ETWealth December 20, 2010 by Chander Shekhar

THE ECONOMIC TIMES

wealth

IS SILVER BRIGHTER THAN GOLD? PAGE 16

www.wealth.economictimes.com | Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, New Delhi, Pune | December 20, 2010 | ` 5 (Complimentary Copy), 48 pages

Sensex 19,864.85

US (Dow Jones) 11,491.91

Gold `20,375 per 10 g

Silver `44,250 per kg

Currency `45.36 per $

● Weekly +3.23% ● Yearly +17.45%

● Weekly +0.72% ● Yearly +11.48%

● Weekly -0.27% ● Yearly +19.19%

● Weekly +1.20% ● Yearly +60.91%

A benign RBI credit policy helped the market gain last week.

US markets moved up marginally just before the holiday season.

Gold witnessed some profit taking and slipped marginally during the week.

Silver prices continued to rise on sustained demand.

● Weekly +0.29% ● Yearly -2.81% After a steep fall, the dollar has started rising against the rupee.

INSIDE

Companies are scrambling to offer life insurance at unprecedented discounts of up to 50%

INVESTING How to time the market PAGE 8

The best advice on mutual funds PAGE 13 Investing in wine PAGE 20 When health claims can get rejected PAGE 18 Fund manager’s wisdom

Turn the page to know how to cash in on this

PAGE 12

Pick a fund portfolio PAGE 14 Financial planning PAGE 28 Last week, This week PAGE 6 Mystery shopping PAGE 30

EARNING & SPENDING Your first salary demystified PAGE 42

Lose weight, save money PAGE 43

Successful entrepreneurs PAGE 44

Stocks to fund a dream home PAGE 46

INTERACTIVE Q&A PAGE 31 Test your MQ PAGE 47 Be a Financial Wizard and win `5,000 PAGE 47

F u EP yo i w ke t Ho ma repa n o 22 ca a cr AGE P

The Economic Times Wealth is India’s only personal finance paper exclusively devoted to multiplying your wealth week after week—for years to come. The issue dated Dec 20 is complimentary. Subsequent issues will be available at an invitation price of `5/issue. To book your copy, contact your newspaper vendor or call 011-39898090. Email crm.delhi@timesgroup.com. SMS ETWS to 58888

Life Insurance

The Economic Times Wealth, December 20, 2010

Same Protection, Lower Premiums A never-before rebate is currently being offered on term plans. Here’s how to get a cheaper, bigger and better life cover N O SA LE

INSURANCE AT A DISCOUNT

37% OFF

SBI Life Premium

Earlier Now

`12,974 `8,177

33%

30%

Future Generali Life

Max New York Life

OFF

Premium

Earlier Now

`11,490 `7,677

Premium

Earlier Now

`12,990 `9,034

27% OFF

Kotak Life* Premium

Earlier Now

`8,625 `6,304

PRIYA KAPOOR

t is that time of the year when retail outlets put up huge banners screaming “Discount” and “Sale” as they try to get rid of merchandise that may not find buyers till next year. But something far more precious than off-season apparel and household appliances is being sold at unbelievably low prices. Term plans, which are seldom pushed by agents but are arguably the best form of insurance, are being sold at premiums 40-50% lower than what they were about 1-2 years ago. "The term insurance plan I bought five years ago for `11,500 covers me for `20 lakh for 25 years. Now I am 45 but the same premium can buy me a cover of `35 lakh for 20 years," says Delhi-based businessman Sanjeev Agarwal. Much of this has to do with the growing competition in the insurance market. More than 20 private insurers have set up shop in India after the insurance industry was reopened to the private sector more than 10 years ago. Some of the newer players, desperate to get a toehold in an overcrowded market, are offering lower premium rates to attract customers. They are encouraged in part by the improving life expectancy figures in the country. Advances in medical science and improvement in health-care facilities have pushed up life expectancy in India. The average Indian now lives up to nearly 65 years compared to about 55 years in the 1980s and 58 years in the 1990s.

What’s good about the new term plans

Annual premium for a `30-lakh cover for a 35-year-old male for 25 years *For a `20-lakh cover

Lower premiums: The premium is lower by up to 40% compared to earlier rates. Higher cover: Companies are encouraging buyers to take higher cover. If a `25-lakh cover is for `3,695, a `1-crore cover is for `9,706.* Longer coverage: You can take a cover till up to 75 years of age compared to 60-65 earlier. Buying ease: Online term plans can be bought by the individual himself. *iProtect online plan for a 25-year-old male for 30 years

Cover Story Many life insurance companies have Insurance Brokers. An LIC reasonably well-off and an urbanite. He taken this reality into account and spokesperson defends his company's may not be the cream of Indian society, rejigged their mortality tables to align policy, saying “more than talking about but he’s certainly the thick upper crust. with the lower risk of death. Old the premium and how cheap it is, you Online term plans, some of which are products have been discontinued or the need to take into account the chances of available only in select cities, also have a premium has been revised accordingly. your family getting the claim amount if higher maximum age. You can take a “Earlier, all insurers followed the old something happens to you”. Indeed, term cover up to the age of 75 years LIC mortality tables. But not everyone LIC has a claim rejection ratio of 1% compared to 60-65 years earlier. is doing that now. So pure protection compared to 20-25% of some private Insurance companies realise that the products now being launched are players. better access to health care in urban cheaper,” says Manik Nangia, areas means that city dwellers have a Corporate Vice-President, ONLINE ADVANTAGE longer life span than the average Indian. Product Management, There are more goodies By doing away Max New York Life in store. Online term SHOULD YOU SWITCH? Insurance. The Platinum plans, where a customer The low premiums are tempting with the Protect plan from Max buys the policy directly existing policyholders such as Agarwal intermediary, New York Life is about from the company, are to dump their term plans and buy the Net has 40% cheaper than the earup to 35% cheaper than afresh at lower rates. That makes lier term offering which their offline versions (see sense, but should be done after careful brought down has been phased out. "The table). By removing the consideration. the costs for premium on our term intermediary between “Keep in mind that your health might insurers. The insurance product has the customer and the have deteriorated since the time you come down by around company, the world bought your existing plan," advises savings are 40% since it was wide web has helped Amitabh Chaudhry, managing director passed on to introduced," says Andrew bring down the price of and CEO of HDFC Life. That's why you customers. Cartwright, Chief Actuary, the cover. Says should not be in a hurry to terminate Kotak Mahindra Old MutuMadhivanan B, your existing plan. If you find that you al Life Insurance. Executive Director, ICICI Prudential can get a similar cover at a lower price, However, some insurance companies Life Insurance: “The online channel first buy the new policy before you have stoutly stayed away from this mega lowers the costs of processing junk the old one. Sometimes an sale. For instance, there’s no change in and servicing, which we pass insurance company may reject the premium rates of the state-owned on to customers.” an application if some To know which Life Insurance Corporation. “There's a The other reason for condition shows up in the is the best and cheapest term difference of up to 50% in the highest this discounted rate is that medical examination. Even if plan, turn to and lowest premium quote of term the online buyer figures it doesn't refuse to insure you, page 36 plans across various insurers,” points low in the risk matrix. He is it might bump up the out Rahul Aggarwal, CEO of Optima young, well-educated, premium, making it as costly if

The Economic Times Wealth, December 20, 2010

5 1 2 3 4 5

Things to Remember

ADEQUATE COVER: Make sure your cover is large enough. Experts advise a minimum cover of four times your annual income. CHOOSE MAXIMUM TERM: Pick the maximum term because buying a fresh plan later in life will be very costly. COVER LOANS TOO: If you have big-ticket debts, cover them also. You can choose a plan where cover progressively decreases. REVIEW COVER: At every life stage, you need to review your insurance cover and attune it to your needs. MIND INFLATION: As living costs rise, so do your insurance needs. Buy more or opt for a plan where the cover keeps increasing.

Life Insurance

The Economic Times Wealth, December 20, 2010

‘WHY I COULDN’T SELL TERM INSURANCE’ Hyderabad-based veteran insurance adviser SURI SEETA RAM recounts his attempts to sell term plans Term plans are a low-cost and effective way to insure yourself. Yet, of every 10 persons who agree to buy a term plan, only 2-3 come back for the medical examination and even fewer eventually issue their first premium cheque. It's possible that after getting a detailed explanation on the product, they consulted their friends and family and then decided against it. In such cases, their influence works more than that of an insurance agent. A few years ago, I was able to convince a client, Mr Murthy, to buy a term plan for `50 lakh for

an annual premium of `18,000. He filled the proposal form, got himself medically examined and even issued the first premium cheque. At every stage I reminded him that this premium would not come back. Yet, he was convinced that the policy would help him. His wife even called to thank me for introducing them to such a lowcost insurance solution. But just before the final issuance of the policy, Murthy requested me to stop the process. A colleague had convinced him that the policy was a waste of money. So much for risk mitigation. Another client, a small businessman, bought term plans for four of his employees. He would renew them every year

through cheques sent to them. However, after a few years, the employees asked me if there was a way to get the cash instead of paying the premium. I tried to explain the value of life cover to them but to no avail. Thankfully, since the premium came through cheques, there was nothing they could do about it. Unfortunately, once he sent cash through his driver which was given to the four employees to deposit. That was the end of the four policies. They pocketed the money and didn’t pay the premium. My client got a shock when he came to know that all four policies had lapsed due to non-payment of the renewal premium. However, the abject lack of enthusiasm for term policies has

not more than the existing policy. Also, remember that some risks are not covered in the first year of buying the insurance policy. That might mean you need an overlap where you have two policies running but will ensure that you are not left uncovered.

BUYING ONLINE Online insurance is a little bit like online tax filing. There's some paperwork still to be done. You fill up the form online and the cover starts immediately after you make the payment. But you have to submit certain documents as proof of income, age and identity. "We are also working out the option where our customers can submit these documents online," says Yateesh Srivastava, chief marketing officer, Aegon Religare. Even then, a transaction will not be completely online. The insurer will also subject you to rigorous medHow cheaper are ical tests to know if you are online term plans indeed as fit as a fiddle as than the cheapest you might have claimed. In offline plan* some cases, where the cover is very small, no medical tests are required. This limit Online plan Premium (`) Cheaper by varies across insurers. For ICICI Prudential iProtect 5,570 32% instance, Aegon Religare does not demand a medical Kotak e-term 5,460 33% test for a cover below `50 Metlife Metprotect 5,294 35% lakh. If something shows up in the medical test, the Premium for a 25-year-old male for a cover of `50 lakh for 30 years. person may find his *The cheapest offline plan in our database is the SBI Life Smart Shield with a premium bumped up. The premium of `8,135 a year.

Online discounts

The lack of interest in term plans has more to do with the reluctance of insurance companies and brokers to sell them.

additional premium can be paid by logging on to the website again. Where no medical tests take place the life cover starts immediately on payment. The buyer receives a temporary certificate by email which remains valid till the policy documents reach him. The online advantage has been an instant hit with insurance buyers. Aegon Religare Life Insurance, which pioneered the concept in November 2009, has already sold more than 11,000 iTerm policies with an average cover of `70 lakh in the past one year. The national average cover for all insurance policies, including Ulips and traditional products, is `95,000. Industry experts say online buying of insurance products will increase in the future as internet penetration in India improves. Right now, only 7% of the population has access to the internet. “Until now, life insurance companies had not fully utilised the medium’s potential. The independent buying of financial products and services will increase exponentially over the next few years,” says G Murlidhar, COO and CFO, Kotak Life Insurance.

Thank you for not smoking he picture of a black lung on the cigarette pack is hardly a deterrent— you still crave for a nicotine fix every few hours. But did you know that smoking costs you more than `10,000 a year—not including the cost of cigarettes? This is the amount added to the life insurance premium of smokers. Insurers know that nicotine addicts have higher chances of contracting pulmonary and heart-related diseases. So it makes business sense to charge more for the high risk. For instance, a 40-year-old smoker has to shell out about `25,672 a year for a `50lakh cover under the Kotak Preferred Term

Plan. The annual premium for non smokers is just `15,001. “Tobacco users are at greater risk of heart disease and various cancers. We recognise this in our rates,” says Andrew Cartwright, chief actuary, Kotak Life Insurance. Adds Madhivanan B, executive director, ICICI Prudential Life, “We want to provide incentives to people leading a healthy life since we expect lower risk and better experience from this group.” Online term insurance plans also distinguish between high and low-risk customers. “We divide customers into three

categories—non-smokers and preferred nonsmokers. A preferred non-smoker is one who is in a superior state of health than a nonsmoker. He is charged 15% lower rates than non-smokers,” says Manik Nangia, Corporate Vice-President, Product Management, Max New York Life Insurance. So if future health problems don't motivate you, think about the current and future cost of smoking. May be that will help you kick the butt.

Please send your feedback to etwealth@indiatimes.com

little to do with the policyholder and more to do with the reluctance of insurance companies and distributors to sell these policies. Premiums are lower and the commission is hardly attractive. I was never encouraged to sell term plans by my company. There is hardly any literature available and only a truly committed agent will go the distance to learn the policy terms and conditions from the company website. Despite these roadblocks, I have been able to sell a few term plans to my clients, especially those who have taken home loans. Nobody would like to leave behind an indebted property. (As told to Khyati Dharamsi)

Premiums (`) going up in smoke

Kotak Preferred Term

Smokers Non-smokers

8,692 6,563

27 % OFF ICICI Prudential iProtect* Smokers 6,450 Non-smokers 5,050

22 % OFF

SBI Life Smart Shield Smokers 9,884 Non-smokers 8,135

18 % OFF 11 % OFF Max New York Life* Smokers 9,450 Non-smokers 8,400

All annual premiums shown above are for a `50-lakh cover for a 35-year-old male for 30 years

Last Week

The Economic Times Wealth, December 20, 2010

Weekly wealth monitor

1-week change

1-year change

STOCKS

19.2%

17.9%

17.5%

14.7% 8.1%

K S Oils Ltd Arvind Ltd S Kumars Nationwide Ltd

7.8%

4.7% 3.2%

2.9%

1.8%

0.4%

The top three

-0.3%

Balanced Debt Equity Bond yield funds funds funds The 10-year government bond yield is the average yield in the respective periods. Sensex

Price ( `)

Weekly % change

DEBT FUNDS

NAV ( `)

Weekly % change

47.3 63.9 86.9

54.83 34.56 26.70

HDFC Income SBI Dynamic Bond Reliance Income

22.38 11.49 31.79

1.09 1.08 1.01

EQUITY FUNDS

NAV ( `)

Weekly % change

HSBC Progressive Themes JM Large Cap Kotak Select Focus

13.42 20.41 12.43

5.5 4.4 4

Weekly % change

WORLD INDICES Shanghai Composite FTSE 100 Nikkei 225

Gold

Wealth monitor is a weekly update on the value of key asset classes in the investors’ portfolio. The one year change gives a long term perspective on the performance of the asset.

2,893.74 5,871.75 10,303.83

1.85 1.01 0.90

* Figures as of 16 December. Stocks are BSE 500 stocks. Debt funds are income funds.

wealthwise

bulletin board

top news

PROVIDENT FUND

Tax worries on PF

At least 2,000 Indian and multinational companies managing their own provident fund trusts face the prospect of losing tax relief on contributions they make to the fund because of the labour ministry’s inefficiency. Employees at these firms may be asked to pay tax from January on their contributions to the retirement fund. PF contributions are usually tax-free. The finance ministry had in its 2006 Budget asked companies managing their own PF trusts to get an exemption licence from the state-run Employees Provident Fund Organisation to retain the tax benefit. It had given them a year to obtain the licence. But the deadline had to be extended several times as the labour ministry and the PF office failed to clear all the cases.

Source: Bloomberg

A pick of corporate filings by companies at stock exchanges Oil & Natural Gas Corp declared a special interim dividend of `32 a share of `10 each fully paid-up for the 2010-11 financial year. Hero Honda Motors entered into a new licensing arrangement with Japan’s Honda Motor Co after the Hero Group's proposed acquisition of Honda's 26% stake in the two-wheeler maker. Reliance Communications signed a memorandum of understanding with China Development Bank for 10-year financing of $1.93 billion (` 9,000 crore). Bank of India raised its base rate to 9% from 8.5% and its prime lending rate to 13.25% from 12.50%. Indian Overseas Bank raised its benchmark prime lending rate by 25 basis points to 13% per annum (excluding housing loans) with effect from 13 Dec, 2010.

“Looks like your medical insurance does not cover pre-existing organs.”

BANKING

A lot of public sector banks including Bank of India, IDBI Bank and Indian Bank, among others have raised their base rate to up to 9%. Many more are expected to follow in the near future. The base rate system replaced the non-transparent benchmark prime lending rate system and was implemented on 1 July. The new base rates will be applicable to all loans linked to the base rate that have been sanctioned on or after 1 July.

STOCKS

Higher advance tax: results on track The advance tax outlays of the top 100 companies from October to December grew 17.5% from a year ago, indicating corporate earnings growth is on track this fiscal despite fears of growing wage and input costs. The overall advance tax collection by the Mumbai circle—the country's largest—for the quarter is also expected to grow more than 20%. Advance tax is paid by Indian firms every quarter based on earnings projections and these numbers are considered a proxy for financial performance.

Sebi plans to link brokers to Asba Sebi plans to integrate brokers with Asba —Application Supported by Blocked Amount—an online process the market regulator has developed to apply for an IPO. The exchanges would provide stock brokers access to Asba, where they can key in details such as the demat account number, depository participant ID, bank account number, PAN and bid details. Thereafter, banks that have access to the system will verify the account details and block the amount. At present, a broker only collects the Asba form from the investor and deposits it at the bank where the investor holds an account.

insider track A list of companies in which promoters bought or sold shares BUY

SELL

2.17 lakh shares in Godfrey Philips India at an average price of `2,021.22.

2.45 lakh shares in Gujarat Gas Company at an average price of `390.19.

4.33 lakh shares in Mahindra & Mahindra at an average price of `643.64.

15,000 shares in Oracle Financial Services at an average price of `2,199.34.

1.15 lakh shares in Godfrey Philips India at an average price of `780.62.

10,000 shares in HDFC Bank at an average price of `2,164.74.

97,710 shares in Sunteck Realty at an average price of `471.42.

2500 shares in Kotak Mahindra Bank at an average price of `472.12.

WWW.CARTOONSTOCK.COM

Banks hike base rate, loans get dearer

Petrol pump robs motorist

quote of the week

INSURANCE

Costlier health insurance in pipeline Health insurance premium may rise 15%, further pinching the middle class, as state-owned insurers plan to effect an increase to meet the rising costs of healthcare. Premiums for health covers were raised three years ago. The increase is likely to happen sometime next fiscal. This would apply to existing policies when they come up for renewal as well as the new policies. Medical inflation is around 15-20% a year.

NOURIEL ROUBINI ECONOMIST, NICKNAMED DOCTOR DOOM FOR PREDICTING THE FINANCIAL CRISIS, ON HIS OUTLOOK FOR INDIA IN 2011

India’s growth story remains intact thanks to its demographics and rising investment, but slow reforms could disappoint.”

This Week

The Economic Times Wealth, December 20, 2010

Market Outlook

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

Which way will markets move?

Which segment will lead the rally?

reader poll Hits & duds Top 3 sectors

(in %)

Banking & finance . . . .61 Up by more than 2%:

Up by 2%:

At the same level:

Down by 2%:

46% 27% 17%

IT & Telecom . . . . . . . . .39

Down by more than 2%:

76% of respondents do not expect the market to fall this week.

Pharmaceuticals . . . . .39

68% 32%

Real Estate . . . . . . . . . . .71

Large caps

Small caps

Manufacturing . . . . . . . .27

Mid caps

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.

■

Get ID verified to invest in mutual funds KHYATI DHARAMSI

Forms available at :

Gas/electricity/phone bill

MF offices

Passport (essential for

mutual funds Registrars like CAMS,

Karvy MF Services Documents required: For identity: PAN card,

NRIs) Latest demat/ bank

Submission centres

■

Central govt expenditure on wages and purchase of other goods and services is set to drop sharply in 2010-11 vs a year ago, indicating a drop in state-funded fiscal stimulus to keep the economy growing after the financial crisis.

CAMS Deutsche Investor Services

passbook

ICICI Brokerage Services

agreement Documents issued by

Home brands sold at departmental stores and hypermarkets are 30-50% cheaper than the established brand names. If you buy groceries worth `3,000 a month, you can save up to `1,200 by switching to these home brands. If these savings are invested every month in a scheme that earns 15% a year, they can grow to `1.03 lakh in 5 years.

weekly calendar Tuesday DEC

■ A panel of ministers to debate whether to allow state-run oil companies to set pump prices for diesel in tune with global crude.

Wednesday DEC

■ BMW India to launch its cheapest Indian offering X1 starting at `22 lakh. ■ WPI yearly data to be released.

Bajaj Capital Investor

account statement or Leave and licence

I will switch to home brands

Services

Thursday DEC

IL&FS Ltd Integrated Enterprises Karvy Computershare

passport-size photos

government/statutory

Kotak Securities

For address (any one):

authority

BRICS Securities

Ration/voter card

The global economy faces an uneven recovery, with sluggish growth in Europe and an uncertain outlook for the US, International Monetary Fund managing director Dominique Strauss-Kahn said last Thursday.

Resolution of the week

If you’re looking to invest or are already invested in a mutual fund, you have to complete a simple verification process before the calendar changes. Mutual funds will not accept new payments unless an investor has obtained a know-your-customer (KYC) acknowledgement. All fresh investments, including switches and existing SIPs that go via auto debit, will be stopped. Earlier, KYC compliance was required only for investments over `50,000. “From 1 January 2011, even a `100 investment needs a KYC,” says Jayant Vidwans who runs a financial advisory Chaitanya Financial Services. It actually saves you the pain of submitting documents with a different fund house each time. The documents are to be submitted only once to be maintained by CDSL Ventures. You can download the forms (amfiindia.com, amfiindia.com/poskyc.aspx or cvlindia.com) or take physical forms from MF houses, service centres or distributors. Fill in your name, PAN card details, address in the form and attach your ID and address proofs along with photographs. Carry originals and copies of documents signed by you. The originals will be returned over the counter. The form along with these documents can be submitted in centres including Mumbai, Delhi, Kolkata, Chennai, Agra, Ahmedabad, Vadodara and VisakhapatRAJ nam (also see box below). Visit amfiindia.com/poskyc.aspx or cvlindia.com/downloads01.html, for addresses of these centres. Once submitted, these documents will be stored in your name, and an acknowledgement number or a slip over the counter will be given. The acknowledgement letter will be given within 15 days at the same office. If you have investments in any MF, the KYC acknowledgement will have to be notified to the fund house. If you want to withdraw MF investments made years ago, you will have to complete this procedure to receive your money. So, even if you’d invested in the past, notify the fund house of the completion of the verification procedure. Include your folio number when sending the acknowledgement letter to the fund house.

MF Distributors

Figures may not add up to 100 because of multiple responses

Retail investors seem to believe in buying at lows and selling at highs, which amounts to timing the market

Market pulse

short take

Websites of Amfi and

Automotive . . . . . . . . . . .32

ING Mutual Fund

■ RBI will buy bonds of up to `12,000 crore each week for the next 4 weeks.

YES

EVERY TIME THE STOCK MARKET FALLS, IT PRESENTS AN OPPORTUNITY TO BUY?

Worst 3 sectors

64%

29% NO

7% CAN’T SAY

Product launches for the mid-income segment, Saral Life is a traditional endowment plan that SBI Life Insurance has launched at a yearly premium starting at `4,000. SBI has also unveiled Smart Elite, a product targeted at the HNI segment, that offers policyholders the flexibility to pay single premium or premiums for limited terms while allowing them to stay invested and protected for the long term. ■ Meant

■ Tata AIG General Insurance has launched a new health insurance range under the name of Wellsurance - Wellsurance Executive (targeted at young working men), Wellsurance Family (targets individuals and families) & Wellsurance Woman. The health insurance benefits under the scheme cover critical Illnesses, major and minor surgeries etc, daily hospital cash, cashless claims service in over 3,000 network hospitals.

The Economic Times Wealth, December 20, 2010

Equity Investment

STOCK MARKET

Are you a ‘buy and forget’ investor? If yes, you are a long-term investor in stocks, which is good. But there are times when keeping a sharp eye on the market can help you make big profits—or avert losses. Here's why and how to time the market

“Look at market fluctuations as your friend rather than your enemy; profit from market’s folly rather than participate in it” WARREN BUFFETT LEGENDARY INVESTOR

NARENDRA NATHAN

ost of us are aware of the advantages of being a longterm investor in stocks— pick a fundamentally good stock and let it create wealth for you year after year, at times even for decades. But are you sure you are not confusing long-term investing with buy-andforget investing? However good the stock you may have chosen, like any other asset, it will need to be reviewed for its relative wealth creation capacity. Relative to its price movement over a given period. A fundamentally strong stock may go into a few years of down cycle due to a variety of reasons. Won’t it be better if you could sell (or even part-sell) your holding of that stock at or near its previous high? Even if you strongly believe in the future of that stock, you can always replenish your holding at a lower price after it has fallen from the high. But you will do this only if you believe and are able to time the market. ET Wealth decided to explore and explain the concept of timing the market to help you distinguish it from a ‘lazy-investing’ strategy of buying and holding stocks forever, which particularly afflicts retail investors. They buy stocks based mostly on tips and hold on to them for long. Some investors may sell a stock if its price goes up—to book profit—but rarely do they sell at a loss. They hold on to them for long, ‘hoping’ to recover their purchase price some day. “If you get caught in a wrong trade, you have to book a loss and come out. Hoping and praying are not smart investment strategies,” says CK Narayan, president, treasury, Sharyans Resources. Long-term investing doesn’t mean you hold on to the same set of stocks. Investors must review their stocks at frequent intervals and look to switch from overvalued stocks to undervalued ones. This should be done several times in the long term. “Investors should sell a stock if there is any change in its fundamentals or when its market price moves substantially above what is warranted

by the fundamentals,” says Bharat Shah of ASK Investment Holdings. Fund managers churn portfolios fast. According to Value Research, the average portfolio turnover ratio for diversified equity funds is around 80%. More importantly, for the top 10 schemes that have generated the highest five-year annualised returns, the average portfolio turnover ratio is at 108%. It pays A guide to calculate your to follow the pattern of fund home loan EMI managers, because what works Page 41 for them would work for you too. Timing the market—exiting at the top and entering other sectors or stocks—is particularly important when investing in commodity stocks because their performance is be driven by cycles. If you think you don’t have the time to develop an expertise for this, don’t enter the market directly. Invest in instruments such as mutual funds or portfolio management How timing affects returns: services. “Most investors don’t spend enough time to understand the market, take The Sensex example informed decisions or responsibility for ■ Sensex has generated 18% annualised returns since inception. their actions. They expect the market to ■ Much of this wealth creation happened in two spurts: 85% annual 21207 19865 reward them only because they happen to returns during ’88-’92 and 52% annual returns during ’03-’08 Jan 2008 Dec 2010 be in it for a long time. This is not long-term ■ It generated only 4% annualised returns during the investing. Rather, this is lazy investing,” remaining periods says Narayan. 10,000 Before understanding how to time the market, let us find answers to stock market 4567 6,000 April 1992 Absolute behaviour in the long term (see charts). 5,000 return of 4,000 While the probability of the stock market 1071% in 3,000 generating superior returns in the long term 2880 4 years Apr 2003 is high, it doesn’t happen uniformly. There 2,000 between 1988 and will be periods of ‘spurts’ (bull phase), lateral An absolute gain of 1992 636% in less than five movements (consolidation phase) and losses 1,000 years ended Jan 2008. (correction or bear phase). These phases Those who sold someIf you didn’t exit sometime near the end of occur at the broader market level or for 600 time then could still be period A, you waited for 11 long years when 500 individual sectors/stocks (i.e., there will be thanking their fortunes the Sensex generated an absolute loss of 400 37% from its 1992 peak sector/stocks that will drop when the market 390 300 March 1988 is rising and vice-versa). The bull phases are 1985-89 1990-94 1995-99 2000-04 2005-09 2010 marked in green lines and bear or consolidation phases in blue rectangles. “The strategy should be to be ‘in’ during Timing the market doesn’t mean not investing long term in stocks. Many stocks are best held in large these spurts (can be of individual stocks or numbers for years, if not decades, for wealth creation. For more involved investors, there is a case for markets) and ‘out’ during period profit-booking through timing the market, even for stocks held for long. The Sensex example is only an illustration. A similar pattern repeats for individual stocks too. consolidation/correction phases,” says

Equity Investment

Using PE as buy-sell signal Below 12

Grossly undervalued

12-16

Undervalued

16-20

Fairly valued

20-24

Overvalued

24-28

Grossly overvalued

Above 28

Bubble valuation

The above price-to-earnings ratios (PE) are for the Sensex. Since the historical average is around 18, you can start booking profit when it goes beyond 22 and restarts investing once it goes below 14. Similar rules could be set for sector/stocks also (the ratio could vary from sector to sector and therefore for specific stocks too).

Narayan. Keep in mind that a lot of smart money (mostly from globetrotting investors) moved from Japan in the early 1990s to the US to participate in the tech bubble-ridden rally (the Nasdaq composite index rose from 437 in March 90 to 5049 in March 2000, an absolute gain of 1055% during this time) before shifting to emerging markets like India to participate in the rally in early 2000. Japan’s ‘lazy investors,’ who stayed put ‘hoping’ the market will give returns in the long term, got hammered there. Our previous week’s cover story that explained the need to be invested in the Indian market for the next 10-20 years itself was a timing call, aimed at all investors— global as well as Indian. How to time the market? There are several techniques to time the entry and exits. Let us discuss the broader parameters here and leave the complex ones for forthcoming issues. For passive investors: For investors unable to track the markets regularly, the best way to time the market is through what is called automatic rebalancing--having a proper asset allocation and sticking to it by rebalancing the portfolio regularly. Let us say you started investing in the beginning of 2008 with a 50% exposure in equity and 50% in debt. By the end of 2008, the equity portion fell by 50% (ie gone down from 50 to 25, while the debt has generated a return of 8% (ie gone up from 50 to 54), tilting your asset allocation in

The Economic Times Wealth, December 20, 2010

favour of debt. That warrants a rebalancing (i.e., moving back 15% from debt to equity). Likewise, the stock market rally in 2009 and 2010 made certain that your equity portion went past the 50% mark, necessitating a partial profit-booking and diverting it to debt. Tweak the asset allocation depending on market valuation. The equity portions of the portfolio can be modified a little based on the overall market valuations. When following this strategy, the equity component of the portfolio will be defined as a range (say, 40%60%) instead of a specific percentage (50%). In the above example, the equity component can be increased to 60% if the Sensex P/E drops much below the historical average and is brought down to 40% if it goes much beyond the historical average. (See box on PE as investing signal) For active investors: Active investors who track the market regular can be classified into two types—those who believe in fundamentals of a stock and those who also look at the technical factors. Should fundamental investors ignore all market fluctuations? “No,” says Warren Buffett, the legendary value investor. “Look at market fluctuations as your friend rather than your enemy; profit from market’s folly rather than participate in it,” he says. The investment decision has to be directly linked to the valuation of stock (if you are investing in one stock) or valuation of the broader market (if you happen to have a diversified portfolio). The strategy is simple—make sure that the value you get is much more than the price you pay. There are several methods to arrive at the value of a stock such as the earning discount model, dividend discount model and discounted cash flow (DCF). Investors also must compare the valuation of stocks by comparative valuation tools such as price-to-earnings ratio (P/E), price-to-book ratio (P/B), dividend yield, P/E-to-growth ratio (PEG), etc. We will explain these in forthcoming issues. The decisions to be either ‘in’ or ‘out’ of the market themselves centre on timing, investors should take a call about the broader market valuation here. If you are a high risk-taker and ready to be in/out of the market for a reasonable period, you can use market valuations to balance your equity portfolio. The strategy here is to totally exit the market if valuations reach unsustainable levels. How to arrive at broader market valuations? The best strategy is to calculate the forward P/E (i.e., value of the broader

How timing affects returns: The Japanese example 38957

50,000

Dec 1989

40,000

Like the Sensex example (shown on the left) Japan’s Nikkei also gained 1885% in absolute terms between 1970 and 1989

30,000 20,000

10304 Dec 2010 8,000 7,000 6,000 5,000 4,000

Investors who blindly followed the “Japanese growth story” and did not time their exit in or around 1989 are still nursing their wounds

3,000 2,000

1963 Dec 1970 1970-74

1980-84

1990-94

2000-04

2010

The strategy must be to be 'in' during spurts, which can be of single stocks or markets, and 'out' during consolidation or correction” C K NARAYAN, PRESIDENT, TREASURY, SHARYANS RESOURCES

market index like Sensex by its estimated forward earnings). As a retail investor, it will be a difficult task. Several brokerage houses and wealth managers offer this service and use their own assessment about market valuations to arrive at the required asset allocation. If you are doing it yourself, you can use the Sensex trailing P/E, which is calculated and is available in most financial papers and websites. As is clear from the Sensex P/E box, the Sensex trailing P/E was moving in the range of 12 to 28 in the past 15 years. It can also be seen that the market went into a deeper correction once the valuation crossed the 28 mark — the same can be used as an exit point. For ‘technical’ investors, technical analysis is a useful tool to time entry and exit. “Since prices may move up or down 15% to 20% due to technical factors alone (i.e., without any change in fundamentals), use of technical analysis to decide the exact entry is useful,” says DD Sharma, senior vice-president at

Anand Rathi Financial Services. Technical analysis is based on a historical study of market data like price, volume and market breadth. The most widely-used tools for selecting the entry timings are moving average crossover (i.e., price going above a rising moving average or short-term moving average going above long-term moving average), price going above a falling trend line, prices bouncing back from a support, patterns like double bottom (i.e., prices coming to a specific level twice with a reasonable time gap in between), inverted head and shoulders (the pattern looks like a man standing on his head), rounding bottom (like a saucer). The opposite action will result in timing the exit. ET Wealth will explain you the basics of technical analysis in the coming weeks.

Please send your feedback to etwealth@indiatimes.com

Stock Pick The Economic Times Wealth, December 20, 2010

GETTYIMAGES

PICK OF THE WEEK

Sweet

opportunity in sugar stocks Domestic sugar stocks did not rise even when international prices touched a 30-year high. But there are enough factors to be positive both in the short and long term.

NARENDRA NATHAN

ugar has always been a cyclical commodity. But this year the price cycle seems to have shortened considerably. It was just at the beginning of this calendar year that investors were dumping sugar stocks because international prices had hit a seven-month low. But within a short span, international sugar prices have bounced back to hit a new 30-year high in November. Even after the recent correction, international sugar prices continue to be close to the 30-year highs. However, that has not translated into gains for investors as the domestic sugar prices have not participated in the latest international rally started from May 2010. The gap between international prices and domestic prices is widening each day (see graph). But that may change soon because the agriculture minister Sharad Pawar recently announced the government's plan to relax the export ban. While the government has approved a shipment of 5 lakh tonne sugar (this is over and above the pending re-export obligation of around 1 million metric ton), the market participants are expecting more action in the coming months. International prices: It is not just the weakening US dollar triggered by the second quantitative easing programme by the US Federal Reserve (that promises to pump in an additional $600 billion over a period of eight months) that is driving international sugar prices. Factors like drought in Brazil (a major sugar producer) coupled with excess rain in countries like Pakistan have significantly reduced international production estimates. The global demand-supply situation has changed from an estimated surplus of 5 million metric tons to around 1.5-2 mmt. Domestic prices: Since the production of sugar this season is expected to be more than domestic demand - India's sugar production in SY11 (sugar year which is from October to

September) is expected to be around 26 mmt against a consumption of around 23 mmt - domestic sugar prices may not shoot up immediately. “Domestic prices may not go up immediately, at least for the next 3-4 months,” says Sageraj Bariya of Angel Broking. This is because the food inflation is still well above the government's comfort zone and there may be stringent action (like withdrawing the export permits) if this aggravates the domestic situation. Increase in levy sugar price: Sugar companies are also going to benefit from the increase in levy sugar prices for this season. The levy sugar price has gone up from `17.5 per kg to `18.5 per kg, an increase of 5%. Raw material costs: The Uttar Pradesh government has decided to pamper sugarcane farmers by increasing the state administered prices (SAP) for sugar cane for SY 2010-11 by `40 a quintal. With this, the SAP in UP has reached an average `205 a quintal, well above the general expectation of `190 a quintal. However, even at `205 a quintal, they can bring down their cost of production to `25-26 a kg, leaving a decent profit margin of `3-4 a kg (considering the Mumbai sugar price of `29). Ethanol looks bright: The government has increased the ethanol procurement prices for ethanol blending programme (EBP) of oil marketing companies (OMCs) from `21.50 a litre to `27. More importantly, this clarity has resulted in streamlining the EBP itself. “Oil companies who were not complying with the 5% mandatory blending earlier have started doing it now,” says Sanjay Manyal of ICICI Securities. The higher quantity of cane crushing this year will improve the availability of molasses thereby helping the sugar companies post decent growth from their distillery divisions. The drought in Brazil has also impacted ethanol prices in a big way. Stock prices have started reacting: Though domestic sugar prices did not make any major jump due to the export announcement, stock

International sugar prices vs domestic prices

Why sugar is getting hotter International sugar prices close to 30-year high

200

International

175

International ethanol prices on a roll Domestic prices remain subdued due to a partial export ban

150 125 100

India is expected to have a surplus sugar production in SY 10-11

Domestic

75 50

Feb 2010

Dec 2010

Stock prices have gone up on the export relaxation news, but there is scope for further appreciation

Valuation parameters of large sugar stocks Company Name

P/E ratio

Shree Renuka Sugars

Market cap

6-month returns (%)

Analyst rating

No. of analysts

8.68

6,020

19.55

4.11

E I D-Parry (India)

10.91

4,315

33.44

19 2

Triveni Engineering & Indus

39.70

2,764

9.61

Bajaj Hindusthan

10.72

2,114

-4.70

1.5

Balrampur Chini Mills

9.75

2,071

-0.56

3.52

Bannari Amman Sugars

6.96

834

-0.55

Analysts we spoke to are most bullish on Shree Renuka Sugars and Balrampur Chini (A higher rating means more analysts are bullish on the stock)

market has realised its potential. That explains why the Economic Times Sugar Index turned out to be the best performing sector with a gain of 12.2% in last week. And now comes the most difficult question—have all the good news mentioned above already factored in the price? We don't think so, because the gaps between domestic and international sugar prices are still wide enough (see graph). Shree Renuka Sugars remains the

best pick, mostly because it will benefit from its Brazilian acquisitions of VDI and Equipav. “We are also positive on Balrampur Chini as the decline in sugarcane cost and rise in power tariffs would help the company to keep its earnings in the black,” says Manyal. Please send your feedback to etwealth@indiatimes.com

Stocks

The Economic Times Wealth, December 20, 2010

GETTYIMAGES

INVESTOR BEHAVIOUR

Did you know you timed the market? he intelligent investor has es also don’t faze investors. arrived. According to ICICI Throughout 2008 till March 2009, the Direct, investors on its online Nifty’s value dropped continuously trading platform have internalised the from 6,144 to 3,021. Yet, investors most fundamental rule of all refused to panic. Sticking to their investing: Buy when market falls and guns, 60-75% were adding more to sell when market rises. This buy-low, their stockpile, exemplifying sell-high behaviour proves that Indian confidence in a bounce-back. retail investors have begun to time the Even phases of slower growth are market—something most experts do also seen as buying opportunities. not credit small investors with. This For instance, when Nifty’s growth explains why, when the Nifty tanked slackened from 16% in Julyby 30% between October and DecemSeptember 2009 to 10% between ber 2008, 75% users retained a net October and December of the same buy position. They were raring to bag year and further down to 1% in the blue chips and potentially big first quarter of 2010, the number of companies at low costs. Notably, it buyers grew steadily from 40% to was the worst quarter for the 50% and 55% respectively. Nifty in the past four years. Frequent portfolio churns Are you a The investor behaviour was are also passé as investors fo‘buy and tracked for 14 quarters cus on long-term growth. So forget’ investor? page 8 between April 2007 and even when markets jumped September 2010. by 40% in the second quarter Long drawn-out bear phasof 2009, the increase in the

% of investors buying

Wise moves Chart clearly shows that majority of retail investors buy stocks when market falls and sell when it rises

% of investors selling

% change in Nifty Q1 07-08

All data are quarter over quarter change

Q2 10-11

number of users booking profits was only 20%. In fact, between April 2007 and September 2010, not one market surge led to aggressive selling. Investors realise patience reaps richer rewards. More importantly, they are mature enough to resist reacting to every minor market dip or spike. It is difficult to single out one reason for the increase in investor awareness and confidence. The market boom of pre-2008 was definitely a trigger. Easy access to information on the Net and the proliferation of financial analysts has also contributed to the trend. Moreover, there is a need for investments to grow at a fast clip to keep pace with rising aspirations. The new Indian investor is primed for the task.

Please send your feedback to etwealth@indiatimes.com

Fund Manager’s Wisdom

The Economic Times Wealth, December 20, 2010

EXPERTSPEAK

Don’t react to price swings NITIN SONAWANE

Funds managed by Sandeep Kothari

SANDEEP KOTHARI Age: 40 years

Fidelity Tax Advantage Fund (individually manages)

Fidelity International Opportunities (jointly manages)

Fidelity India Growth Fund (jointly manages)

Fidelity Equity Fund (jointly manages)

Qualification Chartered Accountant

Try and keep investing very simple. Understand the business, understand how it makes money and try and buy a good business at a reasonable value.

Five things my stock-picks must have Quality, scalable businesses, management's execution capabilities, company's track record and right valuations.

I don’t touch stocks

Fidelity Tax Advantage

Where I do not understand the business, especially the cash-flow cycle of the business.

Performance 55.34

Current position Equity Fund Manager, Fidelity Mutual Fund

The Sandeep Kothari way of investing

My risk appetite is

47.31 45.98

Moderate. I look for risk-adjusted returns. Would like to see consistency and longterm compounding and so protecting downside is as important as the potential upside.

28.99 18.61

One bias I try to control

15.39 6.51 -1.04 -1.79 1 year

2 year

3 year

Not to get too impacted by price movements either on the upside or downside and keep a clear focus on fundamentals and value.

What I do differently

Fund Category Benchmark*

*BSE200. As on 14 Dec 2010.

Returns (%) greater than one year are annualised

I continue to believe in disciplined hard work to pick the right stocks.

My own money is invested in Equity 60%, debt 40%

Fund allocation

What I like about my job

26.23%

30.23%

Financial services

Others

12.68% Energy

7.31%

9.8%

Services

Healthcare

9.71% Technology

You learn a new thing every day, you meet the best and the brightest from business and other fields. The continuous learning process is the best thing about this business.

My outlook for 2011 I remain constructive on the markets but expect the markets to be volatile.

Small investors should Invest in equity through SIPs.

Nearly 4% of corpus is in cash holdings/debt. As on 31 October 2010.

How frequently do you churn your portfolio?

Managed by Sandeep Kothari, this fund is rated 5star by Value Research. It is the second-best performer on one-year and three-year basisof all taxadvantage funds

We research and buy stocks for the long term and so the churn in my portfolio is very low.

My best decision Top 5 Stocks

(% of net assets) Reliance Industries 6.90

Infosys Technologies

4.36

HDFC Bank

4.18

ITC

4.13

State Bank of India

To make a career in investments as I really enjoy what I do.

My worst decision No regrets so far—hopefully will remain like this in the future as well.

Which books have influenced your investing process?

3.72

One Up on the Wall Street by Peter Lynch, Common Stocks and Uncommon Profits by Philip Fisher and Warren Buffett's letters to shareholders. I am an avid reader of the Outstanding Investor Digest (as and when published), Peter Drucker and a number of other books.

As on 31 October 2010.

26.7% is the one-year returns from Fidelity India Growth Fund, also managed by Kothari. The category average is 16.8% DATA: VALUE RESEARCH

What do you do during your leisure hours? Spend time with family, reading and running.

(As told to Khyati Dharamsi)

Mutual Fund

The Economic Times Wealth, December 20, 2010

INVESTMENTS

Where to get the best mutual fund advice Now that entry loads have been replaced by commissions on mutual funds, ET Wealth looks at where you can get the most useful investment advice.

GETTY IMAGES

NUPUR ANAND & KHYATI DHARAMSI

ver since the removal of entry loads in August 2009, small investors have had a tough time finding the right adviser on mutual fund investments. With no incentive left in the distribution of mutual funds, some agents and brokers have either left the business or have started hawking Ulips. As the story on page 30 illustrates, misselling of high-commission products in the garb of mutual funds is a common practice. So, where does one get the best advice on mutual funds? One which is unbiased, objective and will help you make the right decision. ET Wealth looks at various options before you and explains the benefits and pitfalls of each.

Banks: Most banks sell mutual funds but none disclose the charges upfront. Besides, not all banks have tie-ups with the 43 fund houses in the country. Private banks are more active in this field. Some banks have started charging a fee of `100 per quarter for online purchase of mutual funds irrespective of the transactions made. Offline purchases are either not available or attract a fee based on investment size. But the bigger danger is that you might end up buying the wrong product. Relationship managers often push their own group’s products or sell Ulips. On the other hand, public-sector banks do not charge you but are not geared to offer good service. Independent financial advisers: They put in more effort to understand the investor and his requirements before suggesting a product. These planners also give customised

The price of advice Charges

What’s good

What’s not

Private banks

Nil or `100 per quarter (online) or `250 per form

Easily available. Some also offer online investing facilities

Push own funds or mis-sell other products

Public-sector banks

Nil

Free advice for mutual fund investments

Not easily available as banks not geared to offer advice.

Distributors and brokers

Nil to `100 per transaction

Recommend funds on basis of in-house research

High charges

Nil

Easy way to invest in a bouquet of funds

Limited advice

Fixed charges of `1,500-2,500 to up to 0.8% of corpus

Unbiased advice and financial planning approach

Charges are highest

Investment portals Independent financial advisers

Just like a mutual fund: Turn to page 30 to know how banks’ relationship managers often mis-sell Ulips by presenting them as mutual funds

ETW Funds 100 Turn to page 34 to know which are the best mutual funds across 10 different categories.

service to the client by picking up documents from your house or offering advice on other financial products as well. The fee structure varies from a flat fee to one based on assets. Small transactions do not attract a fee. Suresh Sadagopan, who runs Ladder7 Financial Advisories, says, “We have changed our model from charge-based to asset-based fee.” Online options: If you have a trading account with a bank or brokerage house, you can invest in mutual funds online. Brokerages such as ICICI Direct charge a flat transaction fee. The good thing is that they also offer advice, based on in-house research. You can also buy mutual funds online without paying any fee directly from select mutual fund houses. Most fund houses have online investing facilities. But you will need individual accounts for each fund. Investments portals such as fundsupermart.com allow you to invest online in a bouquet of 36 fund houses without any charge. Rajesh Krishnamoorthy, managing director at fundsupermart.com says, “We categorise funds based on their risk rating so you can check whether the mutual fund you are buying suits your risk appetite.” Brokers and distributors: Distributors such as Bajaj Capital and IDBI Capital do not charge for onetime investments of smaller amounts. But there’s a `2,500 fee if you want comprehensive financial planning which includes tax-return filing services. If you have a feedback or want more information, write to etwealth@indiatimes.com

Fund Portfolio

The Economic Times Wealth, December 20, 2010

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

Top 5 stocks in equity holding (in `)

‘I want regular 2,22,930 growth’ Fund 21.75%

Tata Motors Stata Bank of India

Annualised return

Mahindra & Mahindra GAIL

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 funds.

Top 5 sectors in equity holding (in `) 27,725 (11.45%) 19,287 (10.16%) 17,462 (9.2%) 16,441 (8.66%) 15,838 (8.35%)

Financial Automobile Energy Services Construction

Portfolio asset allocation Others 4.59%

Equity investment style Growth Blend Value Small Medium Large

Debt 9.91% Equity 85.5%

Small cap 17.58%

Large cap 15.5%

Mid cap 36.92%

Debt rating break-up

Investment Annualised `) returns (%) per month (`

Fund

Not classified 10.46% Giant 19.46%

INVESTMENT STYLE

Funds in the portfolio

Equity market-cap break-up Tiny 0.08%

CAPITALISATION

ith annualised returns of 21.75% since inception, this aggressive portfolio has been on a roll. It has braved the volatility without compromising on returns. Credit goes to its well diversified portfolio. The five equity funds in the portfolio (the sixth is a debt fund) have investments across 150 stocks. The portfolio is also well diversified across sectors. At 11.45%, the financial services sector accounts for the largest basket. This is lower than the 18-20% allocation to this sector in some of the largest diversified equity funds. The top 5 sectors account for less than 50% of the corpus. This being an aggressive portfolio, almost 55% of the corpus is invested in mid-cap and small-cap stocks. The fund manager's decision to bet heavily on these stocks has been validated in the past one year. With nearly 35% annualised returns, IDFC Premier Equity Fund, which has almost 75% invested in midcap and small-cap stocks, is the top performer. Stability comes from the 35% exposure to giant and large-cap stocks. The overall investments, therefore, are a blend of growth and value stocks. Despite the good rise in stock markets, the allocation of 90% to equities and 10% to debt has been maintained. The `1,000 flowing into the short-term debt fund lends a cushion which can be used to rebalance the portfolio in case stock prices recede. Faye D’Souza

4,378 (2.31%) 3,961 (2.09%) 3,852 (2.03%) 3,407 (1.8%) 3,164 (1.67%)

Petronet LNG

Rating

DSPBR Short Term-G

1,000

5.4

IDFC Premier Equity Plan A-G

2,000

33.8

****

L&T Opportunities-G

1,500

18.1

***

Reliance Regular Savings Equity-G

2,000

23.1

****

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

2,000

16.1

***

UTI Opportunities-G

1,500

25.8

****

Total Portfolio

10,000

21.75

AAA 1.45% `467.35

Net Receivables 0.1% `31.69

Repos 11.96% `3851

P1+ 48% `15,452

Rating not available 38.48% `12,389

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

‘I seek high returns’ Fund

‘Good returns at low risk’ Fund

‘I can’t take risk’ Fund

‘I want regular income’ Fund

Fund value

(`)

2,19,930

(`)

2,17,707

2,07,879

11,23,478

Annualised return

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

18.3%

11.9%

15.9%

Funds Annualised returns (%) BSL Frontline Eqt A-G 23.8 Canara Robeco Income-G 4.7 DSPBR Short Term-G 5.4 DSPBR Top 100 Eqt Reg-G 21.5 DWS Investment Opp Reg-G 15.3 HDFC Top 200-G 28.9 UTI Dividend Yield-G 30.0

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

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

Annualised return

19.8%

Funds Annualised returns (%) DSPBR Balanced-G 18.7 FT India Balanced-G 15.8 HDFC Prudence-G 22.7 Reliance Regular Savings Bal-G 24.1

Monthly SIPs of `2,500 in four funds

Equities: 35-40% Debt: 60-65%

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

Funds Annualised returns (%) FT India Dynamic PE Ratio FoF-G 12.7 HDFC MIP Long-term-G 11.9 Reliance MIP-G 10.7

Funds Annualised returns (%) FT India Dynamic PE Ratio FoF-G 14.0 HDFC MIP Long-term-G 14.9 Reliance MIP-G 14.2 UTI Balanced-G 20.6

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

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

Mutual Funds The Economic Times Wealth, December 20, 2010

Got too many funds? Here’s a to-do list

3 steps to consolidation Know your folio— A unique 10-digit number corresponding to investments made in a mutual fund.

NUPUR ANAND

Y GETTY IMAGES

Club all folios so that: You get a consolidated record of investments. Changes (like address etc) need to be updated just once. Makes adhering to KYC process simpler for fresh investments on quoting old folio number. But keep in mind: You cannot consolidate investments in different mutual fund houses. ‘Mandatory’ info (address, bank details, etc) should be same across all funds.

ou invested in a mutual fund five years ago. Then the fund house came out with an New Fund Offer and you bought into it. You have also invested in a fixed maturity plan from the asset management company. Plus there is this systematic investment plan in a tax plan. Result: you have four different folios for investments in the same mutual fund. And four times the paperwork to do as well. But there is hope. You can merge the four different investments into a single folio number. This will not only reduce your paperwork but help you get a better idea of your investments by presenting a consolidated picture. “Multiple folios mean multiple headaches. Bringing everything under one umbrella will make life much simpler,” says Prakash Pillai, a financial planner. The benefits don’t end there. If you

wish to alter your personal data—such as a change of bank account or your postal address—you don’t need to submit four different applications. Just one missive will be enough. For instance, from 1 January 2011, all investments in mutual funds will have to comply with the know-yourcustomer (KYC) rules. However, consolidation of folios is possible only for investments in the same fund house. Also, the details provided in all accounts must match. If one folio has a different bank account, it won’t be merged. If there are multiple unitholders, their names should also be in the same order. Besides, you can get a consolidated statement for all the funds that are registered with CAMS, Karvy and FTAMIL. You only need to provide the email ID mentioned by you in the application form at the time of investing to access the statement. Here’s how to go about it: log in to www.camsonline.com and click on online service for investors. Then click

on “Manage your portfolio” and submit your email address and password. Within minutes you will receive an email. For opening the link, you need the password you keyed in while filling up the online form. Once this is done, you get a consolidated list of your investments. These details are updated daily and is a 24x7 service. However, there is a limit of three statement requests in a day and 15 requests in a month per email ID. Also, this will only be available for the funds where you have provided your email address. If you have missed out on this detail, get it registered with the respective fund house. A senior CAMS official says the service has got a good response from investors. From 10,000-15,000 requests a month in 2009, the company is now getting nearly 2 lakh requests a month.

Please send your feedback to etwealth@indiatimes.com

Bullion

The Economic Times Wealth, December 20, 2010

SILVER

Brighter future than gold? Mismatch between supply and demand makes silver a good short- and long-term bet. And the introduction of e-silver has made buying this metal easier than ever before.

long-term bet. “For the longest time, gold silver price ratio averaged 15:1. The current ratio of over 45:1 is unjustified and unsustainable,” says Neilson. At 15:1 price ratio, with current gold price at about $1,400 an ounce, silver should be around $93 an ounce. That’s nearly three times silver’s current price. If market corrects this ratio and silver price rises to this level, it’s a huge bounty for investors. As Butler says, “I’ll be amazed if we don’t climb past $100 an ounce in the next three to five years. The amazing thing is, despite silver [prices] being up five times from its lows of about $4 an ounce, the current investment logic is better than ever. That’s because silver is getting greater investor awareness.” Prospects are high in the short term too. “In the next couple of months, silver could trade between `46,000 and `47,000 a kg,” says Rakesh Varasia, research officer, Indian Bullion Metal Association. “Inventories are so severely stressed that the next spike in 2011 will most likely take silver to or above $50 an ounce (about `75,000 a kg),” adds Nielson.

VIVEK KAUL and PRASHANT MAHESH

ou’d probably laugh it off if someone claimed silver is the hottest metal, given gold’s runaway prices. Since the beginning of the year gold is up about 20%. Silver, in the same period, has given a whopping 60% return. “This relative outperformance will continue,” says Vijay Bhambwani, CEO, BSPLindia.com. Silver price is at a 30-year high of $30 an ounce (`45,665 per kg). Let us do a quick analysis to find out if you should invest in it.

On supply side, things are grim: Silver analyst Theodore Butler at Butler Research says, “Silver inventories are down from 10 billion ounce in 1940 to 1 billion ounce today. Gold inventories, in contrast, are up 4 billion ounce since 1940, says the World Gold Council.” One ounce is slightly more than 31 g. Jeff Nielson, editor, Bullionbullscanada.com estimates silver and gold availability ratio to be 6:1—silver is six times more abundant than gold. But, according to him, even this ratio does not justify the price ratio of 45:1—gold being 45 times more expensive than silver. Also even though the earth’s crust has 17.5 times more silver than gold, production of silver cannot be ramped up overnight. Almost two-thirds of the silver that is mined comes as a byproduct from mining of metals like copper, lead and zinc. So it isn’t easy to ramp up production straight away. Data from the silver institute suggests silver mine production rose 4% to 709.6 million ounce in 2009. No recycling of silver: Silver recycling isn’t always possible primarily because it is used in very small quantities as an industrial metal, and not always viable to recycle. Even at its current price, recycling doesn’t make sense. As Nielson pus it, “We must remember that virtually all the gold in the world has been conserved (recycled) because it's high value economically justified recycling. So, may be when silver advances to somewhere between $50 and $100 an ounce, we should start to see much more recycling.” High price in short and long term: Mismatch between price and demand makes silver a great

CHANDER

Riding on high demand: Silver has more industrial applications than any other metal. A recent report by Hinde Capital says: “It’s the best conductor of both heat and electricity, the most reflective, and second-most ductile and malleable element, after gold.” The white metal is also being put to several new uses—water purification, air-handling systems and a natural biocide. “New products using silver’s biocidal qualities are being developed each year; clothing, bandages, toothbrushes, door-knobs , keyboards, the list goes on,” Hinde Capital report points out.

Silver vs gold Gold Silver

`44,060.71

Sterling returns

(1kg)

60% are the returns from silver this year, versus 20% from gold.

`12,977.96 (1kg)

`20,537.64 (10 g)

In 2011

`7,612.59 (10 g) Dec 2005 Source: Bloomberg

Dec 2010

, too silver is likely to match—orlead— gold in returns

E-silver FAQs How can you buy e-silver? You need to have a trading account with any of the 370-odd brokers registered with the National Spot Exchange. You also need a demat account, which is different from the demat account needed for shares and securities. How much will it cost? Paper work will cost you about `150 and annual charges for maintaining the demat account are `400-700. What’s the smallest unit you can buy? One unit of e-silver equals 100 g. That would cost you about `4,500 at current prices.

Can I take physical delivery of silver? You can hold the units in either electronic form or opt for physical delivery. You can make a request for a physical delivery to your depository participant. What is the cost of physical delivery? Taking physical delivery involves fixed charges, so it isn’t worthwhile to take delivery of small quantities. You have to pay VAT of 1% anywhere in the country, and delivery charge of `200 for every instruction that you make for delivery. Where can I take physical delivery? Currently you can take delivery in Mumbai, Ahmedabad and Delhi.

Gold goes up, silver follows: Gold prices have been going up for a while because countries around the world are either printing money or threatening to do so. “Relentless depreciation of fiat currencies will inflate gold further,” says Bhambwani of BSPLindia.com. His views are echoed by Ritesh Jain, head, fixed income at Canara Robeco Mutual Fund. “Silver is seen to be a poor cousin of gold. If gold prices rise, silver will follow closely,” he says. How to buy silver: The simplest way is to buy silver is through silver exchange-traded funds. But they’re not available in India. You can always buy bars and coins but storing them can be a problem. The most practical solution is to buy esilver. E-silver was launched recently by National Spot Exchange. This is similar to buying shares and holding them in a demat form. National Spot Exchange has 370 brokers and 40 depository participants (DPs) empanelled on it. All you’ve to do is approach your broker and sign a client registration form, one-time cost of which is `100. Annual depository maintainence charges could be between `300 and `600 a year. Whenever you transact, the brokerage charge is between 0.25% and 0.50%, and depository transaction fee is `25-50 per transaction. For physical delivery of the metal, you have to pay `200. Currently silver is delivered at National Spot Exchange centres in Delhi, Mumbai and Ahmedabad. But even in this case, investors need to be careful not bet all their money on silver. “Since silver is a volatile commodity, retail investors should invest through the systematic investment plan route,” says Karun Verma, senior research analyst, Religare Commodities. Please send your feedback to etwealth@indiatimes.com

Real Estate The Economic Times Wealth, December 20, 2010

INVESTING

Make bank your property agent Banks have started offering property search services. Unlike brokers, they do not charge a brokerage as they make money through a home loan. SA L

E SA LE

SA L

RAJ

charges. HDFC Realty, for instance, does not charge the customer except if the customer inding it difficult to locate a is scouting for a second property. “In case of house to buy? Step into your a second property, we charge a brokerage, bank and the staff will be only which depends on the market rates in that too eager to help you. Banks area,” says Goel. these days are offering free There are other charges also which the home-search services to potential buyers to customer can save on. A senior official at increase their lending business. Bank of India’s marketing division says most “Banks are slowly morphing into a onebanks have a tie-up with a property developstop shop for a customer’s property needs,” er. “Customers who buy from these developsays Vikram Goel, national sales manager, ers are given discounts in charges like HDFC Realty, the realty service arm of processing fees,” he says. In some cases, the HDFC. Some of the services offered by banks discount can be 50% of the fees, which may include advising which house to buy to be up to around 0.55% of the loan value. Savhome loans to life insurance against a home ings can be between `1,500 and `5,000. loan and even insurance of the property Some banks also waive off the search and against fire and theft, he says. valuation charges, which again add up to It is a win-win situation for both buyers around `2,500-3,000 for properties that and banks. While banks rope in more clients they have a tie-up with. Waiver of legal for their loan business, home buyers charges in certain cases may save anothpull off a better deal in the overall er `2,500-5,000. package. Certain banks also offer free assisYour first Discounted rates: Unlike real tance in the flat registration and the salary package estate agents, banks don’t charge documentation process. According demystified page 42 a fee or brokerage from the to Goel, HDFC Realty has a tie-up customers. This means that a with most of the property customer can save 2% brokerage developers in the country and has a AMIT SHANBAUG

The bank advantage

huge database of the projects. limited data bank, consumers’ “Depending on the budget and choice is restricted. “Since a requirement, customers get bank’s objective is to catch various options,” he says. customers at the source and to Assistance in Most banks and financial lend to them, there is an registration and institutions vet the legal and element of vested interests at documentation technical aspects of a property play,” he says. You save on the before providing loans. As Mumbai-based financial brokerage - usually 2% Shobhit Agarwal, joint consultant Ramesh Bhojwani of property value managing director, (capital says, “There have been instances Faster processing of markets), Jones Lang LaSalle where banks have got incentives loan documents as India, says the credibility of the from property developers and property is preapproved whole deal is assured since compelled customers into banks conduct their own due Discount on processing buying property without botherdiligence on properties before ing to check the facts. Many such fee and legal charges for loan and property approving them. cases have been unearthed “If a bank is selling a recently, where loans were Transparent property, it is implied that it is a offered on properties that did transaction as black money component is bankable asset. The bank also not have the required eliminated provides ready mortgages, clearances,” he says. since it will have pre-approved While banks may ease the projects in its database. This process and help get rebates, a makes for speedier loan approvals and customer should still carry out a set of checks disbursements. The nuisance of having to ad- before signing on the dotted line. dress the unorganised aspects of the market is eliminated,” he says. Please send your feedback to Flip side: However, there are drawbacks too. etwealth@indiatimes.com According to Agarwal, as banks have a

Health Insurance

The Economic Times Wealth, December 20, 2010

INSURANCE

When health claims can get rejected Your health insurance policy will not pay for the treatment of all ailments. Khyati Dharamsi looks at what it doesn’t cover.

f you have a health insurance policy, you might be aware that it covers certain diseases only after a waiting period of four claim-free years. But do you know that conditions related to genetic disorders are not covered at all? And that claims relating to certain self-inflicted ailments—such as cirrhosis (liver disease) due to excessive intake of alcohol, lung and throat cancer due to tobacco use, and HIV—can also be rejected by an insurance company. All this is explicitly stated in the policy terms and conditions but buyers seldom go through the fine print. Even the agent will not disclose these intricate features of the policy for fear of losing business. “An agent will not usually tell the buyer about all the exclusions in the policy,” says Rahul Aggarwal, chief executive officer of Optima Health Insurance. Congenital diseases Conditions such as cataract, hernia and sinusitis, which take a few years to develop into a full-blown ailment, are usually covered after a waiting period of 1-2 years. But genetic disorders such as cystic fibrosis, Down's Syndrome, thalassemia and congenital anaemia don't ever get covered. “Often a congenital disease is confused with pre-existing diseases, which are covered in most cases after the fourth policy year,” says Harsh Roongta, chief executive officer of Apnapaisa.com. “If a person is hospitalised due to an illness and it is discovered that it is a congenital disease, the insurance company may deny the claim,” he adds. There are instances when a person may never know that he suffers from a genetic defect. “If one has regularly undergone medical checkups but a pre-existing ailment never showed up in the tests, the courts have held that the cost of treatment of such an ailment has to be paid by the insurance company,” says KS Sankar of Medimanage Insurance Broking. Insurers too are lenient if they know that it was a genuine oversight. Says Subrahmanyam B, vice-president and head (health vertical) at

What’s covered & what’s not TYPE OF AILMENT Congenital diseases

Slow developing conditions Pre-existing diseases Special conditions Self-inflicted ailments

DISEASES

COVERAGE

Cleft lip or palate, cystic fibrosis, Down’s Syndrome, albinism, spina bifida, thalassemia, congenital anaemia

Not covered

Cataract, hernia, sinus or tonsil surgery

Covered after 1-2 policy years

Diabetes, heart ailments, ulcers

Covered after four policy years

Maternity expenses; dental problems

Covered after four years but subject to limits

Cirrhosis of liver due to alcoholism, cancer due to tobacco use

May be denied if policyholder didn’t declare use of alcohol, tobacco

Bharti AXA General Insurance: “If the patient genuinely mistook an earlier heart attack to be only a chest pain due to indigestion, we will consider the claim.” Self-inflicted ailments Another reason why a claim can get rejected is if the ailment has been self-inflicted. At the

time of application, one has to declare whether he consumes alcohol or uses tobacco. If a person has stated that he is a teetotaller but ends up in hospital with cirrhosis, the claim may be denied. However, there is a fuzzy line of subjectivity here. “Insurance companies deny claims for treatment of cirrhosis in such cases under the exclusion

self-injury. But they pay for treatment of cancer even for smokers. The logic is that while in nearly 100% cases the cause of cirrhosis is alcoholism, no such empirical relationship exists between cancer and smoking,” says Sankar. Investigative diagnostics Similarly, investigative diagnostics are not covered by insurance if there is no proof of treatment. “There have been cases where doctors are unable to detect a problem and suggest a battery of tests. Later the tests reports revealed that nothing is wrong. The claims were rejected because the hospitalisation was primarily for diagnostic purposes," says Roongta. Even if the hospitalisation and the tests were prescribed by a qualified doctor, the claim will still be rejected. “The tests may have been conducted because a doctor prescribed them but there is nothing to justify payment. The insurer will pay only for curative treatment,” justifies Sankar. Besides, policies reimburse costs incurred after hospitalisation for up to 90 days. Here too, there is the condition that the 90-day period must commence and end within the policy period. Pregnancy Though some standalone health insurance companies such as Apollo Munich do cover maternity costs after four years of continuing with the policy, most health policies do not cover these expenses. Even in the case of Apollo, there is a limit to the expenses under this head. Besides, insurers don't cover pregnancyrelated complications. But there are some exceptions again. Consider the case of a pregnant woman contracting jaundice. “Had she not been carrying, jaundice may not have warranted a hospitalisation. But if it were not for the attack of jaundice, the woman might have normally sailed through her pregnancy without any hospitalisation. As such, if it is clinically established that it is jaundice that led to hospitalisation, cost of such hospitalisation will be paid despite the fact that hospitalisation may not have been warranted for treating jaundice had the patient not been pregnant,” says Sankar. Equipment costs Medical equipment presents its own complications. The cost of prosthetic and other devices or equipment if implanted internally during a surgical procedure are covered. However, the cost of external aids such as ventilators will not be covered. The logic: Ventilation is merely a process helping ease breathing, not an active line of treatment in itself. However, if a patient is undergoing some active line of treatment and as part of it is also put under ventilation (immediately after a surgery), insurance cannot knock of the cost of ventilation from the admissible claim.

Please send your feedback to etwealth@indiatimes.com

Banking

The Economic Times Wealth, December 20, 2010

CREDIT CARDS

Lock your plastic Banks and insurance companies are now offering cover to minimise losses due to credit card misuse. PREETI KULKARNI

n an age when many prefer plastic money to the paper variety, it makes sense to insure your credit card against theft. The misuse of stolen cards can range from making purchases at shops, online transaction or cloning (where your card is duplicated). Banks and card issuers have stepped in to provide some relief to those affected. Inbuilt insurance: Several banks offer protection to cardholders against misuse of credit or debit cards. Usually, the service is extended only to the premium category of cardholders. For instance, HSBC bundles a cover with its premier credit card. “The cardholder is covered for misuse for up to `3 lakh on the credit card for up to 24 hours even before reporting loss of the card,” says an HSBC official. There is no premium charged for this insurance. Others such as ICICI Bank, HDFC Bank, Axis Bank also offer

zero-liability protection to premium category debit card holders. This facility, which comes at no extra cost, promises reimbursement for fraudulent purchases made on a stolen debit card at point of sale terminals. In most cases, ATM and online transactions are not covered. The extent of the cover, depending on the bank, ranges from `1-2 lakh. Insurance companies: Tata AIG General Insurance offers a wide suite of products, which includes identity theft and fraudulent charges cover. “For instance, if a fraudster obtains a credit card by impersonating you and runs up a huge bill, which you have to clear, this policy will cover the loss,” says Gaurav Garg, managing director and CEO, Tata AIG General Insurance. Under the other policy, which specifically insures you against the misuse of credit or debit cards, the protection is extended for up to 12 hours prior to reporting the loss. The maximum sum insured under the identity theft cover is

`2 lakh. The annual premium is `290. The fraudulent charges cover costs `170 a year for a sum insured of `1 lakh. However, fraudulent transactions involving cash advances are not covered. Specialised covers: This apart, several banks such as Citibank, Axis Bank, ICICI Bank and HSBC have tied up with CPP Assistance Services, a consumer-services provider, to offer specialised covers in recent months. For availing of the scheme, you have to register your cards with the issuer. Alternatively, you can also approach CPP directly. In the event of your card being lost or stolen, you need to inform CPP through its toll-free number. The scheme is issuer-neutral, which eliminates the need to inform banks of the loss. “Depending on the plan selected, the cover could go up to `1 lakh prior and `20 lakh post-intimation. The cover is provided

through a group insurance policy from Bajaj Allianz,” says Gagan Maini, CEO, CPP. Annual fees range from `995 to `1,295. CPP’s scheme does not cover online frauds; it comes into play only if the card is lost or stolen. Also, under its basic variant, the maximum cover before notification amounts to `50,000 (`1 lakh in the case of the premium plan). This means that if the fraudster runs up a claim of `2 lakh before you are able to notify CPP, you will be compensated only to the extent of `50,000 (or `1 lakh depending on your plan).

Please send your feedback to etwealth@timesgroup.com

Alternate Investment

The Economic Times Wealth, December 20, 2010

WINES

Add sparkle to your portfolio

WINE INDEX VS NIFTY INDEX

Though not a new concept, investing in wine is just catching on in India, especially among high net worth individuals. Here’s how you too can benefit from this asset.

139 Wine index

122 Nifty

NUPUR ANAND

t is not merely a prandial drink for them. Wines are serious business for high net worth individuals. One of the most exotic alternative investments, its returns are equally alluring: 10-50% a bottle. Perhaps that is why millionaires have cellars stuffed with wines of different vintages. Ayesha Chenoy of Drayton Capital, a wine advisory and investment company, offers more reasons: “Wine is not very volatile and has a low correlation to traditional asset classes such as equities and bonds. So it provides diversification and gives exceptional returns. Owning a cellar, and a mansion to build it in, may be a dream for you. But investing in wines is closer to reality. If you have met your targeted investments in debt, equity, and property, consider buying a couple of bottles or investing in a wine fund. The minimum investment should be `2 lakh. But before that, brush up your wine knowledge. As with all other investments, you must do rigorous research about terroir, storage conditions and the pedigree of wine producers to make an informed choice. Here are three popular ways to invest in wine: Buy bottles: It is the most traditional and seemingly simple way to invest in wine. But buying bottles is not easy as wine trading is still a new concept in India. For one, how do you decide which wine to buy? “A thorough examination of the brand, vintage, longevity, history of the producer, consistency, score and storage conditions are essential to determine the quality of the wine,” says Chenoy. Online ratings by reputed societies and wine tasters are a reliable source for such information. To buy the wine, you have to rely on brokers in other countries who export it to India. This increases the cost of investment as you have to pay import duty. Then comes the headache of finding a suitable warehouse to store the bottles for several years. The solution is to keep them in bonded warehouses in the countries you buy them. You will have to pay storage charges but these are lower than the import duty. The brokers will monitor the investments and also help you to sell them. Taxes will kick in where applicable. Wine funds: As with gold and art, you can invest in wine through speciality funds that buy wine. The funds send a

share certificate with details of your investment, including a net asset value of the share. They also give regular updates on the value of your wine. The minimum lock-in period varies across funds. At the time of exit, you receive the net profit depending on the growth in the value of the wine. The advantage of wine funds is that you don’t have to worry about storage or broker commissions. However, a high entry fee could be a barrier for most investors. Meenu Kohli, director of Winteage Investments, says for investing through her fund house, you will have to cough up at least £5,100 (about `4 lakh). The minimum amount for investing through funds or advisory companies is more than `1 lakh. Wine futures: If you want to invest in wine even before it is bottled, opt for wine futures, also called wine primeurs. Investing in wine that has not been tasted is considered riskier than buying bottles or buying wine funds. However, investors like Rajen Mariwala, a Mumbai-based industrialist who has just bought 2009 Bourdeaux options, are confident that the returns from wine futures will be high. Keep in mind: Only 1% of the world’s wines (268.7 million hectolitres) are investible. These wines can last between 50 and 100 years. The value of all wines does not appreciate with maturity, so wines with a shorter lifespan may not make for good investments. Remember, wine is a long-term investment. Says Myles Mayall from The Wine Society of India:”Profits can range from 10-50% on every bottle, but the key is to remain invested for long. The investment horizon for wines to mature is 5-15 years.” Fluctuating currency markets can play havoc with your investments. Say, you buy Californian wine worth $100 at the rate of `45 a dollar. After five years, its price rises to $140 and the rupee appreciates to `40 a dollar. This will reduce your profit to `1,600 from `1,800. You must keep an eye on brokerage and storage charges too, so don’t invest after you down a couple of bottles.

Nov ’09

Figures are normalised returns (%)

Nov ’10

The wine index is the Live-Ex Fine Wine 100

Please send your feedback to etwealth@indiatimes.com

Performance check Vintage Wine Fund

Premium Wine Fund

Fine Wine Fund

Winetage investments

Date of inception

Feb 2003

Oct 2009

Aug 2006

Sep 2009

Minimum investment

1,00,000 euros

$100,000

£50,000

£5,100

Fee structure

2% management, 15% performance

5% investment, 2% NAV as management, 20% performance

2% management, 15% performance

2% one-time investment, 20% performance

Returns since inception

58.29%

30.13%

67%

156%

Source: Winetage Investments

As on 17 Dec 1 euro=`59.58, 1$=`69.96, 1$=`45.16

SHOME BASU

Guest Column The Economic Times Wealth, December 20, 2010

TAX STRATEGY

Why bonus shares score over dividends A bonus issue is more advantageous for the investor in the long run because he gets more shares, says Amarpal S. Chadha.

hat would make you happier? Your dividend in the form of a ‘bonus issue’ or cashback? Let’s simplify both the concepts before delving into their pros and cons. Let’s assume, a company announces a dividend at 20%. In case of a cash dividend, the company will pay out `2 per share (assuming a face value of `10). In case of a bonus issue, however, shares will be allotted to shareholders for free. If the company announces a 2:1 bonus, two shares will be given out for each share held, to its shareholders. Payout decision depends on a lot of factors, the primary consideration being the company's liquidity position as cash dividends imply immediate cash outflows. Other factors include access to capital markets, general state of the economy and management's perception of investment opportunities and so on. How do the two differ? Dividend: Cash dividend implies immediate cash inflow for investors. Such distribution, a sign of company’s growth and stability, reinstates investors' faith in the stock, particularly the small investors. It plays positively on the stock price reflecting investor confidence, given a company’s sound dividend payout record. Bonus: In case of a bonus issue, the biggest advantage for the company is enhancement of its equity base. A bonus issue indicates that the company is in a position to service a larger equity. However, it does not impact the balance sheet of the company as it is effected by capitalisation of free reserves. Companies benefit in the long run since liquidity of the stock increases. From an investor's perspective, there is no impact on the net worth, since, earnings per share (EPS) also decline with an increase in equity. Let’s say, a company's net profit before the bonus issue is `1 crore and the number of shares are 10 lakh. The EPS stands at `10. Now, if the company announces a 1:1 bonus issue, the increase in the number of shares (to 20 lakh) brings down EPS to `5. However, in the long run, bonus issues may prove advantageous, since, more number of shares mean more dividends, if the company does keep up with the same rate of dividend. Theoretically, the market price of the stock, post bonus should adjust in proportion to the increased capital, but in reality this may not happen on account of a boost in investors' confidence.

DIVIDEND VS BONUS

Impact Analysis CASH DIVIDEND Immediate cash flow

Company

Shareholder

Tax 15% dividend distribution tax plus surcharge and cess

Tax exempt

BONUS SHARE No cash flow

Company

Shareholder

Tax NA CHANDER

Capital gains for listed shares Short term - 15% plus cess Long term - Exempt

Tax implications Dividend: Any dividend, interim or final, that is received from an Indian company is not taxable in the hands of the shareholder. However, Indian companies paying such dividends have to pay a dividend distribution tax (DDT) 15% plus surcharge and education cess. Further, dividend and DDT are not tax deductible in the company's hands leading to double taxation of earnings. Bonus: There is no tax implication when bonus shares are awarded. But when they are sold, they may be taxable, depending on the time for which they are held. The taxman considers the cost of these bonus shares nil. Let’s say X holds 100 shares of company A which were bought for `1,000. After declaring a 1:1 bonus, X was allotted another 100 shares. Capital gains will be computed

Theoretically the market price of a stock should adjust proportionately after the bonus issue, but in reality this may not happen on account of a boost in investor confidence.

on the basis of difference between sale consideration and cost of acquisition. The cost of original shares is `1,000 while the cost of bonus shares will be considered nil. If shares held for more than 12 months are sold on a recognised stock exchange and Securities Transaction Tax has been paid, capital gains (long-term) arising on the sale is exempt from tax. But if the same shares are held for less than 12 months, capital gains (short-term) are taxable at 15% plus education cess. So what does the whole discussion boil down to? Despite the pros and cons, shareholders welcome both payouts. They are, therefore, good tools by companies to cash in on investors’ psychology. While bonus issues are preferred by companies to conserve cash and increase market float of shares, dividends are preferred by cash rich companies.

The writer is Associate Director, Tax & Regulatory, Ernst & Young Please send your feedback to etwealth@indiatimes.com

Income Investments

The Economic Times Wealth, December 20, 2010

RETIREMENT

EPF can make you a crorepati

Age 60

PF: `2.4 crore

Even with a modest salary, your provident fund can grow to a hefty `2.4 crore if you resist the temptation to withdraw money till retirement

Age 55

PF: `1.46 crore Age 50

PF: `86.55 lakh

Age 30 Age 45

PF: `4.45 lakh Age 40 Age 35

PF: `49.26 lakh

PF: `26.31 lakh

CHANDER

PF: `12.50 lakh

Assumptions:

when person 25 yr Age starts working

Monthly basic

`25,000 salary at start

Hike in salary every year

of basic salary and equal sum from

12% employer invested every month

Of the 12% an employer contributes, 3.67% goes to the EPF and 8.33% goes to the EPS, which is restricted to a maximum `6,500 a month.

tax-inefficient fixed deposits or worry about which debt fund to invest in. All you need to ensure is that you don’t ever withdraw from on’t you hate it when you look at your EPF account till you hang up your your salary slip and find that boots. If at any stage you find that your debt sundry deductions have pared it portion is lagging, you can add more down. But believe us, you should through voluntary increases in your actually feel happy about one of these contribution. deductions—the monthly contribution to However, few people are able to reach the Employees’ Provident Fund (EPF). The even the `1-crore milestone in their careers. 12% of your basic salary that flows into the EPF rules allow encashment of the EPF every month has the potential to make accumulated corpus when a person quits a you a crorepati when you retire. Sounds unbelievable? After all, the job and it’s not uncommon for people to investment seems too small and the interest withdraw their PF at that stage. rate offered doesn’t seem too high. But don’t This is despite the fact that the forget that a matching contribution comes government discourages you from from your employer every month. Don’t also withdrawing the money. The withdrawals underestimate the power of compounding from the EPF within five years of joining are and what it can do to your retirement savings taxable. The tax will be minimal if the over the long term. As the graphic above person is jobless and has no significant shows, the 8.5% interest earned on the EPF income from other sources but he won’t can help a person with a basic salary of completely escape the tax net. “When you `25,000 a month accumulate a withdraw you do not let the power of gargantuan `2.4 crore in 35 years. compounding to come into play,” Become a dollar The Direct Taxes Code had cautions Suresh Sadagopan, a millionaire in initially proposed that new Mumbai-based financial planner. 15 years contributions to the EPF be taxed Page 24 on withdrawal. However, the Transfer, don’t withdraw: Instead revised draft has once again made of withdrawing money from the EPF EPF fully exempt. This makes it the while switching jobs, one should transfer best debt option available in the market. the balance to the new account with the Indeed, the EPF can single-handedly new employer. This does not happen account for the debt portion of your automatically. You need to fill a ‘Form 13’ financial portfolio. You need not invest in and deposit it with the EPFO. Financial PRIYA KAPOOR

advisers recommend that you taken for the transaction. put this down among the list of What if you don’t transfer: Till priorities at the new date, there was no compelling The EPF can workplace. “You should take reason to transfer the money from single handedly an old account to a new one. Even if up the matter with new organiaccount for the you stopped putting money in your sation as soon as you join. With passage of time, you might get account, the balance was earning debt portion of busy. Also, if your previous interest till the time of withdrawal. your portfolio. organisation has lost the This will stop from April 2011. After No need to records, you could face a hard three years of inactivity, the invest in tax time looking for your PF balance will stop earning interest. unfriendly FDs, details,” adds Sadogapan. Even otherwise, multiple debt funds etc. accounts can be a pain. They only The form you are required to fill has details of your previous add to the paperwork because you organisation including the previous EPF numneed to keep records of different accounts. ber and the regional provident fund office. Also, you need to fill up separate forms to withThe account number is basically a draw the money from the accounts. The combination of your employee code, the PF process gets more cumbersome if accounts are regional office with which the account is located in different cities. “Transferring the maintained and your employer’s PF code. balance not only makes it easy to transact, but Once the new organisation gets these details, also gives the subscriber a better idea of how it adds the new account number to it and submuch he has in his account,” says Amit Gopal, mits the form to the regional office with which senior vice-president, India Life Capital. your previous organisation had an account. In A social security number, which is in the case your previous organisation had works, would make EPF portable. “Once this maintained a trust, the form has to be sent to number is allotted to members, they need the trust and a copy to the regional provident not switch the funds. The new employer fund. would make the contributions into that Though the process of transferring takes account. It will be completely independent of nearly a month, the good news is that the the workplace,” says Gopal. EPFO is developing a new software for enabling online transfer of money from the Please send your feedback to older accounts to newer ones. This will not etwealth@indiatimes.com only reduce the paperwork but also the time

Learn & Keep

The Economic Times Wealth, December 20, 2010

$ $ $

$ $

$ $ Defin ing th e Goal Curren t Ann

You don't have to inherit wealth or win a lottery. You can become a millionaire through sound financial planning too. ET Wealth presents a strategy that will take you past the million-dollar mark in just 15 years. You won’t slog, but leapfrog into the elite league

EARN

INVEST B

Aim for a MORE 15% an incremen nual t

Aim for 15% an ETTER nual returns ● Start

early—investing `5,000 a month from the age of 25 builds a corpus of `2.1 crore by retirement (at 10% returns).

ual Inc Curren ome: ` t Annu 6 lakh al Exp Target ense: ` : `4.5 c 3 lakh rore in 15 yea Annua rs The l incom P

e incre Expen ment ses Investm as a percent a ents a s a per ge of income Annua centag l retur eo ns from Corpus investm f income after 1 ents 5 year s

lodder s’ Path

8% 50% 50% 10% `1.65 c r

● Equities are expected to give 15-20%

RT D SMf A SPEN income o % 0 4 te

annual returns in the next two decades. Depending on your profile, allocate 30-70% of portfolio in stocks or mutual funds.

The M illionair es’ Path

Alloca rs) ver 15 yea (average o

● Buy a term plan for life insurance as early as possible for lowest premiums with highest cover.

15% 40% 60% 15.4% `4.5 cr

● Fix

an income-to-expense ratio every year depending on your responsibilities.

● Maintain

a budget that categorises expenditures under various heads.

high-yielding debt products such as debt and balanced funds. ● Choose

Assum ed exc hange rate: ` 45/doll ar

● Create

special spending categories. For instance, if you eat out a lot, record the bills under ‘ssocialising expenses'.

● Invest `70,000 a year in PPF. It will grow

to about `20 lakh (tax-free) in 15 years. in property—it has created the most dollar millionaires in the past.

● Invest

● Calculate

the monthly average of one-off expenses such as a holiday and add it to your monthly budget.

● Do

not over-invest in real estate as it could leave you asset-rich and cash-poor. `2.1 cr

the audit-awareness-action rule. Most urban Indians can save more without feeling the pinch of denial if they audit expenses regularly.

● Follow

Early-bird advantage Corpus at 60 years if you invest `5,000 a month at 10% returns p.a.

`1.26 cr

Text: KAMYA JAISWAL Graphics: RAJ

is what a salary of `6 lakh a year will become in 15 years at 15% annual hike

`0.74 cr

`20 lakh is the corpus in 15 yrs if you cut expenses by ` 3,000 p.m.

4,359%

(And invest it at 15% annual returns) 25 yrs

30 yrs

35 yrs STARTING AGE

Structure: Do not focus only on the CTC. Opt for an efficient salary structure for a higher take-home pay.

` 48.8 lakh p.a. `0.43 cr

Is the total growth in RIL stock between Jan ’91 & Oct ’10

Low entry: At the junior level, a salary that is 10% lower than your market value ensures faster career and income growth.

40 yrs

Network: You will miss growth opportunities if you are not wellconnected. Use social networks to exchange work-related ideas.

Upgrade: Invest in career—your biggest asset. The difference between 5% and 15% annual hike is `2.48 crore savings in 30 years. (Starting salary: `20,000 a month, savings are 20% of salary)

Family Finances

The Economic Times Wealth, December 20, 2010

BHARAT CHANDA

When my wife wanted me to buy her some gold jewellery this Diwali, I suggested we buy goldexchangetraded funds instead...” GAURAV TAYAL

Gaurav Tayal with wife Meghna

An Easy Goal Path

Tayals’ asset allocation

Goal

5% Gold

41%

20%

Equity

Real Estate

EXISTING

Cash

59% Debt

30% Debt

40% Equity PROPOSED

2 1

lakh

is the approximate current net worth of the Tayals

Years to achieve

Future cost (`)

Resources used

Further investment required (`/pm)

Foreign trip

1.5 lakh

Fixed deposit

Nil

Car

5 lakh

Surplus savings

Nil*

Home

56 lakh

Direct equity and father's contribution

Nil*

Education of child

46 lakh

Provident fund

6,000

Retirement

3 crore

SIPs + Endowment policy

11,000

*To be part-paid by a loan which will be served with EMIs Inflation assumed to be 6% a year. Equity portfolio to grow at 14%, debt to grow at 7% and hybrid portfolio to grow at 10.5% per annum A comprehensive plan has been mailed to the Tayals

Family Finances

The Economic Times Wealth, December 20, 2010

NEWLY-MARRIED COUPLE

The time advantage

Long investment horizons ensure all goals are within reach Debt-free balance sheet; investments spread across debt and equities Obsolete life insurance policies; inadequate health and life cover

How can the Tayals optimise the power of compounding? a Polo right away, the EMI for seven years will be about `9,000 (assuming a 5 % down aurav Tayal is young, earns well payment). This is about 45% of his investible and loves the good life. And like surplus. The down payment will also shrink his many 28-year-olds, Gaurav is in debt cushion of `5.2 lakh and hence, the car a tearing hurry to build a will compromise his finances on many fronts. stockpile of possessions. Right Gaurav, who married Meghna a year back, now, his fetish for cars and desire to own a believes the strain on his budget is temporary. house top his priority list. The Mumbai-based “I am planning a job switch soon and even software engineer has his heart set on a Meghna will start working in a year,” he Volkswagen Polo. He also plans to buy an explains. However, the financial planning ruleapartment in the National Capital Region. To book advises against major expenses on the fund these dreams, Gaurav makes sure he expectation of future income. What if the job saves enough and invests in a mix of equity switch does not give him the expected salary and debt instruments. Five years into his jump? What if Meghna takes longer to get a career, his portfolio is worth about `12 lakh. suitable job? So, we suggest Gaurav should buy Does this mean Gaurav has a perfect his Polo after two years when his cash flow will investment strategy? not be squeezed by the EMI. Almost. The only flaw is that he is too taken The newly-married couple live in an in by short-term goals to see the big picture. apartment on a rent of `15,000. As property Gaurav has the potential to build a lot of wealth prices in Mumbai are exorbitant, Gaurav is in his lifetime. He has the advantage of time— keen to buy an apartment in NCR. Why the his retirement is 27 years away. The power rush? The couple must consider several of compounding can work miracles in such a factors before locking their money in such a long-investment horizon. His current saving long-drawn investment. One, since they are and spending will decide his investible surplus planning a baby soon, their household expensand the wealth that it will build over the next es would increase. Hence, a home loan EMI couple of decades. So Gaurav must allocate as would further constrain their budget. Second, much as possible to investments without the Tayals are not sure which city their jobs compromising on his lifestyle. will take them to. So it is unclear whether This requires deferring some of the house is to be used for living or as an his short-term goals. Gaurav is the investment. Most importantly, they Turn your bank into a only breadwinner of his family. His will be stretching their balance sheet property agent monthly salary is `50,000. After way too much to pay for the home Page 17 deducting his expenses, he is left loan EMI so soon. with a surplus of `20,000. If he buys Gaurav reasons that his father will

SHOBHANA CHADHA

TAYALS’ BEST MOVES…

Started financial planning at the age of 25 years Saving nearly 40% of income Investing regularly in equity mutual funds through SIPs Selecting relatively safe large-cap mutual funds Investing in large-cap and stable PSU stocks …AND THE WORST Planning big-ticket expenses on the expectation of higher income Buying expensive endowment policies for life cover Choosing tax-inefficient fixed deposits instead of fixed maturity plans contribute up to `10 lakh towards the down payment for the house. Even if this is factored in, his budget is too tight for a home-loan EMI. Therefore, we recommend he delays the purchase of his house by another two-three years. A house worth `40 lakh will be worth about `56 lakh in five years (at 6% inflation). Assuming that Gaurav's current direct equity portfolio of `3.5 lakh will grow by 14 % a year, it will total to about `6.5 lakh. This amount together with his father's contribution would be enough to make the down payment for the house. By then, his income will also grow

enough to service the home loan EMI of about `36,800 (at 9.5% interest a year). The Tayals should also review their insurance since they plan to have a baby soon. While Gaurav’s health is already insured by his company, he should take an additional family floater plan. On the life insurance front, Gaurav recognises the obsolescence of his policies—an LIC Beema Kiran and an LIC Jeevan Anand plan that give him an assured sum of `7.5 lakh. “My father bought them in 2003 and I don’t really know what to do with them,” he says. Every policy acquires a paid-up value after paying five premiums. So we suggest Gaurav surrender his LIC Jeevan Anand policy and redirect the premium in a pure term plan that covers him for `50 lakh. The premium will be around `15,000 a year. Though Gaurav needs to be patient, he needs no reminder on his responsibilities. Gaurav wants to start saving for the education of his child right away. The primary and college education of his child can be funded from his regular income. For higher education, which is expected to cost about `46 lakh, he can rely on his public provident fund (PPF) investments. The balance in Gaurav’s PPF is `3 lakh. If he continues to invest `70,000 every year, it will grow to the required level in 20 years (tax-free)—in time for the goal. The techie has rightly started planning for his retirement corpus. Gaurav has age on his side and so the task should not be daunting. At the age of 55, he will need a corpus of `3 crore to maintain his standard of living. Hence, he must increase his investment in equity mutual funds. He invests `7,000 a month in funds such as DSPBR Top 200 and IDFC Premier Equity, among others. In addition, Client Associates suggests he invests `4,000 a month through systematic investment plans in Reliance RSF Equity and HDFC Top 200. These are large-cap funds and are relatively safe. After retirement, he should invest the majority of his corpus in debt as risk appetite drops with age. When Meghna wanted Gaurav to buy her some gold jewellery, his response was: “Let’s buy gold-exchange-traded funds instead.” Clearly, he is more investment-savvy than his wife. Gaurav’s knack is reflected in his equity portfolio, which has stocks of primarily stable large-capital companies and public sector units such as Coal India, NTPC and RIL. Client Associates thinks it is a balanced portfolio and Gaurav should continue to ensure that the majority of his direct equity portfolio investments focuses on large-cap companies. Overall, the Tayals have begun well. All they need to do is to keep the discipline and momentum going. To attain their goal, they will have to sustain. The financial plan is formulated by Client Associates Need help with your family finances? Write to us at etwealth@indiatimes.com

Financial Planning

The Economic Times Wealth, December 20, 2010

THE MONEY

Paper Work

QUESTION

REACTIVATING YOUR DORMANT BANK ACCOUNT

RAJ

Jaikishenji is a retiree and has accumulated a good amount of wealth. He is 75 and lives with his son's family. Jaikishenji wants to ensure that his wealth is equitably distributed among his three children—two sons and a daughter—without any dispute or procedural hassle in a tax-efficient manner. What are his choices? omination is a simple way to ensure that investments are transferred to the children. There is documentation involved, all the same. Gifting to children is simpler but irrevocable. A will that seeks formation of a trust or a Hindu Undivided Family (HUF) is tax-efficient. Jaikishenji needs to seek options that are flexible and save tax. Inheritance itself is not subject to tax, though the income earned from the inherited wealth is taxable. Jaikishenji may not be able to avoid the documentation issues involved in the transfer of his wealth. If he chose A to-do list nomination as the route, he can when you have change the nomination any number of too many funds times during his lifetime. For his Page 15 children to have the investments transferred to them, they’ll have to submit the required documents. It is also important to note that transfer does not amount to a final settlement under succession laws. The nominee only holds the wealth as a trustee, until disputes, if any, are settled. He can consider writing a will, which can also be amended anytime. The will can include all his wealth, including house property and gold, which do not have nomination facilities. If the tax of inherited income is to be maximised, his children can create an HUF structure. Inheritance is the basis for creating an HUF, whose income and wealth could grow over time and be taxed in the hands of the HUF. Creating a trust with his children as beneficiaries will also enable such separation of incomes.

RBI has mandated banks to reduce hassles for customers while reactivating their dormant accounts (see RBI master circular at http://rbidocs.rbi.org.in/rdocs/Notification/PDFs/ 78MCC010710_F.pdf). Banks are expected to exercise due diligence in verifying customer credentials before reactivating accounts. Usually banks require account holders to present themselves with address proof and identity documents, at the nearest branch, to complete the formalities. Banks are cautious about sudden requests for withdrawal from a dormant account. No standard procedure The Reserve Bank only instructs banks to exercise due diligence with inactive accounts. The actual process of reactivation is likely to vary from bank to bank. Written application The bank will request a written application signed by all joint holders of the account, irrespective of operating mode, to reactivate an account.

SMART THINGS TO KNOW: Minor's demat account

The guardian needs to fulfil all requirements for documents and KYC norms to open the account in the name of the minor.

A minor cannot be a joint holder in a demat account. The demat account can be held only in the name of the minor.

Producing proof of date of birth of the minor is compulsory. The account becomes defunct when the minor turns major.

KYC compliance All joint holders must comply with the Know Your Customer (KYC) norms currently in force, if they have not been complied with, for an inactive account opened earlier. This includes PAN, address proof and proof of identity documentation. Cards, passbook and cheque book Account holders may be asked to show or surrender ATM cards, cheques for issuance of new cards and cheque books. This may not be mandatory.

Points to note

Demat accounts can only be opened in the name of a minor by the natural guardian (parents) or court-appointed guardians.

If there have been no transactions in your savings bank account for two years, except for interest payments credited by your bank, the bank will classify your account as inoperative or dormant. You will not be able to use your ATM card, issue cheques or transact in the account without reactivating it. The bank makes your account inactive to safeguard your money from any risk of fraudulent transactions. You can reactivate your account anytime to be able to operate it or close it.

On attaining major status, a new demat account needs to be opened after completing all documentation. The erstwhile holdings can then be transferred to the new account.

If shares are held jointly with a minor in paper form, they need to first be transferred to the minor and then to the demat account in the minor's name.

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

Be prepared for due diligence from bank Re-activation of a dormant account will be handled as meticulously by the bank as opening a new account because unused balances may lie in such accounts. Activation needs just one transaction To avoid reactivation procedure of an account you would like to retain, make at least one transaction, online or offline, in a year. Charges There is no charge to reactivate a dormant bank account. If your bank imposes a charge, report to the banking ombudsman.

Guest Column

The Economic Times Wealth, December 20, 2010

FINANCIAL PLANNING

Why exclusive is not always good Investors think a pooled portfolio like an MF scheme is for the commoner and are lured by portfolio management services, which seem more sophisticated. That may not be the case, says Uma Shashikant

ome of us like to shun common and simple choices as we grow wealthy. The clothes we wear, the car we drive, the food we eat, the vacations we take and the houses we live undergo a change to reflect our wealth. When this attitude creeps into our investment habits, we choose products that come with an ‘exclusivity’ label. Portfolio management services (PMS) to my mind, are targeted at such vanity. Investors who think a pooled portfolio such as a mutual fund scheme is for the commoner choose PMS which seems more exclusive, evolved and sophisticated. Let us see why that may not be the case. First, it’s true that each investor in a PMS is required to have a separate bank and demat account in which his securities are held. Also, the pooling principle, where the fund as a whole is impacted by inflow and outflow of investor money, does not apply to PMS. In a PMS, cash brought in by an investor is held in his account before it is deployed and withdrawals too only impact his portfolio holdings. But that does not mean that each portfolio is being managed exclusively. What a PMS does is manage a portfolio centrally and use an algorithm to allocate securities and cash across investor accounts. Second, transaction in a PMS is done on behalf of the investor. Earlier the transactions were carried out in a pooled bank and demat account. Now, the regulatory requirement is to have bank and demat accounts for each investor in a PMS. This does not fundamentally change the fees, cost, frequency or number of transactions. All transactions in a PMS are done on behalf of the investor in his accounts and are therefore taxable as if they were undertaken by the investor. So, there’s no pass-through benefit as in case of an MF. Investors will incur broking and transaction fees, apart from short-term capital gains, on transactions over which they have no direct control. PMS is tax-inefficient compared to an MF. Third, the PMS portfolio does not have restrictions that a MF portfolio has, in terms of percentage limits per security. The portfolio can be concentrated and can hold various asset classes—gold, derivatives, debt and equity. While this seems like a good thing, it places higher onus on the manager to deliver performance because he has higher flexibility. But what it does in effect is make performance evaluation tough. It is difficult to seek benchmarks that correctly capture a portfolio's performance, given the wide

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

PMS are tax-inefficient, difficult to benchmark against peers and give managers more leeway to levy charges on investors.” changes in allocation and composition. The fund manager may be delivering returns with risks that are not measurable or comparable with his peers. Fourth, PMS allow greater flexibility to the manager and the distributor in terms of charging fees and expenses. Regulation requires that performance-linked fee can be charged only based on the high-watermark principle. This means unless the portfolio value exceeds its earlier highest level, it cannot charge variable fees for outperformance. What this regulation has achieved is higher fixed fee to clients. The low profitability in selling MF products has also resulted in distributors pushing PMS to clients. What investors hold are higher-cost products that hurt long-term investments the most. Is investing in PMS worthwhile? Yes, if the manager has demonstrated excellent performance leveraging the flexibility he has, and if the investor thinks the expertise is worth the cost and taxes. Not if the investor is uninformed about the functioning of PMS and is lured by the ‘exclusivity’ tag. The low entry level of `5 lakh brings in several such investors who like to graduate from a simple MF, only to find that they have been hit by a higher fee and expense ratio, and left staring at a higher tax outgo on a portfolio with average performance.

Please send your feedback to etwealth@indiatimes.com

GETTYIMAGES

Mis-selling

The Economic Times Wealth, December 20, 2010

MYSTERY BUYING

Ulips in the name of mutual fund Nupur Anand and Amit Shanbaug went shopping for a mutual fund. The bank relationship manager offered them a Ulip under the garb of a fund

WHAT WE WERE TOLD

WHAT IS WRONG

Ulips are a type of mutual fund or just like a mutual fund

Unit-linked insurance plans require a longer time horizon than MFs. The charges for investing in both are also different

Invest in a mutual fund for a year and divert this money to pay the premium for Ulip

Invest in equity mutual funds should ideally be done for at least three years

Investing in MFs is not a great idea as markets are going down now

It is an ideal time to start investing when markets are going down, as you get more units and there is scope for growth

You have to pay for only five years

Five years is not the ideal time horizon for Ulips. It should be minimum 10 years

In Ulips, you are getting investment plus insurance

Never mix investment and insurance

GETTYIMAGES

he three musketeers—two of us along with our secret lethal weapon, the hidden camera— went shopping for mutual fund(s). We met a relationship manager of a leading private sector bank. One look, a couple of background queries and the manager knew he had found his target clients. “So how much money are you looking to invest?” We thought for a few seconds and replied hesitantly, “About `50,000-60,000.” He fired his next question, “So what have your earlier investments been?” We said we had some vague idea about a life insurance policy taken by our parents. His targets had all that he wished for— a wad of ready cash, eagerness to invest and little clue about investment avenues. We said we were looking to park our money in mutual funds. Did we say mutual funds? Well, we were presented with a fund, which in every sense was a fund’. Our relationship manager-cum-investment-adviser-cum-financial planner started off the power-packed 20-minute

conversation dishing out details of the fund and how it could weather all market conditions. The fund he was selling was tempting. “Since inception, it has given returns of 18%,” he said. Fifteen minutes into the conversation and we were told everything the manager thought was necessary for us to know. Well, almost everything. We thought we were finally lucky to get the right advice. Just as we were smiling at this thought came his next statement: “You have to pay for only five years.” And this despite clearly mentioning that we were looking to invest for only two to three years. A number of questions ran through our minds. No mutual fund had a five-year lock-in after all! He easily borrowed words from the mutual fund glossary to explain the fund without naming it. Words like SIP, NAV, fund, etc were thrown into the conversation to camouflage the product in the name of an MF. And then came the final nail in the coffin. “It’s a type of mutual fund or you know just like a mutual

for more videos and images visit : http://tinyurl.com/2wy765z

fund,” he explained. And to think that our insurance and market regulators Insurance Regulatory and Development Authority and Securities and Exchange Bureau of India were battling all this while over the classification of this financial product! But since we were eager to find out the name of the product, we continued to question him as innocent investors. Which mutual fund was this, we finally asked, to which he reluctantly explained that the company had two businesses — one, the

mutual fund and the other, life insurance. Everything possible was done to create chaos in the consumers’ minds. After 17 minutes, the product was finally unveiled. And Ulip it was! Of course, there was no missing his efforts to delay using the dreaded four-letter word until the very end of the conversation. He had mistaken his target customers for ignorant investment seekers. We had made it amply clear to the relationship manager at different stages of our conversation and in various ways that we were interested in parking our money in mutual funds. That apart, the roadblock of a five-year lock-in, recently introduced in Ulips, was tackled most deftly. Our predicament was that we had about `60,000 at the moment and the plan required a five-year investment. One of us shot a hapless look and confided, “I may get married in a year or two and am not sure if I’ll have the money in the coming years.” In no time, he donned the hat of a financial planner. Using a flow chart, he explained how one should not be putting the entire money in one go. According to him, the trick was to break up the investments into three categories. “Put one-third of the amount in the ‘fund’ aka Ulip at present. Break the balance amount and invest part of it in a fixed deposit and the rest of it in a mutual fund. The amount invested in the fixed deposit will take care of the second installment for the plan; for the third year, you can divert the money that you’d invested in MF and that can take care of the third installment.” What an idea! Then came a list of mutual funds we should invest in, to pay towards the premium for the third year (of the Ulip), completely disregarding our original investment plan. No prizes for guessing the SIPs he recommended—the ones floated by the bank’s very mutual fund subsidiary. That left us confused. Only minutes ago, he had said investing in mutual funds was not a great idea as markets were dropping. And now he was advising us to invest in one, to take care of the third installment for a Ulip. The relationship manager glibly devised ways to channel funds to this account. He offered solutions to avoid a default in the first three years. But wait, didn’t he just say that the lock-in period was five years? What happens in the last two years? How do we pay the installments? No answers there. Soon, he was reeling out freebies that we would get along with the Ulip. Those were missing, he said, in the case of mutual funds. “Here you have tax benefit as well. Also, you have insurance and investment.” Indeed, the relationship manger would have made Gekko proud. As for us, we were still trying to get a grip on the investment plan as we exited the bank. Please send your feedback to etwealth@indiatimes.com

Your Queries

The Economic Times Wealth, December 20, 2010

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

Mutual Funds: Dhirendra Kumar, CEO, Value Research

Insurance: Amit Suri, CFP, AUM, Financial Planners

Banking: VN 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.

TAXATION I have opened a demat account for my wife. Can my mother transfer some of her shares to my wife’s account and show them as gift for income tax purposes? The shares were bought more than a year ago. How will the transaction be treated when filing returns?

— Nikunj Agarwal Gains made by your wife from sale of shares received as gift from your mother will be liable for clubbing and taxable at your wife’s hands. However, gains made by your wife from sale of shares received as gift from you will be clubbed with your income. Since these shares were pur-

chased more than a year ago, there won't be any income tax payable on such gains.

LOANS Can a bank continue to keep a customer’s account in the defaulters list even after seven years of proposing a one-time settlement and receiving it? Can it refuse to entertain any fresh proposal from the customer despite he fulfilling the conditions of the proposal?

— BK Sahni After repayment of dues as per the one-time settlement scheme, a person cannot be construed as a defaulter. Your credit score gets affected as the bank has to

write off its dues. Your Cibil record will indicate that a part of the outstanding amount was written off. Hence, it will be the bank’s prerogative to entertain your request for a new loan or not. If your proposal is sound and backed by adequate security, the bank may consider it.

INSURANCE I have a net salary of about `22,000 and plan to buy a term insurance plan of `25-30 lakh. Is this sufficient? My employer has provided a cover of `5 lakh.

— Kundan Khaware

Ask Experts

You should start with a term insurance plan to get the desired insurance cover. Then, draw a list of your short- medium- and longterm financial goals and add a traditional or Ulip plan to your longterm goals. The choice between traditional and Ulip should be on the basis of risk and return expectations. One of the benefits of investment-based insurance products is disciplined investing for long-term needs. Mutual funds are excellent for short-, mediumand long-term financial goals. Systematic investment plans (SIPs) are the way to invest in them.

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

I am 43 years old and have `5 lakh to invest for the long term. Please suggest investment avenues to maximise benefits. —C Chellani

Since your investment horizon is long, you should start with diversified equity funds. Put the money in a debt fund and then shift small amounts into diversified equity funds every month through a systematic transfer plan (STP). Under this, a fixed sum is transferred from the debt fund into your equity fund every month. An STP can only be for schemes from the same fund house. So, if you intend to invest in three or four different equity funds, you need to invest in the debt funds of all those AMCs. You could also consider balanced funds such as HDFC Prudence, DSPBR Balanced or Reliance Regular Savings Balanced. These funds invest a larger portion in debt and are, therefore, less risky.

In This Section

smart stats

ET Funds 100 Insurance ranking Global investing

34 36 37

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

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

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

Cairn India

683

IRB Infrastructure

117

Gujarat NRE Coke

112

NMDC

110

Godrej Consumer Products

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 & Industries

6.43

See PE column in adjacent table

Best PEGs Top 5 stocks with least price earning growth ratio

3i Infotech

0.04

Jubilant Life Sciences

Gujarat NRE Coke

Mercator Lines

0.06

0.06 Godawari Power & Ispat

See PEG column in adjacent table

Income Generators Top 5 stocks with highest dividend yield Gateway Distriparks| 4.82 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

OVERALL RANK

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

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

Revenue

50.35 35.96 79.49 68.98 54.32 60.19 65.09 87.04 19.19 47.21 37.97 19.52 39.66 14.84 58.67 37.74 692.88 49.08 44.56 49.94 29.87 87.16 36.34 66.73 37.81 112.51 21.34 79.40 22.94 29.97 37.53 43.22 62.02 40.03 69.12 34.46 32.27 38.69 25.04 38.23 16.49 23.26 40.57 61.67 30.98 42.40 40.36 38.22 56.09 24.72 41.03 25.29 21.26 74.94 36.43 13.31 27.41 26.51 41.85 51.21 18.46 58.72 33.52 21.04 10.92 35.76 47.61 96.67 51.23

Net Profit

98.79 149.81 105.90 94.54 66.52 73.89 76.30 103.76 53.45 32.53 308.51 22.21 255.80 760.27 73.17 37.55 605.30 85.39 56.68 76.08 125.26 72.26 36.40 99.27 28.08 7717.74 61.25 394.31 34.46 41.72 38.09 56.28 204.90 21.71 122.31 25.91 55.72 102.65 48.78 28.74 48.33 49.62 31.47 157.24 41.40 46.85 41.72 41.24 71.71 50.53 65.42 18.56 22.35 25.55 77.19 51.47 2412.34 283.48 73.16 50.36 46.54 76.48 48.61 56.69 105.53 40.93 62.83 64.17 42.87

% EPS

98.80 134.86 114.11 62.90 66.51 75.14 53.53 56.96 52.83 30.79 274.58 234.45 196.27 711.59 71.38 35.30 600.54 74.77 48.67 60.56 59.48 72.49 35.80 83.10 26.13 2145.99 60.24 351.18 35.31 31.49 36.65 54.91 205.38 63.86 65.99 32.55 59.55 104.26 42.38 26.83 48.27 39.92 61.21 165.83 30.16 48.63 32.30 41.28 34.22 40.00 61.64 18.57 22.28 25.57 71.05 50.56 2127.76 284.68 71.40 34.28 38.94 54.97 48.39 33.92 100.47 40.64 65.38 56.09 47.03

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

10.60 8.65 11.34 6.85 14.96 20.65 9.34 10.93 9.99 8.58 50.88 9.80 26.72 31.19 26.11 6.77 59.65 22.37 8.67 9.12 10.37 24.77 8.95 14.49 9.25 130.04 15.03 23.33 14.59 8.82 7.34 19.77 39.42 14.47 20.46 11.34 20.54 22.74 5.97 14.13 12.61 13.76 12.95 67.03 4.96 25.61 19.81 11.51 13.74 12.83 25.37 6.74 9.46 6.94 28.39 11.07 554.03 86.30 32.51 8.83 14.28 21.06 18.35 10.52 9.97 20.11 27.90 32.82 15.43

R A T I O S

P/B

Div Yield

PEG

1.24 0.99 1.16 2.61 1.28 2.38 1.92 0.97 0.90 1.54 1.49 2.02 9.05 1.06 15.32 1.11 1.85 1.88 1.35 3.10 0.55 7.06 1.95 0.88 1.47 2.20 0.89 0.58 2.79 1.54 1.28 4.93 9.47 1.54 2.21 2.72 5.71 1.52 1.04 1.68 1.76 2.42 2.01 3.19 0.85 6.97 2.54 3.72 2.39 2.23 6.19 1.37 1.18 1.54 5.92 2.10 2.13 8.04 10.13 0.96 1.89 1.46 5.73 0.91 1.66 4.79 1.97 12.01 3.88

1.45 1.35 0.76 0.42 2.37 2.27 0.95 0.00 3.42 2.79 0.63 0.72 1.13 2.77 1.36 1.19 0.00 0.76 0.37 1.09 0.39 1.01 3.71 0.00 2.27 1.85 3.78 0.38 2.49 0.25 0.58 1.43 0.59 0.55 0.35 1.37 1.06 1.28 1.97 4.82 2.64 1.20 0.77 1.05 1.26 1.01 1.55 0.53 0.82 0.67 1.17 2.67 1.57 1.02 0.96 0.94 0.87 0.62 0.79 0.00 2.45 0.32 1.63 0.60 0.51 0.85 0.72 1.11 0.66

0.11 0.06 0.10 0.11 0.22 0.27 0.17 0.19 0.19 0.28 0.19 0.04 0.14 0.04 0.37 0.19 0.10 0.30 0.18 0.15 0.17 0.34 0.25 0.17 0.35 0.06 0.25 0.07 0.41 0.28 0.20 0.36 0.19 0.23 0.31 0.35 0.34 0.22 0.14 0.53 0.26 0.34 0.21 0.40 0.16 0.53 0.61 0.28 0.40 0.32 0.41 0.36 0.42 0.27 0.40 0.22 0.26 0.30 0.46 0.26 0.37 0.38 0.38 0.31 0.10 0.49 0.43 0.59 0.33

R I S K Downside Risk

1.41 1.79 1.26 1.09 1.20 1.41 1.72 1.96 1.44 1.61 1.32 1.19 1.63 1.36 1.09 1.34 1.25 1.79 1.96 1.78 1.73 1.68 1.34 1.28 1.33 2.14 1.31 1.98 0.95 0.98 1.41 1.23 1.17 1.61 1.70 1.15 1.16 1.74 4.06 1.33 1.42 1.40 1.44 1.22 1.61 0.87 0.90 1.55 1.80 1.08 1.26 1.42 1.08 2.42 1.42 1.74 2.10 1.12 0.98 2.35 1.38 1.86 1.46 2.05 2.06 1.17 1.67 1.47 1.68

R A T I N G

Bear Beta

No. of Analysts

Consensus Rating

1.17 1.57 0.82 0.88 1.20 1.50 1.48 1.93 1.92 1.26 0.89 0.81 1.84 1.42 0.58 1.40 0.98 1.77 1.34 1.74 1.09 1.10 0.99 0.47 0.82 1.82 1.57 2.63 0.56 0.41 1.45 1.04 0.69 1.33 0.80 0.65 0.05 1.63 1.61 0.76 1.23 0.97 0.69 0.85 1.63 0.70 0.63 0.68 2.30 0.91 0.53 1.04 1.05 2.15 0.87 1.25 2.03 0.45 0.47 1.42 1.26 2.13 0.90 1.67 1.98 0.80 1.63 0.26 1.13

15 15 5 5 8 45 7 31 17 10 11 25 44 7 57 11 33 20 8 34 5 31 6 6 15 6 13 7 47 15 9 13 30 40 5 25 10 9 7 13 13 20 7 7 6 48 31 16 49 43 13 9 15 6 18 7 31 46 13 5 16 35 8 13 25 23 38 30 8

5.00 4.87 4.40 5.00 4.00 3.96 4.86 4.42 4.41 4.90 4.73 4.76 4.64 4.43 3.79 4.64 3.12 4.80 5.00 3.38 5.00 4.71 4.67 3.17 4.47 4.00 3.85 4.00 4.30 4.73 5.00 4.54 3.80 4.53 4.80 4.48 4.80 3.78 4.00 4.54 4.23 4.65 4.43 4.00 4.33 4.08 3.94 4.94 3.90 3.84 4.15 4.78 4.53 4.83 4.50 5.00 4.13 3.65 4.46 4.60 4.06 3.60 4.63 4.92 3.20 4.70 3.37 3.80 4.63

Smart Stats Analysts’ Pets

Top 5 stocks with only buy recommendation Usha Martin

15 Prakash Industries Allied Digital Services 10

KS Oils

Deccan Chronicle Holdings

Figures are number of analysts tracking the stock. See column 12 in table.

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

Monnet Ispat & Energy 0.22 0.14 Unity Infraprojects 0.10 IRB Infrastructure Develope 0.05 Sobha Developers 0.04 Bharat Heavy Electricals

What is Not

OVERALL RANK

Revenue

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

44.73 39.46 39.76 37.76 67.30 52.17 46.31 22.56 43.85 27.92 30.88 111.08 39.00 32.65 117.48 26.99 43.28 46.30 33.38 56.29 82.58 29.01 30.75 53.66 43.61 33.46 42.08 36.57 26.74 41.21 19.52

Petronet LNG Exide Industries Nagarjuna Construction Co Prakash Industries WABCO-TVS India Bosch Jyothy Laboratories McLeod Russel India Sintex Industries GVK Power & Infrastructure Redington India NMDC HCL Technologies Patel Engineering IRB Infrastructure Developers Ratnamani Metals & Tubes Apollo Hospitals Enterprise Gujarat Gas Co Glenmark Pharmaceuticals Monnet Ispat & Energy Indraprastha Gas Ranbaxy Laboratories Simplex Infrastructures Sun Pharmaceutical Sun TV Network Allcargo Global Logistics Tata Consultancy Services Lupin National Aluminium Co Zee Entertainment Enterprises Polaris Software Lab

Net Profit

43.14 57.50 18.78 42.98 81.47 69.65 54.35 27.00 51.23 136.19 44.93 125.10 48.46 20.88 37.94 21.02 57.41 48.97 63.41 34.12 33.64 304.24 43.57 43.98 54.14 35.92 32.08 44.94 65.37 41.69 17.71

V A L U A T I O N

EPS

P/E

P/B

44.97 47.24 18.04 14.47 81.54 64.80 44.12 35.68 41.35 86.68 45.84 123.51 44.93 20.73 37.08 18.93 56.03 47.62 60.90 22.40 33.00 342.24 42.32 44.19 54.69 27.45 33.15 40.28 69.49 18.30 17.14

23.48 26.34 11.57 4.86

4.25 7.18 1.49 0.94 7.33 6.99 5.09 1.61 2.62 1.96 3.02 7.03 4.86 1.62 3.61 1.57 3.54 6.70 4.07 3.40 5.81 5.28 2.17 5.92 11.13 1.91 12.05 7.80 2.30 3.42 1.76

1.39 0.80 0.94 0.00 0.24 0.48 1.47 1.97 0.32 0.00 1.22 0.69 1.00 0.63 0.68 1.80 0.74 1.99 0.11 0.00 1.32 0.00 0.46 0.62 1.40 0.66 1.82 0.60 0.68 1.33 2.07

25.33 33.22 26.55 9.57 15.39 38.58 17.57 29.10 24.08 10.24 19.12 7.02 42.51 29.67 28.52 9.99 22.24 77.30 16.71 34.44 40.37 13.24 31.70 28.42 29.42 21.27 9.50

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.

Tata Motors -0.05

Indraprastha Gas -0.04

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.

Rating rationale

National Aluminium Co -0.02

PEG

0.52 0.56 0.64 0.34 0.31 0.51 0.60 0.27 0.37 0.45 0.38 0.24 0.54 0.49 0.52 0.37 0.76 0.62 0.47 0.45 0.67 0.23 0.39 0.78 0.74 0.48 0.96 0.71 0.42 1.16 0.55

R I S K Downside Risk

1.49 1.31 1.57 2.02 1.51 0.84 1.48 1.85 1.52 1.32 1.25 1.63 1.45 1.35 1.76 1.43 1.35 1.12 1.35 1.17 1.43 1.20 1.42 1.00 1.21 1.21 1.06 1.08 1.26 1.32 1.59

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

Top 5 Mid-Cap Stocks

Top 5 Small-Cap Stocks

Top 5 weekly gainers (price)

Aditya Birla Nuvo Price: 817.15 | % Chg: 10.29

United Breweries Price: 443.05 | % Chg: 9.27

Coromandel International Price: 632.20 | % Chg: 8.94

Bhushan Steel Price: 450.30 | % Chg: 8.31

Sunteck Realty CMP: 569.85 | % Chg: 20.88

Ispat Industries CMP: 22.55 | % Chg: 19.95

Emami CMP: 422.05 | % Chg: 17.71

S Kumars Nationwide CMP: 86.85 | % Chg: 16.42

Puravankara Projects CMP: 120.65 | % Chg: 15.23

No. of Analysts

Consensus Rating

0.87 0.76 1.34 1.87 1.40 0.33 0.50 1.23 1.46 1.49 0.66 1.40 1.38 1.59 1.58 1.26 0.81 0.98 0.95 1.11 0.61 1.29 0.72 0.24 0.94 0.70 0.93 0.71 1.02 0.96 1.22

35 28 37 10 5 8 12 5 16 21 5 13 55 26 32 6 14 16 36 9 25 41 26 43 34 9 63 43 32 32 14

3.60 4.50 4.62 5.00 5.00 4.38 4.25 4.60 4.44 4.52 4.20 2.38 4.07 4.85 4.22 4.50 4.57 3.44 4.36 4.78 3.88 3.22 3.73 3.60 3.76 4.22 4.16 4.23 1.47 4.00 4.71

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

Top 5 Large-Cap Stocks JSW Steel Price: 1164,35 | % Chg: 11.56

R A T I N G

Bear Beta

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

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.

Hindustan Construction Co -0.09

R A T I O S Div Yield

METHODOLOGY

Stocks that have gone down in analyst rating in 1 week

The Economic Times Wealth, December 20, 2010

Vidhi Dyestuffs Manufacturing CMP: 6.08 | % Chg: 47.22

Modi Rubber CMP: 107.95 | % Chg: 39.65

Prime Securities CMP: 37.65 | % Chg: 36.66

Crest Animation Studios CMP: 83.90 | % Chg: 33.39

Rama Newsprint & Paper CMP: 23.20 | % Chg: 31.07 As on 16 Dec

Smart Stats

The Economic Times Wealth, December 20, 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 â&#x20AC;&#x201D; 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. VALUE RESEARCH FUND RATING

Equity: Large-Cap

LAGGARDS

Equity: Large- Cap 5-year returns 10.10

NET ASSETS (` CR)

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

1-YEAR

( % ) 3-YEARS

5-YEARS

LICMF Sensex Advantage

EXPENSE RATIO

12.15

Franklin India Bluechip

3358.07

2.13

15.48

24.06

5.57

20.17

1.85

DSPBR Top 100 Equity Reg

2851.49

2.00

12.94

17.56

4.22

22.10

1.86

HDFC Index Sensex Plus

58.78

1.71

13.69

19.46

4.04

18.96

1.00

IDFC Imperial Equity Plan A

541.47

-0.35

10.94

16.70

3.95

2.33

Sahara Growth

6.23

-2.61

8.92

11.19

2.04

19.11

2.50

13.26

ICICI Prudential Growth

376.29

2.77

14.04

18.72

2.01

16.98

2.28

LICMF Index Sensex

Reliance Equity Advantage Retail

1334.98

0.45

13.66

19.82

1.45

1.95

ICICI Prudential Index Retail

80.86

2.02

14.12

18.64

0.65

17.64

0.67

IDFC Equity Plan A

581.41

2.38

14.27

18.80

-1.32

2.21

0.75% expense ratio of FT India Life Stage FoF is over and above of the funds it holds.

Equity: Large- & Mid-Cap HDFC Top 200

9069.73

1.43

16.60

26.28

10.15

23.12

1.79

FT India Life Stage FoF 20s

14.35

1.31

11.95

19.05

6.78

16.60

0.75

UTI Opportunities

1581.62

3.03

17.31

21.98

6.54

17.81

1.95

Fidelity India Growth

Fidelity Equity

Baroda Pioneer Growth

LICMF Index Nifty

13.18 HDFC Index Nifty

13.79 HDFC Index Sensex

8.53

379.60

1.21

14.96

28.20

6.39

2.31

0.41

14.24

27.96

5.50

20.90

1.85

58.00

0.42

12.65

14.67

5.11

19.27

2.50

Birla Sun Life Frontline Equity Plan A

2543.64

1.56

14.11

20.27

5.10

22.75

1.88

Canara Robeco Equity Diversified

386.08

-2.77

9.68

21.72

4.59

19.47

2.32

Franklin India Flexi Cap

2367.50

-0.92

15.03

22.08

3.22

18.29

1.88

10.81

Reliance NRI Equity

143.33

-0.15

13.65

23.57

3.19

21.13

2.43

LICMF Growth

UTI Contra

236.12

-2.21

8.15

10.11

2.98

2.36

Principal Growth

9.88 LICMF Opportunities

Franklin India Prima Plus

1940.47

-1.72

12.97

21.11

2.77

20.02

1.91

11.55

Tata Equity Management

192.05

-1.60

7.94

14.62

2.60

2.38

Magnum MultiCap

Tata Pure Equity

662.54

-2.08

11.81

18.60

2.10

19.41

2.20

11.81

DSPBR Opportunities

924.50

-1.04

14.23

24.73

1.51

18.92

2.08

Principal Large Cap

489.68

0.40

11.67

21.88

1.10

21.70

2.26

UTI Equity

2117.39

2.89

16.23

20.66

17.03

1.90

Quantum Long Term Equity

65.75

2.18

18.82

30.33

12.18

1.56

HDFC Equity

7872.99

1.50

18.70

31.08

10.61

22.77

1.79

UTI Dividend Yield

2781.62

0.78

14.68

26.09

8.90

21.50

1.88

Birla Sun Life Asset Allocation Aggressive

14.05

-0.17

8.69

16.54

7.98

17.95

0.35

Templeton India Growth

793.92

-0.85

14.39

22.79

7.13

20.99

2.19

-16.31

Reliance Regular Savings Equity

3278.17

-1.34

12.07

20.58

6.84

26.42

1.85

BNP Paribas Opportunities

ICICI Prudential Dynamic

2603.59

2.44

10.88

23.41

6.40

22.04

1.87

Reliance Equity Opportunities

2720.81

-2.85

14.91

31.65

6.24

21.29

1.88

LICMF Equity

Equity: Multi-Cap

Templeton India Equity Income

1220.27

2.74

21.76

24.55

6.22

2.01

518.01

3.34

15.15

23.87

5.62

2.22

HDFC Growth

1423.23

0.34

16.06

28.71

5.05

22.64

1.97

DSPBR Equity

2273.22

-2.66

12.75

21.39

4.57

23.07

1.89

Equity: Mid & Small-Cap Birla Sun Life Dividend Yield Plus

608.46

-2.11

13.51

30.12

11.85

18.63

2.27

ICICI Prudential Discovery

1495.52

-0.76

10.38

27.10

11.33

19.38

1.99 2.50

ING Dividend Yield

49.95

-1.59

12.45

29.69

9.96

18.68

IDFC Premier Equity Plan A

1857.45

-3.27

15.71

32.23

9.24

27.84

1.93

HDFC Mid-Cap Opportunities

1206.60

-0.41

15.26

33.73

7.87

1.99

Religare Contra

71.66

-1.18

8.24

16.23

6.44

2.50

UTI Master Value

633.22

-0.83

15.48

29.98

6.02

16.05

2.24

Tata Dividend Yield

168.25

-0.18

13.48

31.54

5.43

18.08

2.41

DSPBR Small and Mid Cap Reg

1104.60

-5.08

12.51

30.94

5.23

2.06

DSPBR Micro Cap Reg

411.59

-6.84

9.58

49.39

4.49

2.31

Sundaram Select Midcap Reg

2422.93

-3.43

14.53

20.99

2.74

23.20

1.89

Sahara Mid-Cap Fund

12.41

-3.09

11.56

26.36

2.46

17.01

2.48

Birla Sun Life Mid Cap Plan A

1983.99

-2.56

10.54

16.57

1.84

20.17

1.91

ING Contra

14.06

-1.81

7.14

13.13

1.68

2.50

Religare Mid Cap

40.86

-5.22

11.68

30.04

0.02

2.50

Equity: Infrastructure ICICI Prudential Infrastructure

3718.76

-1.51

9.53

12.44

-3.39

22.38

1.82

Taurus Infrastructure

25.78

-5.87

3.80

15.13

-4.01

2.50

Birla Sun Life Infrastructure Plan A

573.88

-4.99

6.62

13.02

-4.78

2.22

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

3095.27

-5.00

7.87

15.73

-5.37

18.61

1.84

Tata Infrastructure

2175.17

-5.05

7.13

11.20

-6.78

19.30

1.89

Equity: Tax Planning Canara Robeco Equity Tax Saver

219.92

-2.96

10.36

26.19

7.89

22.17

2.38

HDFC Taxsaver

2884.62

0.26

14.93

28.10

6.43

17.55

1.86

Fidelity Tax Advantage

1296.25

0.09

14.81

30.25

6.34

2.00

-16.34 LICMF India Vision

2.22% expense ratio of Fidelity Intl Opportunities is justified by its high returns

-11.71 JM Equity

-10.82 L&T Contra

-8.55 Taurus Starshare

-29.17 JM Small & Mid-Cap Reg

6.84% fall in DSPBR Micro Cap Fund is biggest in the past 3 months.

-24.18 JM Emerging Leaders

-22.91 JM Contra

-18.90 Taurus Discovery

-13.35 Magnum Midcap

7.56 JM Balanced

0.90

13.56

25.29

5.60

15.29

2.00

-1.99

11.38

24.81

5.56

2.49

Baroda Pioneer Balance

1015.67

3.35

18.21

30.59

5.39

14.89

2.02

9.66

11.90

-2.74

11.66

21.85

5.07

18.76

2.50

HDFC LT Advantage Sahara Tax Gain Taurus Tax Shield

62.49

-1.87

15.89

21.21

2.39

15.17

2.50

DSPBR Tax Saver

940.75

-1.52

10.77

23.15

0.63

2.08

LICMF ULIS

10.27 UTI CCP Advantage

Which funds should you invest in? See our Fund Portfolios on page 14 to know the funds that best suit your risk profile and requirements

Franklin India Bluechip

19.64 DWS Alpha Equity Regular

19.11 Sahara Growth

18.96 HDFC Index Sensex Plus

23.12 HDFC Top 200

22.75 Birla Sun Life Frontline Equity Plan A

21.70 Principal Large Cap

21.13 Reliance NRI Equity

20.90 Fidelity Equity

12.18 Quantum Long Term Equity

10.61 HDFC Equity

8.90 UTI Dividend Yield

7.98 Birla Sun Life Asset Allocation Aggressive

7.39 ICICI Prudential Dynamic Inst I

12.72 ICICI Prudential Discovery Inst I

11.85 Birla Sun Life Dividend Yield Plus

11.33 ICICI Prudential Discovery

9.96 ING Dividend Yield

9.24 IDFC Premier Equity Plan A

Hybrid: Equity-oriented 5-year returns

109.30

20.17

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

1296.50

Religare Tax Plan

DSPBR Top 100 Equity Reg

Equity: Multi-Cap 3-year returns

8.53

ICICI Prudential Tax Plan

22.10

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

3307.21

Fidelity International Opportunities

LEADERS

10.32 LICMF Balanced

20.84 HDFC Prudence

18.69 DSPBR Balanced

18.66 Principal Conservative Growth

18.55 Birla Sun Life 95

18.51 Tata Balanced

Smart Stats

The Economic Times Wealth, December 20, 2010

ETW FUNDS 100 VALUE RESEARCH FUND RATING

NET ASSETS (`CR)

Not Rated

139.04

13.85

Equity: Sectoral Franklin Infotech

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

( % ) 5-YEARS

EXPENSE RATIO

16.71

12.63

2.43

1-YEAR

3-YEARS

22.50

31.46

UTI Banking Sector Reg

Not Rated

212.65

-4.63

20.06

39.02

8.78

22.93

2.39

Reliance Diversified Power Sector Retail

Not Rated

5184.62

-7.08

0.83

7.50

0.53

29.15

1.81

Hybrid: Equity-oriented Reliance Regular Savings Balanced

698.79

-1.38

11.92

24.18

12.08

18.18

2.22

HDFC Balanced

193.39

2.26

12.38

28.29

11.58

17.32

2.15

HDFC Prudence

5334.10

-0.10

12.41

27.37

10.57

20.84

1.82

Birla Sun Life 95

363.18

-0.86

11.49

20.40

8.09

18.55

2.33

DSPBR Balanced

774.93

-1.73

9.86

16.80

5.65

18.69

2.08

Canara Robeco Balance

186.99

-2.91

8.47

19.03

5.16

17.36

2.39

2.30

4.24

6.39

6.89

13.8% return of Franklin Infotech in past 3 months is highest for any equity fund.

Top 5 SIPs Top 5 equity funds based on 10-year SIP returns Reliance Growth

37.79 Magnum Contra

34.82 HDFC Equity

33.93 HDFC Top 200

33.48 Reliance Vision

Hybrid: Arbitrage HDFC Arbitrage Wholesale

32.60

HDFC Arbitrage Retail

136.87

2.22

4.10

6.12

6.62

0.83

Kotak Equity Arbitrage

244.06

2.17

3.78

5.97

6.53

7.21

0.95

SBI Arbitrage Opportunities

125.10

1.97

3.53

5.46

6.06

0.76

UTI SPrEAD

158.35

1.58

2.76

4.35

7.17

1.00

SIP: Systematic investment plan

as on 16th December 2010

Lowest Expense Ratio

Hybrid: Debt-oriented Conservative HDFC MIP Long-term

8780.15

0.97

5.91

11.04

10.03

12.08

1.45

Reliance MIP

7019.12

0.89

4.96

9.10

13.57

12.51

1.55

Birla Sun Life Monthly Income

639.23

0.85

4.08

7.86

7.68

10.00

1.98

UTI Monthly Income Scheme

370.31

1.04

3.58

7.48

8.20

9.22

1.80

Birla Sun Life MIP II Savings 5

1454.73

1.06

3.24

5.78

11.42

9.80

1.38

DWS Money Plus Advantage Reg

270.46

1.01

2.17

5.75

7.97

1.99

L&T MIP

114.41

0.85

3.39

5.57

9.69

9.73

2.23

BNP Paribas Bond Reg

93.00

1.15

2.59

7.45

1.99

DWS Premier Bond Reg

22.87

2.46

2.51

7.09

8.79

6.82

2.04 2.00

Debt: Income

IDFC SSI Medium-term Plan A

575.45

1.04

1.88

6.79

9.33

8.27

Birla Sun Life Medium Term Retail

1636.07

1.58

2.94

5.78

0.57

Birla Sun Life Dynamic Bond Ret

7095.29

0.91

2.04

5.35

9.48

8.52

0.98

Sahara Income

136.05

1.60

2.92

5.25

9.85

8.58

0.35

Principal Income Long Term

19.83

1.21

2.24

5.22

7.50

7.48

2.25

LICMF Bond

87.05

0.82

2.22

4.78

8.13

7.41

1.43 1.47

Reliance Regular Savings Debt Ret

3363.23

0.67

1.69

4.66

6.23

5.05

Canara Robeco Income

227.62

1.38

1.74

4.63

13.34

10.12

2.12

BNP Paribas Flexi Debt Reg

271.59

0.44

0.85

3.93

10.01

9.25

2.07

ICICI Prudential Long-term Reg

197.00

0.52

1.08

3.75

6.78

6.97

1.44

% annualised returns

Top 5 equity diversified schemes with lowest cost of investment 0.20

0.15

2.46% return of DWS Premier Bond Reg in past 3 months is highest in category.

0.10

0.05

0.00

Returns as on 16 Dec 2010, Rating as on 30 Nov 2010, Assets and Expense Ratio as on 30 Sep 2010

ICICI Prudential Banking & PSU Debt Retail

ICICI Prudential Medium Term Regular

HDFC Medium Term Opportunities

ICICI Prudential AdvisorVery Cautious

Tata Income Plus

Expense ratio in % Methdology of selected Top 100 funds on www.wealth.economictimes.com

Smart Stats

The Economic Times Wealth, December 20, 2010

BEST TERM INSURANCE

Rating methodology i-save Rating Methodology for Term Insurance Coverage: All term insurance products available in the market have been covered.

Every week ET Wealth will bring you the rankings of one financial product done by i-save*. This week, we look at the best term insurance plans available in the market.

NA NA NA NA NA NA No Star NA NA

No Star No Star No Star

Aegon Religare’s iTerm scores high though the offline plan has better features.

No star

Superior Product Excellent Product Good Product Average Product Below Average Product Low Rating

Parameters considered Price: (Lower premiums get higher scores). Premiums are compared across multiple age bands for both males and females (young, middle and mature), multiple sum assured (from `10 lakh to `1 crore), and multiple terms up to age 60 or maximum term 30 years). Product features: Features are assigned a numerical score based on product benefits, customer availability and flexibility.

All three online plans from Kotak Insurance get a high overall score

Servicing capabilities: Scores are awarded to customer servicing and claims settlement statistics. These are not product specific and data published by IRDA for the past two years is used for purposes of comparison and allocating of a relative numerical score adjusted for age. For detailed methodology, visit i-save.com

LIC’s term plans score very high on servicing, but low on pricing

See cover story on term plans on sale page 2

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

<10

10-25

25-45

45-65

Superior

No Star No Star No Star No Star No Star No Star

Overall product ratings

Excellent

No Star No Star

Aegon Religare iTerm Plan Aegon Religare Level Term Plan Aviva Life Shield Plus Bajaj Allianz New Risk Care II Bharti AXA Life Elite Secure Bharti AXA Life Secure Confident Birla Sunlife Term Plan Birla Sunlife High Net Worth Term Canara HSBC Pure Term Plan FG Smart Life HDFC Life Term Assurance Plan ICICI Prudential iProtect IDBI Federal Termsurance IndiaFirst Life Plan ING Term Life Kotak Term Plan Kotak Preferred Term Plan Kotak e-Term Plan Kotak e-Preferred Term Plan LIC Anmol Jeeval LIC Amulya Jeevan MNYL Platinum Protect Metlife MetProtect Reliance Term Plan Sahara Kavach SBI Life Smart Shield SBI Life Saral Shield Star Union Dai-ichi Pure Term Assurance Plan Star Union Dai-ichi Premier Protection Plan Tata AIG Life Raksha

Servicing ratings

Good

Features ratings

Average

Price ratings

No star

Product Name

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

Below average

65-85

>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.

PREMIUM RECKONER Premiums of term insurance plans of all companies `) Life cover (`

10 lakh

25 lakh

NA 2,272 NA 2,967 NA NA NA NA 3,419 2,118 2,827 NA 2,652 2,438 3,066 NA NA NA NA NA NA NA NA 3,228 NA NA 2,718 NA NA NA

NA 4,964 5,074 6,177 NA NA NA NA 6,066 4,743 6,794 3,695 5,233 4,550 6,815 NA 3,778 NA 3,226 NA 6,525 5,046 3,171 7,243 NA NA NA NA NA NA

50 lakh

45-year-old male (non-smoker) Policy term 10 years

35-year-old male (non-smoker) Policy term 20 years

25-year-old male (non-smoker) Policy term 30 years 1 crore

10 lakh

25 lakh

50 lakh

1 crore

10 lakh

25 lakh

50 lakh

Term insurance buying guide

1 crore Term insurance is a must-have if you have

Aegon Religare iTerm Plan Aegon Religare Level Term Plan Aviva Life Shield Plus Bajaj Allianz New Risk Care II Bharti AXA Life Elite Secure Bharti AXA Life Secure Confident Birla Sunlife Term Plan Birla Sunlife High Net Worth Term Canara HSBC Pure Term Plan Future Generali Smart Life HDFC Std Life Term Assurance Plan ICICI Prudential iProtect IDBI Federal Termsurance IndiaFirst Life Plan ING Term Life Kotak Term Plan Kotak Preferred Term Plan Kotak e-Term Plan Kotak e-Preferred Term Plan Life Insurance Corporation Anmol Jeevan Life Insurance Corporation Amulya Jeevan MNYL Platinum Protect Metlife MetProtect Reliance Term Plan Sahara Kavach SBI Life Smart Shield SBI Life Saral Shield Star Union Dai-ichi Pure Term Assurance Plan Star Union Dai-ichi Premier Protection Plan Tata AIG Life Raksha

NA 9,927 9,872 11,113 NA NA NA 8,700 10,478 NA 11,093 5,570 10,465 8,769 13,267 NA 6,563 NA 5,460 NA 13,050 9,265 5,294 13,934 NA 8,135 NA NA NA NA

NA 19,854 19,192 20,985 NA NA NA 14,400 19,302 NA 19,689 9,706 20,929 17,538 26,535 NA 12,133 NA 9,927 NA 26,100 18,530 9,596 27,317 NA 13,512 NA NA NA NA

2,625 3,044 2,956 3,894 NA 3,849 4,103 NA 4,367 2,625 3,579 2,603 3,626 3,199 3,787 2,655 NA 2,478 NA 4,613 NA NA NA 4,359 5,350 NA 3,775 4,312 NA 3,552

6,011 6,921 7,114 8,493 6,646 NA 8,934 NA 8,437 6,011 8,675 5,212 7,156 6,536 8,617 NA 4,770 NA 4,054 NA 8,500 6,480 4,247 10,071 13,374 5,786 NA NA 9,403 8,879

7,556 13,843 13,953 15,746 12,188 NA 17,538 11,850 15,221 NA 14,196 7,445 14,311 12,685 16,868 NA 8,603 NA 7,197 NA 17,000 12,133 7,280 19,591 26,748 10,761 NA NA 18,806 17,758

14,449 27,685 27,354 30,250 22,832 NA 34,744 20,700 28,788 NA 25,237 13,126 28,623 25,369 33,736 NA 16,269 NA 13,484 NA 34,000 24,266 13,457 38,631 NA 18,765 NA NA 37,612 35,539

4,258 4,986 4,721 6,563 NA 6,155 6,607 NA 5,702 3,883 6,273 4,445 5,772 5,262 5,907 4,647 NA 4,005 NA 7,247 NA NA NA 6,659 NA NA 5,421 7,104 NA 5,780

10,092 11,719 11,526 15,166 10,092 NA 15,194 NA 11,774 9,155 15,409 9,182 12,517 10,865 13,917 NA 7,721 NA 6,453 NA 12,375 12,491 6,811 15,820 NA 8,516 NA NA 15,580 14,449

12,464 23,439 22,777 29,092 18,916 NA 30,057 15,900 21,894 NA 25,306 13,346 25,033 21,233 27,470 NA 14,256 NA 11,747 NA 24,750 24,156 11,912 31,088 NA 15,840 NA NA 31,160 28,899

24,266 46,878 45,002 56,943 35,406 NA 59,783 28,800 42,134 NA 45,101 23,715 50,065 42,466 54,939 NA 27,327 NA 22,336 NA 49,500 48,311 22,170 61,626 NA 28,920 NA NA 62,320 57,797

SA: Sum Assured Policy Term: The number of years for which insurance cover will be available The five lowest premiums in each column have been highlighted Premiums sourced from quotation engines on each individual company website. Premiums are inclusive of service tax except in cases where this information may not have been available at individual websites.

dependents for whom you are the primary income earner. Premiums increase with age; its always

better to go for as high a coverage as you can afford in the early years of your life. Go for the maximum tenure of the policy. It

is difficult to buy insurance cover later in life. Cover yourself till your 'earning years'. Use the nomination feature to ensure your

family is able to make a claim without any legal hitches. Three questions to ask yourself when you buy a term insurance plan: Is the life cover adequate to support your dependents? Does it cover your outstanding debts? Does it provide for any major events such as a child's education or marriage We recommend:

Read the policy terms and conditions carefully Check for policy exclusions You are given a 15-day freelook period within 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

Emerging Markets

GLOBAL INVESTING It was a mixed week for emerging markets, with India and China registering good gains but Hong Kong and Brazil slipping. Despite the rise in the Sensex and Shanghai Composite, the MSCI Emerging Markets Index ended the week in the red. On the other hand, the developed markets rose marginally, largely due to gains in the FTSE and the Nikkei even as the US markets remained flat. The last two weeks of the year are traditionally quiet. The MSCI World Index has lagged emerging markets in the past one year but has outperformed in the short term.

Currency

` value

% change weekly

Dollar Euro Pound Yen Yuan

45.36 60.26 70.18 0.54 6.81

0.29% 0.98% -1.44% 0.39% 0.53%

% change annually

-2.81% -10.39% -7.36% 3.38% -0.87%

Brent Crude Rise in oil prices show no signs of abating

Dec 17 ’09

$91.20

France CAC 40 3,867.35 %

Canada S&P TSX 13,201.46 %

0.26

-0.29

UK FTSE 100 5,871.75 %

1.01

-0.34

Mexico IPC 37,997.34 %

I-year change 16.81% 1-wk change -0.06% Current value 1,115.42

FII Investments Foreign investments continue to drive the markets

63,333 Sensex 17,090.31 Japan Nikkei 225 10,303.83 %

0.90

Argentina MerVal 3,403.08 %

-0.53

Hong Kong Hang Seng 22,714.85 %

-1.93

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

3.23 Brazil Bovespa 67,981.22 %

Sensex 19764.74

Govt Bond Yield

India BSE Sensex 19,864.85 %

0.85

I-year change 9.82% 1-wk change 0.11% Current value 1,257.84

Bars plotted according to one-year change

1.85

0.28

MSCI World Index

MSCI Emerging Markets Index

China Shanghai Composite 2,893.74 %

Germany DAX 6,982.45 %

USA S&P 500 1,243.91 %

0.36 $80.73

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

Meanwhile, crude oil prices are continuing their upward march. February Brent oil futures have crossed $92 a barrel and analysts are bullish on oil in 2011. Oil prices have risen by almost 11% during this year. The only force which could drive oil prices lower is a big jump in the value of the dollar. But that seems unlikely in the near future. In the currency markets, all major currencies except the pound rose against the rupee. The pound fell 1.4% during the week. It has declined 7.4% against the rupee in the past one year.

Exchange Rate Pound dips against rupee, euro rebounds

The Economic Times Wealth, December 20, 2010

UK 3.55 Australia All Ordinaries 4,853.00 %

0.48

Dec 17 ’10 All data on this page as on 17 December 2010

USA 3.33

Japan 1.17

France 3.38

Australia 5.44

India 7.97

Germany 3.02 China 3.72

Greece 11.71

Smart Stats

The Economic Times Wealth, December 20, 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

10,824.32 10,824.32 10,797.82 10,771.36 10,771.36

8.75 8.50 8.30 8.30 8.30

11,890.01 11,831.96 11,785.69 11,785.69 11,785.69

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

8.75 8.50 8.50 8.30 8.30

12,965.02 12,870.19 12,870.19 12,794.78 12,794.78

8.75 8.50 8.50 8.50 8.30

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

Top five senior citizen deposits Tenure: 1 year Central Bank of India DBS Bank Dena Bank Bank of Maharashtra Canara Bank Tenure: 2 years + Karur Vysya Bank City Union Bank Bank of Maharashtra Bank of India Canara Bank Tenure: 3 years City Union Bank Karur Vysya Bank Bank of Maharashtra Bank of India Canara Bank Tenure: 5 years Central Bank of India City Union Bank Karur Vysya Bank Syndicate Bank Bank of Maharashtra

Interest rate (%) compounded qtrly

What `10,000 will grow to

8.50 8.00 8.00 7.75 7.75

10,877.48 10,824.32 10,824.32 10,797.82 10,797.82

9.25 9.00 8.80 8.75 8.75

12,006.86 11,948.31 11,901.65 11,890.01 11,890.01

9.00 9.00 8.80 8.75 8.75

ICICI Bank

9.00 9.00 9.00 9.00 8.80

15,605.09 15,605.09 15,605.09 15,605.09 15,453.18

Interest rate (%)

SBI

14-18

Axis

14-21

HDFC Bank

15.5-22

StanChartered

15.5-22

SBI

16-20 14

* Monthly reducing

ICICI

9.5-13 9.75-10.25

Bank of India Bank of Baroda

9.75-10.25* 6

Min Loan: `50,000; Max Loan: `2,00,000 Margin Money: 15%

Interest Rate (%)

Interest Rate (%) 8.75 8.75 9.00 9.00 9.20

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

9.00 9.25 9.35 9.50 9.50

11.50%

12%

11.75%

11.25%

11%

United Bank of India

Punjab National Bank

Syndicate Bank

State Bank of Bikaner and Jaipur

Corporation Bank

* Daily reducing

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

Postal Deposits Interest (%)

Minimum Invt. (`)

Public Provident Fund

8.00a 8.00b

Kisan Vikas Patra

8.41b

100

Monthly Income Scheme

8.00

National Savings Certificate

Time Deposits

Maximum Invt. (`)

Features

Tax Benefits

100

No limit

6-year tenure

Sec. 80C

500

70,000

15-year term; tax-free returns

Sec. 80C

No limit

Money doubles in 8 years, 7 months

None

1,500

Recurring Deposits

6.25-7.50 7.50c

Sr Citizens Saving Scheme

9.00d

Single A/c: 4.5 lakh

6-year tenure; monthly returns;

None

Joint A/c: 9 lakh

5% bonus after 6 years

None

200

No limit

Available for 1, 2, 3, 5 years

Sec. 80C

No limit

5-year tenure

None

1,000

15 lakh

5 year tenure; minimum age 55*

Sec 80C

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

Home loan Base rate (%)

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

As on 16 December 2010 7.60%

8.00%

8.25%

8.50%

8.95%

9.00%

What `10,000 will grow to

8.75 8.50 8.50 8.50 8.30

* Daily reducing

20 YEARS

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

9.25-10.5

Cheapest Education loans

10 YEARS

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

8-9.75*

Axis

Cheapest Home loans

13,060.50 13,060.50 12,984.07 12,965.02 12,965.02

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

INTEREST RATE (%)

INTEREST RATE (%) 8.00 8.00 7.75 7.50 7.50

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

Tenure: 5 years City Union Bank Central Bank of India Karnataka Bank Tamilnad Mercantile Bank Bank of Maharashtra

Cheapest Auto loans

Cheapest Personal loans

LOAN AMOUNT: `5 LAKH

Tenure: 1 year Central Bank of India DBS Bank ING Vysya Bank Dena Bank Punjab National Bank

Interest rate (%) compounded qtrly

LOAN AMOUNT: `2 LAKH

Top five FDs

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

BANK

State Bank of India

Bank Of Punjab

State Bank of Mysore

Corporation Bank

Bank Of Maharashtra

United Bank of India

Canara Bank

Dena Bank

Punjab National Bank

Bank Of India

Most banks have revised their base rate upwards. Some rates are effective immediately but some come into effect from 1 Jan 2011

Your EMI for a Loan of `1 lakh @ 12% @ 10% @ 8% @ 5%

Tenure

2,224

1,435

1,200

1,101

1,053

2,125 2,028

1,322 1,213

1,075 956

965 836

909 772

1,887

1,061

791

660

585

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

All data sourced from Economic Times Intelligence Group (ETIG)

Smart Stats

The Economic Times Wealth, December 20, 2010

REAL ESTATE 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 once in four weeks. CONSTRUCTION INFLATION

Bangalore APARTMENTS Locality

Rental Value ( `/month)

Kochi

Bangalore Chennai

APARTMENTS

Capital Value

Premium

Affordable

Premium

Affordable

Premium

9,000

27,000

2,200

8,000

1,300

20,800

HRBR Layout

13,000

16,000

3,200

3,800

4,500

6,500

RT Nagar

11,000

12,500

3,200

4,000

4,300

8,500

East

13,000

27,000

2,500

9,000

1,800

15,800

Ulsoor

16,000

21,000

4,800

6,700

12,700

15,800

Koramangala

17,000

27,000

4,800

9,000

8,000

12,700

Locality 15

NEXT WEEK: WEST ZONE Mumbai, Pune, Ahmedabad and Nagpur

Hyderabad

PLOTS (`/sq yard)

Capital Value ( `/sq ft)

Affordable

North

Hyderabad

North Construction machinery

Ameerpet

Rental Value ( `/month)

PLOTS (`/sq yard)

Capital Value (`/sq ft)

Capital Value

Affordable

Premium

Affordable

Premium

Affordable

5,500

21,000

2,100

4,900

12,500

Premium

61,000

12,500

21,000

3,600

4,900

36,000

45,500

Hi-Tech City

8,000

13,500

2,100

2,600

50,700

61,000

East

6,500

12,000

2,500

4,400

15,500

46,000

Malkajgiri

6,500

10,000

2,500

3,500

15,500

20,500

Tarnaka

6,500

10,500

3,100

4,000

30,500

40,000

West

11,500

22,000

2,200

9,700

5,500

8,500

Magadi Road

16,500

22,000

3,800

4,400

5,500

7,500

Malleshwaram

13,500

21,500

8,500

9,700

7,300

8,500

Central

17,000

30,000

7,500

21,000

10,500

26,000

Benston Town

17,000

18,500

7,500

16,700

10,500

14,800

MG Road

21,000

23,000

15,500

21,000

20,700

26,000

South

10,500

26,000

2,000

6,200

3,000

12,700

Bannerghatta Road

11,000

13,000

2,200

3,300

3,500

4,000

BTM / MICO layout

15,000

26,000

2,000

5,000

5,500

7,400

West

-5

-10

Toughened glass

Aluminium pipe & tubes

Sponge iron

7,000

26,000

2,900

10,800

40,500

103,000

Banjara Hills

16,000

26,000

5,200

8,200

66,000

103,000

Tolli Chowki

7,000

10,000

3,100

3,600

40,500

45,500

Central

5,500

23,000

1,800

8,400

20,000

60,000

Himayathnagar

15,500

21,000

2,100

3,600

40,000

60,000

Nampally

15,500

18,500

3,500

3,900

40,000

50,000

South

6,500

21,000

2,100

4,000

20,500

61,000

Hyderguda

6,500

9,500

2,300

4,000

20,500

25,500

15,500

21,000

2,100

2,700

41,000

61,000

-15

-20

Nov 09

Nov 10

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

Chennai

Kochi APARTMENTS

Locality

North

Rental Value (`/month)

PLOTS (`/sq yard)

Capital Value ( `/sq ft)

Affordable

Premium

Affordable

Premium

Affordable

Premium

13,500

17,000

5,300

5,800

25,500

29,000

13,500

17,000

5,300

5,800

25,500

29,000

West

13,500

17,000

2,600

10,200

17,300

44,200

Ashok Nagar

10,500

12,500

5,500

6,600

30,000

32,000

Kilpauk

20,000

23,000

7,400

10,200

41,200

44,200

Central

19,000

26,000

5,800

8,800

78,000

103,000

T Nagar

19,000

22,500

5,800

8,000

78,000

103,000

19,000

26,000

7,800

8,800

78,500

92,000

South

8,500

21,000

3,400

15,700

13,500

93,700

Medavakkam

8,500

9,500

3,400

4,200

15,300

22,500

Thiruvanmiyur Others Virugambakkam Pallikaranai

APARTMENTS

Capital Value

Cholaimedu

Nungambakkam

Dilsukh Nagar

10,500

15,000

5,500

7,800

39,300

62,000

8,500

75,000

3,400

26,500

17,300

209,738

13,500

16,000

4,500

5,500

27,000

33,700

8,500

9,500

3,400

3,600

27,000

37,450

10.3%

1.5%

1.1%

0.6% Aluminium

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

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

Rental Value ( `/month)

PLOTS (`/sq yard)

Capital Value (`/sq ft)

Capital Value

Affordable

Premium

Affordable

Premium

Affordable

North

4,500

15,000

1,600

3,500

1,650

15,500

Kakkanad

6,500

15,000

2,200

3,500

4,100

10,300

Glass

Iron

Construction machinery

Locality

Premium

Kadungalloor

5,500

7,000

1,600

2,600

2,100

4,100

East

4,500

10,000

1,600

3,000

2,300

13,400

Choornikkara

4,500

9,000

1,700

3,000

2,300

5,200

Thripunithura

6,000

10,000

2,000

3,000

6,200

13,400 24,800

West

7,500

10,500

2,100

4,000

2,500

Fort Kochi/West

7,500

10,500

2,100

3,000

18,600

21,000

Old Kochi

7,500

10,500

2,100

4,000

2,500

24,800

South

5,500

8,000

2,000

3,000

10,300

16,500

Maradu

5,500

8,000

2,000

3,000

10,300

16,500

City Profile

The Economic Times Wealth, December 20, 2010

Delhi

In the second part of the series that evaluates the real estate market in different cities across India, ET Wealth and Magicbricks take a look at Delhi

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

M U LT I S T O R E Y A PA RT M E N T S 4.0% 3.4%

3.0%

2.8%

2.3% 1.7%

B U I L D E R 1.4%

2.3%

West

North

Central East

GROWTH DRIVERS

2.3%

2.1%

1.5%

Central

F L O O R S

South

East

1.5%

0% 0.9%

West

North

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

1.2%

South

1. Metro Rail

3 months 6 months

Phase-III (which has a deadline of 2015) will add another 65 km and 6 corridors to the network connecting south and east Delhi.

-3.3% -5.1%

2. Road Transport North Delhi

BUYING OPTIONS

AFFORDABLE

(Average property rates in ` per sq ft)

16,000

PREMIUM

Multistorey Apartments Model Town Rohini 3,700 13,000

Central Delhi there is no affordable/premium distinction in the localities of central Delhi

Builder Floors Azadpur 10,500

Multistorey Apartments Jangpura Extn Golf Links 16,500-29,000 34,000-46,000

19 proposed flyovers (out of which eight have been approved) and two road projects to decongest city areas. 900 low-floor buses to be added to the fleet in 2011 will improve road transport. The eastern and western peripheral expressways and improved connectivity to suburbs to increase catchment area of Delhi’s real estate market.

flats have been offered for sale by the government in the biggest-ever housing scheme

Pitampura 37,000

3. Health care & Education Improvement in private health care and education facilities to keep demand for residential property in Delhi high.

HARYANA

Builder Floors Jangpura Extn 18,000-26,500

UTTAR PRADESH

Golf Links 21,000-29,000

4. National Capital Region

East Delhi AFFORDABLE

Multistorey Apartments Shahdara Preet Vihar 3,800 11,000

West Delhi AFFORDABLE

PREMIUM

Multistorey Apartments Narela Karol Bagh 2,600 9,000 Builder Floors Paschim Vihar 5,400

Increasing economic and commercial activity in the suburbs to establish Delhi as a premium residential location.

PREMIUM

Builder Floors Shahdara 3,000

Last week’s profile: Mumbai Next week: Chennai Profiles available at wealth.economictimes.com

Preet Vihar 11,500

Punjabi Bagh 35,000

DELHI

DELHI’S THIRD RING ROAD KUNDLI, SONEPAT GHAZIABAD

Map not to scale NH 1

BAHADURGARH

South Delhi

LOCATIONS IN DEMAND

AFFORDABLE

Dwarka

Builder Floors Malviya Nagar 8,500

Planned development, proximity to airport and availability of property across budgets fuelling demand

Mayur Vihar

Defence Colony 'Non-apartment' premium properties generating demand in the resale market, especially from investors

Proposed Western Peripheral Expressway

DELHI NOIDA NH 8

Defence Colony 33,000

2% 0%

Delhi

Gurgaon

B U I L D E R 2%

Noida

PALWAL

2009

Average % change over previous year during Oct-Dec period

M U LT I S T O R E Y A PA RT M E N T S 1%

NH 2

MANESAR

COMPARISON WITH OTHER CITIES

Eastern Peripheral Expressway

NH 24

HARYANA

PREMIUM

Multistorey Apartments South Ex I & II Defence Colony 8,600 24,000

Proximity to the main business districts in Delhi and Noida as well as improved infrastructure keep demand high

NH 10

Chandigarh

2010

F L O O R S

2% 0%

Delhi

The eastern and western peripheral expressways will decongest Delhi of heavy vehicles and reduce the commuting time from the extended suburbs. This, according to experts, will also help develop counter-magnets which will lead to a balanced growth around the city

Gurgaon

Noida

0% 0% Chandigarh

Wealth Basics

The Economic Times Wealth, December 20, 2010

HOW TO Calculate Your Home Loan EMI

n the past decade or so, we have seen the phrase MRP (maximum retail price) replaced with EMI (equated monthly installment). Whether you have bought a house, a car or even a high-end refrigerator in the past two years or so, chances are that you are paying an EMI.But ever wondered how your lender calculated the EMI amount? Here are two ways to arrive at an EMI. One is a simple three-step guide if you are familiar with Excel (see bottom left). The second is a more detailed explanation for those who understand advanced math. The concept of EMI rests on the time value of money—a rupee that you get today is more valuable than a rupee you receive in the future. This is because the money can be invested to earn interest for you till then. For example, `10,000 received in December 2010 is worth `10,700 in December 2011, assuming a 7% return. On the same principle, assuming an annual interest of 7%, the present value of `100 one year from now is `93.46 (which if invested at 7% per annum interest works out to `100 after a year). Now, in the case of a home loan of say, `10 lakh at 10% per annum interest for 15 years, the borrower is essentially agreeing to repay the loan, along with the interest cost over 180 months. So the EMI is calculated in a way that the present value of the stream of monthly payments over 180 months is

equal to the amount of the home loan. The repayment of the home loan through monthly installments is like an annuity. The methodology of computing is derived through the present value of an annuity. Annuities are of two types—ordinary annuities (when payments are made at the end of every interval, like in loans) and annuities due (when payments are made at the beginning of every interval, as in pensions). Let us assume that the payments are made at the end of every interval. As the loan payment is to be made monthly, the interest rate and tenure need to be in the same frequencies. This means that if the tenure of your loan is 15 years, the tenure for the calculation (n) becomes 180 (15 X 12 months). Similarly, the interest rate needs to be a monthly figure too. Though the bank quotes interest rate (of say, 10%) per annum, the value for the purpose of this calculation is 0.83% (10% divided by 12). Put together, this gives us one major chunk of the calculation. Let’s call it Z. Therefore, EMI can be calculated by using the following formula: Home loan/Z. Using the above values for monthly interest (0.83%) and tenure (180 months) the value of ‘Z’ works out to be 93.06. Therefore, the EMI for the `10 lakh housing loan works out to `10,746 for 15 years. SAMEER BHARDWAJ

A 3-step guide to find your EMI

2 Select a category ‘Financial’ and Select Function as ‘PMT’ and hit OK button

1 On the top menu of the page, go to ‘Insert’ and then to ‘Function’

3 Key in the monthly interest rate (10%/12), tenure (in months) and the amount of home loan as Present Value

Your EMI

If you are neither Excel-savvy nor want to do your calculation, we can make things even simpler for you. Just write to us at feedback@timesgroup.com and we will email you an EMI calculator.

If you really love math, follow this route. Or else, use the simple 3-step guide at bottom left

Tenure in months

Are you a ‘buy and forget’ investor Page 08

Monthly interest rate

Jobs & Income

The Economic Times Wealth, December 20, 2010

EARNING

Your first salary demystified The campus recruitment season is on. Scrutinise your pay package like a veteran to land the best job. GETTYIMAGES

KHYATI DHARAMSI and VIVEK KAUL

he truth is most professionals teach you strategies to employ during a job interview, not after. The result: Unlike experienced hands, first-time job seekers fail to notice ruses companies adopt to make an offer look ‘great.’ Like many others, 23-year-old Ranbir Singh (name changed on request), too, realised his mistake late. He went for the highest costto-company (CTC) package. Singh, then a last-semester MBA student from a Hyderabad-based business school, had no choice but rue his decision. It is that time of the year when corporates actively hunt for talent on campuses. So it is time to be on your guard. You had better scrutinise all offers before accepting the best one. Here are a few things to keep in mind: Retention and performance bonus: If the retention bonus looks good (say 10-15% of the CTC) and will be paid only after two to three years, you need to consider what you could have done with that money. A `2.5 lakh retention bonus coming to you after two years will add more than `10,000 to the monthly CTC. But after two years, the value of that `10,000 will be barely `8,500 (considering 8% inflation). Says E Balaji, CEO of Ma Foi Management Consultants: “It is important to understand that there are deferred payments such as these that cannot be part of your take-home [salary].” As regards performance bonus, don't forget that it doesn't depend on your performance, but that of the company. “There are years when you may not get the performance bonus. But in some years you may get more than 100%,” says Kris Lakshmikanth, managing director at The Headhunters India, an HR consultancy firm. Also, one must remember that all kinds of bonus are taxable. Insurance and medical facilities: Most employers provide health insurance cover to employees and their dependents. Some also provide life insurance free of cost. The premium amounts paid for such insurance by the company on your behalf can be part of your total

salary. Many companies also have in-house facilities offering ‘free’ medical care to employees. A peremployee cost for such facilities may also be included in your CTC package. Your CTC ends up looking fatter. Variable take-home: Depending on the industry and job profile, the variable component varies from 10-15% to 50%. Bargain to keep it as low as possible. Stock options: Companies may offer employee stock option plans (Esops) to new hires. “If shares are allotted or transferred on or after 1 April 2009, it will be taxed as perquisite in employees' hands,” says Sandeep Shanbhag, director, Wonderland Consultants, a tax and financial planning firm. What it means is that the employee will have to pay some tax the moment Esops are allotted, even though you haven’t yet earned a penny from the stock. However, if you are lucky enough, you might end up a dollar millionaire because of Esops. Gratuity: Around 4.16% of the CTC is usually allocated towards

gratuity which is payable after an employee quits an organisation, if he has served for five years or more. Since most people change jobs before that, gratuity largely remains unclaimed. But lately, some companies have started paying out accumulated gratuity even when employees leave before five years, though the entire amount is taxed. Transport: Often, employers provide free transport to their employees (from their place of residence to the job location). The cost of such transportation can be added to your CTC package. The point is it is crucial to know perks that form a part of your CTC.

Some companies have started paying out accumulated gratuity even when employees leave before five years, though the entire amount is taxed

Subsidised meals: Corporates run cafeterias that serve subsidised food. In some companies, such subsidy could be part of your CTC package. Again, choose benefits that suit you. Training costs: A few MNCs in India have excellent training programmes. But they come with a cost which could be part of your total pay.

Where to get the best MF advice page 13

Subsidised loans: Most banking and finance companies offer loans at subsidised interest rates to employees. Some companies, however, include interest on the loan in the total pay package. For example, a company may offer an employee a `12 lakh per annum salary of which `2 lakh will be the ‘interest’ on a `20-lakh loan. If you don't avail of the loan, you gain nothing. So choose your benefits if your employer is ready to offer a ‘flexible’ package. Office space rent: Shocked? There are companies, especially large investment banks, which include office space rent in your CTC package! If you know of this beforehand, you may want to opt for another offer with a lower CTC package (but a higher takehome pay). Remember that you have won only half the battle by impressing your employers with your jobinterview skills. The rest lies in cutting through the clutter of HR jargon to know which job pays the most. Please send your feedback to etwealth@indiatimes.com

Smart Spending

The Economic Times Wealth, December 20, 2010

HOME GYM

Lose weight, save money Installing fitness equipment at home is convenient and often cheaper than the neighbourhood gym

MADHU T and AMIT SHANBAUG

PRICE OPTIONS*

Less than `1 lakh Equipment

Approx cost (in `)

Recumbent cycle

42,000

Multistation

25,000

Exercise bench

9,000

Free weights (chrome plated dumbbells+ bar+ plates)

10,000

TOTAL

86,000

Less than `5 lakh Equipment

Approx cost (in `)

Cardio: Semi-commercial treadmill

2,75,000

Multistation

1,50,000

Exercise bench Free weights (rubberised) TOTAL

20,000 20,000 4,65,000

*Higher price options also exist.

ments every price level. You can establish one for as less as `10,000. A high-end one will cost nearly `10 lakh. The shelf life of home equipment is more than 15 years, says Davar. “Few people handle the equipment, so the wear and tear is less.” Viraf Tavadia, owner of V Fit Fitness Solutions, says he first sends a consultant to know a client’s needs. “Nearly 50% of our clients have a budget less than `15,000. We then assess a client’s house and suggest the best mix of equipment,” he says. Most equipment come with a one-year warranty. Customers can opt for an annual maintenance contract by paying dealers a few thousands. But before thinking of showing off your taut muscles to colleagues, a reality check is in order. If you lack discipline, you are likely to use your treadmill for drying clothes — an indulgence of our protagonist Raj. “You need a trainer so that you are constantly challenged and your interest is kept alive by changing the workout regime,” says Mickey Mehta, a leading holistic health guru. Adds Rajiv Rai of Jerai Fitness, one of India’s largest makers of fitness equipment: “Within a few days, people stop using home gyms due to the non-working-out atmosphere, poor choice of machines, lack of motivation, disturbances from the family and even the absence of a good trainer.” That means you must take a large scoop of motivation daily along with the protein shake to stay focused on your health regime.

Please send your feedback to etwealth@indiatimes.com

GETTYIMAGES

eros look great in the salary slip. But they are a worry when they blink on the weighing machine. Raj (surname withheld on request) learnt it the hard way when his doctor ordered a battery of tests after learning that his patient, complaining of fatigue, weighed 100 kg recently. The doctor advised the busy executive who works up to 14 hours a day to find time to exercise and lose weight or brace for a raft of lifestyle diseases soon. Raj knew the gravity of the situation as he was in the company of a group of men pushing 40 facing the same dilemma. Most were out of shape and they all feared they were willing victims of lifestyle diseases such as hypertension and diabetes. Raj felt completely helpless, as his schedule did not permit him to exercise. “My schedule is completely haywire. I don’t think I can drive to the gym every day,” he says. That’s how he hit upon the idea of setting up a gym at home. “The idea was I would be able to at least walk an hour when I wake up or before hitting the bed,” he says. His resolve was strengthened when he learnt of treadmill warriors in office who toil to keep the flab and diseases away. Fitness gurus say people are increasingly setting up gyms in homes; some enthusiasts even station a treadmill in office to make sure they don’t miss a day. “People have become very particular about working out,” says Leena Mogre, a fitness expert credited with the physique of many celebrities. Celebrities and industrialists apart, the fitness fad has caught on with people of other classes too. A home gym with basic setup such as a bench and free weights is possible with a budget of around around `15,000, says Shahzad Davar, partner of V Fit Fitness Solution, a company that provides fitness solutions. “We also recommend a trainer at least initially, who charges around `5,000 a month,” he says. As for the space factor, a small adjustable bench with weights can fit into a bedroom. The `10,000-15,000 category happens to be the largest and fastest-growing segment. Sure, enrolling in a gym may sometimes be cheaper. For example, membership at a midlevel gym would cost between `14,000 and `18,000 a year. For premium gyms, the cost climbs to up to `50,000 annually. Add to it the cost of a personal trainer, which ranges from `5,000-25,000 a month. Compared to this, a high-end gym could be costlier. Not to mention the space it occupies, crucial in a city like Mumbai. But do you really need a a high-end gym? Fitness experts say a home gym comple-

My First Year

The Economic Times Wealth, December 20, 2010

ENTREPRENEURSHIP

‘What insurance doesn’t cover’ ET Wealth takes you to the early days of successful start-ups. This week’s duo built a business to cover health-care expenses, which insurers don’t. Excerpts from an interview

SHOME BASU

What really is your product? Visham Sikand: We offer a health card for an annual fee that offers card holders free diagnostic tests and free or discounted medical consultations in a network of doctors that we have set up. Only postgraduate doctors with a minimum 10 years of experience are part of this network.

Visham Sikand 32 years (left)

Sunando Sen 34 years Age at which business launched: 30, 32 years Company name:

How did you get the idea? Sikand: The concept was based on a project that I had worked on during my MBA days. I had taken a special approval from my professor and my dean to work on this independent project for six months instead of taking the regular course.

India Health Organisation Start-up money:

Personal savings Break-even in 6 months

Did the idea change before implementation? Sikand: Initially, the card was supposed to be for dentistry alone as the costs involved are huge and insurance companies don’t provide cover for it. Our initial studies, however, suggested that our product might bomb. So we revised the model to offer a comprehensive health card. What was the source of your funds? Sunando Sen: We used our savings as seed capital. Though we were approached by venture capitalists, we didn’t take up their offers as we wanted to be independent. And when did you break even? Sen: Six months after launching the product in 2008, we broke even. Today we’ve clocked profits worth $100,000. Did you pay yourself a salary initially? Sikand: Even today, we don’t take any salary, but the company pays for perks like transport. Sen: I had enough savings and was in a position to go without a salary for a few months. Unless you have strong finances initially, it gets stressful to grow the business. How did the brand name come about? Sikand: I thought of the brand name while crossing the WHO office in Delhi. I told the product guys that I wanted to have Indian Health Organisation as the company name. They said that the government was strict when it came to registering firms with the word “India” in it. We had to have a minimum net worth of `50 lakh. But I thought investing in the name was very critical. When you are calling from Indian Health Organisation, it has a weight as opposed to when you call from ABC Cards.

“We used our

savings as seed capital. Though we were approached by venture capitalists, we didn’t take up their offers as we wanted to be independent

went into... Sikand: Even now, the maximum cost is on product development. That’s where nearly 70% of money is spent. Was there a crisis point? Sen: Oh yes. We heard that a small player in Chennai had started something similar but had failed. We got scared that if someone couldn’t do it in Chennai, how could we crack it in Delhi?

Who was your first client? Sen: Unusual as it may sound, our first client was our former employer RBS (the erstwhile ABN AMRO Bank). RBS believed in what we were doing and we kept sharing with them the development.

What was the biggest mistake in first year? Sen: We launched our product in cities like Kochi where we had no control. It hit our finances. So now we are entering cities and towns where we have control over operations.

The maximum amount of the seed capital

The best advice you received.

“Networking is important as all our deals came through socialising

Sikand: Health business will take time to give returns, so focus on quality. We did just that and the results are for all to see. One personality trait that came in very handy. Sikand: Networking…socialising...all our deals came this way. A lesson from year one that no management book could teach? Sikand: Be perfect in everything...there is no scope for mistakes if you want to become big. Did you have a Plan B? Sen: Partner a big company and then scale up. Where can one get the card?? Sikand: The card is available at HSBC Bank,

“We had a Plan B if things hadn’t worked out the way we had thought. We would have partnered a bigger company and then scaled up Birla Sun Life Insurance, Aditya Birla Money Mart, Reliance Capital and Unicon Securities, among others. RBS and Spicejet Airlines too offer it to their customers. One can also approach IHO directly and pay through the website. And the costs? Sen: Annual charges range from `1,545 for an individual to `2,648 for a family of four. This is for the basic plan, which includes free first consultation and discounts on further consultation and health checkups. Priority plans are bit more expensive. (As told to Khyati Dharamsi)

Please send your feedback to etwealth@indiatimes.com

Your Feedback

The Economic Times Wealth, December 20, 2010

Investing and much more Insightful information The article ‘Six tips to make most of your PPF’ was an informative and precise article. It had a lot of useful tips written in a layman’s language and is sure to attract a lot of people to invest in PPF. Thank you for demystifying the jargon. N Chhajed, New York

DECEMBER

13 2010 Please send your feedback to etwealth@indiatimes.com

You can also write to us at Times House, 7, Bahadur Shah Zafar Marg, New Delhi-110002

Thank you very much for bringing out ET Wealth. The article on PPF was fantastic and I immediately opened an account. The overall content was very helpful and written in simple language. I hope you start a ‘beginners’ section on markets; explaining complex market terminologies will be very beneficial. PR Deepak, Mumbai

ET Wealth is a perfect guide for people who are looking to invest in the market, but

do not have the required knowledge.

ET Wealth is a great product. It will help increase the financial knowledge of the general public. I am really impressed with the overall content of the website. The timing of the product is perfect, with more and more people looking at investment opportunities.

Kudos to seniors I found the article on senior citizens, ‘Three dividends a day’ very inspiring and I would like to congratulate Harubhai Sanghavi for his efforts. I look forward to more articles about senior citizens who have made successful careers post retirement.

S Nambiar

–R Carvalho

A Shukla, Delhi

Perfect timing The idea of ET Wealth has been rightly timed; there is a growing number of people ready to invest in the market. The weekly helps all with a little income to create wealth with the right guidance. Another plus point is the use of simple language spiced with ‘Test your MQ’ and ‘Financial wizard.’ M Harle

I have been reading ET for the past 8 years and have seen the structure change many times. ET Wealth is very useful and instructive across various sections. Keep up the good work. V Dhamerla

The story ‘Golden period of investing’ was an extensively researched and nicely written article. I also liked the Top 100 stocks and other data pages. Keep up

ET Wealth is a great source of information, particularly for retail or individual investors. It was loaded with information and will act as great resource for someone who wants good returns from their investments. SV Das

the good work. P Chube

to more such informative articles. M Krishnan

ET Wealth is a real value addition for ET readers. I was highly impressed by the comprehensive coverage of all personal finance issues. The article ‘How long will gold shine?’ made for an interesting read and I expect this detailed coverage of commodities to continue for long. All the best. Babu K A The article ‘Is your Net plan really unlimited’ was an eye-opener. Thank you for explaining the fair usage policy. I have faced similar connectivity problems with my unlimited connection, but never understood the reasons. I look forward

The article on unlimited broadband was very helpful. I hope TRAI takes steps to ensure that customers are not taken for a ride by broadband firms. Anish Shah

Corrigendum In the last issue, on page 34, the sub-heads ‘Leaders and Laggards’ were inadvertently swapped. On a page 36 graphic, the rental income mentioned was `36,000. The correct figure was `3,00,000. The errors are regretted. Note: The letters have been edited for grammatical errors and better reading

Senior Citizens

The Economic Times Wealth, December 20, 2010

Stocks to fund a dream home A chance introduction to a company’s annual report 40 years ago sparked a lifelong passion for stocks in Pradip Bhuta. The cashier-turned-sub-broker has lined his nest egg with equities BHARAT CHANDA

KHYATI DHARAMSI

Pradip Bhuta | 62 | Retired cashier & occasional stock investor

I used to stand in for a friend for an hour from 5.30 am, then rush to my office and work on my sub-broking business in the evening ... If you wish to buy a house in Mumbai, equity is the only way.”

Wines can add sparkle to your portfolio Page 20

radip Bhuta has turned the classic asset allocation theory on its head. While most financial planners would advise a move away from equities as one grows older, 62-year-old Bhuta does the polar opposite. And he has had no cause for regret. Bhuta’s dream is to buy a house using the investments built over decades. “If you wish to buy a house in Mumbai , equity is the only way,” says Bhuta. Back in the 1970s, Bhuta was introduced to company annual reports and balance sheets at a neighbour's house. What started as a curiosity turned into a lifelong passion for tracking companies. “These reports were my primers in investing,” he says. “They were a house of information for me. I would read the balance sheets, know about their plans, whether any new company would be floated soon. This way I started analysing companies.” Over a period, Bhuta put to use the knowledge he gained. Working in the cash department in the erstwhile Bombay Suburban Electric Supply (now Reliance Infrastructure), he earned an additional `13 a day as incentive for doing extra work. This money was used to buy shares. “The first stock I bought was SRF Ltd in 1972. I still hold the stock and get `14 worth of dividend per year on a stock of face value `10 a share,” he says. He still holds physical shares of around 100 companies. (Demat of shares in India kick-started only in the mid-1990s.) Bhuta recalls some of his best investments — `16 lakh made over a long period by investing about `3,000 in Tata Iron & Steel. He is also fond of the Supreme Industries stock. He bought it nearly 40 years ago. “Every two years I used to get bonus shares and a dividend of `18 on a share of face value `10. I always look for stocks that give good dividends,” he says. Once he even borrowed money at an interest rate of 3% a month to invest in Punjab Tractors (now a part of Mahindra & Mahindra). He earned a whopping 265% returns on that investment. In 1974, Bhuta entered broking and began advising colleagues and relatives in investment matters. After finishing his day job, he would

go and meet his clients. Even early mornings were busy. Bhuta stood in for a friend and earned money, which too ultimately found its way to equity. “I used to stand in for a friend for an hour from 5.30 in the morning and then rush to my office and work on my sub-broking business in the evening,” he says. Over the past four decades, not only has he reaped the benefits of investing in equity, but also helped his clients. “I had subscribed to the rights issue of Gammon India and got shares at `6 each. While I sold mine at `120, I advised a client to hold on for a little longer. He sold when the price touched `197.5 with an additional dividend of `2.5,” he recalls.

BHUTA’S BEST

`3,000 invested in Tata Steel yielded `16 lakh after long-term holding

265% returns on stocks of Punjab Tractors he bought on borrowed money

Gammon India shares bought at `6, sold for `120

His general manager wanted to invest `2,000 in 10-12 stocks for his daughters’ marriage. According to Bhuta, his officer was richer by `60,000 from only two scrips. Post-retirement, Bhuta’s mornings are spent at a local library and meeting investors. “I am not too keen on earning commissions any more.” Today, Bhuta lives in familyowned premises in Vile Parle. “I am hunting for a place in the same area. I don’t want to leave the place where I have lived for the past 51 years.” “I found the place when I was working , but didn’t have the money then. Now I have the money, but can’t find a place in the area that I am looking for,” he adds. With money judiciously invested across sectors and dividends flowing in, Bhuta doesn’t have to worry about meeting expenses. His dream house is what he is now looking forward to. Please send your feedback to etwealth@indiatimes.com

Last Word The Economic Times Wealth, December 20, 2010

Financial Wizard

Test your MQ

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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 have appeared 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.

1 Silver has given higher returns than gold in 2010.

Y/N

2 You can combine your investments in different mutual fund houses under a common folio.

Y/N

3 A health insurance company cannot deny a claim if the premium has been paid

Y/N

4 Loss due to unauthorised use of credit card for online and ATM transactions is covered by insurance.

Y/N

5 Fixed maturity plans are more liquid than fixed deposits.

Y/N

6 From 1 January 2011, all investments in mutual funds will have to comply with know-your-customer (KYC) norms.

Y/N

7 EPF is taxable if withdrawn after three years of joining.

Y/N

`5,000 and will be crowned the ET Wealth Financial Wizard of the week. Give yourself one point for every correct answer >> 8-10: You are a smart investor and know the tricks. Try fine-tuning your portfolio. >> 4-7: Well, your FP quotient is average. You know the basics but you have a lot to learn.

9 A good way to get a discount on a term insurance plan is to not reveal the fact that you are a tobacco user.

Y/N Y/N

Answers: 1 Yes. 2 No. 3 No. 4 No. 5 Yes. 6 Yes. 7 Yes. 8 No. 9 No. 10 No.

Y/N

10 It’s good to opt for a large deferred bonus payment in your salary structure because it is a compulsory saving.

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

>> 0-3: You have a lot of catching up to do. Remember it’s never too late.

8 A Ulip that invests in equities is no different from a mutual fund.

Last week’s winner SUDHIR GUPTA, Padmaraonagar, Secunderabad-25 Solutions from the following people were also useful:

V Vardarajan, T. Nagar, Chennai Niyati Jathal, Malviya Nagar, New Delhi

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