wizard and win `5,000 PAGE 47 The Economic Times Wealth is India’s only personal finance paper exclusively devoted to multiplying your wealth week after week—for years to come.

Issues dated Dec 13 and 20 are for free sampling.

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02

Wealth Creation

The Economic Times Wealth, December 13, 2010

India’s Richest Years HOW TO MAKE THEM YOURS TOO The coming 10 to 20 years will create more wealth than ever.

ET Wealth tells you how to grab your share of it.

A

tide of wealth is coming. Make sure that the boat you are in rises with the tide— and rises the most. The signposts are all around you. In the next 10 years, India’s national income, or GDP, will rise to a level that is two times the level it grew in 60 years (see Low Hanging Fruits). Average individual income (the calculation includes India’s poorest) will now double every nine years, against nearly 20 years it took to double till 2001. Research reports abound on the future rise and size of Indian economy.

But the precise level of the coming wealth boom matters less than its implication—what it means for your prosperity. It means a lot. From decisions like how soon and how well you can retire to what kind of education your child can afford, everything depends on how much you can benefit from this golden period of investing. And that in turn depends on how well you understand the future and what you do about it.

In just 10 years from now, stock markets will be four to five times the current value. Property will give up to 10% annual returns. Gold could shoot up to $10,000 an ounce or `1.4 lakh per 10 g — a wild estimate that is seven times the current price. Even the dull-butreliable fixed deposit will come in more exciting variants. Economists may call this asset price inflation, but for retail investors it will be a wealth creation of unprecedented diversity and depth. Sure, the rate of growth in the price of some assets will be slower in the future than it has been in the past. But in absolute terms, on an average, wealth generation across most assets will be higher in the future.

Of course, the ride to riches won’t be smooth—it has never been, even for the richest people and nations.

There will be periods of dramatic swings and falls in fortunes. But if you act now and act right, you can create a life-time of wealth in 20 years or even 10 years. How? This is where ET Wealth begins its journey. In our first cover story, we provide a set of broad strategies for wealth maximisation in each asset class. These plans will and must adapt to the emerging investment landscape. So we have decided to stick around. At least for the next 10 years. Till you have successfully navigated the tide, and are cruising on a nice big boat.

Low Hanging Fruits All asset classes are expected to grow fast in the next two decades Expected growth from the current level

GDP Stocks Property Gold Debt

By 2020

By 2030

3.1 times 4 times 2.6 times 2.6 times 2 times

9.6 times 16 times 7 times 7 times 5 times

Assuming per annum growth of 15% in equities, 10% in property, 10% in gold and 8% in debt. Assumptions are based on the average of several forecasts.

RAJ

Cover Story

The Economic Times Wealth, December 13, 2010

STOCKS: Certain growth, uncertain peak

M

ore so than in the past, stocks will continue to be the shortest route to the largest wealth creation for the long term. But only if you follow the right rules and discipline. Fortunately, this will be easier to do, given the improving access to market-related research and information.

Says Bharat Shah, director, ASK Investment Holdings: “The current situation offers a lifetime opportunity to make long-term wealth. The Sensex is expected to grow from the current level of 19,000 to a six-digit figure by the end of this decade.” He adds that historically, corporate earnings have grown at around three times the GDP growth. This means, companies can clock 25- 27% annual growth in income over the next 10 years.

The reasons for this confidence are easy to identify.

India’s domestic demand will continue to rise, driven by 91 million urban middle-class households and 72% of the population under 40 years of age. Overseas markets will also open up for Indian companies which are becoming more efficient and technologically advanced.

Foreign institutional investors are also not turning away from India. In the short term, the European and US market blues will keep them here. In the long run, India’s sustained high growth, unmatched by any country, including China and Brazil, should make them hungry for more.

But be sure of one thing: Returns from stocks do not come without palpitations. Shankar Sharma, chief global trading strategist, First Global, says: “Equity returns come in short bursts. In those short bursts, you can earn 40-50% compounded annual returns for two to three years. But this may not happen right away. We have just finished a good period between 2003 and 2007. The market may rest before the next big sprint. In the long term, 15-20% annual returns is possible.”

Stocks for fun ■

India’s share in the global equity market Value of global equity market: India’s share: Value of India’s equity market:

2009

■ ■

2030

■

$322.1 trillion

$45 trillion 3%

9%

$1.36 trillion

$28.99 trillion

Buy 10 shares of a blue chip at say, `50 per stock, every month.

■ Keep buying for 5 years ■ Stock rises at 12% a year ■ After 5 years, you have 600 shares worth `53,961 ■ Hold these for 15 years and you have `2.95 lakh ■

India 9% India 3%

China 25%

China 7% RoW 18% US 31% Rest of Asia 13%

Japan 8% EU 23%

RoW 26%

GLOBAL EQUITY MARKET IN 2009 $45 TRILLION

Buy 100 stocks of an IPO at say, `50 per share.

Hold them for 5 years Stock rises by 15% a year After 5 years, your shares are worth `10,057

Stocks for wealth

US 14%

Rest of Asia 10%

EU 11% Japan 2%

GLOBAL EQUITY MARKET IN 2030 $322 TRILLION

The lesson Wealth creation through stocks happens only when you invest a larger chunk and for a longer period.

Source: Standard Chartered, The Super Cycle Report

YOUR STRATEGY ■ ■

■ ■

03

Do not ignore blue chips only because they are expensive.

Invest in them like an SIP: a fixed amount every month. After two to three years, you will hold a significant number of stocks.

Look out for IPOs of PSUs like Air-India, BSNL and Punjab & Sind Bank.

Infrastructure, automobile, capital goods and financial services are good bets for long-term growth (see pg 21 and pg 32).

The broader market is expected to grow by about 15-17% a year. But active stock pickers can earn 30-35% returns a year in the same period” RAAMDEO AGRAWAL MANAGING DIRECTOR, MOTILAL OSWAL SECURITIES

04

Wealth Creation

The Economic Times Wealth, December 13, 2010

To achieve this rate of growth, invest more in equities and for a longer period. “Investors should be willing to hold equities for the next 20 years. They should also invest a sizable portion of their wealth in it—50-70% as opposed to 10-20% that they allocate now,” says Shah.

Experts suggest that you choose sectors that are going to benefit from the long-term India growth story. Some of these are engineering, capital goods, infrastructure, banking and financial services, consumer durables, automobiles and retail sectors.

This is a very broad recommendation. In the following weeks, ET Wealth will offer specific advice and analysis of stocks. We will also review the recommendations and change these according to market movements. For starters, read about five potential winners, according to Dipen Sheth, vice-president, institutional equities, Edelweiss Securities, on page 21.

Mutual Funds: Besting the risk-reward ratio

I

n the past 10 years, mutual funds have been the single-biggest vehicle of transporting retail investors’ savings into stocks and debt instruments. They will continue to be so in the future too. After all, funds represent all the goodness of stock market, but at lesser risk.

A good equity fund rises faster than the market and falls slower. Even the task of identifying the winner is easier because unlike a stock, a leading fund scheme doesn’t turn into a laggard overnight.

Rajiv Deep Bajaj, vice-chairman and managing director of Bajaj Capital, believes that over the next few years, equity funds can grow by 18-20% annually. The best part is that you don’t have to work very hard to earn these returns. “Generating 15-17% annual returns is much easier than what it is made out to be. Some index funds with low-tracking errors can do this,” says Raamdeo Agrawal, managing director, Motilal Oswal Securities.

However, for wealth maximisation, don’t restrict yourself to one fund type. “Investors must choose a mix of large-cap funds, flexi-cap funds, mid- cap, small-cap and value-style funds. Small-cap funds can generate better risk-adjusted returns whereas large-cap funds add stability in the short to medium terms. In terms of profitability, value funds score over growth funds in the long term,” says Bajaj.

Mutual funds are slower shifting sands than stocks, giving you ample opportunities to select, monitor and tweak your fund portfolio to earn higher returns. Online analytical tools have made the work easier. Just a few clicks away are critical information like the style of the funds, their portfolio, past returns in different time frames and information on the fund managers.

You have always known this; it’s time you act on the information. Track the progress of your funds regularly, about once every quarter.

Mutual funds are also handy to ride out market volatility. The way to go is staggered investments using systematic investment plans (SIPs). You can even withdraw money systematically (through systematic withdrawal plans) and transfer investments to another product (through systematic transfer plans) over an extended period. This ensures you minimise the chances of missing out on any market surge and reduce vulnerability to a sudden drop.

Property: Fewer charges Equity returns come in short bursts. They are not spread normally over several years. In these short bursts, you can earn 40-50% compounded annual returns for 2-3 years. But this may not happen right away."

SHANKAR SHARMA CHIEF GLOBAL TRADING STRATEGIST, FIRST GLOBAL

The Growth Machine Even if funds were to grow at the rate of the past five years (shown below), you will make a lot of wealth.

15.5% 10.6% 6.6%

Equity

Debt

6.2%

Hybrid schemes

Liquid

Figures are annual returns as on December 10, 2010 Source: Value Research

YOUR STRATEGY Review the progress of your investment portfolio every 3-6 months.

■ Rebalance the portfolio to align it with your asset allocation once in 12 months.

■ Do not hold sectoral funds for the long term.

Sector cycles are shorter and you must understand their tenure before investing.

■ Choose index funds for hands-off investment and balanced funds to diversify across asset classes ■ Use SIPs, to invest and STPs and SWPs to withdraw money from funds. This will help you optimise on market volatility.

■ Dhirendra Kumar, CEO of Value Research, recommends five equity diversified funds: Birla Sunlife Frontline Equity, Fidelity Equity, HDFC Top 200, Principal Large Cap and UTI Dividend Yield.

■ Rajiv Deep Bajaj recommends: HDFC Top 200, Franklin India Bluechip Fund, Reliance Vision Fund, Franklin India Prima and Reliance Growth.

T

here is no doubt that property prices will continue to soar by up to 10% every year across metros, tier I and tier II cities. But will you believe us if we say investing in a house will become easier and free of several existing charges in the next decade?

Says Anshuman Magazine, chairman and managing director, CB Richard Ellis, “Several reforms are in the pipeline. If they happen, property prices, after inflation adjustment, may actually be lower in 2020, if one excludes the cost of land. This is because several unnecessary expenses will go away.”

First in the firing line is stamp duty. As high as 10% in states like Kerala, the central government is pushing states to cap it at 5% across the country. The buzz is that the pre-payment penalty on home loans may also go, or at least come down from 2.5% to 0.5% of the amount.

A real estate regulator has also been waiting in the wings for some time. Experts expect that it will be instituted in the next three-four years. Not only will it haul up shady developers but also break cartels that push up property prices.Even fly-by-night real estate agents will be forced out of business when a qualification test becomes mandatory for them. You will have to sign an exclusivity contract with the agents who will When buying in turn be bound by the rules laid down by the second home makes sense regulator. page 16 Your own home can also become integral to financial planning. Once banks start offering home equity loans (in which the borrower uses the rise in the value of the property as collateral), it may become the easiest and one of the cheapest ways to fund short-term requirements. As reverse mortgage becomes more acceptable, many senior citizens will also use their homes for retirement planning.

But most exciting is the possibility that you will own a swanky office in a skyscraper. At least on paper, real estate investment trusts (REITs) will allow you to invest in high-end commercial and residential projects. This means that you get to earn from property without actually having to buy the whole of it.

Does this mean you should wait to buy a house? Not if you are going to live in it. Then the house is less an investment and more a need. But if you want to invest in property, take a call depending on the availability of resources.

One Chicago a year

YOUR STRATEGY

250 million people will migrate to cities in 20 years. This demand will ensure that property prices continue to soar

■

+250

590 mn

■

Allocate more money to balanced funds than investors usually do now. If you invest `100, `70 can be in diversified equity funds and `30 can be in balanced funds” MADHU KELA CHIEF INVESTMENT STRATEGIST, RELIANCE CAPITAL

340 mn

2008

2030

Figures are of urban population

700-900 million sq m of residential and commercial space needs to be built every year, which is one Chicago a year

Study master plans of cities to spot areas where major infrastructure has been planned.

■ Follow companies as they set up new hubs because rental and capital value will appreciate most where employment opportunities are high.

■ Don’t ignore suburbs as city congestion will force development into these areas first.

■ Scout for investing in global properties to optimise the $1 lakh a year overseas investment limit.

■ Reinvest in your house as it adds value to the property, giving it a price edge in the neighbourhood.

Source: McKinsey report, India’s Urban Awakening

If the reforms come through, property prices after inflation adjustment may actually be lower in 2020, if one excludes cost of land, because unnecessary expenses will go away” ANSHUMAN MAGAZINE CHAIRMAN AND MANAGING DIRECTOR, CB RICHARD ELLIS

Cover Story

The Economic Times Wealth, December 13, 2010

So, get set...

T

The current situation offers a lifetime opportunity to make long-term wealth. Sensex is expected to grow from the current level of 19,000 to reach a six-digit figure by the end of this decade” BHARAT SHAH DIRECTOR, ASK INVESTMENT HOLDINGS

Fixed income: Wider roles to play

C

an debt instruments do more than act as a safety net? You never thought so. But in the years to come, you will build wealth, add liquidity and diversify investments through these investments. And as with equities, the market is ready with new products and opportunities to multi task.

According to Swapnil Pawar, chief investment officer, private wealth, Karvy, the most important of them all are corporate bonds. Rapidly expanding companies that need more money will increase the frequency of these instruments which grow by 10-11% during their tenure. “The returns are not guaranteed but the is the projected default rate of companies has been almost zero. So it is a good mix nominal deposit of safe and high returns,” explains Pawar. rate by 2014 Today, the secondary market of bonds is limited to institutional (Economist Intelligence Unit) investors like debt funds. In the next few years, experts believe that retail investors will also be allowed to trade bonds. This will add the liquidity quotient to your debt cushion.

Banks will also innovate for meeting your multiple needs. Remember the exclusive portfolio management services (PMS) that you have always envied? An important component of them, blended products, might come out of its fold to be available to ordinary customers. These products blend equity, debt and gold to conserve capital and provide exposure to bull runs simultaneously.

Many investors consider traditional insurance plans like moneyback and endowment policies as part of the debt portfolio.These are expensive plans and offer lower returns than other fixedincome instruments. Therefore, it is better to convert `70,000 per 10 these plans into paid-up policies if their maturity date is grams could be the more than 8-10 years away. price of gold in 2020.

Finally, do not discontinue long-term debt investments For more, read How like Public Provident Fund (PPF) and Employee Long will Gold Shine, page 18 Provident Fund (EPF). These investments give reasonable returns—8% and 8.5% respectively—and the maturity value is tax-free on withdrawal. These instruments are critical addons to your retirement planning and can contribute to the nest you build with equity investments.

8.2%

The debt family now

YOUR STRATEGY Invest only in AAA and AA rated corporate bonds.

■ Build a ladder of 5-6 year fixed deposits and keep reinvesting the cumulative value.

■ Create a customised blended product: invest the returns from a fixed-income instrument in equities or gold to accelerate portfolio growth.

■

FDs, traditional insurance plans, PPF

Debt funds

MIPs

A limited number of fixed-income instruments are popular with FDs and PPF topping the list

Try to exhaust the `70,000 annual investment limit in PPF as the returns are reasonable8%, and tax free.

■ Keep transferring your EPF account as you hop jobs to build a sizeable nest egg by the time you retire.

■ Invest in fixed maturity plans if the investment tenure is 1-2 years because they are more tax efficient than FDs. ■

The debt family in 2020 Debt funds

MIPs, Interest rate futures, Corporate Blended bonds products

FDs, PPF

Fixed deposits are likely to lose the top spot as you seek to earn more from your debt cushion

Mother of all Compounding >> Value of `I lakh invested every year for 10 years (at 10% annual returns): `17.53 lakh —Normal compounding >> If investment of `I lakh increases by 10% every year as well, the value is: `25.94 lakh —Super compounding

here are two main lessons from this broad sweep of the future. One is that you will have to change the way you invest. Earlier, you chased high returns.

In the next 20 years, high returns will wash up your shore. Nilesh Shah, deputy managing director, ICICI Prudential AMC, sums up the situation: “The Sensex was at 1,500 in 1990. Today it is at 20,000. That’s a return of 13 times. In the next 20 years, the opportunities to create wealth will be tremendous.”

To make the most of it, you must invest a larger chunk of your money in high-growth products for a longer period of time. This is likely to rejig your asset allocation: New products will enter your portfolio and the proportion of investment in old ones will also change (see Portfolio 2020).

The second lesson is that the golden rules of investing will remain the same. As always, you must choose each financial product only after rigorous research. In the rising tide, all products will seem potential winners. But some of them will lose value. So you cannot compromise on the selection process. Nor can you ignore your goals. High-growth products must yield returns when you need the money. Only then will the cruising big boat reach its destination. And as we said earlier, ET Wealth will be around to help all through your journey.

05

THE NEW mix The bunch of products in your kitty will grow in number and value. Their relative proportion will also change according to your profile

Portfolio 2010 Fixed deposits

Real Estate

Traditional insurance plans Debt funds

Equity mutual funds

Stocks Gold Cash

Portfolio 2020

Stocks

REITs Corporate bonds

Equity mutual funds

Blended products

Debt funds Real Estate

FDs

Gold

Real estate must be included only if you own property other than the house you live in

By Narendra Nathan, Rakesh Rai, Kamya Jaiswal, Faye D’Souza and Vivek Kaul

06

Last Week

The Economic Times Wealth, December 13, 2010

wealthmonitor Gold 19.65

Sensex

Bond yield

Equity funds

8.13 -2.29

Debt funds

Balanced funds

14.07

8.13

-0.10

1-week change

1-year change

12.64

7.83

week’s top three STOCKS

Price (`)

Weekly % change

Ahluwalia Contracts Hexaware Tech ACC

156.5 97.2 1075.2

12.91 10.45 9.72

4.33 -3.08

0.04

Weekly % change

WORLD INDICES

-2.01

S&P 500 FTSE 100 Nikkei 225

The 10-year government bond yield is the average yield in the respective periods. All figures are in percentages.

0.68 1.09 1.06

1,233 5,807.96 10,285.88

DEBT FUNDS

NAV (`)

Weekly % change

DWS Premier Bond Reg Birla Sun Life Income Plus Sundaram Flexible Income Reg

16.28 42.71 14.19

0.56 0.29 0.28

EQUITY FUNDS

NAV (`)

Weekly % change

ICICIPru Indo Asia Equity AIG India Equity Reg FT India Life stage FoF 20s

11 12.55 37.51

0.81 1.20 1.85

* Figures as of December 10

Source: Bloomberg

bulletin board

topnews

wealthwise

A pick of corporate filing by companies to stock exchanges Colgate-Palmolive declared a second interim dividend of `5 per equity share of `1 (face value) for the financial year ending March 31, 2011.

No tax on EPF windfall EPF just got sweeter. The additional 1 percentage point interest to be paid on the Employee Provident Fund in 2010-11 will be exempt from income tax. In September, the central board of trustees of EPF had decided to raise EPF interest rate by 1 percentage point to 9.5%. The decision will benefit about 4.71 crore employees in both the public and private sectors.

BANKING

Banks hike deposit rates Banks have increased their deposit rates by 0.5-1.5 percentage points, an indication that lending rates are set to rise by this month-end. State Bank of India will offer 8.5% for 555-day and 1,000-day deposits. Several other private and PSU banks have also raised their deposit rates. The move followed RBI governor D Subbarao’s suggestion on December 3 that banks should raise deposit rates and bring lending rates down.

STOCKS

Bank scrips tumble after hike Banking stocks were mauled after deposit rates were increased. Despite the comeback on Friday, the Bank Nifty is still down by 7.3% since December 3. The fall assumes significance as almost 24% of the total equity investments by mutual funds are in the banking sector. While banking funds registered a 11.45% decline between December 2 and 9, diversified equity funds and hybrid funds too had a rough time. Some of the biggest diversified funds have an inordinately large exposure to banking. HDFC Top 200 (AUM `9,069 crore) has 25.5%, Reliance Growth (AUM `8,100 crore) has 18.4% and HDFC Equity (AUM `7,872 crore) has 24.2% invested in banks. This concentrated exposure to a sector poised for growth can be rewarding as well as risky.

FIIs unwinding before holidays?

Have foreign institutional investors (FIIs) started unwinding their positions before the holiday season? FIIs sold off equities worth `4,076.5 crore last week alone. Net FII investment in equities for December are in the negative. Meanwhile, investments by mutual funds have picked up.

After six months of net withdrawals (over `13,000 crore withdrawn in September and October alone), mutual funds have invested `847.65 crore in equities in December. The volatility in the markets will decide whether this trend continues.

MUTUAL FUNDS

Piramal Healthcare would buy back 4.18 crore fully paid-up equity shares of face value `2 each through a tender offer for `600 per share.

Steel Strips Wheels allotted 8.5 lakh equity shares of `10 each fully paid up, at a price of `520 per share to Sumitomo Metal Industries Ltd on a preferential allotment basis. The 8.5 lakh shares constitute 5.88% of the total enhanced paid up capital of the company.

Opto Circuits (India) acquired 76% of outstanding common stock of Cardiac Science Corporation US. The company plans to exercise its top-up option under the terms of the merger agreement.

Himatsingka Seide decided to raise up to `150 crores by issuing equity shares.

DHFL acquired Deutsche Postbank Home Finance for `1079 crore.

insider track A list of promoters who bought or sold shares in companies they own BUY

SELL

Amtek India bought 97.87 lakh shares at an average price of `61.24.

ABG Shipyard sold 15.09 lakh shares at an average price of `430.33.

GMR Infrastructure bought 33 lakh shares at an average price of `49.17.

Orbit Corporation bought 10 lakh shares at an average price of `91.73.

Orbit Corporation Gitanjali Gems Ltd bought 1.91 lakh shares at an average price of `243.5.

EduComp Solutions sold about 35, 000 shares at an average price of `571.52.

Greenply Industries sold 1 lakh shares at an average price of `196.06.

I.G. Petrochemicals sold 4 lakh shares at an average price of `39.

“They say a fool and his money are soon parted. Here’s a list of some fools. Make it happen.”

quote of the week

Now ICICI Direct offers NPS online After FundsIndia.com, ICICIdirect.com, the online broking site of ICICI Securities Ltd, will offer New Pension System (NPS) online. Currently, you can invest in the basic tier-I account through ICICIdirect.com. The tier-I account works strictly like a pension product. You can start investing from the age of 18 years and your money gets locked in till you are 60 years. As ICICI Securities is a designated point of presence, it charges an upfront fee of `40 and `20 subsequently for every transaction.

“The market moved higher today on rumours that the market would move higher today”

WWW.CARTOONSTOCK.COM

PROVIDENT FUND

JAMES TURK FOUNDER OF GOLD MONEY AND CO-AUTHOR OF THE COLLAPSE OF THE DOLLAR AND HOW TO PROFIT FROM IT

All national currencies are in a race to the bottom, a race to destroy their purchasing power.”

This Week

The Economic Times Wealth, December 13, 2010

market outlook

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

Which segment will lead the rally?

Hits & duds Top 3 sectors

reader poll (in %)

Petroleum . . . . . . . . . . . .42

Which way will markets move?

Automotive . . . . . . . . . . .39 Banking & finanace . . .39

Up by more than 2%:

13%

At the same level:

6%

Down by 2%:

74%

Down by more than 2%:

68% 22% 10%

7%

Large caps

Mid caps

Small caps

Worst 3 sectors Banking & finanace . . .48 Pharmaceuticals . . . . . .32 Manufacturing . . . . . . . .23

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

market pulse ■

shorttake

Dollar support to Sensex may end It seems the global foreign exchange market has decided to move against the US Federal Reserve’s effort to keep the dollar weak. The dollar is on an upswing since the Fed chairman Ben Bernanke announced the $600-billion quantitative easing programme on November 3. The dollar index jumped from the November 4 bottom of 75.63 to a peak of 81.44 on November 30, a gain of 7.68% during this period.

Trendline breakout: The dollar index took Dollar index trendline out a major resistance line (see red line in graph ) also during this 79.77 time. The fact that this crucial turnaround happened close to its JAN ’08 DEC ’08 DEC ’09 DEC ’10 long-term support line SOURCE: BLOOMBERG (see blue line in graph ) The dollar index has jumped is also very important. from the Nov 4 bottom of 75.63 Impact on Indian to a Nov 30 peak of 81.44. markets: Majority of the current foreign funds flows can be traced to the “dollar carry trade” (taking dollardenominated loans at low rates and investing the money in high-risk/high-return assets). This explains the recent inverse relationship between Sensex and the dollar index, when fall in dollar value was accompanied by rise in Sensex.

Where is dollar index headed? “The present dollar strengthening is not due to its inherent strength, but only due to extraneous global factors like the sovereign debt crisis in Europe and the flood of money back to the dollar,” says P Mukherjee, president (treasury & international banking), Axis Bank. “Dollar may benefit from this crisis in medium term (i.e. for the next six months),” he says. Adds Jamal Mecklai of Mecklai Financial Services: “Since we have no idea when the European crisis will be resolved, the dollar index is heading towards the 90 mark now.”

So expect the Indian stock market to remain choppy for the next six months, at least till the dollar continues to strengthen.

■

Although markets rose 1.4% on Friday, snapping a three-session losing streak, they are expected to remain shaky as investors focus on a deepening probe into the alleged corruption in 2G spectrum licences distribution.

Loans are likely to become more expensive for existing customers after HDFC Bank joined ICICI Bank and Punjab National Bank in raising deposit and lending rates by up to 75 basis points. The good news is that the move by HDFC Bank will also give better returns on fixed deposits.

week calendar Tuesday DEC

14

■ WPI data for November to be released

Wednesday DEC

15

■ Advance tax payment of corporates for the third installment falls due.

■ MOIL shares to be listed ■ India to sell `201 billion 91-day bills and `10 billion 364-day bills

Resolution of the week I will join a car pool If your fuel bill is burning a hole in your pocket, start a car pool. Say you travel 30 km to office and back.

Daily cost: `5 x 30 km + `50 parking = `200 Monthly cost: `200 x 24 days = `4,800 If you pool in with three others, you drive only six days a month, which helps you save `3,600. If invested in a scheme that earns 12% a year, these savings would grow to `8 lakh in 10 years.

Thursday DEC

16

■ Reserve Bank of India’s credit policy review

■

■

Industrial output in October grew at its fastest in three months, powered by demand for consumer durable goods. Analysts said it was unlikely that this would prompt the Reserve Bank of India to increase interest rates when it reviews its monetary policy this week.

China's decision to tighten lending by banks and a possible interest rate hike in coming days will weigh on global growth. Asian indices closed down and gains in Europe were limited after the announcement that the People's Bank of China raised its required

YES

IS DEBT A BETTER INVESTMENT THAN EQUITY NOW? Despite the fall in stock prices last week, a majority of respondents still favour equity.

Similarly, a sizeable section considers debt as a better investment.

reserve ratio—the amount of capital banks must keep with the central bank—by half a percentage point.

■

TRAI has recommended cancelling 69 telecom licences. The telecom regulator said it would cancel 38 licences of companies, including the Indian joint ventures of Telenor, Sistema and Etisalat for failing to meet network rollout requirements. TRAI also recommended cancelling 31 other licences after legal examination. All these are likely to have an impact on the telecom stocks in the coming weeks.

07

44% 47%

NO

Product

launches Ajeevan Anand by Bharti Axa Life is a whole life plan with guaranteed returns every 5 years and life cover till the age of 100. Guaranteed return is 25% of the sum assured paid every 5 years starting from the end of 10th policy year till maturity or death. Premium paying term can be 10 years or 15 years at inception.

08

Stock Picks

The Economic Times Wealth, December 13, 2010

Pick of the week: Punj Lloyd With no more write-offs and a revival of orders, the company has climbed out of the red and is expected to emerge stronger in 2011-12

Fundamentals 2008-09

2009-10

2010-11

2011-12

11,876

10,448

10,139

12,252

Ebitda

443

402

793

1,067

Net Profit / (Loss)

-225

-108

179

307

-1,768

-2,107

148

11

Revenue

Worst behind for Punj Lloyd? Analysts reacted with a sigh of relief to the September 2010 quarterly results of Punj Lloyd.

“Finally a quarter without one-time write-offs,” they said.

After a series of adverse quarterly results impacted by onetime write-offs triggered by litigations due to poor project execution, the engineering and construction company reported a profit of `23.92 crore against a loss of `30.59 crore in the quarter ended June. The company had reported a loss of `108 crore in 2009-10.

Though the September quarter revenues de8 clined by 31% from a year ago, they grew 15% Hold on a quarter-over-quarter (i.e. compared to

the investing community (fund managers as well as individual investors) acting based on these recommendations, these analyst downgrades continued to weigh heavily against Punj Lloyd's share prices. And that explains why Punj Lloyd had grossly underperformed the Nifty in the last one year (see the relative performance chart for more details). With only five out of 31 analysts still left on the “buy” side, there is a lesser probability of 5 a further crash due to analyst rating Buy downgrades.

Overall Analyst Views

Decent valuation With no fancy left in the June quarter) basis. the counter, the company’s valuation has also taken a major beating, taking it Libyan push The non-implementation of to very low levels, especially considering Libyan orders worth `5,900 crore was its size of operations. Punj Lloyd's P/B ra18 another concern for the analysts. Finally, tio is much smaller compared to many of Sell this quarter has also seen some pickup in the its peers now (see table). Further, Punj Libyan orders and the company booked revLloyd is expected to emerge operationalOnly five of the 31 analysts enues of `168 crore. With this, around 40% ly stronger in the coming quarters and have a “buy” rating on Punj of its Libyan orders have started also in the 2012 financial year with Lloyd. Consensus analyst contributing to the top line, while the execution ramp-up in slow moving rating has gone down from balance is still at the redesigning and reorders—like the Libyan order—and 4.05 two years ago to 2.32 now negotiation phase. higher order inflows (the management expects an order inflow of `900 croreNo more rating downgrades? Aghast with Punj Lloyd's `1,000 crore mainly from the oil and gas segment during the “negative surprises” quarter after quarter, analysts reacted by October 2010-March 2011 period). And once these things changing their views from “buy” to “hold” to “sell”. For exammaterialise, it won't take much time for those analysts with ple, the consensus analyst rating (the average arrived at after “sell” recommendations to upgrade to “buy” and thereby giving numerical values to their recommendations) has gone help generate good returns for long-term investors who are Narendra Nathan down from 4.05 (two years ago) to 2.32 now. With majority of ready to hold till then.

31

Consensus estimate

Actual

Free Cash Flow

Values in ` crore

Relative valuations P/E Punj Lloyd

P/B

Div Yield 0.15

EV/ Ebitda 248.74

N/A

1.12

12.00

2.61

0.19

8.67

527.02

2.02

0.96

13.92

Gammon India

49.96

1.05

0.60

9.48

Patel Engineering

10.18

1.61

0.66

8.51

Simplex Infrastructures

16.15

2.10

0.48

7.08

ERA Infra Engineering Hindustan Construction Co

Latest brokerage calls Recom date

Research house

Recomm

Target price (in ` )

Nov 22

Sharekhan

Hold

128

Nov 19

Angel Broking

Buy

153

Nov 3

Macquarie

Underperform

84

Nov 3

Religare Capital Markets

Sell

90

Nov 3

SMC Global Securities

Hold

121

Relative performance 150 NSE

120

112.80

90 60 PUNJ LLOYD

30 0

Dec 09

June 10

47.43 Dec 10

Performance of shares of Punj Lloyd compared to Nifty.

The figures were normalised at the beginning of the year.

SOURCE: BLOOMBERG

What experts advise

BUY Stock

Research House

CMP Action

Target Price (in ` )

(in ` )

Rallis India

Emkay Share

Maintains Buy

1,289

1,800

Indus Ind Bank

Anand Rathi Seccurities

Maintains Buy

260

305

Target price increased from `255 as Indus Ind Bank’s return on equity (RoE) is expected to expand

NTPC

Brics Securities

Upgrades from Hold to Buy

192

224

Current price factors all negative; valuation (at price to book value of 2.1 times) becomes attractive after the recent price fall

Voltas

Religare Capital Markets

Maintains Buy

231

300

Buy into any short-term weakness as order inflows and execution rates are expected to pick up from fourth quarter of FY 2011

Hindustan Zinc

Enam Securities

Buy

1,147

1,515

Tube Investments

UBS Investment Research

Initiates coverage with Buy

139

197

Well-placed to benefit from growth in autos / infrastructure / consumption; EPS to grow 55% CAGR from FY 2010 to FY 2012

Coal India

Citigroup Global Markets

Initiates coverage with Buy

317

358

To benefit from growth in autos / infrastructure / consumption; EPS expected to grow 55% CAGR from FY 2010 to FY 2012

Target Price (in ` )

(in ` )

Comment Acquisition of Metahelix Life Sciences at two times of its FY 2012 estimated net revenues is a positive for Rallis in the long term

Significant valuation upside expected as silver is expected to contribute 20% of total Ebitda by FY 2013 against 7% in FY 2010

SELL Stock

Research House

CMP Action

Fortis Healthcare

HDFC Securities

Maintains Sell

146

120

Balaji Telefilms

JM Financial

Maintains Sell

38

40

Comment At CMP, stock is overvalued (quoting at 68 times the FY 2011 estimate EPS and 28 times the FY 2012 estimate EPS As the recovery is unlikely in second half of FY 2011, target price is reduced from `48 to `40

10

Equity Investment

The Economic Times Wealth, December 13, 2010

‘BEST’ STOCKS FROM

‘WORST’

INDUSTRIES

Investing in stocks that underperformed in a bull run is a good idea as they come cheap. But you must choose carefully to avoid landing permanent duds.

NARENDRA NATHAN

the rise in markets (Sensex and Nifty trebled from the 2000 peak), we will know the level of underperformance of this stock since the “tech bubble”. The comparative price chart of Wipro uying at the bottom and selling at the top” is a and Sensex since February 2000 will reveal this. This is despite universally accepted stock market rule, but few the fact that Wipro outperformed Sensex in the recent rally that people have the courage or discipline to follow it. started from March 2009.

The rule becomes all the more important now with Secondly, it isn’t just investors' folly. The problem goes the market near its all-time high. Herd mentality is the biggest beyond overvaluation. Companies themselves get carried away mistake investors make in bull markets like these. Since most with the hype, and take up stocks have already moved up projects beyond their means significantly, well above what is landing themselves into warranted by their fundatrouble. The problems can be mentals, there’s no point due to over capacity, unrelated chasing them further. The best Wipro has lagged the Sensex since Feb 2000... diversification, liquidity issues, strategy right now is to identify 336 etc. And since the companies sectors and stocks that are yet themselves are in trouble, the to participate in the rally in a Sensex investor loss can be much steepbig way. er than in the first case.

Another rule that investors need to keep in mind is about Making the right choice sector rotation. Each bull 100 Investing in stocks that have not market rally brings its own set 49 participated in the rally is a very of favourite sectors and stocks Wipro small step. The main task is to and rarely does a sector or identify the right sectors and stock, that leads one bull Feb 2000 2005 Dec 2010 stocks. The first step is to know market rally, participates in the why these sectors are underpernext. Why? forming the market now. If a First, it can be purely due to ... But has outperformed the index since Mar 2009 sector is only going through a “investor folly”. Since everyone temporary cycle there's isn’t starts chasing the same sets of 236 Wipro much to worry. But one must sectors or stocks, valuations hit avoid those facing fundamental the roof. For instance, problems. Likewise, it is safer to information, communication avoid small industries that are and entertainment sector in trouble, unless you’re sure stocks (popularly known as ICE) Sensex 353 about their survival. The reason were the darlings of the 2000 for this is that small industries rally with most stocks from this 100 can sometimes go out of sector quoting at unrealistic valbusiness (like the typewriter uations. Once the fancy goes, Mar 2009 Dec 2010 industry did some time back as prices tumble, bringing Data has been normalised computers took over). Big valuations well below what is industries that are essential for warranted. This is another our economic well being (like extreme behaviour and it cement, steel, telecom, real estate, oil and gas etc) tend to happens because investors, who are still nursing their wounds, survive and come out stronger from the cycles. totally desert these sectors irrespective of how the sectors or The second and the most important step is picking the best companies are performing. stocks in these industries.

Though Indian IT companies remained fundamentally Here are five stocks from sectors that have not been doing strong and continued to show decent growth, their market well but can offer good returns in the long run. The data and price rarely went up. For example, Wipro—a fundamentally analysis used in the story are based on market conditions strong IT major—is still quoting at `450, 54% lower than its prevailing between December 6 and December 10. adjusted peak of `980 (in February 2000). Once we consider

B

Underperformer or Outperformer

OIL & GAS The sector's underperformance can be attributed to the non-transparent price control mechanisms. Things may worsen due to the weakening US dollar, pushing global crude oil prices up again.

Sensex

112

100 RIL

Dec 2009

June 2010

92

Dec 2010

Data has been normalised

But all companies from the sector are not affected uniformly. While public-sector companies may continue to suffer, impact on private-sector companies such as Reliance Industries will be limited due to huge exports. “Reliance looks interesting because its refining margin has improved to around $8 dollar,” says Deven Choksey of KRC Research. Further, its international expansion plans will also act as cushion.

Sensex

Aban

100

Dec 2009

June 2010

112

54

Dec 2010

Data has been normalised

Another segment that is not affected by govt controls is the oil exploration sector — in fact, it will be a direct beneficiary of crude price increases. Aban Offshore — the largest private sector offshore drilling company in India and among the top 10 globally — should be able to take advantage of high oil prices. A major concern for investors in Aban has been its high leverage (total longterm debt as of March 2010 was `13,946 crore against shareholder funds of `2,181 crore). This concern too will subside once the company’s long-term fundraising plans go through.

Equity Investment SUGAR

ALTERNATIVE ENERGY The crash in crude prices from July 2007 has taken the sheen out of alternate energy producers and capital goods manufacturers catering to them. Suddenly their funding stopped, orders got cancelled and investors started doubting their viability. The quantitative easing plan from US Fed, however, has led to oil prices moving up again.

And that means good news for this industry.

Sensex

112

Praj

100

Dec 2009

June 2010

11

The Economic Times Wealth, December 13, 2010

72

Dec 2010 Data has been normalised

Praj Industries, the biggest Indian solution provider for

the ethanol industry, is likely to benefit from the expected increase in crude prices. Though the company reported disastrous September quarter results (topline fell to `138 crore from `218 crore due to deferment of orders; net profit fell 80% to `7.83 crore), things have started stabilising now.

The company got fresh orders worth `150 crore last quarter (60% of which are from international markets) taking the overall confirmed order book to `600 crore. This needs to be executed over a period of 12 months. New enquires are also increasing significantly with Asean and Africa at the forefront of new orders. Domestic ethanol production is also seen to go up after the government recently raised the ethanol price to be paid by oil marketing companies to `27 from `21.50 per litre.

The market cycle suggests this isn’t a good time to enter the sugar industry. The sugar cycle turned sour in January 2010 and is expected to remain like that for some more time.

Unlike historical cycles, however, fortunes of sugar companies are being associated with international crude oil prices because of ethanol — oil blending programmes. The possible diversion of sugarcane for ethanol production in Brazil (primary producer of ethanol) — is the main trigger. That explains why global sugar prices have

started going up again. But the main trigger for the Indian sugar sector will come from sugar decontrol, as and when it happens.

Sensex

112

Balrampur Chini, the

country’s second-largest sugar producer, is best suited to benefit if sugar prices continue to move due to the ethanol — oil linkage. Its fundamentals are strong and growing revenues from the power and distillery segments will act as a counterweight against the sugar cycle.

100

Dec 2009

Balrampur Chini

June 2010

52

Dec 2010

Data has been normalised

REAL ESTATE The real estate sector is not out of the woods yet, but things have started stabilising. Most real estate companies, for instance, are reporting good volume growth. Further, they are still quoting at reasonable valuations. “Since the sector weight right now is very low, this sector may get a structural rerating once things improve further,” says Tarun Sisodia of Anand Rathi Securities.

HDIL is one stock that is expect-

ed to benefit immensely from the possible re-rating of the sector.

Phase I of its Mumbai Airport Rehabilitation Project is nearing completion and shifting of 20,000 slum dwellers from the MIAL area is expected to finish by March 11. Completion on deadline will be major factor for HDIL's re-rating. Further, it has raised `3,470 crore since May 2009, including `1,150 crore QIP recently. The reduced debt level is likely to aid its land acquisition programmes in future.

112 Sensex

100

54 HDIL

Dec 2009

June 2010

Dec 2010 Data has been normalised

The hidden limits to your unlimited Internet plan pg 44

12

Fund Manager’s Wisdom

The Economic Times Wealth, December 13, 2010

EXPERTSPEAK

‘Listen to all, take own call’ My annual target for the fund: Consistently outperform the benchmark indices.

NILESH SHAH

The Nilesh Shah way of investing:

Age: 42 years Qualification: Chartered accountant (Gold medallist) Current position: Deputy Managing Director, ICICI Prudential Asset Management Co Ltd

Five things my stock-picks must have:

Buy good companies at good prices.

Growing business, visionary management, execution capability, concern for minority shareholders and good price.

I don't touch stocks that: Do not have the above characteristics.

My risk appetite is: Low. I believe in protecting the downside.

Biases I try to control:

Sector allocation of ICICI Pru Discovery

13.8%

38.8%

Financial services

Others

10.4% Energy

10% 8.8%

Health care

8.9%

Metals Services 10% of the corpus is in cash holdings This is the best-performing equity fund from the fund houses, having clocked a 15.5% annualised growth in the past 3 years

I know everything I cannot go wrong This time it's different

The stocks on my hot list now: Wish I could share them with you… I'm still buying the same.

Sectors I like are agriculturerelated. Just buy them and sleep over them.

My best decision: My life partner. I have not selected anything better than this ever in my life.

My biggest blunder: Lots of them. Maybe the biggest is yet to come. Maybe the biggest one was not to sell a technology stock, which multiplied about 100 times in less than two years in 2000.

What I do differently: (compared with other fund managers) Listen to all, take my own call.

My own money: Diversified across mutual funds, real estate, stocks, bonds and commodities.

3

What I like about my job: I manage the trust and confidence of people.

If I do well, I will help them realise their dreams. This job gives me the blessings of people. I cannot ask for more.

is the average maturity of the holdings of ICICI Pru Flexible Income Plan, the largest fund from ICICI Pru AMC (AUM `20,237 crore).

The short term insulates the fund from interest-rate volatility.

My outlook for 2011: The year 2011 will see good opportunities from equity IPOs and NFOs, especially from PSUs. Gold will continue to witness volatility.

Inflation is likely to moderate and interest rates will remain range-bound, with a potential correction in the short-term yield curve.

Small investors should: ICICI Pru: Assets under management . . .

1,00, 000

months

Focus on these 10 golden rules: 1. Never lose money

. . . and rating profile

in `crore

2. Never forget rule No. 1

90, 000

No of schemes

80, 000

15

16

3. Rome was not built in a day

15

4. Risks and rewards are two sides of the same coin

70, 000

5. There is no one who can give you returns without attached risks

60, 000

6. It’s the time in the market that makes money for you, not timing the market

50, 000 40, 000

4

3

30, 000

7. No one can predict the future, especially tomorrow’s market 8. Balance your greed and fear

Sep.10

Jun.10

Mar.10

Dec.09

Sep.09

Jun.09

Mar.09

Dec.08

Sep.08

Jun.08

Mar.08

Dec.07

Sep.07

Jun. 07

Mar. 07

Dec. 06

Sep. 06

Jun. 06

20, 000 5-star

4-star

3-star

2-star

1-star

Star ratings by Value Research

9. Asset allocation and regular investments can generate long-term returns 10. There is no short cut to success

Which books have influenced your investing process?

Many. My favourites include The Intelligent Investor by Benjamin Graham and The Dhandho Investor by Mohnish Pabrai.

(As told to Khyati Dharamsi)

Mutual Funds

The Economic Times Wealth, December 13, 2010

13

BALANCED FUNDS

When low risk low returns Are balanced funds the tortoise of the mutual fund world that TOP 5 EQUITY DIVERSIFIED will beat the equity diversified hare in the race for returns?

LARGE-CAP FUNDS SCHEME

1-YEAR 3-YEAR RETURN (%) RETURN(%)

Franklin India Bluechip

24.25

7.08

IDFC Imperial Equity Plan A

18.61

6.59

DSPBR Top 100 Equity Reg

16.99

6.57

HDFC Index Sensex Plus

21.10

5.98

Sahara Growth

14.03

5.34

TOP 5 BALANCED EQUITY FUNDS ARINDAM

SCHEME

KHYATI DHARAMSI and VIVEK KAUL

B

eing cautious is smart. In the past three years, it has also proved to be lucrative— at least for investors in mutual funds. Although they are considered less rewarding than equity funds, several balanced funds have given higher returns in the past three years. Between December 2007 and 2010, the average equity-oriented balanced fund posted 4.76 % returns compared with the 1.72% earned by the equity diversified category.

Astute stock picking was certainly behind this stellar performance. An aggressive exposure to small- and midcap stocks helped HDFC Prudence grow by 29.98% in the past one year, which is better than what the average equity fund earned during the period. In 2009, the fund had risen by a phenomenal 84.8%.

“The CNX Midcap index outperfromed the Sensex by 30% during the past one year so fund with a large expeosure to mid-cap stock would have done well,” says R Raja, head, product, UTI AMC. But much of the credit also goes to the asset allocation mix that balanced funds have to follow. Equity funds have to mandatorily invest up to 80% of their corpus in stocks. On the other hand, equity-oriented balanced funds can reduce their exposure to stocks to as low as 40% of their portfolio.

This flexibility of asset allocation allowed balanced funds to pare their equi-

EQUITY DIVERSIFIED vs BALANCED EQUITY As on Dec 2, 2010

48.36 42.44

Balanced Equity

4.76

17.96

Equity Diversified

18.88

1.72 1 YEAR

2 YEARS

3 YEARS

Figures are annualised percentage returns of the categories over respective time periods

ty allocation during the 2008 meltdown and protect themselves against the downside. Reliance Regular Savings Balanced, the best performing hybrid fund in the past three years, has churned its portfolio considerably. “The fund has been aggressively moving in and out of equities,” says Mumbai-based certified financial planner Suresh Sadagopan, who runs Ladder 7 Financial Advisories.

However, equity funds were not that lucky in managing the downside. Forced to have at least 80% of their corpus in stocks, the average equity diversified fund fell by 49.3% during 2008, compared to the 42% fall in balanced fund category.

Although experts don’t believe balanced funds will continue to outperform equity funds in the long term, they feel balanced funds are a hot

1 -YEAR 3- YEAR RETURN (%) RETURN (%)

Reliance Reg Savings Balanced

27.01

14.95

HDFC Balanced

31.31

14.44

UTI CCP Advantage

19.77

14.35

HDFC Prudence

29.98

13.82

HDFC Children's Gift-Inv

34.91

12.16

Returns as on Dec 2, 2010

Source: Value Research

investment right now. “We have been recommending some good balanced funds as their risk profile is lower than that of an equity funds even though the returns are comparable,” says Sadagopan. Nakul Madhavji, who runs Fingerprint Wealth Management & Financial Planning, says that with the Sensex close to its historical high, investors are scared of investing in stocks alone. “I would not like to put the customer’s money into stocks as one is not sure which way the stock market will go,” he says. “This is why I am strongly advocating balanced funds.” Raja recommends balanced funds because they are “suitable for an investor looking for higher returns than pure debt funds and lower risk than a pure equity fund”.

On his part, SP Dhanapal, chief executive officer of Sudha NRI Consultancy Services, expects the stellar performance of these schemes to “temper a little” in the days to come. “From now onwards the returns will not be as good as they are now because the funds have moved up. But if you wish to reduce the risk of equity, then it has to be a part portfolio,” he says. But that pays off, too.

After all, we have all learnt to unlearn that low risk always means low returns.

Please send your feedback to etwealth@indiatimes.com

14

Fund Portfolio

The Economic Times Wealth, December 13, 2010

Which of these 3 five is your fund portfolio?

INVESTMENT PHILOSOPHY:

“I look for good returns at low risks”

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

Mutual fund investors often want to know how many, and what type, funds they should buy.

ET Wealth presents five fund portfolios to suit different types of investors. These portfolios have been designed by Value Research for our television channel ET Now. The funds in each portfolio have been selected after a thorough study of their performances. The fund manager puts `10,000 every month through SIPs of different amounts in the four investment portfolios. The fifth is an income portfolio from which `20,000 is withdrawn every quarter (`5,000 from each fund). We will analyse these portfolios and track their performances every week.

Go ahead and choose the portfolio that best fits your risk profile and requirements.

ALL BALANCED FUNDS Fund

Invested amount (`)

Current value (`)

BSL Freedom-G

Annualised returns (%)

Rating

Redeemed

Redeemed

2.3

**

DSPBR Balanced-G

47,500

54,305

18.5

****

FT India Balanced-G

47,500

53,399

16.1

***

HDFC Prudence-G

47,823

53,097

24.2

*****

Reliance Regular Savings Balanced-G

47,500

56,292

23.9

*****

Total Portfolio

1,90,323

2,17,095

18.5

Invested amount (`)

Current value (`)

Annualised returns (%)

Rating

76,000

83,444

12.7

NA

Monthly SIPs of `2,500 in four funds

INVESTMENT PHILOSOPHY:

“I seek high returns”

4

INVESTMENT MIX Equities: 80-90% Debt: 10-20% This is an aggressive portfolio and meant for investors who are just starting out. Even though they may not have too much money to invest at this stage, they have time on their side. At this point, different investors would have different goals—like saving for a house, marriage, a vehicle or even higher education. An aggressive portfolio, which invests 80-90% in equities, is best suited to help achieve these goals.

INVESTMENT PHILOSOPHY:

“I can't take risks” ALANKAR

1

This portfolio suits investors looking for moderate returns without too much risk. The five balanced funds in the portfolio provide adequate exposure to equities while keeping enough in debt as a cushion. Some of these funds have given higher returns than even diversified equity funds but at a lower risk. People with large financial commitments might find this asset allocation suitable.

INVESTMENT MIX Equities: 35-40% Debt: 60-65% MOSTLY EQUITY FUNDS Invested amount (`)

Current value (`)

Annualised returns (%)

Rating

DSPBR Short Term-G

19,000

19,785

5.4

**

IDFC Premier Equity Plan A-G

38,000

47,916

33.6

****

L&T Opportunities-G

28,500

32,670

18.9

***

Reliance Regular Savings Equity-G

38,000

44,912

23.5

****

Sundaram S.M.I.L.E. Reg-G

38,000

42,968

16.9

*** ****

Fund

UTI Opportunities-G

28,500

34,547

27.4

Total Portfolio

1,90,000

2,22,801

22.3

This is a conservative portfolio and invests in a mix of monthly income plans and a fund of funds. The risk quotient is significantly lower because of the smaller allocation to equities. This suits people who are either nearing retirement or their fragile financial situation prevents them from taking too much risk. They are content with the modest returns that this strategy can offer.

MIPs AND FoF Fund

FT India Dynamic PE Ratio FoF-G HDFC MIP Long-term-G

57,000

62,188

11.8

****

Reliance MIP-G

57,000

61,605

10.5

*****

1,90,000

2,07,238

11.8

Total Portfolio

Monthly SIPs of `3,000 each in two MIPs and `4,000 in a fund of funds

Monthly SIPs ranging from `1,000 to `2,000 in six funds

2

5

YOUR INVESTMENT PHILOSOPHY:

“I want steady growth”

“I need regular income”

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

INVESTMENT MIX Equities: 70-80% Debt: 20-30% A growth portfolio, this suits investors looking for steady returns and willing to take a little risk to earn that. This is especially suitable for double-income households which have a higher investible surplus than single-income families. Given the large-cap orientation of the equity holdings, this portfolio is also useful for building up a retirement nest egg.

INVESTMENT PHILOSOPHY:

A BIT OF DEBT Invested amount (`)

Current value (`)

Annualised returns (%)

Rating

BSL Frontline Eqt A-G

47,500

56,410

24.2

*****

Canara Robeco Income-G

19,000

19,619

4.2

****

DSPBR Short Term-G

19,000

18,767

5.4

**

Fund

DSPBR Top 100 Eqt Reg-G

47,500

55,540

21.9

****

DWS Investment Opp Reg-G

19,000

21,422

16.5

**

HDFC Top 200-G

19,000

23,341

29.5

*****

UTI Dividend Yield-G

19,000

23,438

30.1

****

Total Portfolio

1,90,000

2,19,558

20.1

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

This portfolio is different from others because it is designed to provide a regular cash flow from a lumpsum investment of `10 lakh across four funds. It is suitable for retirees or people who don’t want—or can’t afford—to take risks with their money. The low exposure to equities is just enough to beat inflation.

LOW ON EQUITIES Watch show on the Fund Portfolios every Saturday at 12.30 pm and every Sunday at 10.30 am See page 34 for the ETW Funds 100 list of best performing mutual funds.

Fund

Invested amount (`)

Current value (`)

Annualised Rating returns (%)

FT India Dynamic PE Ratio FoF-G

2,23,351

2,72,405

14.0

NA

HDFC MIP Long-term-G

2,23,672

2,75,849

14.9

****

Reliance MIP-G

2,23,691

2,73,119

14.18

*****

UTI Balanced-G

2,24,549

2,99,741

20.9

***

8,95,263

11,21,115

16.0

Total Portfolio

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

Banking

The Economic Times Wealth, December 13, 2010

15

Is your savings account leaking?

AMIT SHANBAUG and KHYATI DHARAMSI

S

Some charges you may not know of

urveying her quarterly bank statement, Namita Narula found that her bank had deducted `1,000 from her savings account without informing her.

“The bank should have at least informed me before deducting the money. With shortage of funds, some of my cheques could have bounced,” recalls the Delhi-based media manager. Narula is probably not differentiating between being uninformed and unaware. It is quite likely that her bank informed her of the charges, but not explicitly enough.

Banks are free to charge for services they render but must inform customers about various charges.

The least known The most common misconception is that debit cards are free for life. This may be true for credit cards but not debit cards. “Customers are surprised when they are charged the annual fee,” says an HDFC Bank spokesperson. Most banks charge `50-100 annually for debit cards. Others may charge from the second year of issue. Customers are usually informed of these charges when opening an account and updated regularly.

There’s a limit to the use of cheques too. Most private banks offer one cheque book of 25 leaves per quarter. For an extra cheque book, you have to shell out `50 (see table). A ‘stopcheque’ request costs `50-100.

There’s a marked difference between the charges levied by private-and public-sector banks. “Public-sector banks are a lot lenient and most of the service charges are posted on their websites,” says Sudhir Kumar Jain, general manager (retail) of Dena Bank. While private sector banks charge `750- 1,200 for non-adherence, public-sector banks charge only `100-225.

ICICI Bank

DEBIT CARD FEE

CHEQUE BOOK

MINIMUM BALANCE (for normal savings bank account)

`99 per year

30 free payable-at-par cheques in a quarter; `30 for each additional cheque book of 15 leaves

`10,000 per quarter in metros `5,000 in semi-urban/rural areas Penalty for non-maintenance: `750

`100 per year

25 free cheque leaves per quarter.

Extra cheque book of 25 leaves for `50. `5 per leaf if minimum balance is not maintained

`10,000 per quarter in metros `5,000 in semi-urban/ rural areas Penalty for non-maintenance: `750

`50 per year from

25 free cheques in a year, besides a multi-city cheque book. `2 per additional cheque leaf

`1,000 per quarter for a cheque operated account. Penalty for nonmaintenance: `75 per year

HDFC Bank

SBI

ALANKAR

the second year of issue

The table is illustrative and shows only some charges of select banks

“My public-sector bank usually tells me that I’ll be charged `25 for the transaction. But in my private-sector bank, I’ll only know about the charge after I see my account statement,” complains Mumbai-based Parag Mishra.

How to reduce your charges In some cases, Net banking, ATMs or phone banking could help you save on your service charges. Banks, for instance, charge `100 for a ‘duplicate’ account statement at a branch or customer care. Availing the same service through Net banking, ATM or phone banking, however, will cost you as low as `50, besides service tax and cess.

The onus is on you According to Mumbai-based investment consultant Ramesh Bhojwani, most customers don't go through the documents when opening a bank account. Banks can't shy away from the responsibility either. “When minimum balance regulation was to be initiated, most customers did not receive any communication. It was only after a penalty of `750 that customers realised something was wrong,” says Bhojwani.

Please send your feedback to etwealth@indiatimes.com

16

Real Estate

The Economic Times Wealth, December 13, 2010

INVESTING

When buying another home makes sense S

A second house can prove to be a profitable investment. But before you reach for the cheque book, here’s what you should know.

BINOY PRABHAKAR

How to own a `60-lakh property for just `2 lakh a year

W H AT Y O U R E C O V E R

`60 lakh

W H AT Y O U S P E N D

Interest component on loan

EMI X 12 =

`6 lakh

LOAN FOR SECOND HOME

A

1

Maintenance

`5.7 lakh

`36,000

A

2

Rent received at `25,000 a month

`3 lakh

B

What you spend (annual)

Interest paid net of rental income

A-B = `2.7 lakh

C Standard deduction @ 30% of rental income

`90,000

D Maintenance (1/5th of rental income)actuals paid @ 3,000 a month

`36,000

1

NET ANNUAL INVESTMENT `6.36-4.23 lakh

2.13 lakh

E

+

D

+

What you earn (annual)

+

`3.96 lakh

`1.23 lakh

`4.23 lakh

RENTAL INCOME

E

POTENTIAL TAX SAVING

`6.36 lakh

POTENTIAL TAX SAVING

Total amount that can be claimed for tax deduction

C

+ 2

Rental Income

`36,000

hould you invest in a second house? Real estate experts and personal finance consultants believe it’s a lucrative investment.

“It is a good time to buy a second home because a lot of residential projects have been launched over the past two years,” says Arun Chitnis at Jones Lang LaSalle India, a real estate consultancy. The abundance of residential housing will keep prices at affordable levels. For savvy buyers, this may just be the right opportunity. “A selfoccupied house is not an investment,” says Ranjeet S Mudholkar, principal adviser, Financial Planning Standards Board India.

“With a second home, one gets to diversify into a different asset class,” he says.

An investment vehicle People usually buy a second home to earn rental income or to gain from appreciation in value, to use as a retirement home or as a holiday getaway but it’s mostly meant to supplement income. “Buying a house is unlike any other investment. It creates wealth unlike a car that erodes money,” says HDFC managing director Renu Sud Karnad.

HS Samaddar, a senior government employee, bought a three-bedroom apartment in Gurgaon for `8 lakh in 2002.

Today, its value stands at about `80 lakh, an annual return of almost 35% in the past eight

years. The 25% compounded returns clocked by the Nifty during the same period pale in comparison. The best part is he earned these returns on borrowed capital and got tax benefits as well. This wouldn’t have been possible if he had invested in stocks. Besides, he earns `14,000 as rent every month.

“Unlike stocks, the risks involved in buying property are far lower,” he says.

The tax advantage A second home is also a trove of tax benefits.

In the case of a first home, repayment of the principal amount of a loan of up to `1 lakh qualifies for deduction under Section 80C along with other tax-saving investments.

Only up to `1.5 lakh of the interest cost on a housing loan can be set off against the taxable income of a borrower. The benefits are greater on a second property.

Assuming that the first property is self-occupied and the second is let out, the entire interest cost on the loan can be deducted from the taxable income. Moreover, 30% of the rental income is exempt from tax as a standard deduction to cover for repairs and maintenance. Other charges such as property tax and municipal tax can also be deducted. For example, on a `80 lakh loan at 8%, the interest outgo would be `6.4 lakh, which if reduced from the taxable income would help save a tax of `1.92 lakh annually at a 30% tax rate. Remember, the deduction is available only if the property is let out.

Real Estate

P. ANIL KUMAR

The Economic Times Wealth, December 13, 2010

The 10-year planning for my second home Former PSU officer G Ramakrishna Prasad, 56, recalls how he realised his dream in a decade

W

hen I first thought of buying another house ten years ago, my financial circumstances did not allow such a large investment. I had just taken voluntary retirement from a PSU and my savings were not big enough. There was a shortfall of nearly `10 lakh that forced me to defer my plans. I had to remain content with an existing 2-bedroom apartment.

But as my three children grew, so did the need for a bigger home. In Hyderabad, owning a house is almost an extension of an individual's mindset and as good as a habit. My dream came true in early 2009. This time, I was better prepared and my financial situation had improved. My savings had swelled substantially. I had a job, as did my wife and eldest son.

Of course, property prices too had increased substantially, but were offset by the availability of loans. Our earnings were sufficient to qualify for a loan of `30 lakh.

The house, which came up on a 167 sq yard plot near Abids, a commercial space, cost `60 lakh. It measured up in affordability and security by virtue of its location in a gated community, the key influences behind my purchase.

That is not to say I did not have financial motives. Real estate has had an explosive growth in Hyderabad through the years. In some parts, properties have appreciated by 100% in the past six years. Appreciation apart, I viewed the second house as a valuable asset for my children. The recent political strife in the city has taken some sheen off, but this is a temporary blip. I know as I work in the real estate sector.

My second home is spacious. I built a 2,350 sq ft duplex house on the plot in exactly eight months. It came up the way I had envisioned, be it in specifications or interiors. I faced no delays for the loan, though there was the usual red tape in getting approvals from authorities. Still, that was a problem I could live with. I have let out my first home for `6,000 a month, which cushions the EMI of around `40,000 on the home loan.

My second home has met all my needs. Add to that the tax benefits, rental income and investment rationale of real estate. I invest a little in mutual funds. But I am a more ardent believer in the merits of real estate. I am yet to meet anyone who says investment in property is a waste.

My second home has met all my needs. Add to that the tax benefits, rental returns and the investment rationale of real estate…

(As told to Binoy Prabhakar)

“Many people, particularly the salaried sections, buy a second home keeping in mind the tremendous tax benefits,” says HDFC’s Karnad.

The first draft of the Direct Taxes Code (DTC) had removed the tax benefits on housing loans but the revised version reinstated them. Also, there are likely to be three major changes as regards income from a house: abolition of the concept of notional rent, drop in the standard deduction of rent to 20% and end to the differentiation between long-term and short-term capital gains tax.

While the concept of actual rent works in investors’ favour, the other two are not as helpful. Under the tax law, a long-term capital gains tax of 20% is levied even on persons of a higher income bracket. Scrapping the distinction in capital gains taxes will hit people in these sections while selling a property. “Still, these changes are not earth-shattering as to turn investors away from second homes,” says Amitabh Singh, tax partner at Ernst & Young.

Start saving today Your first step towards buying a second house is to save enough for down payment, which is usually 20% of the value of property. Factor in inflation and rise in value of the property. An apartment worth `50 lakh today (for which you should save `10 lakh) may cost `75 lakh five years later. So you would need another `15 lakh. Regular and disciplined investing helps here. If you put `18,750 a month in an option that earns 12% a year, you would have accumulated `15 lakh in five years. If you happen to be wary of risks, invest in fixed deposits. Invest in five-year

17

deposits this year and progressively go for shorter terms so that all your deposits mature in the same year. You can also save through fixed maturity plans.

Points to ponder Mudholkar advises buyers to look beyond the tax-saving element. “Any investment must fit into an individual’s overall financial portfolio,” he says. Before buying a second home, ask yourself why you need one and how will you manage the costs. Assess your repayment ability realistically. Loan repayments should not account for more than 40% of your take-home income. Consider the time and expenses needed to maintain the second home. “Buying a property and attending to it should be given equal thought. Keep in mind the losses and disputes,” warns Samaddar.

The other drawback of investing in realty is that it is not a liquid asset. It could take weeks or months to find the right buyer at the right price. “I doubt if properties will go up by 2030% a year as they have in the past five years,” says financial planner Suresh Sadagopan. Go for a high-rental location that gives returns of at least 4-5% of the cost. Experts recommend a ready-to move-in property that fetch rent from day one. Under-construction projects, though cheaper, may eat into returns as they start earning years later.

Please send your feedback to etwealth@indiatimes.com Get the best out of your health covers pg 22

18

Bullion

The Economic Times Wealth, December 13, 2010

COMMODITIES

How long will gold shine?

Prices of gold are at a historical high but are expected to rise even further. Invest in it if you can withstand periodic corrections.

Four ways to invest in gold

$ 2,000 (`32,450 per 10 g) by December 2011 if global situation worsens

red u t u ade

ce oun er ld hit p 2 c 43 g) go 7 De $1, 0 At er 1 h on p g i 50 e h 1,0 im (`2 all-t an

$ 1,500

Jewellery

(`24,350 per 10 g) by March 2011 if the current trend continues

Most 'useful' form of gold and very popular in Indian households. But Regular use leads to wear and tear reducing weight of the gold Making charges are deducted at the time of selling. This leads to lower profits Storage can be cumbersome; a bank locker is the safest bet

$ 1,200 (`19,000 per 10 g) in the next 2-3 months if ETF investors start booking profits

F e ngdold is h a t e

st sce Paossible P

10

20

0

0 1,4

RAJ

n er easreios wh r ,P n

09

0

0 1,0

20

e in ric ld p ounce o G er $p

08

20 07

20 0

60

VIVEK KAUL and MADHU T

I

t may still be giving sleepless nights to parents looking to marry their children, but investors who bet on gold in recent years are a happy lot today. With compounded annual returns of 24.6%, the yellow metal has been the most profitable asset since December 2007, beating stocks, bonds and real estate by a wide margin. Even in 2010, when the stock indices moved so fast that they left skid marks on Dalal Street, gold has been the outperformer with 21% returns compared to 11% by the Sensex..

The steady rise in gold prices has defied several investment precepts in the past few years. Will this golden run continue? The short answer is yes, but with periodic corrections.

It's seldom a good idea to buy something at an all-time high price.

But this rule should not apply to gold. ET Wealth reached out to experts to find out where gold prices are headed. The consensus is that though a short-term correction may not be ruled out, the yellow metal is likely to remain buoyant in the coming year. “We expect gold prices to rise to about $1,500 by March 2011 and $2,000 in another couple of years,” says Ritesh Jain, head of fixed income at Canara Robeco Mutual Fund.

What's fuelling this bullishness? For one, the factors that pushed up gold prices in 2008-10—global economic uncertainty, fears of high inflation and a falling dollar—are still lingering. Add to this the

prospects of high crude oil prices and you are talking about the possibility of gold touching `25,000 per 10 g by the end of 2011. That's almost a 25% rise from the current price of `20,500 per 10 g. Quite a few mutual fund managers will be delighted if their equity funds can generate that kind of returns over the next 12 months.

Fresh global turmoil: The biggest driver of gold prices is the uncertainty that has returned to haunt the global economy in recent months. Some European nations are on the brink of a sovereign default and the US economy too is still not in a good shape. This has increased the global demand for gold, since it is seen as a safe haven in difficult times.

The influx of paper money is another gold-friendly factor. In a bid to revive the domestic demand, the US Federal Reserve has been printing extra dollars. It has already spent $1.7 trillion trying to pull the US economy out of recession and plans are to print $600 billion more to boost the money supply in the US. This would not only lead to higher inflation but devalue the dollar against major currencies. But the devaluation won't be confined to the greenback. To pre-empt the fall of the dollar which would hurt their exports, many countries have started printing more paper money. James Turk, founder of Gold Money, and the co-author of The Collapse of the US Dollar and How to Profit From It, puts it succinctly: “All national currencies are in a race to the bottom, a race to destroy their purchasing power.”

With currencies poised to lose value, investors are betting heavily on gold as a hedge. This has led to a sustained surge in demand for the yellow metal across the world. “Gold is now a default currency as no one wants to hold any currency,” says derivatives expert Satyajit Das. Hedge against inflation: Given the huge amount of money being printed, if inflation shoots up, gold will be in greater demand. That’s because gold is also seen as a hedge against inflation. Devendra Nevgi, founder and principal partner, Delta Global Partners, believes that gold is right now in a sweet spot. “Its ability to wear different hats will make it an efficient hedge against severe deflation or runaway

Bars & coins Safety and storage is a problem; a bank locker is the best bet. Besides No standard method to fix price at the time of sale Banks that sell coins do not buy them back

Gold ETFs No real ownership of gold, only on paper. However GETFs can be traded via exchanges if you have a demat account Safekeeping is not a problem No worries about purity or valuation

Hybrid funds A new breed of schemes that invest in gold as well as equities and fixed income instruments Can be used as a tool for diversification No issue of safekeeping, purity or valuation of gold

Bullion

The Economic Times Wealth, December 13, 2010

19

What’s driving gold prices?

HIGH INVESTOR INTEREST

WEAKER DOLLAR

FINANCIAL UNCERTAINTY

High prices have not dampened investor interest in gold. Indians bought 36% more gold jewellery this year than in 2009.

Gold is a popular hedge against currency weakness. Weakening US dollar makes dollarpriced gold cheaper for holders of other currencies and vice versa.

Gold is also considered a safe haven during financial crises. The ongoing uncertainty continues to linger, the latest evidence being Ireland.

inflation,” he says.

Even if none of these extreme scenarios play out and there is normal inflation, gold will still continue to be in demand—as jewellery, coins and paper gold. High prices have not dampened the demand for gold in India, the largest market for the yellow metal in the world. In the first nine months of 2010, Indians bought nearly 36% more gold jewellery than in the same period of the previous year. Gold funds too have seen a massive inflow of `1,169 crore during 2010, compared with `312 crore in 2009. These investments in paper gold are backed by physical holdings of 24-carat gold by the funds. In the first eight months of 2010, total gold fund holdings rose 77% to 11 tonnes.

According to the World Gold Council,

HIGHER CRUDE PRICES Crude oil prices have risen to nearly $90 a barrel and could cross the $100 mark in the coming months. This will push gold up.

“Increasing demand by the world’s two largest markets, India and China, would continue to push up consumption.” So, it’s a win-win situation for the precious metal.

Should you buy now? Gold prices could witness a correction in the short term. Most experts feel that prices could dip in a few months. Says Vijay Bhambani, CEO of BSPLindia.com: “A 5-8% up-thrust may be followed by heavy selling in the near future.

Commodity prices don't rise without corrections in the short or medium term.

Corrections are usually brief, but they can be vicious.” Some analysts fear that if investors in gold funds start booking profits, it might crash to `18,500 per 10 g.

David Rosenberg, chief economist and

SUPPLY/ DEMAND October to December is the peak season in major countries such as India and China, which push up prices, at least in the short term.

CENTRAL BANK DEVALUATION

INVESTMENT EASE

As major economies deliberately decrease the value of their currency, central banks of several countries are increasing their gold reserves

The launch of gold ETFs has made investment in gold easier. The cost of purchase is 0.5% of the value and investments in gold are as liquid as stocks.

strategist with Gluskin and Shelf, a Canadian wealth management firm, agrees. In a recent report, he wrote: “The recent surge is the same ... as in March 2008, November 2009 and May 2010 ... followed by meaningful corrections ... that were to be bought. This market is long overdue for a near-term pullback.” He believes that gold is overvalued right now and can drop to $1,200 per ounce before resuming its long term uptrend.

How much should you buy: Gold has given spectacular returns and its prospects are also very bright. But that should not make you binge on this asset class. As always, the rules of prudent asset allocation should apply. Experts believe that one should not put more than 10% of one's total investment

in gold. “Start by allocating 5% of your portfolio to gold and buy more when the price dips. Gradually, increase your exposure to 10% of your portfolio.

Remember that the idea behind investing in gold is to add stability to your portfolio, not earn spectacular returns,” says a Mumbaibased wealth manager.

Others feel investors should be more aggressive. “While I recommend an allocation of around 20% to gold, the investor needs to make an assessment of his risk-return profile before deciding on the actual allocation,” says Jain.

Please send your feedback to etwealth@indiatimes.com

20

Debt Investments

The Economic Times Wealth, December 13, 2010

GETTY IMAGES

PUBLIC PROVIDENT FUND

6 tips to make most of your PPF Learn to maximise the returns from your PPF investments by intelligent moves through the year PRIYA KAPOOR

income of the giver. But since PPF income is tax free, it will not push up his tax liability. This way, you can invest more than `70,000 a year in this tax-free haven.

This strategy does not work in case of minor children though. You can open a PPF account in the name of a minor child but the combined contribution to your and your child’s account cannot exceed the sum of `70,000 a year.

T PPF vs FDs If `70,000 is invested every year in PPF and fixed deposits, the PPF account will be far bigger after 15 years

`22,92,516

`10,95,189 `4,43,515 `4,12,503.6 5 years

Provident Fund

`18,24,403

`9,52,345 10 years

16 years

Post-Tax FDs (1-year recurring deposit)

Calculation assumes that the year-end corpus of PPF and a fixed deposit is reinvested every year along with a fresh investment of `70,000. Fixed deposit earns 8% interest and its income is taxed at 30.9%.

So, if you invest `70,000 a year in a PPF, your annual tax savings in the 30% bracket will be

`

21,630

In 16 years, you have a tax-free corpus of

`

22.92

lakh

With tax savings, the total gain in 16 years is

`

26.16

lakh

he stock market, despite the probability of giddy returns, can give you the heebiejeebies due to the wild swings in share prices. Fixed deposits can be a turnoff because the interest earned is taxable. For investors seeking the best of both worlds, there is the Public Provident Fund (PPF). Wrapped in safety and free 3. Invest for children: However, if the child is over 18 of tax, the PPF is almost a godsend for risk-averse years, up to `70,000 a year can be invested in his name investors. “PPF is an excellent tool for long-term separately. The taxman insists on clubbing the income investment. It is risk-free as it is backed by the of minor children with that of the parent. But once they government,” says Harsh Roongta, CEO of turn 18, they can have a separate income. “A PPF is an apnapaisa.com. It is especially suitable for self-employed ideal way of building a fund for your child’s educational professionals and small businessmen who are not needs instead of falling for all the ‘high-commissioncovered by the Employees’ Provident Fund. “Those who paying’ child plans of insurers,” says Sandeep don’t have access to an organised setup can realise longShanbhag, director of Wonderland term goals through PPF,” says Surya Consultants, a tax and financial Bhatia, a Delhi-based financial planner. planning firm. “In a child plan, you are Don’t think of your PPF account as not sure of the returns.” a stodgy investment option where you put away something once in a year.

One can open a PPF account 4. Invest before cutoff: It is important With a little planning, it can be an in a bank, post office. to keep an eye on the calendar when important part of your financial portfo Contributions eligible for tax you make your contribution to the PPF. lio. Here are a few tips that will help you deduction under Sec 80C. The interest on your investment is make the most of this option.

Minimum investment in a compounded annually but the calculayear is `500 and maximum tion is monthly. The interest is calculat1. Maximise limit: The 8% `70,000. ed on the lowest balance between the compounding interest you earn on Interest rate is 8%, 5th and last day of every month. So, if the balance can work wonders for compounded annually. you invest before the 5th, the contribuyou, especially because a PPF Interest is calculated on tion will earn interest for that month account is a long-term investment. lowest balance between 5th too. Otherwise, it’s like an interest-free There is an annual limit of `70,000 and last day of a month. loan to the government for a month. that one can invest in the PPF. You PPF accounts mature in 15 may feel it is a waste to be investing years but can be extended in 5. Withdraw for emergencies: The `70,000 in this option when your `1 blocks of five years. money in your PPF account can also be lakh tax-saving limit under Section a source for emergency fund. Although 80C has already got exhausted. But it is not a good idea to dip into long-term savings for don’t let the tax savings alone guide your decision. consumption, if you are faced with a cash crunch, you Invest as much in PPF as you can afford to. Most can withdraw from your PPF account. It will be far people assume that PPF matures in 15 years time, which cheaper than going for a personal loan, which comes at is not really true. The PPF account matures 15 years after 17-18% interest rates. Withdrawals are allowed after the the end of the financial year in which the investor first sixth year. But you can withdraw only once in a year and invests. Let’s say you open a PPF account on April 1, only up to a specified limit.

2010. The current financial year ends on March 31, 2011.

Now if we add 15 years to this i.e. March 31, 2011 + 15 Also, be sure to put back the amount you have years = March 31, 2026. Hence the account will mature a withdrawn at the earliest. As we have said earlier, this is day after March 31, 2026 i.e. April 1, 2026. So it makes not a good strategy if you do it frequently. Some investors sense to max your PPF investment by investing on the use this tack to claim tax deduction. They withdraw from first day of the year. If you contribute `70,000 a year to the PPF and then reinvest the money after sometime. your PPF for 15 years, your investment would grow to a This is a flawed investment strategy. They only look at gargantuan `22.92 lakh on maturity. their gross savings but their net savings do not grow.

And remember, this is tax-free money. In the 30% tax bracket, this is equivalent to receiving almost 11.5% 6. Other helpful tips: PPF account matures in 16 years. interest on a fixed deposit. “The PPF offers the highest Though you are allowed to open only one PPF accopost-tax returns among all fixed income options since unt, you can extend it after it matures. Do not forget to no tax is levied on the investment, income and invest the minimum `500 in a financial year. There is withdrawals,” says Bhatia. penalty of `50 levied if you fail to do so.

PPF Primer

2. Distribute income: There are benefits in store if you open a PPF account in the name of your spouse or child.

Tax laws say that if any money gifted to a spouse is invested, the income from that investment is clubbed with the

Please send your feedback to etwealth@indiatimes.com When low risks lead to high returns pg 13

Guest Column

The Economic Times Wealth, December 13, 2010

21

INVESTING

Dateline 2020: 5 bets that paid off Dipen Sheth travels forward in time to look back at what happened to his investments made in 2010

RAJ

times the sales. Over a period of time, a large number of Indians began to clamour for better hospitals and healthcare services.

Apollo Healthcare had high capital intensity, low return ratios and looked like it commanded an undue premium in 2010. But I put it down as the only monster trade I could think of in health care at the time. At just around 10 times returns in 10 years, that’s not bad, eh?

I

t’s 2020 folks, and I can’t find words to express my amazement as I look back to see the five ‘monster’ trades I had suggested to ET Wealth in late 2010. It was then that the monstrous wealth engine called India was revving up.

Even as most of the world slipped into (what we now call) the Great Financial Crisis of 2008, India's new found enthusiasm for its own messy version of inclusive capitalism stumbled through its politics, bureaucracy, middle-class indifference and widespread intellectual dishonesty. And posted its highest ever ten-year economic growth rate, aided by the vision, execution capability and sheer persistence of some of its finest minds. As also by the ever-growing consumption appetite of its upwardly mobile masses and the needs of large swathes of its population as it entered working and earning age.

So here are ET Wealth’s monster trades, for you to look back at what you missed.

1. FINANCE Back in 2010, HDFC Bank was widely respected, as it is today. But it was seen as a very costly bank, trading for almost four times the forward book value. A fast-growing bank,

with impeccable asset quality deserved a premium, but surely not four times?

Especially when the overall return on equity was just a shade under 20%? Ten years of faster-thanindustry growth, asset quality remaining intact over business cycles and a fantastic client retention and acquisition rate has ensured that HDFC Bank has climbed today to over 60% Current and Savings Account (CASA) ratio from the already difficult levels of about 40% in 2010. (A higher amount of CASA in the total deposits allows a bank to raise funds at a lower interest rate.

This means a bank makes a higher margin when it lends money.) And HDFC Bank trades today at four times even as the rest of the industry has fallen to an average of under 1.5 times, delivering 20% annualised returns over the past decade to go up six times since 2010.

2. CONSUMER GOODS With over four hundred million potential smokers, growing at 20 million a year, ITC actually posted a small volume decline in cigarettes in FY10. But the stock did deliver over 33% returns over the trailing 12 months to December ’10, as the company continued to grow its product portfolio and volumes. But with hotels, foods, FMCG and paper contributing less than 20% of its overall profits, it was clear that cigarettes (ITC’s mainstay) were capping overall growth rates.

Then ITC did something remarkable. It went all out to grab bidi smokers. And back came the volume growth. Over FY11-FY20, the firm posted a 11% CAGR in volumes, managed to multiply profits by eight times and stock price by twelve times.

3. HEALTH CARE Almost all Indian pharma companies looked like good bets in late 2010, after Piramal’s ridiculously costly sellout to Abbot at nine

4. ENERGY / OIL & GAS Two years of high expectations, sibling rivalry and a year of deflated performance made Reliance anything but a natural pick for a 10-year trade, but I sensed that the worst expectations from KG basin gas were already built into its Rs 3-trillion market cap. The discovery of two more mega gasfields in the KG basin over the next three years helped.

Reliance is up seven times today, from where it was in 2010.

5. CAPITAL GOODS / INFRASTRUCTURE Larsen & Toubro was yet another ‘costly’ buy.

It was venturing into new, untested products and services. But its spectacular success in power-generation equipment, nuclear-power reactors, ship-building, rig-building and defence equipment saw it post year-after-year of profitable top-line growth even as its construction business tapered off . Its associate firms, spun off as separately listed entities in the IT, financial services and infra assets business today add up to over 40% of the sum of its parts. Having multiplied investors' money seven-fold, almost uniformly across the past 10 years, L&T has now become India’s most preferred employer of engineers.

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

22

Health Insurance

The Economic Times Wealth, December 13, 2010

Use multiple plans efficiently If you have more than one medical insurance policy, here’s how to get the most out of them when making a claim

ALANKAR

KHYATI DHARAMSI

I

t’s not uncommon for an individual to be covered by two, or even three, health insurance policies. One reason for this is the rise in the cost of health-care services in the past decade. Ten years ago, a `2lakh health insurance cover was considered fairly sufficient for an entire family. Today, it will barely be enough to pay for a five-day stay in a hospital. Also, medical insurance cover from employers is not sufficient. In both circumstances, one has to buy another policy.

But while a larger insurance cover is a good thing, multiple health insurance policies can lead to confusion when making a claim. Should a person claim only from one insurer? Does he need to inform his insurer about the additional covers? Will the hospital allow two cashless claims for the same illness? Will he get the noclaim bonus if the second policy is not invoked?

It’s all quite confusing for the policyholder, who might be under strain due to the illness.

The first thing to know is that it pays to inform all insurers whenever there is a hospitalisation. This does not mean that one can separately claim the expenses from each of them. “You cannot profit from a medical insurance plan,” says Joydeep Roy, chief executive of L&T General Insurance Company. It’s only that by informing all the insurers, the policyholder is able to optimally utilise the cover available to him. The claim has to be paid by the insurers in the same proportion as their health cover. Say, a policy holder has two policies—one for `2 lakh and the other for `1 lakh. If he makes a claim of `1.5 lakh, the first policy will pay 2/3rd of the amount (`1 lakh) while the second policy will pay the remaining 1/3rd (`50,000).

This sharing is subject to the terms of the

Why a `1-lakh health plan won't fully cover a bill of `65,000 Expense head

Expenses incurred

Limit as % of sum assured

Claim allowed

ICU charges

`8,000

2% per day

`2,000

`15,000

1% per day

`5,000

Doctor/surgeon/ anaesthesist fee

`20,000

25% per illness

`20,000

Surgery, implants, medicines, treatment and diagnostics

`20,000

50% per illness

`20,000

Ambulance

`2,000

`1,000

`1,000

Total

`65,000

(`8,000 x 1 day)

Room rent (`3,000 x 5 days)

`48,000

In the above example, while some of the expenses were fully covered, the limits on certain heads such as ICU charges, room rent and ambulance service reduced the amount of reimbursement.

■ If the policyholder has another health insurance plan, he may be able to get the full claim.

■ In the case of multiple plans, insurers will bear the cost proportionately to the cover they offer.

■ Multiple health plans enlarge your cover but also makes the claim process cumbersome. You can avoid this by getting additional cover from the same insurance company.

■

policies. “There is a contribution clause in most policies. The expenses are shared by the insurers proportionately,” says Sanjay Datta, head of customer service (health and motor insurance) at ICICI Lombard General Insurance.

You may want to know why the person would claim from the second policy. After all, isn’t his `2 lakh cover from the first plan big enough to cover his expenses. Perhaps not, because unlike in the past, most health plans now have limits on the expenses under

different heads. For instance, there is usually a cap of 1% of the sum assured on the room rent per day. So, a `2-lakh policy will only reimburse up to `2,000 a day. This means that an insurance plan may not fully cover your medical expenses (see table). It is also a good reason why one should study the policy features in detail, especially the fine print on benefits, before buying one.

Financial planners advise that whenever the need for hospitalisation arises, one should

inform the third-party administrators (TPAs) of all the health policies held by the person. For instance, if you have three policies (one from your employer, one from your spouse’s employer and one bought on your own), you will need to mention that you have additional cover at the time of making a claim. Claim forms require the policyholder to state if he is covered under any other medical policy or group insurance scheme. “The policyholder can choose to claim from only one insurer. If he has another policy but the claim has been made only with us, we will process and settle the claim as per norms. Later, we can pursue with the other insurer for their share of the claim,” says Subrahmanyam B., vice-president & head, health vertical, Bharti AXA General Insurance.

However, if one of the policies has been bought recently and still in the waiting period, then the policyholder can claim only from one policy which is already in effect.

Insurance companies require you to submit original bills and documents at the time of making a claim. Since you will be claiming from more than one insurer, request the hospital to provide you with certified duplicate copies of the treatment summary, bills and discharge slips. That’s easier said than done because hospitals are fussy about these things. If your hospital is not helpful, submit the originals to the primary insurer and attested photocopies to the others. Like we said, if all insurers are in the loop, you will not face any problem.

Please send your feedback to etwealth@indiatimes.com

24

Learn & Keep

2 LIST OF YOUR MUTUAL FUNDS, STOCKS and FDs

LIQUID ASSETS CURRENT VALUE (`) Cash Savings account Recurring deposit Jewellery Life insurance (cash value)* INVESTMENTS Fixed deposits Bonds Mutual funds Stocks Post office savings Value of property POSSESSIONS

WHAT IS YOURS

YOUR LATEST TAX RETURN

1

WHAT YOU NEED

3

4

CALCULATOR

5

A GOOD MEMORY

OUTSTANDING LOANS CURRENT VALUE(`) Home loan Car loan Personal loan Education loan Business loan Loan from friend/relative DEBT Credit card dues 1 Credit card dues 2 Income tax dues Term plan premium (annual) Health insurance premium Utility dues Advance from employer

WHAT IS NOT

SALARY SLIP

Starting this week, ET Wealth will equip you with the resources necessary to achieve your financial goals. But to reach the finishing line, you must first know where the race begins. Use this worksheet to find out your current financial status. Experts call it a net-worth calculation.

We think it is the first step of a long journey.

THE FIRST STEP

INTELLIGENT INVESTING:

The Economic Times Wealth, December 13, 2010

The difference between the value of your assets and liabilities is your current net worth. If this is not positive, ring the alarm because your finances are in deep trouble.

A

Your own calculation

Rs 47 lakh R

Reasons for target: - Stable income - Stable expenses - Medium risk appetite - Income from accumulated investments

45%

4. Next 10 years (41-50 years) Target increase over current net worth:

-Maximum career growth -Minimal responsibility -High risk appetite -More time to supplement income

Reasons for target:

50%

1. First five years of your career: (25-30 years) Target increase over current net worth:

Rs 69 lakh

Net Amount

Rs 23 lakh

Net Amount

An example of how you can break-up the target net worth over your career span

- Prepayment of loans (decrease in liabilities) - Stable expenses - Peak in career - Low risk appetite

Reasons for target:

45%

3. Last 10 years (51-60 years) Target increase over current net worth:

- Medium risk appetite - High growth in income -Increase in loan consumption

Reasons for target:

50%

Alimony Others TOTAL: B

Rs 1 crore

Finishing Line

Rs 34 lakh

Text by Kamya Jaiswal, Graphic by Alankar

Hopefully, the beginning of a carefree retirement

- Peaking expenses - High-medium risk appetite - High loan consumption

Reasons for target:

40%

3. Third five years (36-40 years) Target increase over current net worth:

Pay up the small loans and outstanding bills from excess cash in your savings account Fix an appointment with your banker to discuss snowballing total EMIs (if they are from the same bank) Fix a repayment schedule of the advance from your employer Hunt for any investment documents you couldn’t find and hence did not include Invest in small repairs that will improve value of assets like a house

Net Amount

■

■

■

■

■

Quick 5 to improve the result

2. Second five years: (31-35 years) Target increase over current net worth:

FINANCIAL ROAD MAP

Net Amount

Rs 15 lakh

Starting point

B

A

The starting point: A-B

Resale value of cars* Value of antiques/heirlooms Furniture Electronic goods TOTAL:

26

Family Finances

The Economic Times Wealth, December 13, 2010

SHOME BASU

“My father used to invest in stocks.

So I am not intimidated by equities.”

BHAVESH KUMAR, EXPLAINING HIS HIGHRISK APPETITE AND COMFORT WITH STOCKS AND MUTUAL FUNDS.

Bhavesh and Sonia Kumar with their sons and Bhavesh’s mother

An Easy Goal Path

Kumars’ asset allocation

7%

Gold

38%

Real estate

23%

Equities

31% Debt

Goal

3%

EXISTING

Gold

23% Debt

PROPOSED

74%

Equities

78.5

`

lakh

is the approximate current net worth of the Kumars

Years to achieve

Future cost (`)

Resources used

Further investment required (`/ pm)

Car

1

4 lakh

Bonds and FDs

Nil

Education of son

4

18.9 lakh

Direct equity

Nil

Education of son

9

25.3 lakh

Direct equity Infrastructure funds Equity funds

Nil

Second house

15

1.44 crore

Equity funds Current SIPs in funds PPF

18,500

Retirement corpus

15

8.4 crore

Equity fund SIPs PPF (staggered) Ulip, PPF (free of lock in), Gold ETF

1.5 lakh

Inflation assumed to be 6% per annum; Ulip and mutual funds assumed to earn 12% bonds, FDs and PPF 8% and infrastructure funds 9% per annum A comprehensive financial plan has been emailed to the Kumars

Family Finances

The Economic Times Wealth, December 13, 2010

27

DOUBLE-INCOME FAMILIES

Road to completion

Well-diversified investments, the majority of goals easily achievable Sorely inadequate life insurance cover in the mid-40s High rate of savings though about 58% of surplus is not invested

Can the Kumars build a sizeable nest egg despite a late start?

KAMYA JAISWAL

M

y wife is a banker but I am more money savvy of the two,” jokes 44-year-old Bhavesh Kumar. A junior specialist in surgery with the Delhi government, he is referring to his PPF corpus which comes to `1.2 lakh. This is far smaller than his wife, Sonia's bundle of `7.5 lakh. The reason: He prefers high-return equities to safe havens.

To judge which strategy is better is to enter a thorny territory of couple-dom. Actually, the Kumars must be complimented for a wellbalanced financial plan with the right mix of safety and aggression. On one hand, Sonia's favourites—bonds, FDs, debt funds, MIPs and PPF—have built a debt cushion of close to `24 lakh. On the other, Bhavesh's kitty of equity mutual funds and stocks accelerates the process of wealth creation.

Not that Bhavesh has been a risk lover for a long time. He began dabbling in equities only in 2000. Until then, he too contributed to the debt cushion. “I am a late bloomer,” he explains, adding that there were practical reasons like a low disposable income for being a conservative investor. It was only when his wife opted for voluntary retirement from her previous job that the couple became cash-rich and started funnelling money into equities.

The decision came at a good time. In the past 10 years, the Kumars' portfolio has grown at a fast clip as they increased equity exposure with proportionate rise in income. As a result, their

collection of stocks and funds is enough for the education of their two sons, Kushagra and Moksh. The current SIPs, totalling `18,500 in four mutual funds, are enough to build a corpus for buying a second house as well. However, it falls short of an important goal: retirement.

For this, they will have to further increase equity exposure by about `1. 5 lakh. The figure sounds intimidating, but it may not be so, given Kumars’ commitment to wealth creation. Of this, `50,000 can be easily squeezed out of the couple’s current income. Bhavesh and Sonia bring home `1.4 lakh a month, of which `50,000 is skimmed off by expenses. From the surplus of `90,000, existing investments including annual premiums of four insurance policies, SIPs and PPF contribution take away another `37,885. This means every month, the couple has handy cash of `52,115, much of which is collected in a sweep-in account. The balance `1 lakh can be saved over time as the couple’s income rises. Bulk payments such as gratuity and PF also lower the investment requirement. We have not factored that in because this amount will depend on the couple’s future career path.

SKP Securities recommends that the Kumars invest this money in funds such as HDFC Equity, DSPBR Equity, Reliance Growth, Fidelity Equity and Franklin Bluechip Fund. These are primarily equity diversified funds which have the lowest risk profile among all fund categories but are among the best money spinners in the long term.

In addition, the three MIPs and some of the

KUMARS’ BEST MOVES… Buying a 2-BHK apartment early in their career Increasing equity exposure in proportion to increase in salaries Diversifying investments across all asset classes, and within each investment category Building a debt cushion Complementing each other’s financial strategies …AND THE WORST Buying expensive traditional insurance plans Inadequate life cover for both Bhavesh and Sonia Not exploiting their high risk appetite Under-utilising surplus by not investing it FDs in their portfolio can also be switched into equity funds. At this stage, the couple do not require additional sources of income. To further accelerate wealth creation, Sonia can consider switching to the growth option in her Ulip.

These changes will automatically reorient the asset allocation of the couple's portfolio in favour of equities. However, to keep the debt cushion growing simultaneously, Bhavesh and Sonia can continue with their current PPF contributions.

The Kumars must be lauded for diversifying

to almost text-book perfection. Not only do they have a finger in debt, equities, realty and gold, they have also distributed investments within each asset class.

One place where the financial plan is severely lacking is life insurance. For a couple earning well and with multiple responsibilities, the life cover of `14.5 lakh is abysmal. Bhavesh recognises the flaw: “My cover is inadequate. I have also bought very expensive plans. But can I afford a term plan now?”

The answer is yes. Bhavesh and Sonia must pick up term plans which collectively cover them for `1.2 crore. This can be split in the ratio of their incomes. The total annual premium will be about `6,500.

The good news is they don't have to dig into their cash flow to pay the money. An easy way is to convert the existing money-back plans, Postal Life Insurance and endowment plan into paid-up policies. By doing this, the couple will not have to forego the past premiums and a part of their sum assured will also be retained.

The money freed up can be diverted to the term plans. One caveat: A policy that is 1-3 years away from maturity should not be converted as the opportunity cost of completing the tenure is low.

Bhavesh is also doubtful about his health insurance. Though his employer’s plan covers the entire family, it restricts treatment to empanelled hospitals. Bhavesh’s concern is valid. It is always better to buy an additional plan for protection when in between jobs or after retirement. Even though Sonia is covered for `2.5 lakh by her employers, we suggest the couple buy a `5-lakh family floater plan for the entire family.

The couple already own a 2-BHK apartment bought in 1999 for which the loan has been repaid. Such a zero debt life is a luxury for people in their 40s. The jury is still out on the right time to buy property. But here is a perfect example of how an early start boosts investment capacity in times of high expenses.

This also ensures there is little chance of a financial crisis in the Kumar family. However, life can dish out nasty surprises. To prevent them from destroying their plan, the couple must salt away about `3 lakh in liquid funds.

With the help of SIPs and other tech tools, much of this plan can be automated. The couple must review their progress every six months, but that is about all. This leaves enough time to bandy about whose financial acumen is better. Of course, we know that it takes two to tango.

Financial plan by Naresh Pachisia, managing director, SKP Securities Need help with your family finances?

Write to us at etwealth@indiatimes.com

28

Financial Planning

The Economic Times Wealth, December 13, 2010

THE MONEY

Paper Work

QUESTION

Demat your shares

Nitin and Asha have moved to Delhi from Bangalore after Nitin got a promotion. They have a 20-year-old daughter who plans to study business management. The couple owns a house in Bangalore, which was bought with a housing loan. They still have eight more years to repay that loan.

Nitin and Asha think it would be a good idea to buy a house in Delhi.

Instead of paying rent they could pay the EMI and build another solid asset. What would be the financial implications of this strategy?

So you have been postponing the decision to demat your equity shares, acquired over many years, because you are holding them in various combinations of your family member names? In the early 1990s when IPO investing was a big fad, it was common practice to apply for and hold paper securities, in various combinations of family member names. These securities cannot be sold in the stock markets now unless you demat them. Investors worry about the paperwork and the costs. There is a simple facility offered by depositories to solve your problem. It is called transposition.

WHAT? If several shares are held by the same number of joint holders but in various orders and combinations, they can be dematerialized into a single demat account, by a process called transposition. For example, equity shares held by husband and wife, with some where husband is first holder, and others with wife as first holder, can be transposed into a single demat account, where both husband and wife are joint holders.

B

uying a house is a big-ticket investment and usually requires a large loan. Assuming that the couple will take a loan, servicing two large EMIs requires a higher level of income and savings. If they do not have a big disposable income, they would end up using costly personal loans and credit card rollovers to meet their short-term needs. The two EMIs will restrict their investments in other assets and make their portfolio lop-sided and inflexible, with two houses, both large but illiquid. This could also prevent them from achieving other crucial financial goals. Raising money for their daughter’s education and marriage would become quite tough.

While the thought of building an asset instead of paying the rent is alluring, the two are not comparable. Rental values have not risen as fast as property prices have in the past few years. In a city like Delhi, monthly rent is seldom more than 1-2% of the value of a property. On the other hand, the interest rate on home loans can be as high as 11%. The household will stretch its finances to build an asset which is tough to sell or earn income from. The appreciation in its value may be of little actual use to the family.

It might be wiser for them to live on rent in the new city or sell the property in Bangalore to buy a new one in Delhi.

HOW?

1 Collect from your depository participant (DP), two forms demat requisition form (DRF) and transposition request form (TRF).

Some DPs also provide a combined dematcum-transposition form.

ALANKAR

How to max your take-home salary pg 42

2 Fill up the forms, attach your paper certificates

SMART THINGS TO KNOW: Your PPF Account

1

2

3

4

5

6

3

5 31 An individual can have only one PPF account. He can open an account in his minor child's name. This applies across post offices and banks that open such accounts.

If you opened two PPF accounts long ago, close the second. Your bank or post office will return the principal invested without interest on your second PPF account.

There is no concept of joint holding in a PPF account. It has to be in a single name only. You can however nominate your dependents to your PPF account.

DEPOSITORY PARTICIPANTS

Interest is computed on the minimum balance between the 5th and end of a month. If you are investing a lump sum to save tax, deposit the amount before March 5 of the year.

Points to note You cannot offer the balance in your PPF account as collateral to take a loan.

Ensure that PPF is not your only investing vehicle.

Nominees can claim the balance in the PPF account with interest on the death of the account holder. They cannot continue the account or make additional contributions.

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

Get the shares demat and transposed into your new demat account, and you are now able to sell the shares in the market!

One form for each ISIN Equity shares held in a depository have a unique number called ISIN. You have to fill up one form for each unique ISIN. For example, if you are holding two variants of holdings in the shares of Reliance Industries Ltd and the same two variants for HDFC Bank Ltd, you have to fill up a TRF for each ISIN. Signatures have to tally All joint holders have to sign the forms, and signatures have to match with the existing records with the registrar.

Guest Column

The Economic Times Wealth, December 13, 2010

FINANCIAL PLANNING

Buying IPOs? Think again The overdose of advertisements, analysis and discussions before an IPO tend to increase investor eagerness, rather than create the ground for discerning and cautious buying, says Uma Shashikant

A

ll of us love quick money. We feel very good if we bought into an IPO and it lists at a premium. We bask in the glory of our achievement.

There is a psychological high in having made a smart investment choice. But is investing in an IPO the best way to grow our wealth? There are four reasons why it is not.

First, the company making the IPO places detailed information in public domain and advertises itself extensively. If you are hearing the name of a company for the first time through ads and hoardings all over town, you know it has filed for an IPO. You run the risk of buying the stock amidst an artificial buzz for the company. It would take a good reading of the prospectus to get an idea about the business, the management, the risks and the returns.

Despite the availability of information, there is limited quality analysis available to investors when the issuer is focused on ‘marketing’. Amidst several recommendations to buy or ignore the IPO, investors run the risk of biased analysis and herding.

Second, the pricing of an IPO is a puzzle.

If it is priced cheap, the issuer places money on the table for the investor to pick up. Common sense tells us that they are unlikely to do this, unless desperate for subscription. If such IPOs list at a premium—as they are bound to due to cheap pricing—the subsequent IPOs are gradually priced higher. Investors begin to believe that all IPOs will list at a premium, and eagerly buy newer IPOs at higher prices. As more IPOs list at a premium, the pricing gets more ambitious, thus reducing the chances of a premium listing. A cheap IPO is thus a phenomenon that will correct itself, sooner than later and investors may end up holding an expensive IPO when the cycle ends at the height of investor frenzy.

Third, the amount invested in an IPO may not be significant. The more popular and over-subscribed an IPO, the lower the allotment to investors. Therefore, an investor has small amounts invested in several IPOs. Even if some of them turn out to be multi-baggers, the impact on the investors’ overall wealth would be limited.

Unless there is a significant accumulation of a winning stock, three-digit gains may not make a difference. If you had invested `10,000 in the HDFC Bank IPO at `35

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

RAJ

IPO investors end up with several stocks of mixed quality. Wealth creation needs greater focus. several years ago, you have a tidy profit, but how much of your current wealth is in that stock? Habitual IPO investors typically end up with several stocks of mixed quality.

Wealth creation needs greater focus.

Fourth, the lure of listing profits can lead many to borrow to invest, or participate in sharp practices. Many lend their demat accounts for a fee, indulge in grey market trading before listing, and file multiple applications. These come with the thrills of speculation and the risks of leverage. To large and wealthy investors, these are games. Small investors with limited wealth may also behave callously with their money. Instead of aligning investment habits to their abilities and wealth, they may take undue risks. IPOs can trap even the sanest to taste quick gains.

Should IPOs have a place in the portfolio of an investor? Yes, they should, but only as a smaller portion, not as a core strategy to build wealth. A small amount can be churned around in IPOs, while the core portfolio is held for the long term. Many of us buy an IPO with the intent to sell at a profit on listing. When it lists low or sinks after listing, we quickly convert it into a ‘long-term’ buy. This is one IPO habit to be shunned at all costs, since it is the surest way to hold junk in the portfolio.

Please send your feedback to etwealth@indiatimes.com

29

30

Mis-selling

The Economic Times Wealth, December 13, 2010

MYSTERY BUYING

Unnecessary products, misleading returns... ...everything about financial strategy advised to Kamya Jaiswal was incorrect. ET Wealth kick-starts a series on mis-selling by meeting a bank relationship manager who twisted every rule of financial planning.

WHAT I WAS TOLD:

WHAT IS WRONG:

Exit equity mutual funds after eight months or so

Mutual funds give best returns in the long term and must not be churned regularly. Any transaction within one year of buying a fund also attracts short-term capital gains tax at 20%

You need life cover because you earn

I do not need insurance as I have no dependents. The only reason for buying a policy now is that it is cheaper at a lower age

Ulip is the best type of life insurance

Term plans are the cheapest form of life insurance. Also, the type of insurance that is most appropriate for a person depends on his needs and profile

This Ulip guarantees the highest returns earned by the market during the plan’s tenure

The highest NAV of the Ulip is not synced with the market. The insurer shifts investments to debt to "guarantee" returns at the highest NAV they desire

We don't need the details of your husband's income or investments

Disconnect between strategies of the spouses can lead to miscalculation of goals, debt burden, incorrect asset allocation and inadequate savings

You can't predict returns from a moneyback policy

The degree of uncertainty is minimal.

Typically, traditional policies give 6-7% annual returns

I

t took a little over 30 minutes. She asked four questions, filled a page with squiggles and gave me three forms to sign. My financial plan for the next 10 years was ready.

This is why my friends had been gushing about the efficiency of bank relationship managers (RM). Of course, I seemed to have hit upon a finance wizard.

Her speed made sloppy fools of advisers who take several meetings to come up with a plan.

She didn't bother me with intrusive questions either. I was posing as a newly married woman, eager to kickstart wealth creation. For this, I had conjured a fictitious husband with a salary of `1 lakh a month and a list of investments.

I should have put my imagination to better use. The RM did not ask anything about my husband. When I tried to offer the details, she cut me short: “Madam, it is your financial plan. There is no need for your husband's details.” One up for women’s liberation. I felt sorry for experts

who have penned books on the importance of aligning the investments of spouses.

The plan itself was simple and short. I claimed to save `30,000 from my salary of `65,000 a month and told her that I wanted to buy a car in the next year or so.

Her first advice was to squirrel away `6,000-7,000 a month in a recurring deposit: “The interest rate is just 6-7% but the liquidity is high,” she said. I was impressed. She was going by the textbook rule of financial planning: for short-term goals, invest in debt instruments.

But my happiness bubble burst soon after. “The rate is low. We advise mutual funds for the short term as well. They are equally liquid. But this deposit will act as a saving that you don't have to monitor,” she added. Mutual funds for the short term?

Was she referring to liquid funds? “No, equity funds which give 12-15% returns,” the RM clarified.

We shifted to a quiet corner to discuss long-term investments. “I suggest you opt

for more videos and images visit : http://tinyurl.com/37zw99t

for an equity-oriented plan with an attached life cover,” she said. I interrupted her with information she felt no need for: “But I have no dependants. Is that not why people buy insurance?”

Her reply was quick: “You earn `65,000 a month. So your life has some value for your parents and husband.” To think so long I had assumed my parents loved me for reasons other than my salary. Will I also land a husband with mercenary motivations?

The RM started listing the products I

ought to invest in. No guesses, a Ulip was the first suggestion. “Our company launched this scheme which is a huge hit.

Let's say you invest `50,000 as premium.

You get a life cover of `5 lakh and earn returns. The lock-in is for five years. If you invest for seven years, there is a highest NAV guarantee,” she said.

It was the word I was dreading — guarantee. I asked her to explain the concept of highest NAV. “Let's suppose the NAV is `10 when you invest. During the seven years, the market reaches a peak of, say, 21000 and the NAV becomes `20. Your profit will be booked on that day. Even if the market goes down and your NAV declines, you will get the returns as per the NAV of `20,” she answered.

It sounded like a dream deal. Unless you knew how insurers fix the highest NAV. The link to the market movement was as much fiction as my marriage. (see What is wrong). What about returns? “At least 15%.

The company launches these products regularly. The word ‘guaranteed’ is there.

You will at least get 15% return if you stay for five years,” she said emphatically. And if numbers weren't convincing enough, her anecdotes about earning more than 20% on Ulips nailed it.

Trying to sound evasive, I mentioned traditional insurance plans. “I can offer them, madam, but they give low returns. At your age you can play with your money. So invest in the market. Also, in moneyback policies, the bonus depends on how the company performs. You can't predict how much you will get. Ulips are the best insurance,” she concluded.

Assured returns from equities and uncertain returns on endowment and moneyback plans? As I stared at the RM in incredulity, she continued: “I think you should invest `1 lakh in the Ulip. Your tax saving under Section 80C will be done.

Then if you have money left, invest in a mutual fund.”

Poor funds, extolled by experts as worthy to be the core of your portfolio. For the RM, they were, at best, peripheral. To my shock, they were also short-term investments, best churned every 6-8 months. “Unlike Ulips, you must monitor funds carefully. When the market goes up, book profits,” she said.

What about the short-term capital gains tax that I will have to pay if I exit a fund under a year? I dared not ask. Meanwhile, she took out forms of the Ulip and two funds — ICICI Prudential Infrastructure and ICICI Discovery. Why these two?

“They have given more than 20% returns in the past year,” she said. No mention about their high risk or their long-term performance.

My meeting over, I promised to call after discussing the plan with my husband. The RM nodded and quickly moved on to the next customer. I was at the bank's entrance when, on a whim, I returned to hover around her cubicle pretending to look for something. She was engrossed in her explanation to the young man, “….the lock-in is for five years. After seven years you get the highest NAV…” Please send your feedback to etwealth@indiatimes.com

Your Queries

The Economic Times Wealth, December 13, 2010

31

QUESTION OF THE WEEK INSURANCE Taxation: Vaibhav Sankla, Founder Director, ADROIT

Mutual Funds: Dhirendra Kumar, CEO, Value Research

Insurance: Amit Suri, CFP, AUM, Financial Planners

Banking: V.N. Kulkarni, Chief Counsellor, Abhay Credit Counselling Centre

Real Estate: Subhankar Mitra, Associate Director, Jones Lang LaSalle India

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

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

MUTUAL FUNDS

I want to put 80% of my investments into equities for the long term. Will a debt fund be a good bet for the balance 20%?

If yes, what type of funds should i buy?

—Ankur Jain

While investing in a debt fund is certainly an option, you could also consider putting your money in a balanced fund which invests in a mix of debt and equities.

This way, you will be spared the bother of investing in two or three funds. Balanced funds have outperformed equity funds in the past few years.

BANKING

Can a mutual fund registrar reject a redemption claim on the basis

of a signature mismatch even when other details like bank account number and PAN are matching. What should an investor do in such a situation?

— Ravi Kumar, Delhi It is not uncommon for registrars to reject redemption requests if the signature doesn’t match. You should submit a fresh redemption request.

Also, it will help if you submit a letter from your bank manager wherein the signature is attested. The letter should also mention the bank manager’s name, his designation and employee code and should be on the bank’s letterhead.

TAXATION

I haven't filed returns for the past four years. However, TDS has been deducted. Can I file returns

for all four years and claim refunds now?

— Nitesh Garg

You can file late returns within two years from the end of a financial year. So, you can file returns for 2008-09 and 2009-10 only.

You will be eligible to claim refund for both these years. For the remaining two years, pay any tax that is due. If the late return is filed after the expiry of one year from the financial year, you could be charged a penalty of up to `5,000 unless you provide a valid reason for the delay.

My company contends that I must take privilege leave to claim LTA.

Ask Experts

Is it necessary to take privilege leave for claiming LTA? Can I claim the exemption on my own?

— Taral Shah

The tax law has not prescribed the minimum number of days’ leave that should be availed for claiming LTA exemption. Therefore, in my view, even one day’s leave will suffice for claiming LTA exemption. Yes, you can claim LTA exemption while filing your tax returns if the same is not considered by your employer. You have to reduce the amount of taxable salary as shown in Form 16 by the amount of LTA exemption and reflect such adjusted taxable salary in the tax return.

Have a question for our experts?

Post it at etwquery@indiatimes.com

Though I do not consume tobacco, medical tests conducted for buying a term plan showed that my nicotine levels were high.

The company has offered me a tobacco-user premium rate, which is high. I believe that my medical test samples were mishandled by the hospital. What options do I have now?

— P Rajesh

You should immediately ask the insurance company to reconsider the medical test based on your tobacco habits. If possible, also provide a medical test report from a reputed pathology lab along with the reconsideration request. On the basis of that, the company can get another test done and will take a revised decision based on the fresh test reports. The policy thus issued after reconsidering your request shall not have any adverse affect on your policy records. This is not a case of malpractice till it is established that the insurance company is using the same tactic with other clients as well.

smart stats

In This Section ET Funds 100 Insurance ranking Global investing

34 36 37

Loans and deposits 38 39 Real estate City profile: Mumbai 40

ET WEALTH TOP 100 STOCKS Every week we will put some 3000-odd traded stocks through four key filters and rate them on a mix of factors.

And finally, we will showcase the top 100 based on the composite rating to help ease your fortune hunting.

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

112

NMDC

110

Godrej Consumer Products

96

See revenue column in the adjacent table

Least Expensive Stocks 5 stocks with lowest PE Prakash Industries

4.45

ICSA India

4.89

KS Oils

5.98

Texmaco

6.31

Orient Paper & Ind.

6.43 PE is based on 10 Dec 2010 prices

See PE column in adjacent table

Best PEGs Top 5 stocks with least PEG ratio

0.04

0.04

Jubilant Life Sciences

OVERALL RANK

117

Gujarat NRE Coke

3i Infotech

G

683

Gujarat NRE Coke

0.06

0.06

Mercator Lines

0.06

Godawari Power & Ispat

See PEG column in adjacent table

Income Generators Top 5 stocks with highest dividend yield Gateway Distriparks| 4.96 NIIT Technologies | 3.76 Shipping Corp of India | 3.59 Great Eastern Shipping Co | 3.52 3i Infotech | 2.86 Dividend stocks are considered safe stocks during a downturn. Figures indicate what an investor can earn as dividend for every Rs 100 invested

See dividend yield column in adjacent table

Least Risky Top 5 stocks with lowest downside risk Bosch

0.83 Power Grid Corp of India

Bharat Heavy Electricals

0.90

0.89 Oil & Natural Gas Corp

0.96 Shiv-Vani Oil & Gas Explora

0.97 See downside risk and beta columns in adjacent table

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

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

R

Revenue

49.99 35.55 78.90 68.38 53.94 59.82 85.96 44.10 64.53 19.62 21.50 37.69 39.38 46.75 14.68 49.67 37.85 86.39 48.68 682.82 29.54 58.32 36.25 111.54 65.91 79.03 42.81 37.50 21.20 22.91 29.79 39.35 61.42 38.28 40.92 37.14 31.96 39.46 30.67 24.59 55.43 61.28 34.15 24.76 16.29 40.13 23.31 40.00 37.82 42.00 13.13 74.46 50.86 25.17 38.85 27.08 33.28 21.00 35.31 18.32 26.24 10.88 58.09 35.40 50.78 47.17 44.64 20.77 51.80

O

W

T

Net Profit

97.87 148.27 104.97 93.64 65.90 73.29 102.71 56.31 75.58 56.65 25.50 305.93 251.55 32.08 758.68 75.85 40.03 71.68 84.59 584.60 124.40 72.82 36.33 7652.28 97.78 391.89 55.78 27.74 61.18 33.97 41.34 20.19 203.78 100.99 73.19 37.73 55.22 44.21 41.04 50.15 70.49 155.37 25.53 48.48 47.87 30.99 49.84 41.37 28.34 46.46 51.04 24.73 49.76 17.73 64.11 2404.16 48.21 22.12 74.73 46.10 282.13 104.76 75.70 40.47 42.41 62.07 42.18 56.10 69.09

H

% EPS

97.88 133.45 113.19 62.20 65.87 74.55 56.26 48.31 53.38 56.04 244.17 272.83 193.16 30.37 710.33 59.54 37.70 71.92 74.01 581.38 58.85 71.03 35.73 2127.17 81.76 348.54 54.42 25.81 60.29 34.82 31.15 61.92 204.27 102.51 71.14 36.31 59.03 44.34 29.77 41.17 33.38 163.81 32.12 42.07 48.21 60.61 40.10 32.02 26.44 48.23 50.14 24.75 33.77 17.74 59.28 2119.18 47.99 22.06 68.64 38.52 283.29 99.93 54.24 40.18 46.51 64.60 44.09 33.45 64.11

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

10.75 8.34 11.37 6.68 14.24 21.57 10.55 5.98 9.23 10.01 9.52 47.39 25.92 8.53 29.17 9.09 7.06 24.18 21.91 59.02 9.69 27.10 8.70 132.51 14.66 22.29 18.96 9.57 15.76 14.61 8.79 14.09 38.25 21.51 32.04 7.39 20.48 11.61 4.89 12.25 12.90 66.32 11.63 6.31 12.43 13.11 14.39 19.71 13.75 25.32 10.39 6.78 7.76 6.43 24.39 515.61 17.52 9.44 28.24 13.86 85.96 9.66 21.21 20.02 14.67 27.71 21.60 10.41 32.61

R A T I O S

P/B

Div Yield

PEG

1.26 0.96 1.16 2.55 1.22 2.49 0.93 0.93 1.89 0.90 1.96 1.39 8.78 1.53 0.99 3.09 1.15 6.90 1.84 1.83 0.52 15.90 1.90 2.24 0.89 0.55 4.73 1.52 0.94 2.79 1.53 1.50 9.19 1.44 9.99 1.29 5.70 3.75 0.84 2.13 2.25 3.15 2.79 1.10 1.73 2.04 2.53 2.52 1.64 6.89 1.97 1.50 0.84 1.31 5.96 1.98 5.47 1.17 5.88 1.83 8.01 1.61 1.48 4.77 3.69 1.95 3.91 0.90 6.86

1.46 1.42 0.77 0.42 2.47 2.22 0.00 0.59 1.00 3.52 0.74 0.69 1.18 2.84 2.86 1.11 1.11 1.07 0.79 0.00 0.42 1.31 3.76 1.81 0.00 0.41 1.54 2.15 3.59 2.50 0.26 0.57 0.60 1.36 1.61 0.59 1.07 0.53 1.31 0.71 0.89 1.08 1.37 1.97 2.69 0.78 1.16 1.57 4.96 1.05 1.02 1.11 0.00 2.78 1.22 0.96 1.84 1.58 0.96 2.57 0.62 0.54 0.33 0.87 0.69 0.70 1.50 0.63 0.50

0.11 0.06 0.10 0.11 0.22 0.29 0.19 0.12 0.17 0.18 0.04 0.17 0.13 0.28 0.04 0.15 0.19 0.34 0.30 0.10 0.16 0.38 0.24 0.06 0.18 0.06 0.35 0.37 0.26 0.42 0.28 0.23 0.19 0.21 0.45 0.20 0.35 0.26 0.16 0.30 0.39 0.40 0.36 0.15 0.26 0.22 0.36 0.62 0.52 0.52 0.21 0.27 0.23 0.36 0.41 0.24 0.37 0.43 0.41 0.36 0.30 0.10 0.39 0.50 0.32 0.43 0.49 0.31 0.51

R I S K Downside Risk

1.41 1.78 1.25 1.09 1.20 1.39 1.94 1.87 1.70 1.43 1.19 1.31 1.62 1.62 1.36 1.78 1.34 1.65 1.78 1.24 1.72 1.11 1.36 2.15 1.30 1.96 1.22 1.33 1.28 0.96 0.97 1.60 1.16 1.73 0.98 1.43 1.16 1.53 1.63 1.06 1.77 1.20 1.17 4.07 1.42 1.46 1.39 0.90 1.33 0.89 1.73 2.37 2.28 1.44 1.26 2.08 1.43 1.08 1.42 1.36 1.12 2.06 1.85 1.15 1.65 1.64 1.46 2.04 0.83

R A T I N G

Bear Beta

No. of Analysts

Consensus Rating

1.18 1.63 0.83 0.95 1.23 1.50 1.94 1.33 1.43 1.87 0.82 0.91 1.84 1.19 1.37 1.69 1.43 1.11 1.78 0.96 1.07 0.68 0.94 1.88 0.53 2.56 1.00 0.83 1.55 0.57 0.41 1.32 0.69 1.61 0.48 1.43 0.07 0.69 1.60 0.92 2.30 0.85 0.71 1.58 1.20 0.66 0.94 0.62 0.75 0.77 1.23 2.11 1.41 1.03 0.53 2.01 0.87 1.05 0.82 1.25 0.43 2.00 2.10 0.77 1.11 1.61 0.86 1.66 0.34

15 15 6 5 8 46 31 8 7 17 25 11 45 10 7 34 11 31 20 32 5 57 6 6 6 7 13 15 13 47 15 40 29 9 11 8 10 16 7 43 49 7 25 7 13 7 20 31 13 48 7 6 5 9 13 31 8 15 17 16 46 25 35 23 8 38 34 12 9

5.00 4.87 4.50 5.00 4.00 3.98 4.42 5.00 4.71 4.47 4.76 4.73 4.64 4.90 4.43 3.38 4.64 4.71 4.80 3.06 5.00 3.79 4.67 4.00 3.17 4.00 4.54 4.47 3.85 4.28 4.73 4.53 3.79 3.78 4.55 5.00 4.80 4.94 4.43 3.84 3.86 4.00 4.48 4.00 4.08 4.43 4.65 3.94 4.46 4.04 5.00 4.83 4.60 4.78 4.15 4.13 4.63 4.53 4.47 4.06 3.65 3.20 3.60 4.70 4.63 3.37 3.56 4.92 4.44

Smart Stats

The Economic Times Wealth, December 13, 2010

Analysts’ Pets

G OVERALL RANK

Top 5 stocks with only buy recommendation Nagarjuna Construction Co Prakash Industries WABCO-TVS India GVK Power & Infrastructure Jyothy Laboratories Redington India HCL Technologies Exide Industries Godrej Consumer Products McLeod Russel India IRB Infrastructure Developers Patel Engineering Indraprastha Gas NMDC Cadila Healthcare Gujarat Gas Co Ratnamani Metals & Tubes Glenmark Pharmaceuticals Polaris Software Lab Apollo Hospitals Enterprise Lt Tata Consultancy Services Monnet Ispat & Energy Simplex Infrastructures Sun TV Network Ranbaxy Laboratories National Aluminium Co Sun Pharmaceutical Industries Unichem Laboratories Lupin Sintex Industries Allcargo Global Logistics

15 Usha Martin 10 Prakash Industries 8 Allied Digital Services 8 KS Oils 2 Deccan Chronicle Holdings Figures are number of analysts tracking the stock. See column 12 in table.

METHODOLOGY

Four filters used to arrive at Top 100 stocks Only traded stocks: Of the 7,000-odd listed stocks, only 3,734 are currently traded. We considered only these stocks.

Only big stocks: Companies with a market cap below Rs 500 crore and annual revenues lower than Rs 500 crore were dropped. This narrowed the universe to 564.

Only well tracked: We picked stocks that are tracked by at least 5 analysts. This brought the list down to 305 stocks.

Only profitable and growing: We considered stocks expected to show revenue growth in the next 4 quarters (list down to 246), net profit growth in the next 4 quarters (down to 224) and EPS growth in the next 4 quarters (down further to 213) were considered. The final filters were companies that made profits in past 4 quarters and have a positive net worth.

Having arrived at the final stocks universe, we ranked them using the following four principles. A percentile rating (ie on a 1-100 scale) is given to each parameter and the composite ranking is arrived at using the weighted average of these parameters.

1. Growth is the key ...

Total weight: 30%, which is further split into 10% weight to revenue growth (higher the better), 10% weight to net profit growth (higher the better) and 10% to growth in EPS (higher the better). Growth is calculated by comparing the "consensus estimate" for the next 12 months with the historical 12 month values.

2. ... But only at reasonable valuation Total weight: 40%, which comprises 10% weight to P/E ratio (lower the better), 10% to P/B ratio (lower the better), 10% to dividend yield (higher the better) and another 10% to PEG ratio (lower the better) 3. Analysts' views matter ...

Total Weight: 20%—this consisted of 10% weight to the total number of analysts covering the stock (higher the better) and 10% to consensus rating (a composite ▲

▼

Rating rationale

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

R

Revenue

39.35 37.35 66.84 27.74 45.87 30.60 38.62 37.37 96.11 22.35 117.37 32.27 82.02 110.46 37.92 46.01 26.75 33.04 19.26 42.87 41.68 55.41 30.42 43.33 28.85 26.48 53.24 32.19 36.25 43.47 33.23

O

W

T

Net Profit

18.40 42.14 80.95 134.79 53.84 44.51 47.91 56.38 63.64 26.76 37.99 20.51 33.37 124.42 52.05 48.70 20.76 62.99 17.58 56.79 31.81 33.53 43.15 53.74 304.86 64.90 43.69 37.24 44.54 50.70 35.61

H

%

V A L U A T I O N

R A T I O S

EPS

P/E

P/B

Div Yield

17.66 13.84 81.01 85.65 43.65 45.40 44.39 46.14 55.60 35.45 37.10 20.39 32.72 122.85 52.42 47.36 18.68 60.50 17.01 55.44 32.72 21.92 41.90 54.28 341.83 68.45 43.88 37.72 39.89 35.57 27.18

11.21 4.45 24.67 36.71 26.43 17.16 23.11 26.64 34.45 9.43 17.29 9.92 20.45 28.68 30.40 28.52 6.88 28.93 8.54 42.38 29.81 10.04 16.30 38.93 78.39 28.37 34.92 18.51 28.64 15.86 13.27

1.44 0.86 7.14 1.87 5.07 2.95 4.66 7.26 12.60 1.59 3.27 1.57 5.34 6.93 9.43 6.44 1.54 4.12 1.58 3.53 11.33 3.42 2.12 10.73 5.35 2.22 6.00 4.05 7.85 2.70 1.91

1.06 0.00 0.24 0.00 1.50 1.25 1.06 0.80 1.07 2.05 0.78 0.66 1.42 0.71 0.68 2.12 1.78 0.11 2.29 0.76 1.87 0.00 0.48 1.46 0.00 0.70 0.61 1.60 0.61 0.33 0.67

rating based on the recommendations by all analysts who track a stock - higher the better).

4. ... So do the risks Total weight: 10% Two kinds of risks were considered. Downside risk (lower the better—5% weight) and Bear Beta (lower the better—5% weight)

PEG

0.63 0.32 0.30 0.43 0.61 0.38 0.52 0.58 0.62 0.27 0.47 0.49 0.63 0.23 0.58 0.60 0.37 0.48 0.50 0.76 0.91 0.46 0.39 0.72 0.23 0.41 0.80 0.49 0.72 0.45 0.49

R I S K Downside Risk

1.57 2.00 1.52 1.31 1.48 1.23 1.43 1.30 1.48 1.85 1.73 1.33 1.42 1.63 1.08 1.11 1.42 1.34 1.56 1.34 1.05 1.17 1.43 1.20 1.20 1.25 1.01 1.50 1.06 1.50 1.21

33

R A T I N G

Bear Beta

No. of Analysts

Consensus Rating

1.39 1.86 1.37 1.42 0.50 0.63 1.35 0.76 0.27 1.19 1.58 1.57 0.63 1.41 0.05 0.98 1.21 0.96 1.19 0.80 0.92 1.11 0.69 0.93 1.32 1.02 0.25 0.79 0.70 1.43 0.67

38 10 5 21 12 5 54 28 30 5 30 26 25 13 34 16 6 36 14 14 62 9 26 34 40 32 43 7 43 16 9

4.63 5.00 5.00 4.52 4.25 4.20 4.06 4.50 3.80 4.60 4.10 4.85 3.88 2.38 4.06 3.44 4.50 4.36 4.71 4.57 4.18 4.78 3.73 3.76 3.20 1.47 3.60 4.57 4.28 4.31 4.22

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

34

Smart Stats

The Economic Times Wealth, December 13, 2010

ETW FUNDS 100 B E S T

F U N D S

T O

B U I L D

Y O U R

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

P O R T F O L I O

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

LAGGARDS

Equity: Large- Cap 5-year returns DSPBR Top 100 Equity Reg

VALUE RESEARCH FUND RATING

Equity: Large-Cap

NET ASSETS (` CR)

R E T U R N S 3-MONTHS 6-MONTHS

1-YEAR

( % ) 3-YEARS

5-YEARS

22.02

EXPENSE RATIO

Franklin India Bluechip

19.89

Franklin India Bluechip

3,358.07

1.71

16.17

19.79

4.76

19.89

1.85

DSPBR Top 100 Equity Reg

2,773.27

1.68

13.18

12.57

4.08

22.02

1.86

DWS Alpha Equity Regular

IDFC Imperial Equity Plan A

514.74

-0.18

11.31

12.36

3.49

-

2.33

19.34

HDFC Index Sensex Plus

58.78

1.57

14.57

15.39

3.28

18.79

1.00

Sahara Growth

ICICI Prudential Growth Inst I

11.59

3.20

16.20

16.48

2.95

-

2.28

Sahara Growth

6.23

-3.58

9.42

6.59

1.71

18.97

2.50

ICICI Prudential Growth

364.70

2.76

15.36

14.72

1.26

16.80

2.28

Reliance Equity Advantage Retail

1,322.61

0.60

14.82

14.49

0.82

-

1.95

ICICI Prudential Index Retail

80.86

2.18

15.89

13.32

-0.07

17.34

0.67

IDFC Equity Plan A

581.36

2.47

15.92

13.55

-1.37

-

2.21

9,069.73

1.09

17.00

20.87

9.52

22.76

1.79

Equity: Large- & Mid-Cap HDFC Top 200

18.97 HDFC Index Sensex Plus

18.79

expense ratio of HDFC Top 200 is among the lowest for an equity fund.

HDFC Top 200

UTI Equity

2,117.39

1.91

16.47

15.62

6.24

16.69

1.90

379.60

0.44

15.49

22.39

5.97

-

2.31

UTI Opportunities

1,581.62

2.64

18.83

16.81

5.66

17.74

1.95

Birla Sun Life Frontline Equity Plan A

Fidelity Equity

3,307.21

-0.31

14.95

22.54

5.10

20.69

1.85

Birla Sun Life Frontline Equity Plan A

2,529.13

0.66

14.66

15.25

4.91

22.43

1.88

22.43

Baroda Pioneer Growth

58.00

-0.22

14.12

9.73

4.90

19.49

2.50

Canara Robeco Equity Diversified

386.08

-3.38

9.34

17.09

4.17

18.88

2.32

21.38

Franklin India Flexi Cap

2,367.50

-2.52

15.42

17.38

2.58

18.09

1.88

Reliance NRI Equity

UTI Contra

236.12

-4.87

7.99

4.46

2.49

-

2.36

20.78

Franklin India Prima Plus

1,940.47

-3.57

13.79

16.68

2.40

19.74

1.91

Tata Equity Management

192.05

-3.88

7.77

10.91

2.35

-

2.38

Tata Pure Equity

662.54

-3.08

12.86

14.62

1.81

18.96

2.20

DSPBR Opportunities

896.37

-2.59

14.28

19.48

1.73

18.74

2.08

ICICI Prudential Indo Asia Equity Inst

9.81

4.10

17.69

14.84

0.87

-

2.18

Principal Large Cap

489.68

-0.10

11.39

17.37

0.69

21.38

2.26

65.75

1.59

20.01

26.63

12.25

-

1.56

22.52

1.79

22.76

Principal Large Cap

Fidelity Equity

20.69

12.3%

Quantum Long Term Equity

HDFC Equity

7,872.99

0.25

18.50

25.67

10.28

UTI Dividend Yield

2,781.62

-0.49

15.04

21.66

9.07

21.14

1.88

Templeton India Growth

793.92

-3.35

13.15

17.99

6.88

20.79

2.19

Reliance Regular Savings Equity

3,278.17

-4.66

11.73

14.21

6.85

25.49

1.85

UTI Dividend Yield

ICICI Prudential Dynamic

2,593.47

1.83

12.15

20.38

6.70

21.95

1.87

9.07

Templeton India Equity Income

1,220.27

1.12

22.21

21.18

6.14

-

2.01

Reliance Equity Opportunities Inst

3-year returns of Quantum Long Term Equity is highest in category

12.25 HDFC Equity

10.28

Birla Sun Life Asset Allocation Aggressive

26.55

-4.95

15.77

29.04

5.72

-

1.88

2,694.26

-5.00

15.65

28.79

5.65

20.81

1.88

8.02

Fidelity International Opportunities

518.01

3.14

16.82

20.05

4.82

-

2.22

ICICI Prudential Dynamic Inst I

DSPBR Equity

2,273.22

-5.95

12.12

14.74

4.67

22.72

1.89

7.68

HDFC Growth

1,423.23

-1.20

15.94

22.61

4.57

22.04

1.97

Equity: Mid-Cap & Small-Cap

7.09

-3.44

10.49

24.71

14.26

-

1.99

ICICI Prudential Discovery

1,488.43

-3.67

10.00

23.39

12.88

19.15

1.99

Birla Sun Life Dividend Yield Plus

608.46

-5.12

12.56

23.17

12.16

17.92

2.27

ICICI Prudential Discovery Inst I

ING Dividend Yield

49.95

-5.00

10.87

24.12

10.96

18.03

2.50

14.26

IDFC Premier Equity Plan A

1,786.44

-8.81

15.09

24.36

8.54

26.90

1.93

HDFC Mid-Cap Opportunities

1,206.60

-3.39

14.50

28.85

8.10

-

1.99

Religare Contra

71.66

-3.55

9.04

13.36

6.94

-

2.50

UTI Master Value

633.22

-5.59

13.43

23.46

5.93

15.05

2.24

Birla Sun Life Dividend Yield Plus

Tata Dividend Yield

168.25

-2.91

12.81

25.70

5.36

17.28

2.41

12.16

DSPBR Small and Mid Cap Reg

1,104.33

-9.71

11.38

23.85

5.25

-

2.06

DSPBR Micro Cap Reg

411.59

-10.38

10.34

41.25

4.27

-

2.31

Sundaram Select Midcap Reg

2,357.36

-7.59

13.52

14.86

3.18

22.58

1.89

Sahara Mid-Cap Fund

12.41

-7.59

11.48

19.54

2.80

16.40

2.48

89.94

-6.31

7.31

14.25

2.50

-

1.79

Birla Sun Life Mid Cap Plan A

1,974.77

-5.16

10.26

12.42

2.35

19.77

1.91

ING Contra

14.06

-4.48

6.43

6.57

2.23

-

2.50

Religare Mid Cap

40.86

-8.08

14.69

27.45

1.13

-

2.50

Equity: Tax Planning

ICICI Prudential Discovery

12.88

41.3% return of DSPBR Micro Cap Fund is the highest in the past 1 year.

ING Dividend Yield

10.96 IDFC Premier Equity Plan A

8.54

219.92

-3.40

10.45

22.04

8.01

21.69

2.38

HDFC Prudence

ICICI Prudential Tax Plan

1,296.50

-1.21

13.49

20.97

6.28

14.71

2.00

20.42

Fidelity Tax Advantage

1,296.25

-0.86

15.21

24.56

6.00

-

2.00

HDFC Taxsaver

2,884.62

-0.94

15.25

23.77

5.88

17.28

1.86

Religare Tax Plan

109.30

-3.32

12.83

21.05

5.81

-

2.49

DSPBR Balanced

18.46 Birla Sun Life 95

Sahara Tax Gain

11.90

-5.52

12.08

16.45

5.19

18.27

2.50

HDFC LT Advantage

1,015.67

2.48

19.56

26.06

5.13

14.41

2.02

18.24

Taurus Tax Shield

62.49

-4.47

16.09

16.31

3.08

14.42

2.50

Principal Conservative Growth

DSPBR Tax Saver

940.75

-3.32

11.20

18.14

1.29

-

2.08

18.17

See our Fund Portfolios on page 14 to know the funds that best suit your risk profile and requirements

11.84 HDFC Index Nifty

12.91 LICMF Index Sensex

13.07 HDFC Index Sensex

13.59

5-year returns

Principal Growth

8.04 LICMF Opportunities

9.27 LICMF Growth

10.54 LICMF Equity

11.23 Magnum MultiCap

11.25

BNP Paribas Opportunities

-16.67 LICMF India Vision

-16.22 JM Equity

-12.11 L&T Contra

-10.79 Taurus Starshare

-8.21

JM Small & Mid-Cap Reg

-28.83 JM Emerging Leaders

-23.80 JM Contra

-23.03 Taurus Discovery

-18.46 L&T Global Advantage

-13.72

Hybrid: Equity-oriented 5-year returns

Canara Robeco Equity Tax Saver

Which funds should you invest in?

LICMF Index Nifty

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

ICICI Prudential Discovery Inst I

Reliance Growth Inst

9.85

Equity: Multi- Cap 3-year returns

Quantum Long Term Equity

Reliance Equity Opportunities

LICMF Sensex Advantage

1.79% Equity: Large- & Mid- Cap

Fidelity India Growth

Equity: Multi-Cap

LEADERS

Tata Balanced

18.03

JM Balanced

7.16 Baroda Pioneer Balance

8.22 LICMF ULIS

9.30 UTI CCP Advantage

9.70 LICMF Balanced

9.90

Smart Stats

The Economic Times Wealth, December 13, 2010

35

ETW FUNDS 100 VALUE RESEARCH FUND RATING

NET ASSETS (`CR)

R E T U R N S 3-MONTHS 6-MONTHS

1-YEAR

( % ) 3-YEARS

5-YEARS

Top 5 SIPs

EXPENSE RATIO

Top 5 equity funds based on 10-year SIP returns

Equity: Infrastructure ICICI Prudential Infrastructure

Birla Sun Life Infrastructure Plan A

3,680.72

-3.32

9.55

7.49

-3.80

21.96

1.82

560.39

-6.43

7.45

8.25

-4.68

-

2.22

Taurus Infrastructure

25.78

-10.38

2.25

9.66

-5.10

-

2.50

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

3,063.00

-6.79

7.93

10.72

-5.43

18.34

1.84

Tata Infrastructure

2,175.17

-5.60

7.91

7.08

-7.09

18.72

1.89

Hybrid: Equity-oriented HDFC Balanced

193.39

Reliance Regular Savings Balanced

698.79

HDFC Prudence

5,334.10

Birla Sun Life 95

363.18

DSPBR Balanced

774.93

Canara Robeco Balance

186.99

0.33

12.80

25.37

11.93

16.83

2.15

-3.51

11.37

19.04

-1.69

12.06

23.79

11.55

17.52

2.22

10.55

20.42

1.82

-2.47

11.50

16.55

8.55

18.24

2.33

-4.29

9.38

11.88

5.76

18.46

2.08

-3.39

8.11

16.03

4.67

17.41

2.39

43.29

2.70

4.47

6.58

6.89

-

0.83

Reliance Growth 37.23 Magnum Contra

33.42

20.4% is the 5-year return of HDFC Prudence.

The average equity fund gave 16-17%.

Hybrid: Arbitrage HDFC Arbitrage Retail

93.58

2.63

4.33

6.31

6.62

-

0.83

Kotak Equity Arbitrage

244.06

2.37

3.96

6.12

6.54

7.22

0.95

SBI Arbitrage Opportunities

125.10

2.18

3.72

5.65

6.07

-

0.76

UTI SPrEAD

158.35

1.78

2.89

4.51

7.18

-

1.00

8,780.15

0.34

5.53

9.80

9.98

11.89

1.45

Reliance MIP

7,019.12

0.32

4.66

7.84

13.28

12.42

1.55

Birla Sun Life Monthly Income

639.23

0.44

3.91

7.04

7.83

9.92

1.98

UTI Monthly Income Scheme

370.31

0.81

3.32

6.83

7.97

9.12

1.80

DWS Money Plus Advantage Inst

91.52

1.58

2.06

5.51

7.54

-

1.75

Birla Sun Life MIP II Savings 5

1,454.73

0.78

2.97

5.26

11.35

9.73

1.38

DWS Money Plus Advantage Reg

178.94

1.51

1.92

5.24

7.95

-

1.99

L&T MIP

114.41

0.39

2.80

4.28

9.68

9.55

2.23

IDFC SSI Medium-term Plan B

142.93

0.83

1.69

6.74

-

-

1.65

IDFC SSI Medium-term Plan A

275.47

0.75

1.52

6.37

9.16

8.21

2.00

Birla Sun Life Medium Term Retail

106.25

1.57

2.86

5.74

-

-

0.57

Sahara Income

136.05

1.57

2.87

5.20

9.85

8.56

0.35

Birla Sun Life Dynamic Bond Ret

7,095.29

0.74

1.73

5.12

9.43

8.48

0.98

DSPBR Strategic Bond Inst

805.88

1.10

2.35

4.61

-

-

0.39

Reliance Regular Savings Debt Ret

2,123.59

0.58

1.42

4.55

6.18

5.01

1.47

LICMF Bond

87.05

0.59

1.70

4.48

8.01

7.36

1.43

Canara Robeco Income

227.62

0.97

1.29

4.16

13.23

10.05

2.12

HSBC Flexi Debt Inst

79.95

0.76

1.46

4.04

8.37

-

1.50

BNP Paribas Flexi Debt Reg

250.31

0.11

0.51

3.71

9.97

9.20

2.07

ICICI Prudential Long-term Reg

83.96

0.38

0.64

3.63

6.77

6.94

1.44

Middle 35% Next 22.5% Bottom 10%

% annualised returns

Top 5 SWPs 12.50 Birla Sun Life MIP II Savings 5 11.62 HDFC MIP Long-term UTI Monthly Income Scheme 7.31 DSPBR Savings Manager Aggressive 6.65 SWP: Systematic withdrawal plan

Fixed-income funds less than 18 months old, and equity funds less than 3-year old, have been excluded. This ensures that all the funds have existed long enough to track consistency of performance. Given the focus on long-term investing, liquid funds, short-term funds and fixed maturity plans are not a part of the list. For the same reason, we have considered only the growth option of funds that reinvest returns instead of offering dividends that reduce the NAV of a fund.

Not covered in ETW Funds 100 listing

The fund categories are:

EQUITIES

that invest in a particualr theme or sector.

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

Large- and mid-cap: 60-80% assets invested in large-cap companies.

Multi-cap: 40-60% assets deployed in large-cap companies.

Arbitrage: Seek arbitrage opportunities between equity and derivatives.

Mid- & small-cap: At least 60% assets in small and midcap companies.

Debt-oriented Conservative: Average equity exposure less than 25% of the corpus.

Tax planning: Offer tax rebate under section 80C with a threeyear lock in.

DEBT

Sectoral and thematic: Funds

% annualised returns

Equity Funds Largest AUM Top 5 schemes based on net assets

Debt: Income

Next 22.5%

31.93 SIP: Systematic investment plan

8.83

HDFC MIP Long-term

Top 10%

32.91

Reliance Vision

Reliance MIP

Hybrid: Debt-oriented

The Top 100 includes only those funds that have a 5-, 4- or 3-star rating from Value Research. The rating is determined by subtracting a fund's Risk Score from its Return Score. The result is assigned stars according to the following distribution:

HDFC Top 200

Top 5 MIPs based on 3-year SWP returns

HDFC Arbitrage Wholesale

Methodology

34.17

HDFC Equity

10000

8000

6000

13.2%

4000

2000

is the 3-year return of Canara Robeco Income. Short-term returns are lower.

0 HDFC Top 200

Reliance Vision

Fidelity Equity

UTI Mastershare

Birla Sun Life Frontline Equity Plan A

Lowest Expense Ratio Top 5 equity diversified schemes with lowest cost of investment 2.0

HYBRID Debt-oriented Aggressive: Average equity exposure between 25-60% of corpus.

Income: Vary average maturity as per objective

1.5

1.0

0.5

0.0 ICICI Prudential Advisor-Very Aggressive

FT India Life Stage FoF 20s

Kotak Equity FoF

Benchmark S&P CNX 500

HDFC Top 200

Expense ratio in %

Smart Stats

The Economic Times Wealth, December 13, 2010

BEST HEALTH INSURANCE

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

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

Overall Product Ratings

No Star

NA

NA

NA

NA

NA

NA

No Star

No Star

No Star

NA

NA

NA

NA

No Star

No Star

No Star

No Star

NA

NA

Good service score helped Apollo Munich grab three 5-stars on overall.

No star

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

Parameters considered New India Assurance scores the highest among PSU insurers.

Bharti AXA’s pricing is low but service is below average.

Where service scores could not be calculated due to lack of data, service stars are marked as 'NA'. For such products an overall product rating is also not available.

Where a company has recently commenced operations, service scores have not been considered for rating. i-save Ratings are at a product level across customer segments and provide a relative ranking to products in their peer group and do not take into account personal or

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

For detailed methodology, visit i-save.com

<10

10-25

25-45

45-65

65-85

Superior

Excellent

Servicing Ratings

Good

Features Ratings

Average

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

Price Ratings

Below average

Product Name

Ratings: i-save uses a relative rating methodology to rate health insurance products on a 0-5 stars scale. The product ratings are a weighted aggregate of the product price, product features and company service data, each rated on a relative 0-5 stars scale. The star ratings assigned correspond to the following:

No star

36

>85

Percentile scores

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

individual financial needs, circumstances or objectives. It is important to review and compare benefits, exclusions and limits on sub-benefits for each product. i-save Ratings are not meant as financial advice or guidance and is not a recommendation to purchase, hold or terminate any insurance policy or contract.

If you have a comment on the coverage or ranking or need a clarification, please get in touch with etwfeedback@indiatimes.com * Data available as of 15 November 2010

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

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

1 lakh

2 lakh

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

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

3 lakh

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

5 lakh

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

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

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

2 lakh

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

3 lakh

5 lakh

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

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

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

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

2 lakh

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

* Rest of India premium taken into account ** Premiums as applicable for Delhi taken into account Premiums are annual and have been sourced from quotation engines on company websites. They are inclusive of service tax except in cases where this information may not have been available.

The lowest five premiums in each column are highlighted. However, given the varied terms, it is important to see what each product offers.

3 lakh

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

5 lakh

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

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

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

increases, making insurance costlier.

Most policies have an exclusion period

of 2-4 years for certain illnesses or medical conditions. One could live through this exclusion period without any complications in the early part of oneâ&#x20AC;&#x2122;s life and be covered against them after the waiting period.

Consider the following when buying a plan Costs associated with the treatment of

major illnesses or conditions as well as your premium paying capacity.

Do not restrict your cover to fit the

nominal tax exemption limit.

We recommend that you should: Compare products not just on price but

also on features, benefits and term.

Read the key features and policy terms

carefully. Check for exclusions.

You get a 15-day freelook period in

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

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

Global Stats

GLOBAL INVESTING Emerging markets had a bad week compared to the rest of the world. While markets in the US, Europe and Japan rallied, fears of monetary tightening in China and India and high inflation in Brazil dragged down stock prices in these countries. The MSCI Emerging Markets Index has outperformed the world markets in the past one year but last week it lagged the global index. Analysts believe that emerging economies such as India and China will continue to attract investments because of their higher growth rates.

Meanwhile, Brent crude oil prices surged to cross $90 per barrel

Currency Exchange Rate Euro has declined the most in the past year Currency

` value

% change weekly

Dollar Euro Pound Yen Yuan

45.06 59.67 71.08 0.54 6.77

-0.11% -0.16% 0.17% -1.77% 0.00%

% change annually

-3.42% -13.21% -6.45% 1.44% -0.94%

Brent Crude Oil prices are on the rise again

Dec 10 ’09

$90.66

EMERGING MARKETS Emerging markets have risen twice as fast as global markets in the past one year

I year 15.49% 1 wk change -0.62% Current value 1,114.79

All major currencies except the pound declined against the rupee.

The euro has declined 13.21% against the rupee in the past one year, making it the biggest loser.

France CAC 40 3,857.35 %

Canada S&P TSX 13,239.47 %

2.85

0.46

UK FTSE 100 5,812.95 %

1.18

0.84

Mexico IPC 37,677.78 %

65,230 Sensex 17,071.58 Japan Nikkei 225 10,211.95 %

1.28

0.33

-2.04

Hong Kong Hang Seng 23,162.91 %

-0.68

4,240.86 -4,947.73 Dec ‘10

Cumulative FII investments in ` cr

Dec ‘09

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

-2.29 Brazil Bovespa 68,341.83 %

Sensex 19,809.20

Govt Bond Yield

India BSE Sensex 19,508.89 %

0.78

Argentina MerVal 3,390.87 %

FII investments Foreign investments continue to drive the markets

-0.05

USA S&P 500 1,240.40 %

I year 8.88% 1 wk change 0.75% Current value 1,256.52

Bars plotted according to one-year change

China Shanghai Composite 2,841.04 %

Germany DAX 7,006.17 %

MSCI World Index

MSCI Emerging Markets Index

during the week. February and March oil futures are trading above $91.50, which indicates higher fuel prices in the months to come.

Higher crude prices are good for gold, which touched an all-time high of $1,428 per ounce in the global markets on December 7.

However, prices declined following profit-taking towards the end of the week.

-0.92 $71.46

37

The Economic Times Wealth, December 13, 2010

UK 3.48 Australia All Ordinaries 4,830.00 %

1.04

Dec 10 ’10 All data on this page as on December 10, 2010

USA 3.19

Japan 1.18

France 3.29

Australia 5.57

India 8.11

Germany 2.94 China 3.84

Greece 11.46

38

Smart Stats

The Economic Times Wealth, December 13, 2010

LOANS & DEPOSITS ET Wealth collaborates with ETIG to provide a comprehensive ready reckoner of loans and fixed-income instruments. Donâ&#x20AC;&#x2122;t miss the information on investments for senior citizens and a simplified EMI calculator What `10,000 will grow to

8.00 8.00 7.75 7.50 7.50

10,824 10,824 10,797 10,771 10,771

HDFC Bank

14-24

ICICI

16-24

Axis

14-21

11,832 11,786 11,786 11,786 11,774

Tenure: 3 years Karur Vysya Bank City Union Bank Tamilnad Mercantile Bank Catholic Syrian Bank State Bank of Bikaner

8.75 8.50 8.50 8.30 8.30

12,965 12,870 12,870 12,795 12,795

Cheapest Home loans

15,226 15,228 15,080 15,080 15,080

Up to `10 lakh Allahabad Bank Central Bank of India IDBI Bank Bank Of Punjab Dena Bank

Top five senior citizen deposits Tenure: 1 year Central Bank of India ING Vysya Bank UCO Bank Corporation Bank State Bank of Hyderabad

Interest rate (%) compounded qtrly

What `10,000 will grow to

8.50 7.75 7.75 7.50 7.50

10,877 10,798 10,798 10,771 10,771

Tenure: 2 years + Karur Vysya Bank Tamilnad Mercantile Bank Syndicate Bank Axis Bank Central Bank of India

9.25 8.75 8.70 8.50 8.50

12,007 11,890 11,878 11,832 11,832

Tenure: 3 years Karur Vysya Bank Central Bank of India Lakshmi Vilas Bank State Bank of India Syndicate Bank

9.00 8.75 8.75 8.75 8.75

13,061 12,965 12,965 12,965 12,965

Tenure: 5 years Central Bank of India Karur Vysya Bank Syndicate Bank Axis Bank State Bank of India

9.00 9.00 9.00 8.75 8.75

15,605 15,605 15,605 15,415 15,415

Top five tax-saving FDs Tenure: 5 years and + Karnataka Bank Tamilnad Mercantile Bank City Union Bank Catholic Syrian Bank State Bank of Bikaner

Interest rate (%)

HDFC Bank

18-34

Fullerton

8.50 8.30 8.30 8.30 8.25

8.50 8.50 8.30 8.30 8.30

INTEREST RATE (%)

INTEREST RATE (%)

Tenure: 2 years Karur Vysya Bank Catholic Syrian Bank City Union Bank South Indian Bank Federal Bank

Tenure: 5 years Karnataka Bank Tamilnad Mercantile Bank Catholic Syrian Bank City Union Bank State Bank of Bikaner

Cheapest Auto loans

Cheapest Personal loans

LOAN AMOUNT: `5 LAKH

Tenure: 1 year Corporation Bank Dena Bank ING Vysya Bank Andhra Bank Punjab National Bank

Interest rate (%) compounded qtrly

LOAN AMOUNT: `2 LAKH

Top five FDs

CitiFinancial

21-24 14

16

18

20

22

24

26

28

30

32

34

* Monthly reducing

9.75-11

Axis

9.25-12 10.5-12

Reliance SBI

8-11.5* 6

7

8

9

10

12

13

14

15

16

Min Loan: `50,000; Max Loan: `2,00,000

20 YEARS Interest Rate (%)

Interest Rate (%) 8.75 8.75 9.00 9.00 9.20

IDBI Bank Central Bank of India Allahabad Bank State Bank of India Dena Bank

9.00 9.00 9.25 9.35 9.45

8.75 9.00 9.25 9.25 9.25

Central Bank of India State Bank of India Bank Of Baroda Bank Of Maharashtra Bank Of Punjab

9.00 9.35 9.50 9.50 9.50

Margin Money: 15%

United Bank of India

Punjab National Bank

Syndicate Bank

State Bank of Bikaner and Jaipur

Corporation Bank

* Daily reducing

These are average rates for the entire tenure. Loans have not been rated as per teaser rates.

Postal Deposits

Interest (%)

Minimum Invt. (`)

National Savings Certificate Public Provident Fund Kisan Vikas Patra Monthly Income Scheme

8.00a 8.00b 8.41b 8.00

100 500 100 1,500

Time Deposits Recurring Deposits Sr Citizens Saving Scheme

6.25-7.50 7.50c 9.00d

200 10 1,000

Maximum Invt. (`)

No limit 70,000 No limit Single A/c: 4.5 lakh Joint A/c: 9 lakh No limit No limit 15 lakh

Features

Tax Benefits

6-year tenure 15-year term; tax-free returns Money doubles in 8 years, 7 months 6-year tenure; monthly returns; 5% bonus after 6 years Available for 1, 2, 3, 5 years 5-year tenure 5 year tenure; minimum age 55*

Sec. 80C Sec. 80C None None None Sec. 80C None Sec 80C

a. Compounded half-yearly; b. Compounded yearly; c. Compounded quarterly; d. Payable quarterly; *also available with public-sector banks

Sec 80C benefit: Investments up to `1 lakh in specified securities (maximum of `70,000 in PPF) qualify for deduction

Home loan Base rate (%) As on November 1, 2010 7.60%

8.00%

8.00%

8.00%

8.00%

8.25%

8.25%

8.40%

8.45%

8.50%

What `10,000 will grow to

8.50 8.50 8.30 8.30 8.30

11

* Daily reducing

Cheapest Education loans

10 YEARS

Up to `30 lakh Central Bank of India Bank Of Punjab Bank Of Baroda Bank Of Maharashtra Canara Bank

8.5-10.75

ICICI

15,225 15,225 15,080 15,080 15,080

BANK

Allahabad Bank

Andhra Bank

Bank Of Baroda

Bank Of India

Bank Of Maharashtra

Bank Of Punjab

Canara Bank

Central Bank of India

Corporation Bank

Dena Bank

The Supreme Court has recently ruled against teaser home loan rates. It said that banks use them as a tool for misguiding customers.

Your EMI for a Loan of `1 lakh @ 12%

2,224

@ 10% @ 8% @ 5%

1,435 2,125

2,028

5

1,101

10

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

836

15

909 772 585

660

791

1,061

1,053 965

1,075 956

1,213 1,887

Tenure

1,200 1,322

20

25

All data sourced from Economic Times Intelligence Group (ETIG)

Smart Stats

The Economic Times Wealth, December 13, 2010

Chandigarh

REAL ESTATE

Delhi NCR Lucknow

Jaipur

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

Delhi NCR

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

Chandigarh APARTMENTS

Locality

39

Rental Value (`/month)

BUILDER FLATS

Capital Value (`/sq ft)

Rental Value (`/month)

PLOTS (`/sq yard)

Capital Value (`/sq ft)

Capital Value

APARTMENTS Locality

Affordable

Premium

Affordable

Premium

Affordable

Premium

Affordable

Premium

Affordable

Premium

North

11,000

36,000

3,600

13,000

11,000

28,000

10,000

37,000

1,00,000

2,70,000

North

Pitampura

11,000

22,000

7,200

10,700

11,000

19,000

20,200

37,000

1,26,000

2,16,000

Model Town

Rental Value (`/month)

PLOTS (`/sq yard)

Capital Value (`/sq ft)

Capital Value

Affordable

Premium

Affordable

Premium

Affordable

8,000

15,000

6,100

7,800

41,000

Premium

71,000

Sector 15

11,000

15,000

6,500

7,600

41,000

54,000 70,000

11,000

23,000

3,600

5,400

11,000

19,000

15,300

27,000

1,01,000

1,60,000

Sector 21

8,500

11,500

6,600

7,800

61,000

East

9,000

25,000

3,700

11,000

11,000

26,000

3,000

11,000

56,000

1,75,000

East

7,500

14,000

8,600

7,600

51,000

70,000

Shahdara

9,000

16,000

3,700

6,100

11,000

21,000

3,200

7,000

56,000

1,06,000

Sector 5

8,500

14,000

8,600

7,600

51,000

70,000

Dilshad Garden

9,000

14,000

3,700

6,100

15,000

21,000

3,200

6,800

81,000

1,06,000

Sector 7

8,500

11,000

8,400

7,600

51,000

70,000

West

6,000

27,000

2,600

9,000

11,000

35,000

5,000

35,000

1,00,000

2,30,000

West

4,500

16,000

1,600

5,600

11,000

41,000

Rajouri Garden

9,000

22,000

5,200

7,800

14,000

25,000

5,600

8,600

1,01,000

1,71,000

Shivalik City, Kharar

4,500

6,500

1,600

2,500

11,000

14,000

18,000

41,000

Paschim Vihar

11,000

23,000

4,600

7,800

26,000

5,200

8,000

1,01,000

1,81,000

Mohali

9,000

16,000

4,600

5,600

31,000

Central

13,000

1,10,000

16,000

45,000

13,000 1,00,000

9,000

45,000

1,50,000

5,30,000

South

8,500

13,500

4,100

5,600

NA

NA

Connaught Place

30,000

44,000

25,500

38,500

36,000

50,000

20,500

33,500

2,00,000

33,500

Sector 49

8,500

13,500

4,100

5,600

NA

NA

Golf Links

50,000

1,10,000

34,000

45,500

26,000

35,000

20,500

28,500

2,51,000

5,28,000

South

19,000

80,000

8,600

24,000

16,000 1,30,000

8,400

32,000

78,000

4,50,000

Defence Colony

42,000

81,000

16,700

24,000

63,000 1,10,000

20,700

32,700

3,00,000

4,21,000

Vasant Vihar

22,000

40,000

11,300

17,300

83,000 1,27,000

20,700

32,600

3,00,000

4,30,000

The list covers select locations that are representative of the area Apartment sizes vary from area to area

APARTMENTS Locality

CONSTRUCTION INFLATION

Jaipur PLOTS (`/sq yard) Capital Value

Stone & chip

3,500

8,000

15,500

4,200

35,500

Bani Park

3,100

4,000

10,500

16,000

40,500

63,000

East

2,500

3,000

7,500

13,000

4,000

40,000

Agra Road

NA

NA

NA

NA

4,200

11,500

Vidyadhar Nagar

2,500

3,100

7,500

13,000

25,500

40,500

West

2,300

5,000

8,500

21,000

35,000 1,00,000

Civil Lines

3,700

4,700

10,500

17,500

41,000

C-Scheme

4,200

5,100

16,000

21,000

61,000 1,06,000

South

1,600

5,000

7,500

21,000

8,000 1,00,000

Jagatpura

1,600

2,300

7,500

11,500

8,300

Bapu Nagar

3,900

4,900

16,000

21,000

60,500

26,500

50,000 1,00,000

12 9 6

Rental Value (`/month)

PLOTS (`/sq yard)

Capital Value (`/sq ft)

Capital Value

Affordable

Premium

Affordable

Premium

Affordable

Premium

North

5,000

10,000

1,500

2,600

7,000

16,000

Aliganj

5,000

8,000

1,500

2,200

8,000

11,500

Hardoi Road

5,000

8,000

1,500

2,200

7,000

11,000

East

4,000

10,000

1,500

3,700

9,000

16,000

Gomti Nagar

6,000

10,500

1,500

3,700

10,000

16,500

Indira Nagar

5,000

10,500

1,500

2,700

10,000

15,500

West

5,000

10,000

1,600

2,500

10,000

15,000

Rajaji Puram

5,000

8,500

1,600

2,500

10,000

13,000

Vikas Nagar

5,500

9,000

1,700

2,100

11,000

13,000

South

5,000

9,000

2,000

2,700

6,500

15,000

Janakipuram

5,000

7,500

2,000

2,700

6,500

15,000

Naya Haiderabad

5,000

8,500

2,000

2,300

7,500

13,500

3

CONSTRUCTION COST MONITOR 0 Oct-10

1,600

Sep-10

Ajmer Road

15

Jul-10

63,000

Aug-10

Premium

4,000

Jun-10

Affordable

16,000

Feb-10

Premium

7,500

Jan-10

Affordable

4,000

Dec-09

Premium

1,600

Nov-09

Affordable

North

Stainless steel & alloys

Apr-10

Capital Value (`/sq ft)

Grey cement

May-10

Rental Value (`/month)

Bricks & tiles

Mar-10

APARTMENTS Locality

Lucknow

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

4.9% 4.1% Stone

Bricks

3.5% 1.2% Steel

Cement

Figures are year-on-year change in prices as on October 31, 2010

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

40

City Profile

The Economic Times Wealth, December 13, 2010

Property prices and rental values are likely to stay firm in Navi Mumbai and Thane because of improved infrastructure and relatively lower rates

Mumbai & Suburbs

LOKHANDWALA ANDHERI

ET Wealth and Magicbricks introduce a new series that evaluates the real estate market in different cities across India. We start with Mumbai, the country’s commercial capital, which possibly has the costliest real estate in the world too.

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

JUHU

5%

SANTACRUZ

PA LI HILL BANDRA

ARABIAN SEA

5%

3%

WORLI

PAREL

MUMBAI North

East

West

NAVI MUMBAI

VILE PARLE

9%

7%

THANE

South

MALABAR HILL

CHURCHGATE

South Mumbai’s luxury residential market may see some fall in prices in the short-to-medium term, according to some experts

CBT

NARIMAN POINT

-15%

PRICE APPRECIATION COMPARED TO CITIES IN THE REGION

North

(Average property rates in ` per sq ft)

■

AFFORDABLE Ambernath 1,200

■

PREMIUM Powai 25,000

West

■

Mumbai 2009 2010*

Navi Mumbai

AFFORDABLE Virar 1,500

■

PREMIUM Bandra (E) 51,000

■

■

AFFORDABLE Mahim 8,000

■

PREMIUM Churchgate 86,000

Nagpur 2009 0% 2010*

PREMIUM Kharghar 9,200

Ahmedabad 2009 2010*

LOCATIONS IN DEMAND Borivali East :

Pune 2009 2010*

AFFORDABLE Kalamboli 1,600

South

Andheri East :

COLABA

-29%

BUYING OPTIONS

■

-12%

6 months 3 months

Proximity to Western Highway, lots of housing projects and malls Low prices and good infrastructure are attracting buyers

Andheri West :

Several big housing projects and malls are coming up

Bhandup East :

Redevelopment of mills has transformed this area

3%

2%

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

Metro Rail

By June 2011, phase I of Mumbai’s Metro project (connecting Versova and Ghatkopar) is scheduled to be operational. Construction on a second line (Charkop to Mankhurd), which was held up due to pending environmental clearance, will be next.

4%

3%

Santacruz-Chembur Link Road This 6.5-km, six-lane elevated road, will connect the eastern and western suburbs of Mumbai. When it is completed, a drive that takes well over an hour-and-a-half will be reduced to 20 minutes.

3% 2%

7%

Jul-Sep '09 Average % change Jul-Sep '10 Average % change

Most active real estate markets around Mumbai have seen an increase in property prices this year, with Ahmedabad having the highest rate. A lot of unsold inventory and under construction projects have kept the prices under check in Pune

Rs 1,07,000 per sq ft is the value of the most expensive real estate deal in Mumbai when a 1,706 sq ft flat was sold for Rs 18 crore in Worli recently

80% of all new residential projects under construction are in suburbs (areas beyond Andheri — such as Kandivali, Malad, Mulund, Borivali, Powai and Navi Mumbai)

Navi Mumbai Airport 70% of the land acquisition has been completed. The airport (once it gets full clearance from the government) will be a hub of economic activity leading to greater integration of Navi Mumbai and Thane.

Mumbai Trans-Harbour Link The proposed bridge of 22 km will have six lanes (four roads, two metros) connecting Navi Mumbai on the outskirts to Sewri in central Mumbai.

Storm Water Drain Phase 1 of the project to build a gigantic storm water drainage system cutting across the city is on.

This will help bring down flooding in many residential areas.

While most of these infrastructure projects promise some appreciation in prices, the amount may depend on the timely completion of these projects too.

Next week’s city profile: Delhi

My First Year

The Economic Times Wealth, December 13, 2010

41

ENTREPRENEURSHIP

More passion than cash The toughest financial decisions are often taken in the first year of starting a business. ET Wealth takes you to the early days of successful start-ups.

After hearing many “Nos”, we managed to raise `70 lakh from angel investors and personal funds understand the nitty-gritties. It was a great help that my business partners had considerable experience in the hospitality sector.

As in any business, we had our moments of embarrassment. In our first delivery set-up, we mixed up orders. But we promptly took remedial action. We went to each customer, apologised for the delay and offered complimentary meals.

Our first innovation during the first year was the introduction of combo meals, which became a big hit. To offer vibrant ambience of dining, we spent a large amount of the seed money on decor.

SHOME BASU

Ashish Kapur | 33 years Age at starting business: 25 years Company name: Yo! China Seed capital: `70 lakh Source of money: Angel investors and personal funds

T

he year was 2002. I was 25 and had just finished reading Paulo Coelho's The Alchemist. My first impulse after reading that book was to return to India and create a brand in the food business. This meant leaving a highly paid job at GE in the US, but I was determined to make the move. As Coelho said, “When a person really desires something, the universe conspires to help that person to realise his dream”.

My aim was to target the youth and families.

Without any formal survey to discover their preferences, I decided that Chinese cuisine was the best bet. There was a crying need for eateries at tony locations which offered good ambience and quality Chinese food. Existing ones were either too upscale or down-market.

I ploughed all my savings into this venture.

The only solace was that I had a home to go back to. I was getting married, too, and though there was a sense of disbelief in both families—mine and my wife's—soon they all became very supportive.

The next step was to find a name that breathed energy and fun. After a few rounds of discussions, our five-member team agreed on Yo! China. We also had to make frequent visits to government offices to get the licence. In the meantime, after hearing many ‘Nos’, we managed to raise `70 lakh from angel investors and personal funds.

The first restaurant by our company, Moods Hospitality, opened in Gurgaon in May 2003.

On the first-day trial, we invited about 40 people, but more than 250 turned up. Within the next few months, more people started dining there.

However, labour productivity was a problem in the first year. We had to plug the loopholes as we had plans to open more outlets.

I became aware of the need to sustain our initial success because many Indians had become connoisseurs of global cuisines and there was no way we could lower our standard. It was important to give a great dining experience to customers and also sustain it. I worked with restaurant-owners to

In my first year at Yo! China, I didn't pay myself any salary and survived on passion and fresh air!

A sizeable chunk of the revenues was put back into the business and the rest went as dividends to shareholders. There were ups and downs, but at no point did I want to give up because the passion was deep and I was in the company of positive people. However, there were a few sacrifices —I did not play golf or travel for leisure.

Today we have 50 retail outlets across 14 cities.

But I always keep in mind what CK Prahlad had said: It is perseverance that counts. Also, no management book can tell you the joys of ensuring customer satisfaction. I wanted to be an actor, but I succeeded as an entrepreneur, thanks to determination, hard work, god’s blessings and the fact that I was at the right place at the right time.

(As told to Ullekh NP) Please send your feedback to etwealth@indiatimes.com

42

Jobs & Income

The Economic Times Wealth, December 13, 2010

EARNING

Maximise your take-home Get the most out of your salary by making it tax-efficient and customising it to suit your day-to-day cash requirements and long-term savings needs BINOY PRABHAKAR

around compensation packages. For example, state-run explorer ONGC, which follows a simple compensation structure broken up into fixed pay variable pay and field duty allowances, recently introduced a system wherein an employee can tailor the salary to minimise the income tax outgo.

This so-called cafeteria approach is being embraced by a growing number of companies.

A spokesman for Maruti Suzuki, India’s biggest carmaker, says, “All the tax-saving opportunities for employee are utilised by our company in letter and spirit.” After shrinking the items of pay to as less as four, many employers are giving employees the freedom

E

xecutive compensation packages are so up-to-the-second that thumbing through the salary slips of some companies can make you feel like a relic. A stack of elements such as meal coupons, customised allowance pool and below-the-line benefits have entered the compensation structures in recent times, underscoring the profound shifts in how pay packages are being designed.

Central to this shift is attracting talent. Companies, even public-sector undertakings, are increasingly tearing down the complexity

to attune compensation to their expense patterns and tax planning. “For most companies, a flexible salary is a USP,” says Gangapriya Chakraverti, principal with global HR consulting firm Mercer.

But there is a thin line between flexible pay structures and tax avoidance. While companies do offer some room to employees, they look to avoid disputes with the taxman, who could challenge flexible salaries. “Despite the flexibility offered by companies, tax rules on earning components limit the scope for manoeuvring,” says Chakraverti.

If you are among the lucky ones who have the freedom to rejig pay structures, you too can

One CTC, Three Salaries: How a monthly CTC of `1.5 lakh translates into different take-homes

make them tax-efficient. While there is no rule of thumb for an ideal salary, the structure should broadly be defined by an individual's current expenses and future needs. The tables on this page provide a quick look at how you can ensure a high take-home by restructuring a salary package.

Chartered accountants and HR professionals agree that there is no rule of thumb for designing an ideal salary structure. Sure, the take-home should match your current requirements but the cash allowances and deferred benefits must take into account your spending pattern and future needs.

Companies are now increasingly structuring

C. HIGH TAKE-HOME

Take-home is almost 90 % of CTC

E A. LOW TAKE-HOM

gratuity are high of CTC but PF and Take-home is 63.8% `/month 60,000

Income head Basic

A

30,000 15,000

HRA Special allowance TS (monthly)

REIMBURSEMEN Conveyance

B

10,000 4,000

Telephone bill Entertainment

8,000

journals Newspapers and RSEMENTS ANNUAL REIMBU

C

Medical S

OTHER BENEFIT Yearly bonus

PF contribution Gratuity (per month) CTC (A+B+C+D)

E

Deductions on) PF (own contributi tribution) PF (employer's con

F

Tax G H

2,000 1,250 1,500

LTA D

Suitable for people who live in rented accommodation and pay a high rent.

Total Deductions F) Salary income (Aents em urs Cash reimb ome (G+H) inc me ho Net take As % of CTC Effective tax rate

8,000 7,200 3,050 1,50,000 7,200

It is also ideal for those who don't mind large deductions on account of deferred benefits such as PF or gatuity.

The effective tax rate is close to the national average of 12.5%, though this could go up if the person is not living on rent.

B. MEDIUM TAKE-HOME

71,690 24,000 95,690 63.8%

Income head Consultancy fee

`/month 1,50,000

Take-home is 79.9% of CTC to meet higher expenses B

A

B

C

D

Income head

`/month

Basic

40,000

HRA

20,000

Special allowance

48,000

REIMBURSEMENTS (monthly) Conveyance

18,000

Telephone bill

3,000

Entertainment

10,000

Newspapers and journals

4,000

ANNUAL REIMBURSEMENTS Medical

1,200

LTA

1,000

OTHER BENEFITS PF contribution

4,800

Gratuity

3,050

E

CTC (A+B+C+D) (per month)

1,50,000

F

Deductions PF (own contribution)

7,200 18,910 33,310

A

4,800

PF (employer's contribution)

4,800

Tax

13,500

Total Deductions

23,100

G

Salary income (A-F)

84,900

H

Cash reimbursements

35,000

Net take home income (G+H)

1,19,900

As % of CTC

79.9%

Effective tax rate

9%

This structure suits someone who needs a higher cash flow to meet higher costs.

The effective tax rate is low at 9% but has factored in the tax benefits on a home loan

12.6%

Deductible expenses (monthly) Conveyance and fuel Car EMI Car insurance and mainte nance Telephone bill Entertainment Newspapers & journals

The low HRA suits those who live in their own house but have high expenses, such as a big home loan.

Total expenses TDS @ 10.3% Net take home As % of CTC Effective tax rate

2,000 3,000 12,000 4,000 1,000

Peon's salary Depreciation (car, laptop, equip

C

15,000 7,800

3,000

Driver's salary Electricity

Stationary and postage Car parking charges

but no benefits

8,000 ment)

5,000 1,200 800 62,800

Consultants, who get a lumpsum amount as fee, can deduct expenses from their taxable income.

No deferred benefit means the onus is on them to save for their sunset years.

15,450 1,34,550 89.7 7.6%

Note: All three examples assume annual tax saving investments of `1.2 lakh under Sec 80 C and Sec 80CCF and medical insurance of `15,000. In case of B, an additional deduction of `1.5 lakh has been claimed against interest paid on housing loan.

RAJ

Tax-saving potential: Not too much because cash allowances are just 16% of CTC.

Tax-saving potential: With 23% of CTC as cash reimbursements and home loan to pay, tax is much lower.

Tax-saving potential: A raft of expenses incurred for professional duties are exempt from tax.

Paperwork: Not difficult because most of the allowances are within reasonable limits.

Paperwork: Proof of high conveyance expenses and entertainment perks will have to be provided.

Paperwork: Very high. The taxpayer has to keep records of the expenses for up to eight years after filing the returns.

Jobs & Income

The Economic Times Wealth, December 13, 2010

Elements of an ideal salary INCOME HEAD

TAXABILITY

Basic

Taxable

HRA/Company leased accommodation

Partly taxable

Special allowance

Taxable

Medical reimbursement

Exempt up to `15,000 a year

Conveyance allowance

Exempt up to `9,600 a year

Company car lease (perk)

Partly taxable

Reimbursements against bills

Exempt

Leave Travel Assistance

Partly taxable (exempt if taken twice in four years)

Variable/Performance Pay

Taxable

* HRA exemption is the lowest of these limits: 50% of basic salary in metros and 40% in other places, rent paid minus 10% of basic salary; and actual HRA received from employer

“The onus is on the employee to prove the authenticity of a bill against which he has claimed a reimbursement.”

SURYA BHATIA, Principal Consultant, Asset Managers, wealth management company

“Despite the flexibility offered by employers, tax rules limit the scope for manoeuvring.”

GANGAPRIYA CHAKRAVERTI, Principal, Mercer

salaries on the cost-to-company (CTC) principle.

Let us take a look at the most common ingredients that go into making the CTC pie.

BASIC SALARY: This is the base for most other heads of income. This is usually 35-40% of the total CTC. As basic salary is taxable, it should not be very high or the tax liability will shoot up.

But too low a basic salary, say 25-30% of the CTC, means the employee loses out on other heads such as leave travel assistance (LTA) and superannuation benefits that are linked to the basic pay.

HRA: The house rent allowance (HRA) is another useful tax-saving tool if you are paying rent. It is fully exempt from tax up to the least of the following: HRA received, 50% of basic (40% in non-metros), and actual rent paid minus 10% of basic. If the rent is very high and is not fully covered by the HRA limit, picking companyleased accommodation may help. The perk value is calculated at 15% of the gross income.

Though the perk value is taxable, it works out cheaper than opting for an HRA that doesn't fully cover your rent.

Still, for those living in their own houses, a high HRA is of little use. For them, a lower HRA but higher tax-free allowances is preferable. If a person has availed a big home loan, even a taxable special allowance will not hurt because the tax benefits on the loan will bring down the overall tax.

ALLOWANCES: There is always the temptation to opt for a larger part of the compensation in the form of cash reimbursements. But this practice must be tinged with discretion. Allowances and reimbursements reduce tax outgo but if this component is unreasonably high, it could attract the taxman's gaze. An employee with a monthly CTC of `60,000 should not be drawing `20,000 as conveyance allowance and `10,000 for entertainment. “These components must be maximised to the extent possible, keeping in mind current cash-flow requirements,” advises Amitabh Singh, tax partner, Ernst & Young.

There is also a pile of paperwork to claim those allowances. “The onus to prove the authenticity of a bill lies with an employee as a company will take a declaration on the expenses,” says Delhi-based financial consultant Surya Bhatia. However, you can claim these reimbursements up to a reasonable limit. If you earn `1 lakh a month, an entertainment allowance of around `5,0006,000 a month seems fine. For someone travelling in a car, a `10,000 conveyance allowance is kosher. Phone bills of `2,000 a month won't

5 .

9

per cent

is the interest payable on the Employees’ Provident Fund in 2010-11. This is higher than the normal 8.5% paid per annum.

arouse suspicion. Also, medical expenses reimbursements and LTA are exempt up to certain limits (see table). Though these are not paid out every month, they help cut tax liability. The medical allowance is especially useful because it covers simple ailments and expenses that are not usually covered by medical insurance.

A company-provided vehicle is another tax-effective component of the compensation structure.

DEFERRED BENEFITS: If your living expenses are not very high, a salary structure packed with tax-free deferred benefits is a good strategy.

43

Superannuation benefits such as the Employees’ Provident Fund and gratuity offer tax-free income on retirement. The EPF, if left untouched until retirement, can balloon into a tidy figure over 30-35 years. Still, employees often overlook the benefits of this forced saving and take a short-term view of their salary package. The first of the three examples of compensation structures follows this strategy (see table).

BONUS & INCENTIVE: Don’t be too excited about the fat performance incentive you’ve been promised at the end of the year. It is fully taxable and there will be a difference of up to 30% between what you see on paper and what eventually reaches you.

TURNING CONSULTANT: This option is suitable for self-employed professionals who work on short-term projects for companies. The take-home is very high but there are no retiral benefits, as shown in the third example. However, a raft of expenses are deductible, which reduces the overall tax.

The Direct Taxes Code, which is likely to come into effect from 1 April 2012, had initially proposed that all exemptions be removed and all income should be taxed uniformly. The revised draft has restored most of the exemptions and made a few changes. While LTA will be taxed as income, the exemption on medical reimbursements has been raised to `50,000 a year.

Please send your feedback to etwealth@indiatimes.com

44

Smart Spending

The Economic Times Wealth, December 13, 2010

BROADBAND PLANS

Is your Net plan really unlimited?

Most unlimited broadband schemes have hidden caps. The fair usage limit can bring down download speeds and make Internet connections extremely slow.

ULLEKH N.P.

A

minor clause is proving to be a major roadblock for surfers ready to zip along the information autobahn. Many Internet users who have paid for a fast ‘unlimited’ broadband connection are finding that their Net speed has reduced to a crawl.

Worse, it has been deactivated.

Take the case of Bangalore-based journalist Prem Udayabhanu, who decided to take a more expensive ‘unlimited’ broadband connection. Last month, when he could not access the Web, he was told that the connection had been deactivated due to excessive use. To restart it, he’d have to pay `12,000. “Yours is an unlimited connection, but only up to 10 GB of download,” he was told.

Udayabhanu made quick calls to friends close to top execs in the company and got the issue settled. The connection was restored and the demand for `12,000 withdrawn. But, the company blamed him for exceeding his 10 GB usage limit.“I wasn’t told of a usage limit.

The ads and the salesman made me believe it was truly an unlimited connection,” Udayabhanu says.

Udayabhanu isn’t alone. Delhi-based artist Prasad Raghavan, who uses an ‘unlimited’ broadband connection, thought he didn’t have to worry until his download speed became erratic. “Which means unlimited is just a ruse to attract you to a plan which offers good speed only as far as you restrict your usage to a

certain limit,” says Raghavan. While most Internet service providers (ISPs) explain the ‘limits’ of unlimited plans, it is the expression ‘unlimited’ in ads that Raghavan, says “is deceptive.”

The Airtel's Browser `899 Plan, for instance, is advertised as unlimited download with speed of 512 kbps, the download speed is downgraded to 256 kbps once the user has downloaded over 8 GB in less than a month.

Thanks to hundreds of complaints from consumers, the Telecom Regulatory Authority of India (TRAI) has warned companies against misleading advertisements. TRAI has disapproved of “advertising a broadband plan for higher download speed (for example, 34 times faster than the original plan) by paying fixed monthly charges”. It also said that ISPs must disclose details of data download limit beyond which “broadband speed would be restricted as per the original plan.”

A Bharti Airtel spokesman says “Subscribers can check out all our plans and limits on the website.” He, however, concedes that many ‘unlimited’ plans do have a cap, which is explained in the company’s fair usage policy (FUP).

What is fair usage policy?

According to the Bharti Airtel site, a very small number of customers use an excessive amount of the network bandwidth, to the extent that it can impair the experience of others. The idea of it’s FUP is to provide optimum Internet experience to all. In the policy, “we have

defined fair usage levels for unlimited data transfer plans,” it adds.

The Tata Communications Internet Services Ltd site says, “Tata Indicom Broadband has established a monthly data transfer threshold (Fair Usage Limit) for various unlimited tariff plans…” It goes to explain those plans for which FUP is applicable.

In an email, a spokesperson for Reliance Communications said: “As the ‘unlimited’ plans are devised for the benefit of individual customers, a fair usage cap is necessary to ensure fair use of services for sustained benefits.” Staterun MTNL says it has no FUP at the moment and its unlimited broadband packages “really” offer unlimited usage.

Now, unlike many others, people like Satynder Kapoor, a retired systems analyst and financial consultant based in Delhi, have got their priorities right. “My priority is speed, I don’t download music track or videos. So I didn’t go for an unlimited plan. Our (current) plan is a 6 GB one with 4 mbps speed, for which I pay `900 a month,” he says.

But most avid Net users opting for speed have realised the first impact of FUP — as soon as you cross the fair usage limit — is a painful slide in speed, which in some cases touches levels much below the minimum broadband download speed of 256 kbps. That FUP is applicable to unlimited data transfer plans simply defies logic.

Please send your feedback to etwealth@indiatimes.com

PICK YOUR PLAN Emails & basic surfing: If your Internet usage is restricted to mails and basic web surfing, don’t go for “unlimited” plans. Choose a basic scheme which could either be post-paid `249 p.m. or an entry level `499 prepaid plan. The speed will be 256 kbps.

Skype & YouTube watchers: If you Skype, watch YouTube and occasionally download music, you could go for a plan that ceases to become unlimited beyond 6-8 GB download. If you don’t cross the threshold, you will enjoy a download speed in the range of 512 Kbps to 2 Mbps. Pay not more than `1,000 a month.

Home business & entertainment: If you take your work home, watch songs and video clips for a few hours, you won’t regret going for `1,200 a month and above” schemes which offer speeds of 2 Mbps -4 Mbps with download limit of 20 GB a month.

Download addicts: For those who excessively use the Internet, (streaming video and audio through home wi-fi network and to multiple devices - laptop, TV), there are schemes that are almost unlimited. They offer data transfer limits of 50-200 GB in select locations at speeds of 8-50 Mbps.

The charges are `2,999-8,999 per month (Tariffs and speeds are indicative)

FAIR USAGE AND A FEW 'UNLIMITED' PLANS Monthly charge: `899 Data transfer. limit: Unlimited Download speed: 512 kbps till 8 GB, 256 kbps afterwards Monthly charge: `949 Data transfer limit: Unlimited Download speed: 512 kbps till 8 GB, 256 kbps afterwards Monthly charge: `1,099 Data transfer limit: Unlimited Download speed: 1 mbps till 15 GB, 256 kbps afterwards Monthly charge: `1,299 Data transfer limit: Unlimited Download speed: 2 mbps till 20 GB, 256 kbps afterwards The plans shown above are indicative and may vary across companies.

NEED FOR SPEED

Time needed to download online content at different connection speeds Content

Google home page (160 KB) Music track (5 MB) Video clip (20 MB) Low-quality movie (700 MB) High-quality movie (4 GB)

256kbps

2Mbps

00:00:05 00:00:01 00:02:36 00:00:20 00:10:25 00:01:20 06:04:35 00:46:40 34:43:20 04:26:40

Source: ITU

FAIR USAGE FAQ What happens when a customer crosses the fair usage limit?

■ Data transfer in excess of fair usage limit as per the applicable tariff plan is treated as a violation of FUP. ■ Upon such violation, the company contacts the customer suggesting reduction in usage or upgrade to a higher bandwidth plan.

■ If the customer fails to upgrade or continues to violate the FUP, company can suspend or terminate the customer's account.

Lucrative Hobbies

The Economic Times Wealth, December 13, 2010

Work Excel

Purna Chandra Rao Duggirala recalls how he monetised his passion for helping people making better use of spreadsheets SHOBHANA CHADHA

W

hat was a hobby years ago —playing with numbers, understanding, analysing and visualising them—has turned into quite a moneyspinner for the 29-year-old Vizagbased Purna Chandra Rao Duggirala today.

It was during his days at IIM-Indore that Duggirala started blogging about his B-school experiences and registered the domain chandoo.org in 2004. After completing his MBA, Duggirala joined TCS, where his job entailed extensive work on MS Excel. Over a period of time, his proficiency improved and he started offering advice on how to master spreadsheets. Initially, he wrote tutorials about Excel once a month. His inspiration came from technology blogs such as lifehacker.com and Digital Inspiration.

While on deputation in the US, Duggirala took up blogging more seriously. In March 2008, lifehacker.com reprinted one of Duggirala's articles, bringing more traffic on his blog. That was when he thought of monetising chandoo.org. He started off by

installing Google's Adsense programme on the blog. As a result, he would get paid when readers clicked on his content. As his website traffic grew, bucks from Google also increased. And he wondered if his readers would actually pay for his products. In February 2009, he released an Excel-related e-book and priced it at $5. The product was received very well and he soon doubled the price. He still sells around 20 copies of this book every month.

In September 2009, Duggirala launched a set of project management templates catering to analysts and project managers and priced it at $30. The product was a runaway success and in 2010, he launched his best-selling product, an online training program for Excel, “Excel School” and priced it at $97 per student.

In a year from September 2009, Duggirala has earned over $1,00,000 from his online business. He is now focusing on improving his blog and boosting his revenue stream.

Have a hobby that earns you money?

Tell us at etwealth@indiatimes.com

45

46

Senior Citizens

The Economic Times Wealth, December 13, 2010

Three dividends a day Harubhai Sanghavi is 75 years old and doesn’t shy away from equities.

In fact, his mutual fund overdrive ensures he earns from dividends every day.

BHARAT CHANDA

HARUBHAI SANGHAVI | 75 | Retired businessman :: STRATEGY To invest in the dividend option of all NFOs via SIPs To reinvest dividends in new schemes

:: BENEFITS Has not incurred any loss till date Spreads risks across several funds

SUGGESTED READING: “Retirement kills more people than hard work ever did,”said the late publisher of Forbes magazine, Malcolm Forbes. If you are nodding your head in agreement, you should probably read this book. For, not only does author Tamara Erickson empathise with the vast majority of geriatrics who crave work after retirement, she also offers a pragmatic way to kick start Career 2.0.

KHYATI DHARAMSI

N

o less than 1,900 systematic investment plans (SIPs).

Investments in 97% of all equity mutual funds, barring three asset management companies. Ninety dividends a month, averaging three a day.

This is the investment strategy of 75-year-old Harubhai Sanghavi.

Outrageous and contrary to all investment precepts? Yes. But the Mumbai-based septuagenarian thinks otherwise.

“It started with an investment in State Bank of India Magnum Multiplier in 1992-93. I was involved with my family business of seamless pipes and had no idea about mutual funds,” recalls Sanghavi. That was then. Today, he doesn't miss a single advertisement of a new fund offer (NFO) or the reopening of a close-ended scheme.

As soon as companies make an announcement, Sanghavi gets to work, deciding how to allocate dividends from previous NFOs in the dividend option of the new fund.

He never uses the dividends for personal use as his family meets his expenses. “I have created a chicken farm. The chickens lay eggs that hatch into chickens that lay more eggs. I am not interested in redemptions,” explains Sanghavi. Such rotational investments will soon force him to request for the 40th passbook from his bank.

In each NFO, he invests anywhere between `500 and `1,000 in the name of his children, their spouses and grandchildren.

What is the metric for evaluating a fund? Their net asset value (NAV).

Financial advisers will immediately trash the idea — after all, NAVs have no impact on net returns. But Sanghavi is unfazed: “I choose NFOs because the unit value is `10. If the NAV drops below `10 after the NFO, then I continue with the SIP for another six months,” he says.

Isn’t he concerned about investing in a fund with no performance history or deteriorating value? “Mutual fund offer documents state that past performance

“I have created a chicken farm. The chickens lay eggs that hatch into chickens that lay more eggs” is no guarantee for the future.

Moreover, I have not incurred any loss till now. I get units at `10-10.50 and sometimes at `7-8 during the initial months. Then I let investments grow,” he says.

Sanghavi proves his point with facts: “During the market crash in 2008, I purchased some schemes whose NAVs were as low as `2-3 and about 25% lower. Today, they have grown by about four times.”

The humungous paperwork doesn’t deter him either. Initially, Sanghavi used a broker but since entry loads were scrapped, he deals with the fund houses directly.

Helping him track his investments is a special spreadsheet prepared by his granddaughter. “She has used icons of the 37 asset management companies. I click on them and all the SIPs open up on my computer screen,” he says.

Wary of electronic records, he also keeps print outs of all investments since 2004-05 in a thick ledger.

Sanghavi has upturned the idea that age shrinks risk appetite. He is only focused on generating better returns than FDs, debt or liquid funds. The only thing about dividends that upsets him is the distribution of surplus. “Why do fund houses preserve maximum surplus and give out meager dividends. If the NAV rises from `10 to `23, they offer 1 paisa or 20 paise as dividends. Why not more? They must define the formula to calculate dividends,” he says. But that won't stop Sanghavi from collecting more of them.

Please send your feedback to etwealth@indiatimes.com 6 tips to get most out of PPF pg 20

Last Word

The Economic Times Wealth, December 13, 2010

Test your MQ

47

Financial Wizard

of the Week

Are you a savvy investor and an informed spender? Take this quick test to find out your money quotient (MQ). All the answers are in the stories that appear in this issue of ET Wealth. So you don’t need to be a financial wizard to know these things. You just need to be an ET Wealth reader.

Bring out the planner in you by suggesting a strategy for the financial problem of one of our readers. The best solution will receive an Indiatimes gift voucher worth

1 Equity funds have to invest at least 80% of their corpus in stocks.

Y/N

2 If you have more than one medical insurance policy, you can separately claim the expenses incurred from each policy.

Y/N

3 There is no tax implication if bonus shares are sold three months after they are allotted to the shareholder.

Y/N

4 You cannot invest more than `70,000 a year in your PPF account.

Y/N

Give yourself one point for every correct answer

5 There is no charge for a debit card.

Y/N

>> 8-10: You are a smart investor and know the tricks. Try fine-tuning your portfolio.

6 Gold prices go up when the economy is doing well.

Y/N

>> 4-7: Well, your FP quotient is average. You know the basics but you have a lot to learn.

This week's situation:

7 The interest paid on a home loan is fully tax deductible if the house is rented out.

Y/N

>> 0-3: You have a lot of catching up to do.

Remember it’s never too late.

8 You can file your income tax return even after five years.

Y/N

9 There is no limit on the number of cheques you can issue in a month as long as they are local cheques.

Y/N

10 There is no tax on reimbursements of medical expenses up to `15,000 a year if one has bills to support.

Y/N

I am going to be married soon and have been discussing money matters with my fiancé. He insists that we open a joint account where we pool in our income and then allocate money for regular expenses, investments, etc.

I want to divide the responsibilities between us without pooling in our salaries. Which is a better method?

—Divya, Delhi

Answers: 1 Yes. 2 No. 3 No. 4 Yes. 5 No. 6 No. 7 Yes. 8 No. 9 No. 10 Yes.

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

`5,000

Please send your feedback to etwealth@indiatimes.com

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

Published for the proprietors, Bennett, Coleman & Co. Ltd by SK Md Ali at 105/7A, S N Banerjee Road, Kolkata- 700014 and printed by him at Times House, Plot no. 2, Block- EM, Sector-V, Salt Lake City, Kolkata- 700 091. Editor- East: Basistha Basu- responsible for selection of news under PRB Act. RNI no. 29973/76. Tel no. (033) 2249 2222, Response (033) 2209 2000. Fax: (033) 2282 4966. All rights reserved. Reproduction in whole or in part without written permission of the publisher is prohibited. VOL 35 ISSUE NO 226