THE ECONOMIC TIMES
wealth
www.wealth.economictimes.com | Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, New Delhi, Pune | December 27, 2010 | 48 pages | ` 5
Sensex 20,073.66
US (Dow Jones) 11,573.49
Gold `20,363 per 10 g
Silver `44,455 per kg
Currency `45.12 per $
● Weekly +1.05% ● Yearly +15.63%
● Weekly +0.65% ● Yearly +10.58%
● Weekly -0.06% ● Yearly +21.46%
● Weekly +0.46% ● Yearly +63.08%
Markets ended the week on a high note. Traders expect a year-end rally.
US markets moved up during the week but there was no Santa Claus rally.
Gold prices remained unchanged even as marriage season was in full swing.
Silver shot up smartly. It has been the biggest wealth creator of 2010.
● Weekly -0.51% ● Yearly -3.27% The dollar declined steeply against the rupee. It has slipped over 3% in 2010.
DOES YOUR
Financial resolutions for 2011 PAGE 24
INSIDE INVESTING Five mid-cap gems for 2011 PAGE 8
A Google in your portfolio
WIFE
PAGE 10
Pick of the week: StanChart PAGE 12
Should you invest in ELSS funds? PAGE 14
KNOW?
Fund manager’s wisdom PAGE 16
Numerology in FDs PAGE 21 Investing in spouse’s name PAGE 29
Not keeping your partner in the picture about your finances can be disastrous
Mystery shopping PAGE 28
How to buy a house abroad PAGE 18
EARNING & SPENDING Buying a house in America PAGE 20
Better job role or higher salary PAGE 42
Virtual office to help cut costs PAGE 45
Sound of money PAGE 47
INTERACTIVE Q&A PAGE 30
Turn the page to know how secrecy can endanger your family’s financial future
PHOTO: SHOME BASU
Test your MQ PAGE 47 Be a Financial Wizard and win `5,000 PAGE 47 The Economic Times Wealth is India’s only personal finance paper exclusively devoted to multiplying your wealth, week after week – for years to come. The Economic Times Wealth is available at an invitation price of `5/issue. To book your copy*, contact your newspaper vendor or call 011 - 39898090; Email: crm.delhi@timesgroup.com; SMS ETWS to 58888 *Available in city and NCR areas only
02
Family Finances
The Economic Times Wealth, December 27, 2010
KEEPING YOUR PARTNER IN THE DARK ABOUT YOUR FINANCIAL AFFAIRS CAN HAVE DISASTROUS CONSEQUENCES MADHU T WITH AMIT SHANBAUG & KHYATI DHARAMSI
D How to cut tax by investing in spouse’s name page 29
uring her lifetime, Lakshmi Vaidyanathan was a methodical saver. She salted away money in a wide range of saving avenues for her only child, picking up life insurance policies, starting fixed deposits and opening banks accounts. But she was not so methodical when it came to keeping records. When the retired bank employee suddenly passed away just before her 62nd birthday in 2009, her 23-year-old daughter had no idea of when, where and what her mother had invested in. Or how she could get that money. Nothing can be more emotionally traumatic than the loss of a dear one. It can have some financial repercussions if that person had handled most of the household investments. But it can be a financially crippling if she never told anybody about them nor left records. Vaidyanathan’s brother had to run around for months to piece together the financial jigsaw that his sister’s death had left him with. “People are disorganised about their finances because they never think something will happen to them,” says a close relative of the deceased. Thankfully for the bereaved family, the housing society where the Vaidyanathans lived helped to
transfer the apartment in the daughter’s name. And the staff of the bank where she had worked was also very helpful. But just when the family thought that everything had been settled, the members got a call two months ago from a Tata Motors outlet informing them about the Nano that Vaidyanathan had booked. Though her brother has got the booking cancelled and the booking amount has been refunded, the family is not sure whether there are still some financial transactions and investments they know nothing about. “This is a common problem,” says Mumbai-based veteran insurance adviser and financial planner SK Jain. He tells of a family that never knew about the life insurance policies bought by a person till the agent turned up for the renewal premium months after the policyholder had died. Lack of information and lack of interest in financial matters have been the two biggest reasons behind poor investment decisions. Now lack of communication is emerging as another key cause. Most people do not communicate their financial decisions to family members because of oversight or procrastination. Strangely, individualism too is creeping into personal finance these days and couples are steadfastly refusing to share financial information with each other.
3lakh
rupees is the deduction on home loan interest that a couple can claim in a year if they go in for a joint home loan. For individuals, the limit is `1.5 lakh a year.
Cover Story
The Economic Times Wealth, December 27, 2010
03
NITIN SONAWANE
finances into consideration,” he says. “However, if there is a crisis, the partner can certainly pool in.” This monetary segregation has worked perfectly for these two couples till now, but financial experts frown on the arrangement. They believe that the notions of individualism and financial independence could defeat the very purpose of holistic financial planning. “It is absolutely necessary to get both the husband and wife on board before we start making a plan. Otherwise the whole exercise of financial planning won’t go very far. Only if they work together can the financial goals be achieved,” says Amar Pandit, a Mumbai-based financial planner. Besides, as Yesha herself says, “When both spouses are earning well, one tends to spend more with an understanding that the other would be a backup in case of a contingency”. That works well if both spouses are on the same financial page. If both go on a splurging spree thinking that the other is saving, it can be disastrous. Adds Pandit:“It is bound to happen. When one doesn’t know what the other is doing with the money, there could be
Bosky Christopher and husband Alby Babu, Navi Mumbai Married for four years now, they don’t know about each other’s investments and think that this is necessary for their financial independence. The couple have also divided expenses among themselves. While Alby pays the home loan and maintenance bills, Bosky pays the household bills and their child’s school fees. But financial independence could be at the expense of future financial security, say experts.
Since you have no clue where or how much your partner has invested, you don’t take the partner’s finances into consideration.” ALBY BABU The husband and wife may be living in perfect harmony and may be sharing the same toothbrush. But when it comes to their salary details, the annual bonus or their credit card limits, they are not letting their partners take a peek. Mumbai-based Sagar Tanna, 27, and his wife Yesha, 26, don’t feel the need to share their financial details with each other as they believe in giving the other person space in money matters. “We don’t even bother how much the other is earning,” says Yesha. Her husband agrees, saying that it gives the partner a sense of independence. “We have divided expenses between us. When my wife wanted to buy an air conditioner, she bought one with her money and now pays its month-
ly bills and maintenance,” he says. Navi Mumbai-based Bosky Christopher and her husband Alby Babu are another couple who believe ignorance is bliss when it comes to each other’s finances. Married for four years now, Bosky does not know any of her husband’s investment plans. “When he tells me to sign a few documents, I know that he had made me a nominee in some of them,” she says with a smile. A few years ago, Bosky made a huge investment without consulting her husband. “He was initially upset but eventually understood,” she says. Alby too likes to be independent in the way he spends and invests his money. “Since you have no clue what or how much your partner has invested, you don’t take the partners
BASIC INFORMATION THAT NEEDS TO BE SHARED INSURANCE (policy numbers, name of insurer, cover amount, basic features) BANK ACCOUNTS (bank name, account and locker number, Net banking passwords)
MUTUAL FUNDS (name of funds, investments, folios)
papers, details of payments and outstanding loans)
SHARES (broker details, demat account number, investments)
DEPOSITS (bank or company, name, amount and maturity)
PROPERTY (ownership
INFORMAL LOANS to and from family and friends.
IF YOU HAVEN’T . . . ... told your family about your insurance cover However big a life cover a person has, it won’t be of any good if the family is not aware of it. If a change in address is not notified, even the agent may not be able to locate the family to help them avail of the cover. Agents say this often happens. ... informed your partner about expenses and investments You have just started an SIP in a new fund through an ECS mandate from your joint account. Good move, but do tell your partner about it. What if your spouse has issued a cheque to pay a credit card bill. The balance in the account may fall short. Either the SIP gets cancelled or the cheque bounces leaving you with several penalties. ... involved your partner in your financial planning Without knowing about his spouse's finances, one cannot even set goals, leave alone achieve them.
04
Family Finances
The Economic Times Wealth, December 27, 2010
MOHAMMED ASAD
By sharing information, we have learnt from each other. I pick mutual funds and choose insurance policies but she got me to invest in gold and prepay costly loans.” GOWRI SIVAPRASAD
confusion.” (see box If you Haven’t...) Another reason why some couples don’t share financial information is that they have something to hide. “It could be that they have run up a huge debt. Or they are embarrassed about their spending habits,” says Sumeet Vaid, CEO, Freedom Financial Planners. Hiding liabilities from your spouse won’t help matters though. Wouldn’t it be better to share your problems with the person who is best positioned to help you deal with them. Besides, if she finds out from a third source—a call from your lender or a loan statement— the repercussions can be far bitter. “If the person is not ready to make a commitment to his spouse, it would be difficult to meet their common goals they would have. For example, they would be planning for the child’s education,” says Gaurav Mashruwala, a certified financial planner (CFP). So, how much should the couples share?
“Absolutely everything. Their investments, liabilities…. everything. If they don’t know the entire plan and work together towards it, the whole purpose will be defeated,” says Mashruwala. That’s why Delhi-based Sushil Sachdeva, 45, takes pains to regularly update the file on records of investments by him and his wife. His wife Poonam, 41, is a school teacher and not very investment savvy. “That’s all the more reason why I should maintain records of our investments,” he says. “You need to be prepared for the worst-case scenario.” Every time this government employee buys a mutual fund, an entry is made in the file. Details of his three insurance policies—the amount of life cover, tenure, premium and policy numbers—are clearly mentioned. Also mentioned are all details of fixed deposits, bonds, PPF deposits, bank and demat accounts and the share trading account. Bangalore-based software professional
Gowri Sivaprasad and wife Sreevidya, Bangalore The couple is completely aware of each other’s financial position and regularly discuss investments, loans, expenses and budgeting. Sivaprasad has put all relevant financial details in a Google spreadsheet which he has shared with his wife. Such harmony in finances will help them spend better, yet invest more.
When 1 + 1 = 3 By putting their financial forces together, a couple can save more, yet spend better; can afford much higher insurance, yet create more wealth SHE
HE
THEY
Income (`)
50,000
90,000
1,40,000
Expenses (`) Groceries
31,000 8,000
28,000 4,000
50,000 (Saved `9,000) 10,000 (Saved `2,000)
Utilities Home care Transport and communication Entertainment
— 5,000 5,000 5,000
8,000 — 5,000 5,000
8,000 5,000 10,000 7,000 (Saved `3,000)
Education of kids Miscellaneous
5,000 3,000
— 6,000
5,000 5,000 (Saved `4,000)
EMIs (`) House loan# Personal loan*
— 5,000
45,000 —
22,500 x 2 Nil
Investible surplus (`)
19,000
17,000
45,000
Investments (`) SIPs
9,000
11,000
25,000
For second house
For kids’ studies
For kids’ education/retirement
5,000
5,000
10,000
For kids’ education
For world tour
For second house
Nil
Nil
Ulip Fixed deposits/debt funds/NSC
5,000
For the cheapest family floater plans, turn to page 36
Streamlined budgeting
Tax efficiency: Rebate of `3 lakh used instead of just `1.5 lakh Debt management: Money from combined surplus of 2 months Higher investible surplus and flexibility in cash flow
For debt cushion/short-term goals
Cash
5,000
1,000
5,000 For emergency**
PF Insurance cover (`)
3 lakh
5 lakh
For retirement
For retirement
No change
2 lakh
1.5 lakh
50 lakh ^^ Through term plan
**Best to salt away three months salary as emergency fund # For a home loan of about `35 lakh for 10 years at 10% interest
^^More adequate life cover
* For a personal loan of `1 lakh
No conflict of goals Balanced asset allocation Higher protection
Gowri Sivaprasad and his wife Sreevidya are also on the same wavelength when it comes to their household finances. They regularly discuss investments, loans, expenses and budgeting. The tech-savvy Sivaprasad has even put all information regarding salary, loans, credit card balances, investments and insurance details on a Google spreadsheet that he has shared with his wife. This consolidation of the financial portfolio helps the two spouses complement each other’s investments. There are more gains for couples who think as one. By consolidating their portfolios, they can do away with duplication and sub-optimal utilisation of the investible surplus. As the table on the left shows, the husband and wife gain substantially when they combine their financial forces. They get higher rebate on a home loan, are able to manage their debt better, buy a bigger life cover for themselves and have a larger investible surplus. Involving your spouse in investment decisions helps reduce the stress. There is someone to share the blame if something goes wrong. Besides, women tend to be more careful with money. “I am passionate about personal finance so I take decisions on choosing mutual funds. But it was my wife who got us to invest in gold 10 years ago when it was $275 an ounce and coaxed me to prepay a car loan with the cash idling in my bank account,” says Sivaprasad. Clearly, moving in tandem helped the couple improve their decisionmaking and earned them higher profits.
Please send your feedback to etwealth@indiatimes.com
06
Last Week
The Economic Times Wealth, December 27, 2010
1-week change %
Weekly wealth monitor
1-year change%
21.46
STOCKS 15.63
15.71
13.23 7.94 7.83
Kiri Dyes & Chemicals Ltd MVL Ltd BF Utilities Ltd
4.69 0.36
0.58
The top three
0.09
-0.06
Price ( `)
Weekly % change
442.6 24.25 844.3
31.98 27.30 20.58
Balanced funds
Equity funds
Gold
Income funds
Sensex
Argentina Merval FTSE 100 Brazil Bovespa
Wealth doesn’t get built—or destroyed—in a week. But you do need to know broadly how your investments in different asset classes are doing. This monitor tells you exactly that. The 10-year government bond yield is the average yield in the respective periods.
NAV ( `)
Weekly % change
IDFC SSI Inv Plan C Canara Robeco Income ICICI Pru Medium Term- Div
10.68 20.29 10.08
0.25 0.24 0.18
EQUITY FUNDS
NAV ( `)
Weekly % change
Tata Equity Management HSBC Progressive Themes JM Large Cap
15.42 13.59 20.67
1.61 1.30 1.26
1.05 Weekly % change
WORLD INDICES 10-yr GoI bond yield
DEBT FUNDS
Data as on 24 December
3,476.42 6,008.92 68,485.96
4.19 2.34 1.75
* Figures as of 24 December. Stocks are BSE 500 stocks. Debt funds are income funds.
Source: Bloomberg
bulletin board
top news Cartel watchdog probes airfares Anti-trust watchdog Competition Commission of India (CCI) has sought data from the civil aviation ministry to probe whether airlines have formed a cartel to increase fares. The aviation regulator Directorate General of Civil Aviation (DGCA) said some information was already furnished to the commission. The working group will submit the report on 30 December. DGCA had asked airlines on 19 November to furnish a copy of route-wise tariffs across their networks in various categories in the way they are sold. The regulator also asked the companies to report any significant and noticeable change in the established tariff within 24 hours of effecting the change and maintain all records pertaining to established tariffs.
SAVINGS
Rate cushion for small investors Small investors may continue to enjoy fixed returns on their public provident fund and post office deposits with a government panel in charge of recasting small savings schemes favouring minimum returns on their funds. The panel was set up after a suggestion by the Thirteenth Finance Commission, which had called for a revamp of the national small savings fund (NSSF) and suggested a shift to market-linked returns. The panel may now suggest only partial freeing of interest rates on such schemes to ensure that small investors are provided a certain minimum return.
BANKING
Open a bank account with Aadhaar Next time you want to open a new bank account, an ‘Aadhaar’ number is all you need. A recent notification issued by the finance ministry has recognised Aadhaar number issued by the Unique Identification Authority of India (UIDAI) as an “officially valid document” to satisfy the Know Your Customer norms for opening bank accounts. This notification is expected to promote financial inclusion of the poor by making it possible for them to open bank accounts. The UIDAI is facilitating opening of bank accounts for residents at the time of enrollment for Aadhaar through partner banks and acceptance of Aadhaar as a valid KYC will make the process seamless.
RBI acts tough on home loans Concerned over the excessive flow of banking funds to the real estate sector, the Reserve Bank of India said lenders will provide loans only up to 80% of the cost of property. Following the RBI directive, a home buyer will necessarily have to arrange at least 20% of the property value on his own before seeking a bank loan. However, in the case of small value housing loans up to `20 lakh, banks can provide loans up to 90% of the property value. While the rising food inflation could trigger an interest rate hike, this move bodes well for investors.
PROVIDENT FUND
Finmin nudges EPF funds to stocks The finance ministry has again written to the labour ministry asking it to invest a part of the `5 lakh crore corpus of the Employees’ Provident Fund (EPF) savings in stock markets. In a recent letter, North Block has categorically ruled out providing any guarantee on returns on such investments, but said safeguards could be built to minimise risks and maximise gains for subscribers.
A pick of corporate filings by companies at stock exchanges LIC Housing Finance Ltd fixed 31 December as the record date for a 1:5 stock split of its equity shares.
SVC Resource Ltd fixed 30 December as the record date for a 1:2 stock split of its equity shares.
Gail (India) Ltd approved an interim dividend of `2 per equity share for FY 2010-11.
IDFC allotted 3.82 lakh fully paid up equity shares of `10 each to the employees under the Employee Stock Option Scheme.
India Infoline Limited approved buy-back of shares subject to a maximum price of `99 per share and a maximum outlay of `104 crore. JSW Steel acquired a controlling stake in Ispat Industries. Karur Vysya Bank Ltd hiked its base rate (to 9.5%) and benchmark prime lending rate (to 14.5%) by 50 basis points, effective 24 December 2010. State Bank Of Mysore raised the base rate by 25 basis points from to 8.25% per annum, effective 22 December 2010.
Aurum Soft Systems Ltd announced a 1:5 stock split of its equity shares, and issued bonus shares in the ratio of 1:2. KNR Constructions Ltd established a wholly owned unit in the UAE under the name KNRCL FZE. Valecha Engineering Ltd allotted 2.19 lakh equity shares of `10 each on conversion of 2.19 lakh warrants which have been fully paid up. Rasoya Proteins Ltd formed a subsidiary company under the name RPL International Trade FZE in Sharjah.
insider track
wealthwise
A list of companies in which shares were bought or sold by insiders BUY
SELL
5.25 lakh shares in Jindal South West Holdings at an average price of `1,362.
21 lakh shares in ABG Shipyard Ltd at an average price of `389.
4,3.71 lakh shares in Sujana Towers at an average price of `133.
5,500 shares in Oracle Financial Services at an average price of `2,256.
1.88 lakh shares in Gitanjali Gems Ltd at an average price of `211.
10,000 shares in Coromandel International at an average price of `320.
3.08 lakh shares in REI Agro Ltd at an average price of `25.
8,282 shares in Dabur India Ltd at an average price of `100. WWW.CARTOONSTOCK.COM
quote of the week
We have capacity to absorb these levels [$38 billion] of capital inflows…if it goes beyond a point, it's a matter of concern... I am not pressing the panic button right now.”
PRANAB MUKHERJEE FINANCE MINISTER AT THE ANNUAL GENERAL MEETING OF PHD CHAMBER OF COMMERCE AND INDUSTRY
This Week
The Economic Times Wealth, December 27, 2010
Market Outlook: MAJORITY EXPECTS MARKETS TO RISE
Up by more than 2%:
Up by 2%:
At the same level:
0%
48% 31%
Hits & duds
Which segment will lead the rally?
Which way will markets move?
Down by 2%:
Down by more than 2%:
21%
0%
An ET Wealth-Synovate poll of market experts on what to look forward to in the week ahead
Top 3 sectors (in %) IT and Telecom . . . . . . .62 Banking & Finance . . . .52 Pharmaceuticals . . . . .40
67% 31%
2%
Large caps
Small caps
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.
short take
Worst 3 sectors Real Estate . . . . . . . . . . .62 Petroleum . . . . . . . . . . . .33 Manufacturing . . . . . . . .25
Figures may not add up to 100 because of multiple responses
Investors should not be forced into stock market NARENDRA NATHAN
■
The Indian hospitality industry may see a renewed battle in the days ahead after market regulator Sebi approved the rights issue of the Oberois-promoted EIH. The Mukesh Ambani-led RIL had helped EIH thwart a possible hostile bid from ITC in August. `1,300-crore rights issue presents an opportunity to both RIL and ITC to hike their stakes beyond 15%, which according to the takeover norms, will trigger the mandatory open offer. While ITC holds 14.98% in the Oberoi Group firm, RIL has a 14.80% stake and the EIH promoters have 32.31%. The takeover code of Sebi mandates that any entity owning more than 15% in a company has to make a mandatory open offer for at least additional 20% stake. Indian commodity exchanges will begin sugar futures from today, initially launching six contracts, the commodities market regulator said. India had banned trade in
80% 16%
A majority of readers agree with the SEBI proposal under which fund management fees charged by mutual funds will be linked to the performance of a scheme.
4% CAN’T SAY
NO
Product launches
sugar futures in May 2009 for six months when prices were rising. The government again extended ban on the futures till Septemberend. In September it allowed the ban to lapse. The country is expected to produce over 25 million tonnes in the new season that began on 1 October, higher than domestic demand of around 23 million tonnes. ■
YES
SHOULD MUTUAL FUND MANAGEMENT FEES BE LINKED TO SCHEME PERFORMANCE?
Market pulse ■
The tiff between finance and labour ministries about “investing Employees Provident Fund (EPF) corpus in stock market” has sparked once again. The finance ministry has written a fresh letter to the labour ministry asking it to invest a portion of its `5 lakh crore corpus, which belongs to around 4.7 crore workers from the organised sector, in the stock market. History: To generate better returns, finance ministry wants around 15% of the EPF funds to be invested in the stock market. However, the central board of trustees (CBT), the policymaking body of EPFO, had rejected this proposal earlier. Concurring with CBT’s view, labour ministry has written to the finance ministry stating that the corpus can be invested in market provided there is some “guarantee of principal and returns” on such investments. Please note that finance ministry had already turned down this labour ministry’s demand. Should investors be forced? The ongoing tiff raises several questions. The most important among them is can the investors be “forced” into the stock market? Even though we hold the view that the stock market can generate better returns in the long term, we are totally against the practice of forcing anyone into stock market. Individual freedom plays a major role in democracy and the “right” to decide where one’s retirement corpus should be invested needs to be left to the investors themselves. More options: One way to get out of the current tiff is by creating more options for the EPF investors—options that have varied levels of equity components in addition to the current basic option that has no equity component. This way, investors who want equity flavour are not denied the opportunity, while others who are not keen are also not forced into it. Further, this also allows the investors to manage their asset allocations using EPF itself. Investor education: The government also needs to step up investor awareness campaigns and explain them about the pros (higher returns) and cons (higher risk) of investing in stock market. And with the increase in awareness, more investors will eventually opt for options that have equity component. What to do now? These discussions are expected to continue for some more time before any final conclusion is arrived at. This means that EPF investors who do not have any stock market exposure should take alternate routes to tap the tremendous opportunity in the stock market. If they are not able to invest in the market directly, they should do this through investment vehicles like mutual funds. They can also opt for the new pension scheme (NPS) that invests part of its corpus in stock market and thereby, has generated a much higher return of 14.5% last year.
reader poll
07
■ DSP BlackRock Mutual Fund has unveiled a new scheme DSP BlackRock FMP - 12M - series 11, a close-ended income scheme, with a maturity profile of 12 months from the date of allotment. The New Fund Offer price for the scheme is `10 per unit. The new issue will be open for subscription from 27 December and close on 28 December 2010.
Expect oil companies to be in news in the coming days. Oil rallied to its highest price in more than two years on Friday, rising to as much as $94.74 a barrel due to increased demand. This has stoked inflationary worries in many countries, including India. The government, which is already battling high food prices, may have to take a decision next week on whether they should hike state-set fuel prices to cushion domestic oil retailers from the pain of rising crude prices and ease its own subsidy burden.
■ MRC India, the Indian arm of global currency brokerage firm MRC Group has launched a currency trading platform on the National Stock Exchange. The product will focus on retail and corporate segment. The minimum benchmark for trading is `1,500. MRC India also launched the first edition of its educational book 'An introduction to currency markets'. ■ BMW India launched its cheapest Indian offering so far, the BMW X1, at an extremely competitive price starting at `22 lakh (ex-showroom Mumbai). The X1 will be offered in three trims – a basic two-wheel drive car called the Corporate Edition, the two-wheel drive Exclusive and two-wheel drive Cool Elegance. The Corporate Edition will also be offered with a 1.8litre petrol option, producing around 150 bhp and will be called the X1 sDrive 18i.
Resolution of the week I will use energy-efficient appliances Your power consumption goes up during the winter season. If you use power-efficient water heaters and radiators, you can reduce this by almost 10%. If your power bill comes to `2,000 a month during the winter months, you can save up to `200 by switching to these energy efficient brands. If these savings are invested every month in a scheme that earns 15% a year, they can grow to `17,500 in 5 years.
weekly calendar Monday DEC
27
BSE, Taqwaa Advisory and Shariah Investment Solutions to launch the BSE TASIS Shariah 50 index
Tuesday DEC
28
SBI Mutual Fund to launch SBI Debt Fund Series-90 Days37. NFO closes the same day.
Wednesday DEC
29
Government to sell `20 billion 91-day treasury bills and `10 billion 364-day treasury bills.
Thursday DEC
30
Food inflation numbers for the week of 18 December to be released by the government.
Saturday JAN
01
Hyundai, GM, Maruti Suzuki India, Tata Motors, Mahindra & Mahindra, Toyota Kirloskar Motors, Ford India to raise car prices.
08
Guest Column The Economic Times Wealth, December 27, 2010
STOCKS
5
Flavours for 2011 Dipen Sheth picks up five mid-cap ‘gems’ that will add zing to the investor’s portfolio and also give sterling returns in the long term.
A
fter picking five ‘monster’ trades for the next 10 years for the inaugural issue of ET Wealth, I have now been asked to conjure my five best mid-cap bets for 2011. Note the emphasis on conjure, and herein lies the disclaimer. With mid-caps (as opposed to large-caps), the challenge of making money is infinitely more daunting since we usually run higher risks compared to large-caps. The limited horizon of a one-year span makes it further difficult not to lose money, let alone making it handsomely! Still, given December’s sell-off on Dalal Street it might be worth our while to consider some deep-value bets in the mid-cap space with a one-year horizon. Like the lead indices, sentiment is running a little confused, trading volumes are subdued. In short, it's just the time to pick some mid-caps. Deepak Fertilisers Despite sluggish second-quarter results in 2010-11 (FY11), Deepak’s revenue and earnings estimate have been revised upwards for FY11 and FY12, largely due to the timely commissioning of its new 300 kt technical ammonium nitrate plant. This is a difficult-to-make speciality chemical used in making low-cost explosives used mostly for coal and stone mining. The new plant is finally ready to deliver, and is supposed to deliver a payback of under four years. Meanwhile Deepak Fertilisers prices have corrected around 25% in a month, and is now available at around six times FY12 estimated earnings. Jindal SAW With a diversified product profile of submerged arc welded (SAW), ductile iron (DI) and seamless pipes, and an order book of $900 million (0.75 times FY10 sales), Jindal SAW is well placed to benefit from the growing need for pipes from the oil and gas,
and water transport sectors. Iron ore assets in Rajasthan will add to DI pipe margins this year. Jindal SAW’s investments in group companies are 60% of its market cap; no wonder it’s demerging the investments as a separate entity. Meanwhile, Jindal ITF, a subsidiary that has invested in the infrastructure business is likely to generate earnings from FY12. Even after assuming a 50% discount to market price of its investments, Jindal SAW trades for under six times FY12 earnings. Find me a cheaper pipe company. Federal Bank FB is currently undertaking a restructuring exercise and has hired a dynamic new chairman and managing director. It is revamping internal processes to enhance productivity and maintain high credit standards. Post-crisis period, the bank has lagged in credit growth while asset quality has declined. However, it is very high on capital adequacy due to a well-timed rights issue and has scope to grow its loan book without stress. And it is doing precisely this, as India revs up. My rough take indicates, a strong credit growth at 24% over the next year, which will help push up its return on equities (a core monitorable for any bank) back into the mid-teens, even as asset quality stabilises. At a little over 1.1 times estimated FY12 book value, there is nothing to lose here. Shree Renuka Sugars Perhaps the best-positioned Indian company to ride the quick recovery in the world sugar cycle. The current sugar season’s (Oct ’10-Sep ’11) global surplus has been cut due to weather disruptions in Brazil, India, Russia and Thailand. Global sugar prices remain high, while the announcement of sugar exports has improved domestic prices. While Renuka’s large (and leveraged) acquisitions in Brazil are likely to bear fruit (if the higher sugar prices persist, notwithstanding some hedges
Best picks in mid-cap sector Bajaj Electricals Deepak Fertilisers & Petrochem Federal Bank Jindal SAW Shree Renuka Sugars
CMP (`)
52-week high (`)*
Mkt Cap ` crore) (`
233.1 160.6 396.1 180.8 96.1
347.0 212.4 501.0 234.4 123.6
2,303.6 1,416.6 6,770.5 4,992.8 6,449.5
% change from 52week high*
-32.84 -24.39 -20.95 -22.89 -22.25
* Adjusted for corporate actions, split/Bonus. Current market price and market cap as on 23 Dec. Data source: CMIE Prowess.
Given December’s sell-off on Dalal Street it might be worth our while to consider some deep-value bets in the mid-cap space with a one-year horizon
the company had taken), they will do even better in the future. This will result in strong cash flow over the next two years, thus halving the debt-to-equity ratio for Renuka to 1.2 only. It’s trading for under eight times 2011-12 earnings, and looks good for a 4050% gain from its current market price in a year. Provided the high sugar prices remains. Bajaj Electricals This little master of small consumer appliances and lightings is wonderfully positioned to be part of the India consumer story. Bajaj Electricals’ strong nationwide-
distribution network gives it a better reach than competitors in the small appliances and lightings/fittings business. The company’s core strength is design, marketing and distribution while it outsources almost all its appliances via strong and exclusive vendor relations. Bajaj has diversified from a pure lights business into engineering and projects, which will boost growth and help improve the margins to around 11%. The catch is higher working capital needs. But a large order backlog of over Rs 1,100 crore gives good growth visibility. The stock is currently trading at under 12 times estimated FY12 earnings, when I expect it to earn almost 30% on return on equities. This solid stuff has corrected recently along with the rest of the mid-cap space. Undeservedly so, I may add.
The author is vice-president (institutional equities), Edelweiss Securities Please send your feedback to etwealth@indiatimes.com
10
Equity Investment
The Economic Times Wealth, December 27, 2010
STOCK MARKET
GETTY IMAGES
A Google in your portfolio? Geographic diversification has a lot going for it including a hedge against domestic market volatility. Here are some reasons and options to invest in global markets.
NARENDRA NATHAN & VIVEK KAUL
A
re you excited about Baidu, “the emerging Google” from China and want to invest in that stock but don’t know how to go about it? Don’t worry; you can use the liberalised remittance scheme of Reserve Bank of India that allows a resident individual to transfer up to $200,000 a financial year for this. Global investing is worth considering because it offers several benefits with diversification being the most important among them. The best way to reduce volatility in your investment portfolio is to increase the level of diversification and investors who already hold diversified portfolios (i.e. by investing in around 20-30 domestic stocks directly or through mutual funds) should consider the next level of diversification-geographic diversification.
Hedge against volatility: Different stages of economic growth and they have different growth drivers (e.g. it is consumption that is driving growth in the US, while it is the bulging oil prices in West Asia). Due to this, each market will exhibit different trends. Investors can also hedge their Indian market position by investing in sectors or stocks that will benefit from factors that will adversely affect Indian markets. For example, high international crude prices are bad news for the Indian economy. So the best hedging strategy would be to invest in global oil majors like Royal Dutch Shell, Exxon Mobil and Chevron who will directly benefit from the oil price spikes. Domestic market valuation: Analysts may differ over the valuation scale—some may say that it is “slightly over valued”, others may term it “rich valuations”. But the truth is that the Indian market is not cheap. This is obvious if one goes by the historical valuation methods like Sensex trailing P/E. It is not cheap even if one considers the forward P/E and compare it
On Higher Side:
Global PE variations:
The current Sensex trailing PE is not as ‘lucrative’ as it used to be in past 29.39 June 2000
only in securities listed in the US. “We have to other global markets. If other markets are created a gateway for investing in US offering better valuations, why not explore exchanges through an external broker. outside for good value picks? Through the US exchanges one can access Enjoy the free currency yield: Are you scared the entire global market i.e. any country or about the currency risk, especially since the any commodity through exchange-traded dollar-rupee exchange rate can swing widely funds,” says Ashish Kehair, business head, in the coming years? You don’t have to, private wealth management, ICICI Securities. because you can convert these fluctuations to your favour by locking in the forward How to select stocks premium. It is very simple: Assume that you Investors have to follow the time-tested want to invest $100,000 (around `45 lakh) as strategies. These include companies that are the first lot and want to hold these investments growing fast, generate good cash flows using for a year. Compared to the spot dollar price of less capital, and are reasonably valued `45.09, you can sell it at `47.74 in the one-year among others. “Investors need to concenforward market. This transaction will not only trate on companies that have large exposure allow to remove the currency risk, but also to to the global growth centres like emergnet a smart gain of 5.84% (see Forex Premium below). ing markets,” says Jayant R Pai, viceTop 5 midTake help from domestic president, Parag Parikh Financial caps likely to give brokerages: Several brokerages Advisory Services. sterling returns in now help domestic investors park If that be the case, then why buy in the long term their money in global stocks. Howdeveloped markets? The answer is Page 8 ever, most of them help you invest because valuations are cheaper due to
France CAC 40
13.26
26.94 Dec 2007
Markets with lower forward PE could be good picks Brazil Bovespa
13.61
20.17
Korea Kospi
UK FTSE 100
14.66
17.78
June 1996
Forex premium Earn a few extra percentage by making use of forward premium
India Sensex
Euro
18.46 Japan Nikkei 225
20.13 11.88 Nov 2008
10.27 Oct 1998
15.76 Dec 1995 Monthly average of trailing PE of Sensex since Dec ’95
22.80 Dec 2010
US DJIA
14.00
Hongkong Hang Seng
Germany Dax
14.72
China Shanghai Composite
18.54
3.91% US Dollar
5.84% Japanese Yen
6.56% British Pound
5.37% Chinese Yuan
8.28%
14.24 Forward PE ratio of different markets as on 23 December
The Economic Times Wealth, December 27, 2010
11
The Fund Route Performance of open-ended international funds Return 1-Year (%)
% Overseas Investments
Total assets (` Cr)
AIG World Gold
33.14
93.72
210.33
DSPBR World Gold Reg
30.12
99.02
1,194.22
Mirae Asset China Advantage
15.25
98.48
25.85
JP Morgan JF Greater China Equity Off-shore
14.67
97.87
72.14
Principal Global Opportunities #
14.26
97.58
85.81
Kotak Global Emerging Market
13.52
94.74
172.84
Sundaram Global Advantage
12.88
83.91
85.55
ING Latin America Equity
11.78
96.21
38.62
HSBC Emerging Markets
11.51
96.98
66.87
Franklin Asian Equity
10.41
78.9
289.57
DWS Global Thematic Offshore
8.75
99.6
38.41
ING Global Real Estate Retail
8.33
99.15
95.37
Birla Sun Life International Equity Plan A
7.16
97.71
104.96
DSPBR World Energy Reg
6.56
97.42
290.53
All figures as on 23 December Source: Value Research
Remittance basics Up to $200,000 can be invested abroad in a financial year The limit is for one resident Indian (including minors) Remittances have to be through authorised forex dealers. The scheme can be used for acquiring physical assets (like immovable property or art) or financial assets (like shares, bonds, mutual fund schemes, bank fixed depositss or venture capital funds. It can also be used for donations and gifting There are no restrictions on frequency of investment but cap remains at $200,000 You can’t invest more than $200,000 even if you have brought back the earlier investment in the same year Banks are not allowed to extend any kind of credit for this This facility can’t be used for remittances to Bhutan, Nepal, Mauritius and Pakistan PAN is mandatory for remitting money
the slowdown. Take the case of Nestle SA, the parent company of Nestle India. Nestle SA’s current P/E is only 16 compared to its Indian subsidiary’s P/E of 45. Nestle India’s performance forms part of the consolidated financial statement of Nestle SA. It is this huge difference in valuation that makes foreign-listed stocks more attractive. Invest in themes: Another strategy is to avoid getting into individual stocks and try to play the country or sector themes based on the ETFs listed there. “Since it is difficult to track global stocks, it is safer if investors play the themes using ETFs,” says Kehair. Taxation angle: This is a major disadvantage global investors have to bear with. While long-term capital gains from equities listed in India are tax free, they are taxable for foreign stocks. So be prepared to dole out long-term capital gains tax at 20%, but only after indexation to factor in inflation. Another factor that may go against global investing is the duration of the minimum holding period needed to be qualified as longterm capital gains. This is a bit opaque now and wealth management companies have divergent views. This is because the Indian tax law only says about “shares in company”
The global funds available for rupee investment in India have shown varied returns, with gold sector funds topping the charts
without very clearly specifying whether it is a domestic company or foreign company. “The definition of the term ‘company’ as per the Income Tax Act includes any firm incorporated by or under the laws of a country outside India. Therefore, it follows that an investment in a listed stock in the US will have to be held by an Indian for over 12 months and not 36 months to qualify as a long-term asset”, says Sandeep Shanbag, director, Wonderland Consultants, a tax and financial planning firm. For the passive investor Not comfortable venturing out? There are several global diversification options available for you here as well. The first option is India depository receipts (IDRs) of global stocks listed in India. Standard Chartered Bank (SCB) IDR, the only option available at present, offers good value. “Standard Chartered Bank IDR is worth considering for global exposure; the bank has performed remarkably well throughout the global financial crisis. With its focus on emerging markets and strong capital position, the bank is well positioned to deliver robust growth in future,” says Puneet Gulati, a banking analyst at JM Financial. The bank’s IDR also offers an arbitrage opportunity—it is quoting at around 13% discount to its stocks listed in London. This is because the IDRs are not allowed to convert to foreign shares now. Another tool is to use the international investment options provided by domestic mutual funds--either in the form of ETFs listed in India (like the Hang Seng BeES) or other open-ended international mutual funds (see table above). Taxation: There is no confusion with regard to taxation here. It will be treated as debt scheme. So investors have to hold on for a year to take the benefit of long-term capital gains tax. Another option is to use the domestic mutual funds that invest a small portion of their corpus in international markets like Templeton India Equity Income Fund. “Since Templeton India invests only about 25% in foreign equities, the fund is considered as a domestic equity fund with all the tax benefits available to it”, says Suresh Sadagopan, a Mumbai-based certified financial planner.
Please send your feedback to etwealth@indiatimes.com
12
Stock Picks
The Economic Times Wealth, December 27, 2010
Pick of the week: StanChart Standard Chartered’s Indian depository receipts offer domestic investors the chance to buy shares of the London-based bank
Fundamentals Consensus estimate
Actual
Unique opportunity: Though Securities and Exchange Board growth in the years to come. Further, the expected liberalisaof India (Sebi) allowed listing of international stocks in domestion of Chinese currency trading in the next 3-5 years should tic markets through Indian depository receipts (IDRs), Stanhelp very strong private-sector global banks like Standard dard Chartered IDR is the only option available now. Standard Chartered. Analysts expect that healthy assets growth along Chartered is a 150-year-old bank with a netwith margin expansion will help it clock work of over 1,750 branches globally. So it ofannual earnings growth of 20% plus in fers a good opportunity to investors who 2010-2012. want global diversification, but at the same Reasonable valuation: It is quoting much time averse to go through the long process of cheaper compared to other global privateinvesting abroad. sector banks in London. For example, it is 4 Eastern world focus: Though its headquartrading at 16.79 times its expected earnings Sell ters is located in the West, it is an eastern while HSBC Holdings is trading at 20.41 world bank with around 95% of its employees times and Citigroup is trading at 18.72 and 90% of its 2009 operating profits coming times. It is also quoting much cheaper than from Asia and Africa. That means Standard Indian private sector banks. Chartered is well positioned to reap substanArbitrage opportunity: Standard Char18 tial benefits of the strong GDP growth, rapidly tered IDR also offers an arbitrage opportu18 Buy rising income levels and increasing financial nity—it is quoting at around 13% discount Hold assets penetration happening in these reto its stocks listed in London. This is begions. It is well entrenched in India as well. Incause the IDRs are not allowed to convert Despite a split verdict from the dia contributed to 21% of its consolidated to foreign shares now and the discount is analysts polled, we strongly profit before tax in 2009. expected to come down significantly once believe StanChart IDR gives a Safety first: This eastern world focus and a this is allowed. When can it happen? Acgood opportunity for Indian strong capital base have helped Standard cording to the present rules, Reserve bank investors to diversify Chartered to weather the global economic of India (RBI) will consider its clearance crisis. In fact, it benefitted from the global fionly after a year of trading in India. nancial crisis because investors considered it as a “fly to safety And since this is the first case, RBI may take some institution” and shifted money to the bank, helping it to imtime to clear it and may not go with the automatic prove its deposit base further. The recently-concluded rights isroute. So analysts are hopeful that this may hapWhy investing abroad makes sue further improved its capital base. pen somewhere in October-December 2011. sense Strong growth: With its focus on emerging markets and strong Page 10 —Narendra Nathan capital position, the bank is well positioned to deliver robust
Analyst View
40
CY ‘08
CY ‘09
CY ‘10
Operating Profit (in mln $)
4,567
5,130
6,567
7,665
Net Profit / (Loss) (in mln $)
3,241
3,380
4,229
4,925
Adjusted EPS (in $)
CY ‘11
1.85
1.62
1.97
2.11
11.25
13.01
14.51
15.64
P/E
P/B
Standard Chartered
16.83
2.00
Div Yield 2.73
HSBC Holdings
20.45
1.33
3.71
Citigroup Inc
18.72
0.84
-
Bank of America Corp
17.67
0.62
0.31
DBS Group Holdings
23.10
1.25
-
9.12
0.63
1.73
Book Value Per Share (in $)
Relative valuations
Deutsche Bank AG
Latest brokerage calls Recom date
Research house
Recomm
Target price (in ` )
16 Dec
Macquarie
Neutral
1,760
13 Dec
Goldman Sachs
Neutral
1,980
13 Dec
HSBC
Neutral
1,850
13 Dec
Exane BNP Paribas
10 Dec
Mirae Asset Securities
Underperform
1,831
Buy
1,995
Relative performance
118.37 Nifty Index
108.85 StanChart IDR
June ’10
Dec ’10
Performance of Standard Chartered IDR compared to Nifty. The figures were normalised at the beginning. Source: Bloomberg
What experts advise BUY CMP (in ` )
Target Price (in ` )
Buy
127.65
152
JM Financial
Buy
1,059.7
1,225
United Phosphorus
Angel Broking
Buy
160.8
198
TCS
Emkay
Accumulate
1,141.1
1,250
Increased the target price from `1,075 to `1,250 due to better earnings estimate for 2011-12 and 2012-13
Kiri Dyes & Chemicals
First Global
Buy
444.25
1,000
DyStar (world's larget dyes company) acquisition will be a major game changer for Kiri Dyes & Chemicals
Sintex Industries
IIFL
Buy
179.95
240
Usha Martin
Nirmal Bang Securities
Buy
69.9
95
Stock
Research House
Action
CMP (in ` )
Target Price (in ` )
JSW Steel
JP Morgan
Underweight
1,170
1,000
Sell
519.1
490
Stock
Research House
Action
Adani Power
IDBI Capital Markets
Reliance Industries
Comment Company is expected to report a compound annual growth rate of 253% in revenue & 236% in earnings in 2009-10 to 2013-14 period Exploration & production business underperformed, but positive traction of petrochem & refining business provides resilience Though its Oct-Dec quarter results are expected to take a hit due to unseasonal rains, acquisition of Riceco, US, to add value
Though working capital loaded balance sheet concern remains, recent price correction offers opportunity to benefit from the growth Captive iron ore and increased thermal coal production along with steel sales volume to drive earnings growtth
SELL
MindTree
Anand Rathi Securities
Comment Ispat acquisition is not as cheap as it looks; negative impact on near-term earnings; medium term depends on Ispat turnaround Initiated coverage with ‘sell’ because the profit growth to be muted due to margin pressure and substantial goodwill write-offs.
14
Mutual Funds
The Economic Times Wealth, December 27, 2010
ELSS FUNDS
Should you buy tax-saving funds? Equity-linked saving schemes have the potential to give the highest returns among all the tax-saving options available under Section 80C. But buy them only if you can stomach the risks and stay invested for the long term.
BABAR ZAIDI
T
0
5 4 , 2
2 70 8 , 15
0
,60
0
0 9,9
12
3 yrs
5 yrs
PPF
3 yrs
5 yrs
ELSS
RAJ
Value of `10,000 invested in PPF and ELSS schemes
Don’t invest lump sum in ELSS funds. Split the amount you want to invest in these funds into 3-4 monthly instalments that can be invested before 31 March. DHIRENDRA KUMAR, CEO, VALUE RESEARCH
here are several reasons why equitylinked savings schemes (ELSS) should be in everybody’s tax plan. They have the potential to give the highest returns among tax-saving options, there’s no tax on the gains, these investments are easy to understand and even easier to buy and the lock-in period is the shortest for any Section 80C option. Yet, Feroz Alam, 41, is not interested in buying this moneyspinner this year. In the past three years, his investment in the DSP BlackRock Taxsaver fund has given annualised returns of 1.78%. “Even a savings bank account would have earned me twice as much,” frowns Alam as he prepares to write out a cheque for investing in the Public Provident Fund (PPF). “At least the PPF will assure me 8% returns,” he says. The Delhi-based software professional is only partly correct. The ELSS category has performed poorly in the past three years. The value of `10,000 invested in the average ELSS fund on 24 December 2007 has actually fallen to below `9,900. A similar amount put in the PPF on the same day would have grown to almost `12,600. But looking at returns on a randomly chosen date and term is not the best way to assess an investment. The stock markets have been on a rollercoaster ride in the past three years, hitting alltime highs and multi-year lows during that period. Looking back three years is perhaps looking at the worst period for the stock markets in decades. And why look at only three-year returns? Why not
the past one year during which the same fund shot up by almost 21%. Or the past five years, during which the category churned out almost 14.5% annualised returns. `10,000 invested five years ago is now worth `22,500. “ELSS funds should be just a subset of your total investments. Use them to add equity exposure to your portfolio,” says PV Subramanyam, financial trainer with Iris. Also, investors must accept that equity investments are prone to market risks. “Equity investments should not be seen as fixed deposits that yield 15-18% returns. There is always the possibility of a downside. If an investor can’t take the risk, he should stick to fixed deposits,” says Dhirendra Kumar, CEO of Value Research. He points out that in
Canara Robeco Equity Tax Saver
1 NAV
Star rating
1-year returns
`22.05
23.55
3-year returns
9.66
3-year SIP returns
31.49
Benchmark index
BSE 100
Though it has slipped in the short term, it leads the list of best ELSS funds. It holds a good mix of large, mid- and small-cap stocks. While stability comes from the 69% of its corpus invested in large-caps, the 16% exposure to mid-caps and 14.8% to small-cap stocks gives it the necessary zing. It is betting big on the energy sector (20.4%) and has only 11.9% in financial services. Risk grade: Below average
Mutual Funds
The Economic Times Wealth, December 27, 2010
15
1-year returns
27.8
3 1-year returns
23.8
4 1-year returns
28.6
5 1-year returns
21.3
3-year returns
7.8
3-year returns
6.6
3-year returns
6.7
3-year returns
1.78
Fidelity Tax Advantage
2 NAV
Star rating
Religare Tax Plan
`23.07
NAV
Star rating
HDFC Long-term Advantage
`18.27
NAV
Star Rating
`146.39
DSP BlackRock Taxsaver
NAV
`18.06
Star Rating
3-year SIP returns
29.9
3-year SIP returns
28.0
3-year SIP returns
29.9
3-year SIP returns
25.5
Benchmark index
BSE 200
Benchmark index
BSE 100
Benchmark index
Sensex
Benchmark index
S&P CNX 500
This fund has delivered scintillating returns since its launch. More than 75% of the corpus is invested in large-cap stocks, lending stability to the fund. Mid-cap and small-cap stocks constitute only 22%. However, this fund is betting big on the banking and financial services, with 26.23% of its corpus invested in that sector. This focused exposure can be both rewarding as well as risky.
Earlier known as Lotus India Tax Plan, its name changed after the fund house was taken over by Religare two years ago. The fund is well diversified across sectors and market capitalisations, though there is a strong large-cap bias in the holdings. The fund has consistently outperformed the category average since its launch in 2006, making it a must-have in your tax planning.
This fund has been a trailblazer in the past. Its orientation is large-cap and mid-cap stocks but a small portion (8.5%) is also in small-caps. Financial services (15.9%) is the top sector in the portfolio followed by tech, pharma, automobiles and energy. It has shrugged off a weak perfromance in 2005-6 to regain the past glory that it once shared with its twin, HDFC Taxsaver.
A well-diversified fund, it has distributed its corpus across largecap, mid-cap and small-cap stocks. The banking and financial services sector (17.2%) accounts for the largest chunk of the equity corpus. It is followed by FMCG, tech, energy and pharma. The fund suffered immensely in 2008 but bounced back in 2009 and has outperformed the category in 2010.
Risk grade: Low
Risk grade: Low
Risk grade: Below average
Risk grade: Average
All returns in %. 3-year returns are annualised. SIPs assumed to start from 1 Dec 2007.
If you have a 5-6 year view, start SIPs in an ELSS fund from now till the implementation of the new Direct Taxes Code in April 2012.” P.V. SUBRAMANYAM FINANCIAL TRAINER, IRIS
October 2008, almost all equity funds were in the red on three-year and five-year returns. But investors who turned away from equities at that time forfeited a golden opportunity to earn handsome returns. LUMPSUM OR SIPs The three-year returns from some taxplanning funds may be niggardly but systematic investing plans (SIPs) in the same mutual funds have given phenomenal returns during that period (see tables). Systematic investments are the best way of buying equity funds because they help average out your costs. Investors like Alam have lost money because they invested lump sum at a time when the bull phase was peaking. On the other hand, the 2008-9 downturn was a windfall for the disciplined investor who put in small amounts every month. The volatility does not work against you but for you. As the high SIP returns from these funds show, you can actually gain from downturns because you get to buy the same funds at lower prices. There’s no time to lose if you want to take the SIP route. If you are planning to invest `30,000 in ELSS funds for Section 80C benefits, split it into three monthly installments of `10,000 each. That way you can squeeze in three SIPs before 31 March. Better still, invest in three different ELSS to diversify across mutual funds. CHOOSING THE RIGHT FUND How do you choose a fund to invest in? Though returns are an important indicator, it is the consistency of those returns which is critical. This is even more impotant in case of ELSS funds where you cannot make any change before the three-year lock-in pe-
riod. We have identified the five best tax plans for you to choose from. These funds have been chosen on the basis of their star ratings by Value Research. Value Research’s star ratings are based on a rigorous screening that takes into account not only the performance of the funds but also their risk profile, consistency of returns, investment style and quality of holdings. Five- and four-star rated funds are good investments but investors need to be alert if these change in the future. Even a three-star fund is not a bad investment but when the rating fall to two- or one-star, it is time to get out of the fund. THE FUTURE OF ELSS The ELSS party will not continue for long though. The proposed Direct Taxes Code (DTC), which is likely to come into effect from 1 April 2012, has not included these funds in the list of permitted tax saving instruments. That’s a pity because this transparent and well-regulated instrument had become very popular with taxpayers in the past five years after Section 80C removed the sub-limits on different tax-saving investments. Perhaps, it would have been better to retain ELSS as a tax-saving option but extend the lock-in period or make withdrawals before retirement taxable. But there’s no reason to be worried about the future of your investments in ELSS funds. After the DTC comes into effect, these funds will probably get converted into open-ended diversified equity funds after the lock-in period ends. Please send your feedback to etwealth@indiatimes.com
Source: Value Research
16
Fund Manager’s Wisdom The Economic Times Wealth, December 27, 2010
EXPERTSPEAK
‘For good returns use SIP with STP’ NITIN SONAWANE
Birla Sun Life My outlook for 2011
I don’t touch stocks That are controversial, are of potential flyby-night companies or have questionable earning projections.
Age: 44 years
in `crore 70000
Qualification BSc (Mathematics) Current position
40000
Chief executive officer, Birla Sun Life Asset Management Company Sep.10
Jun.10
Mar.10
Dec.09
Sep.09
Jun.09
Mar.09
Dec.08
Sep.08
Jun.08
0 Mar.08
Trustworthy management, growth potential, fairness to shareholders, safety margin and business sustainability. In case of debt, it is the ability to service debt through internal cash flow generation and management credibility.
A BALASUBRAMANIUM
Dec.07
Five things my stock-picks must have
Assets under management
Sep-07
Remains positive. It can be a year of consolidation. However, money making would be a little difficult after spectacular years like 2009 and 2010. The new year will be largely stock-specific. Fixed-income schemes will also provide opportunity to investors given the current rates.
Rating profile 10
5-star
My risk appetite is
4-star
11
Moderate. I remain patient and maintain a fine balance between expected return and risk associated with the investment.
3-star
11
Bottom fishing beyond a point. At times I believe price reflects everything, but this may not be always true.
1-star 1
What I do differently
No. of Funds
Birla Sun Life Frontline Equity-Plan A
I think different but not out of the box, focus on contra-investing principle and never lose cool during crisis time. I also lay a lot of emphasis on working with the team and give them freedom to express their views.
My own money is invested in
9
2-star
One bias I try to control
Sector allocation
21.76%
30.58%
Financial services
Others
Equities 30% and real estate 30%. Fixedincome assets built through savings products like PF and super annuation fund.
14.95%
What I like about my job
Energy
7.31%
A combination of foresight, ability, intelligence and intuition. Also, the willingness to walk the extra mile in terms of identifying potential businesses to invest.
9.58%
Engineering
Technology
9.31% Automoible Nearly 6.5% of corpus is in cash holdings/debt. As on 30 November 2010. Birla Sunlife Frontline Equity-Plan A is rated 5-star by Value Research. This is the largest AUM fund in the equity category and has assets worth `2,529 crores as of September 2010.
Small investors should Increase investment in equity through mutual fund SIPs. This together with systematic transfer (STP) from fixed-income schemes would be the best options as it will generate good returns over a long term. Do not bother about investment on a daily basis.
Performance
How frequently do you churn your portfolio?
46.72 41.05
43.38
Unless there is a need for money, I avoid it.
My best decision When I was managing funds, it was reposing confidence and conviction on banking sector, especially PSU banks. On the fixedincome side, it was to take measured exposure to credit risk.
20.37 18.27 18.21
6.89 0.42 -0.26 1 year%
My worst decision
Fund Category Benchmark*
Not investing big-time in contra bets during the 2008 crisis both in equity and debt.
Which books have influenced your investing process? Value Investing Principle by Benjamin Graham. (As told to Khyati Dharamsi)
34%
2 year%
3 year%
*BSE200. As on 20 Dec 2010.
is the annualised growth in the assets under management of Birla Sun life AMC in past 3 years. Data: Value Research
Fund Portfolio
The Economic Times Wealth, December 27, 2010
17
High returns at moderate risk Mutual fund investors often wonder how many and what type of funds they should buy. ET Wealth presents five fund portfolios to suit different sets of investors. These portfolios have been designed by Value Research for our television channel ET Now. Every week, we will analyse one portfolio in detail and provide an update on the rest. Go ahead and choose the portfolio that best suits your needs. Fund value (`)
Top 5 stocks in equity holding (in `)
‘I want regular 2,20,745 growth’ Fund 19.9%
State Bank of India Infosys Technologies
Annualised return
TCS ITC
T
Watch show on fund portfolios every Saturday at 12.30 pm and every Sunday at 10.30 am See page 33 for the ETW Funds 100 list of best funds.
Top 5 sectors in equity holding (in `) Financial Energy Technology Engineering Health care
35,375 (21.1%) 31,903 (19.0%) 18,997 (11.3%) 12,519 (7.5%) 11,605 (6.9%)
Portfolio asset allocation Others 8.38%
Equity investment style Growth Blend Value
Debt 15.63%
Equity 75.99%
CAPITALISATION
Small Medium Large
his portfolio has been able to generate decent returns without taking undue risks. Even the equity portion is invested in stable stocks. The five equity funds in the portfolio have a decidedly large-cap focus. More than 80% of the equity corpus is anchored in giant and large-cap stocks, which means the portfolio will not be rocked during market upheavals. The balance 19%, the “risk capital” of the portfolio so to say, is invested in mid- and small-cap stocks. This portfolio is betting big on the banking and financial services sector. The sector accounts for nearly 21% of the corpus in equities. In fact, the top two holdings of the portfolio are banks. The energy sector accounts for another big chunk of the portfolio. Incidentally, the allocation to the construction sector is down to 2.7%. HDFC Top 200 Fund and UTI Dividend Yield Fund have been the best performing funds in this portfolio with annualised returns of almost 30% since we began investing in June 2009. Given that 15% of the portfolio is in debt, any downturn in the equity market will allow us to rejig the asset allocation accordingly. The high quality of debt holdings of the portfolio is also heartening. With almost 10% in sovereign bonds and highest rated P1+ and AAA bonds comprising more than 50% of the debt holdings, you can be sure there is very little risk —Faye D’Souza of default.
8,729 (5.2%) 8,392 (5%) 7,868 (4.7%) 7,140 (4.3%) 6,438 (3.8%)
ICICI Bank
INVESTMENT STYLE
Funds in the portfolio
BSL Frontline Eqt A-G
2,500
23.7
*****
Canara Robeco Income-G
1,000
4.8
****
DSPBR Short Term-G
1,000
5.4
**
DSPBR Top 100 Eqt Reg-G
2,500
21.5
****
DWS Investment Opp Reg-G
1,000
16.2
**
HDFC Top 200-G
1,000
28.4
*****
UTI Dividend Yield-G
1,000
30.7
****
10,000
19.9
Total Portfolio
Not classified 0.16%
Small-cap 3.32% Mid-cap 15.49%
Giant 53.83%
Largecap 27.2%
Debt rating break-up
Investment Annualised Rating `) returns (%) per month (`
Fund
Equity market-cap break-up
Treasury Bills 1.52% `805
Cash & Call Money 3.95% `2,094
Net Receivables 0.06% `31.74
GOI Securities 9.92% `5,259 AAA 11.42% Repos `6,056 7.28% `3,858 Unrated 25.36% `13,443
P1+ 40.5% `21,464
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
Fund value
Fund value
Fund value
(`)
(`)
(`)
(`)
2,24,525
2,18,209
2,08,060
11,26,412
Annualised return
Annualised return
Annualised return
Annualised return
22.3%
18.3%
11.7%
16.0%
Equities: 80-90% Debt: 10-20%
Equities: 65-70% Debt: 30-35%
Funds Annualised returns (%) DSPBR Short Term-G 5.4 IDFC Premier Equity Plan A-G 34.6 L&T Opportunities-G 19.3 Reliance Regular Savings Equity-G 24.1 Sundaram S.M.I.L.E. Reg-G 16.1 UTI Opportunities-G 25.9
Funds Annualised returns (%) DSPBR Balanced-G 19.1 FT India Balanced-G 15.6 HDFC Prudence-G 22.1 Reliance Regular Savings Bal-G 23.8
Monthly SIPs ranging from `1,000 to `2,500 in seven funds
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 12.5 HDFC MIP Long-term-G 11.7 Reliance MIP-G 10.6
Funds Annualised returns (%) FT India Dynamic PE Ratio FoF-G 13.9 HDFC MIP Long-term-G 14.8 Reliance MIP-G 14.2 UTI Balanced-G 20.9
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
18
Real Estate
The Economic Times Wealth, December 27, 2010
INVESTING ABROAD
My next home: London Subdued prices, simpler rules, attractive schemes and abundant choices have made buying a property abroad easier, says Rakesh Rai
T
Water-facing properties in Australia’s Gold Coast, which is among the world's most visited tourist destinations, are available at around `18,000 per sq ft” VIKAS ARORA MANAGING DIRECTOR, APG INDIA, A REAL ESTATE AGENCY
here is a reason why ‘austerity’ is Merriam-Webster's 2010 Word of The Year and ‘pragmatic’ a close second. These words reflect the investment and buying decisions of investors in the West. No sector underscores this shift than property. The upshot of investor behaviour is that house prices in most Western countries have fallen or been stagnant for many months after the recession pummelled global real estate markets. Builders are finding few buyers and governments are more open to foreigners owning property. For Indians, global realty’s fall has presented an opportunity. Many are driving bargains, helped by the stream of foreclosures and short-sale properties available at attractive prices in most markets. The UK, especially London, continues to be a highly sought-after address. Likewise, Dubai and Singapore are preferred by the rich, celebrities and expats. Importantly, Indians are looking beyond Europe and the US, particularly destinations closer home such as Malaysia and Thailand. In the UK, demand is high in the midrange price sector of £400,000-700,000 (`2.8 crore-4.9 crore), says a study by global property consultancy firm Knight Frank. This means Indians prefer relatively affordable locations such as St John’s Wood and Kensington. “Greater London is preferred by Indians looking at locations such as Harrow, Hounslow, St John’s Wood and Wembley,” says Chhavi Jagtiani, head of country (India), Hamptons International, a UK real estate agent. In Greater London, a singlebedroom apartment costs upwards of £225,000, or `1.6 crore, and a two-
bedroom one nearly £300,000, or `2.1 crore. In Central London, prices vary across locations. A one-bedroom apartment in Knights Bridge costs between £700,000 and £1 million (`4.9 crore to `6.9 crore). There are people who buy property abroad only as a holiday home. Some investors are also looking to save on the cost of rentals or hotels when a foreign sojourn stretches. Amarpal Singh, a Ludhiana-based exporter, recently bought a two-bedroom apartment at Brisbane in Australia after his two sons went there to study. “I save a lot because my children don’t have to rent a place,” he says, adding that he can visit Brisbane anytime without worrying about reservation. And buyers like Singh are also discovering that a property abroad is perfect for a second or third residence. “Water-facing properties in Australia’s Gold Coast, which is among the world’s most visited tourist destinations, are available at around `18,000 per sq ft,” says Vikas Arora, managing director of APG India, an agency that sells properties in Australia. That is cheaper than premium properties in Indian metros; a property in Mumbai was recently sold at more than `1 lakh a sq ft, till date the most expensive sale in India. An overseas deal looks more promising because sale prices are usually based on carpet, or actual, area. Most properties in India are still sold on the basis of super area. Carpet area is usually 20% less than the super area. The Reserve Bank of India’s (RBI) decision to permit investments of up to $200,000 (or `90 lakh) a year abroad has given an impetus to property shopping abroad. “The trend is picking up but for now is mostly limited to high nwt worth individuals,” says Arora. Realising the potential in selling real
Real Estate
The Economic Times Wealth, December 27, 2010
Your Options
19
Essential Checklist
OLD FAVOURITE
F O R
Canada Agreements of sale and purchase have a ‘time is of essence’ clause, which means they are valid within a specified time. Any delay entitles the seller to end the agreement.
H O L I D A Y
Italy For resale properties, tenants (persons having right of pre-emption) can legally prevent the sale.
Greece Representation by a lawyer is mandatory in Greece for real estate matters.
■
Start by renting: Before purchase, rent a property in a similar location, preferably during the months when the climate is least pleasant, to avoid regretting your decision.
■
Inspect the property: Renting allows you to check every aspect of the property, even those not apparent at first look.
■
Consider the marketability: Special interest real estate like a house with unusual architecture or a large one is often hard to resell
■
Observe real estate price cycles: Study price trends in recent years in a location—if prices have risen steadily over a decade, caution is called for, although an unbroken rise in prices does not necessarily mean that a slump will follow.
■
Legal and tax issues: Before a sales agreement or even a preliminary one, all key legal and tax aspects must be clarified.
■
Seek help: Depending on the country, it is worthwhile for a buyer (or seller) unfamiliar with local circumstances to obtain advice from a competent source (broker, architect, lawyer or notary) and have the transaction checked to avoid mistakes.
H O M E S Mauritius Invest through Integrated Resort Scheme for which minimum investment is $500,000. Property entitles 'residency status' for owner and family.
1
2 3 Invest in property in the United States page 20
5 4
6
Source: International Real Estate Handbook by Christian H. Kalin
MOST POPULAR
1
United Kingdom What you can buy: Apartments, condos Restrictions: No restrictions on built-up property. Preferred Locations: Central London ( Mayfair , Knightsbridge , Belgravia ) Greater London ( Harrow, Hounslow , St John’s Wood, Wembley) Average price: In Greater London, 1-BHK at £225,000, or `1.6 crore, and 2-BHK at £300,000, or `2.1 crore. One-BHK at Knightsbridge/ Belgravia in central London costs £700,000- £1 million. Citizenship: No special incentive for purchase of property (you get a worker’s visa or a tourist visa).
2
3
4
5
6
UAE
Thailand
Singapore
Malaysia
Australia
What you can buy: Apartments on a long-term contract (up to 99 years) in select areas. You own the home, not the land.
What you can buy: Registered built-up property
What you can buy: Select flats & condominiums.
What you can buy: Apartments, condos
What you can buy: Built-up property
Restrictions: No direct foreign ownership of land. Foreigners can buy condominiums only in Bangkok and Pattaya. Also not over 49% of condominiums in a project can be owned by foreigners
Restrictions: Only units in condominiums okayed under the Planning Act. Curbs on vacant land, ‘landed properties’ or bungalows, semi-detached and terrace houses, and buildings of less than 6 stories. Here, foreign buyers must the Singapore Land Authority’s permit.
Restrictions: Subject to rates upwards of RM500,000 a unit (`72,50,000). No sale before 3 years. If a property is sold within five years, gains are taxed at 30%. Gains after five years are taxed at 5%.
Restrictions: Foreigners can only by first-hand propert –either under construction or ready-tomove-in. Overseas buyers can buy these properties only after the deal is okayed by the Foreign Investment Review Board. A property can only be sold to Australian citizens.
Restrictions: Foreigners can lease property only in ‘freehold’ areas after nod from master developers Emaar, al Nakheel and Dubai Properties. Lease periods range from 99 years to 600 years.
Preferred Locations: Bangkok, Pattaya, Samui and Phuket.
Preferred Locations: Dubai, Abu Dhabi, Ajman and Ras al Khaimah.
Average price: Built-up houses start at $100,000, or `45 lakh.
Average price: `35 lakh (-BHK) to `2.5 crore for a 2-BHK with a sea view
Citizenship: Retirement visas for foreigners over 50 years. But retirees have to maintain a bank balance of 800,000 baht, or `12 lakh and ensure a monthly income of 65,000 baht, or `97,000. Prohibits work.
Citizenship: Residence visa which can be renewed after five years on payment of a small fee.
estate to Indians, governments have launched attractive schemes to woo buyers. For instance, Malaysia has unveiled a scheme called Malaysia My Second Home that promotes the country as a retirement destination. Dubai allows freehold property purchase by foreigners and Mauritius gives work permits to property owners. These programmes ensure quicker processing of papers and visa permits. Is an overseas property for you? To answer that question, ask yourself why you want to buy. Do you intend to use the property or turn it into an investment? That is key to your initial outlay and long- and short-term returns. Then check if you can really afford the property. Besides the cost of the home, there are expenses in legal fees, taxes and visits to negotiate the deal. “Indians intending to invest in property abroad must be aware of certain and liability risks,” says realty consultant Anuj Puri of Jones Lang LaSalle. As a foreigner, you may
have trouble finding mortgage firms offering you loans. You may also be unable to exit an overseas market in a hurry. “In Australia, a foreigner can sell a property only to a local resident,” says Arora. Similarly, the taxation of sale proceeds varies according to the country. If you are making a pure investment decision, keep in mind that though prices in some countries may be comparable to those in Mumbai, the price appreciation may not be as fast. And staying in a non-English speaking location means even grocery shopping or interacting with local authorities will be, to put it mildly, different. How do you begin? After deciding a location, you can go alone or hire an agency that deals in properties abroad. You can also hire a licensed real estate agent in the country experienced with foreign investors. Also, consult a notary. “Foreign buyers of real estate should let themselves be guided by their native feeling
Preferred Locations: Districts 9, 10, 11 & 15, East Coast, Bishan and River Valley Average price: US$150,000 to $1 million for a condominium Citizenship: Social visit visa valid for five weeks, allows multiple entries and a 30-day stay per visit.
Preferred Locations: Around Kuala Lumpur, resorts like Port Dickson, Penang Average price: `58 lakh90 lakh Citizenship: Foreigners get a social visit pass for 10 years. The pass can be extended beyond 10 years. Buyers can apply for permanent citizenship.
for what is right, but know the circumstances prevailing locally,” says Christian H Kalin, an international real estate expert and author of International Real Estate Handbook. There are also agencies that deal with property for foreigners. Many such agencies have set up shop in India. Hamptons International is one. APG India, which has offices in Delhi, Mumbai and Ludhiana, is another. Likewise, Better Homes offers properties in the UAE and UK. “It is advisable to deal with well-established and trusted property broking firms with experience in the real estate sector and present across the world,” says Jagtiani of Hamptons. These firms are better equipped in handling the complexities of investing because property laws and approaches to buying and selling differ from country to country, he says. These agencies charge a brokerage of 5-8% of the property value. They are one-stop shops for most your needs, including spotting a property, arranging finance and roping in a solicitor.
Preferred locations: Melbourne, Brisbane and Gold Coast. Average price: A$150,000 to A$3 million (or `68 lakh to `14 crore). Citizenship: No special incentive on property purchase.
They also manage a property and provide interior solutions. The tie-ups most have with foreign banks enable loans for the purchase. “Australian banks finance up to 80% of the cost of property. A buyer has to furnish an income certificate stating that he is capable of repaying the loan,” says Arora of APG India. The process is easy because banks realise that the high rental yield of up to 6% means they can recover money, he says. There are ways of circumventing restrictions. The RBI diktat limits property purchase to up to $200,000 a year. “But if the property is in the name of two persons (joint owners), the limit becomes $400,000,” says Jagtiani. If a purchase is through an offshore company, any amount of money can be send, she says. The globe is the hunting ground for your second dream home. Please send your feedback to etwealth@indiatimes.com
20
Real Estate
The Economic Times Wealth, December 27, 2010
GUEST COLUMN
Buying a house in America With property prices down by as much as 30-50% and more houses coming into the market every day, it is a lifetime opportunity to invest in real estate in the United States, says Arun K Chhabra INDIANAPOLIS
MINNEAPOLIS-ST PAUL $ 170,000
$ 165,700
-39..1%
-2.5%
$ 120,300
ST LOUIS $ 128,000
-1.5%
$ 126,100
5.9%
-38.4%
BOSTON
-1.9%
$ 333,400
CINCINNATI
PORTLAND $ 235,900
$ 127,400
-31.7%
$ 123,700
$ 231,500
-5.5%
-30%
$ 116,900
5.3%
$ 351,100
-29.6%
-29.1% NEW YORK $ 363,700
7.9%
$ 392,600
-21.4%
PHILADELPHIA $ 208,700 $ 213,800
2.4%
-44.5%
WASHINGTON, DC $ 306,900 $ 336,100
-18.7%
9.5%
-24.6% Fall in US home sales between 2009 and 2010
ATLANTA $ 129,300
-16.2%
$ 108,300
-18.8%
PHOENIX $ 145,800
—8%
$ 134,100
MIAMI $ 205,900 $ 203,900
—11.7%
-1%
HOUSTON SAN ANTONIO $ 140,800
9%
I
ndia’s liquor tycoon Vijay Mallya reportedly spent over $8 million for a beachfront house at Cape Town in South Africa recently. While Mallya may have more sun and fun on the beach, better property deals are perhaps available in the US, and are being snapped up by foreign buyers as much as by the locals. Persistent high unemployment rates (currently about 10% against the normal 5%) and slow economic growth have made it extremely difficult for a large number of American home owners to keep up with the monthly mortgage payouts. As a result, thousands of properties in the country have been foreclosed by lender banks. And since banking regulations do not allow financial institutions to hold properties for long, or let them out, banks are busy offloading properties, below their true market value. Also, more houses are coming into the market every day. According to the National Association of Realtors, about 11 million more home owners with mortgages are currently considered ‘underwater’ since the owners have stopped paying the monthly mortgages. Sooner or later, these houses too would end up on the auction block. The woes of home owners have thus become a bargain bonanza for buyers with bucks. The temptation to buy a house in the US at bargain prices has lured a lot of foreign buyers world over. Europeans are the first in the
$ 153,500
$ 152,100
0.3%
$ 152,500
--21.5%
-13.2%
2009 PRICE
2010 SALES
Source: National Association of Realtors, U.S. RAJ
-20.7%
queue, primarily from the UK, Italy and Russia, while Asians aren’t far behind. Asian buyers typically include the newly rich Chinese from the mainland, sharp dealmakers from Hong Kong, and the smart and savvy industrialists from Taiwan. South Americans, mainly from Argentina and Brazil, too have joined in. Anecdotal reports see Indians too as part of this property buying melee, but the numbers aren’t significant yet. Careful and cautious by nature, Indians are known to take their time to react. But come they will, since the US prices are no great shakes for many. Even in the pricey neighbourhoods of Manhattan in New York, Los Angeles (California) and Miami (Florida), houses are no less expensive than the palatial farmhouses around Delhi, or the posh apartments in Mumbai. Add to this the discounted US properties, and falling dollar value against most currencies. Besides, there are other advantages —relatively cleaner environment, lush green open spaces, neatly maintained, full-service apartment buildings, orderly streets and highway traffic. For families with school kids, education until high school is free and compulsory, and enrollment in a neighbourhood school is for the asking. Property prices in places such as Florida, California and Texas are down as much as 3050%. Distressed property is plentiful across the country while mortgage rates are the lowest in the last 50 years. A foreign buyer may have to shell out 30-35% of the purchase price as down
There is no visa requirement for buying property in the US. You can purchase it without coming to the US using your real estate agent, attorney, accountant, friend or a relative payment while seeking financing for the balance. The current interest rate is around 4% on mortgages spread over 15-30 years. Those who know the realty market well say it can’t get any better, and that this window of opportunity wouldn’t last beyond the next spring or summer. For those who can afford it, it is a once-in-a-lifetime opportunity. There is no visa requirement for purchasing property in the US. You can purchase it without coming to the US using your real estate agent, attorney, accountant, a friend or a relative who can do so with a proper power of attorney from you. However, if you do come to the US, any visa that allows you to enter the US would be good enough for the purpose of purchasing property. It can be an F1 student visa, or a B1/B2 visa that allows visitors to enter the US for pleasure or business or H, J or L visa. I have had clients who own property in the US
without intending to reside in this country, temporarily or permanently. Some of them bought properties for investment purposes while others bought it as a second home for an occasional visit. There are still others who are holding on to the properties for their children until the latter are old enough to go to school or college in the US. According to news reports, the rich and aristocratic Britons are going for two- to three-bedroom condominiums at prestigious addresses for second homes while the Chinese are buying for long-term investments, or as future accommodation for their children. That’s another significant side-benefit to owning property in the US. Owners pay property taxes to the local and state governments. This coupled with proper visa classification of the owner may qualify his child for in-state tuition fee, which is less than that of a foreign resident. For example, for a four-year college education, the savings could be over $50,000! America is a nation of immigrants. A country where the phrase ‘home away from home’ fits perfectly. It is the least bureaucratic country. Everyone is treated equally under the US laws and constitution. The author is a Washington DC-based attorney. He can be reached at visavakil@liveimmigration.com Please send your feedback to etwealth@indiatimes.com
Banking
The Economic Times Wealth, December 27, 2010
21
FIXED DEPOSITS
Banks play numerology with fixed deposit rates Banks are offering odd-tenure fixed deposits to match their assets and liabilities. Find out how you can gain from this. KHYATI DHARAMSI
GETTY IMAGES
A
t first, it seemed banks had caught the numerology bug. What else could explain the high interest rates on fixed deposits (FDs) with odd tenures? ICICI Bank is offering 8% interest on FDs for 390 days whereas one-year deposit earns 7.75% interest. HDFC Bank is ready to give you 1.25% extra if you hold it for 16 days more than a year (which earns 6.5% interest). On 22- and 33-month deposits, it offers 8.8% interest. Standard Chartered Bank has fixed the interest rate of 121179-day and 261-day FDs at 7.75%. Public-sector banks are not far behind in this number race. Allahabad Bank will give you 8% interest for a 300-day deposit. State Bank of India and Punjab National Bank are offering 8.25-8.5% interest on 555- and 1000-day FDs. The opportunity is too good to ignore. You can earn 0.25-1.25% guaranteed higher returns by locking in money for a few days more than one year or its multiples. Except, numerologists’ forecasts is a risky way to determine an investment period. What if they think of new number midway in the tenure? You don’t have to worry. For the banks have a very logical reason for offering higher interest for odd tenures. It is called the loan cycle. KVS Manian, group head, retail liabilities and branch banking at Kotak Mahindra Bank, explains, “These time periods are meant to match the bank’s asset and liability in a particular bucket. Say, it has higher demand for one-year loans, then it will offer a 390-day deposit. Similarly, the 700day deposits are meant to match the asset and liability for two-year loans.” Simply put, banks are ensuring they have money to give loans by extending the tenure of matching FDs. As the FDs mature a little later, it gives them more breathing space to get the money back from the borrowers and return it to the depositors. Says RK Bansal, executive director and chief financial officer at IDBI: “These periods are determined by our lending requirement. Deposits are mainly up to one year. But if it
Latest fixed deposit tenure and rates Bank Axis Bank
Tenure of deposit
Interest rate (%)
12-14 months
8.25
HDFC Bank
1 yr 16 days - 2 yr 16 days
7.75/8.25
ICICI Bank
390 /590 /790 /990 days
8 /8.5 /8.5 /8.5
Kotak Mahindra Bank
390 / 700 days
8.25/8.6
State Bank of India
555/ 1000days
8.5/8.5
IDBI Bank
500/1100 days
8.5/8.75
Punjab National Bank
555/ 1000 days
8.25/8.50
500/ 700 days
8.10/8.60
Union Bank of India HDFC Standard Chartered Bank Allahabad Bank
22-33 months
8.8
121/ 179 /261 days
7.75
300 days
8 Source: Bank websites
It is a good time to lock in at the current rates because they are close to their peak although there may be a 0.25% upside remaining. KVS MANIAN GROUP HEAD, RETAIL LIABILITIES AND BRANCH BANKING, KOTAK MAHINDRA BANK
crosses this period, we get slightly more time to match assets and liabilities.” For this to happen, banks must incentivise the odd lock-in periods. There is no better way than offering a slightly higher interest than the traditional tenures. Like traditional FDs, you will earn a lower interest rate if you break the deposit before it matures. “Banks are trying to build a commitment for a period by offering an attractive rate. If a customer makes a pre-mature withdrawal, he earns a lower interest which applies to the tenure shorter than that of the specific scheme. This acts as an automatic penalty, though there is no pre-mature withdrawal charge.” says Manian. He explains the concept with an example: “Suppose a person has taken a 390-day deposit for which the rate is ‘X%’ and he withdraws it in one year. Then the rate differential between the one-year FD and the 390-day FD acts as an indirect way of pre-mature redemption charge.” This shouldn’t bother you much. If you have an emergency fund stashed away in a sweep-in account or other liquid instruments, it is unlikely you will need to break these special FDs. Even if you do, you won’t earn lower interest than traditional deposits. Comparing the schemes with respective traditional plans can be difficult though. Why measure the tenures in days, forcing you to sit with a calculator? Convert 555 days into years and months and you have the answer. Calling it a 1.52 year deposit is neither simple, nor fully accurate. “It is for ease of communication. It is easier to say that for a certain number of days the interest rate is ‘X’,” concurs Manian. But what’s in a name. The tenures of these deposits are determined by logic so cash in on the opportunity. This doesn’t mean you divert money for equities to these schemes. However, if you were planning to park money in safe havens, the odd-tenure FDs are a good choice. As long as they fit the time horizon of the goals you are investing for.
Please send your feedback to etwealth@indiatimes.com
22
Health Insurance
The Economic Times Wealth, December 27, 2010
Your decision-making guide Health covers come in various forms and prices. Khyati Dharamsi helps you make the right choice
Which health cover suits you s
ce
l ca
Benefit: Covers expenses incurred during hospitalisation, including doctors’ fee, room rent, cost of medicines etc. Suitable for: Everybody. A must-have even if you have group insurance.
c al
l
t
pi
s Ho
Benefit: Lump sum amount paid in case of hospitalisation to cover miscellaneous expenses. Amount depends on duration. Suitable for: People who may lose pay if they are hospitalised or attend to a patient.
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in
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an ur
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c ac
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The cover is renewable every year. Hospitalisation expenses, including doctor charges, room charges, nursing charges and prescribed medicines are covered. Some policies cover expenses up to 30 days prior and 30-90 days post hospitalisation. Minimum duration of hospitalisation is 24-48 hours.
Claim for illnesses are not accepted within 90-120 days of taking the policy, but injuries dues to accidents are covered. Existing diseases are covered after four years. Some diseases, such as cataract and hernia are covered after two years of continuing with the policy.
Expenses for pregnancy and complications emerging out of it, diseases from birth, external medical aid, hospitalisation after a war or nuclear attack or abuse of alcohol, HIV or Aidsrelated, dental treatments, cosmetic treatments are not covered. Expenses such as laundry charge or private nurse, taxes and processing charges are also excluded.
p
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Benefit: Riders can cover major surgeries or 7-8 critical diseases. Lump sum payment is made. Suitable for: The first rider becomes more relevant as you grow old and the possibility of surgery increases.
e eh
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p To
fe Li
Your own cover You can buy a health insurance policy for yourself and each member of the family or take a floater plan that covers the entire family. Some floater policies also cover extended families. People up to 55-70 years are covered. Premiums are fully tax deductible under Section 80D.
t al
er
rid
a He
Pe
Benefit: Covers death, disability or hospitalisation following an accident. Full sum paid out in case of death. Part payments in other cases. Suitable for: Low cost cover that everyone must have.
s
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er
o rs
l hp
Benefit: Low-cost way to enhance the existing health cover. Kicks in only if the expenses exceed the specified limit. Suitable for: Useful if you have group insurance but feel it is inadequate.
in
What if you have group insurance?
Benefit: These plans offered by life insurance companies cover hospitalisation as well as OPD expenses. Premium remains constant for 10-15 policy years. Suitable for: Useful if you want cover for minor ailments.
Your office cover
People covered
Varies across employers. Usually it covers you, your spouse and maximum two dependent children. Some companies offer cover to two dependents, which can be either parents or children. Others offer a fixed cover within which any number of dependents can be covered. Parents covered up to 70 years and children up to 25 years.
What is covered
Usually office covers are group insurance policies covering hospitalisation expenses. But unlike individual covers many expenses, such as those incurred 30 days before and 30-90 days after getting hospitalised, existing diseases, maternity etc are covered from the day of joining or after a waiting period that is lower than those of individual policies.
Waiting period
The waiting period during which no claims can be made for certain diseases is shorter in the office policy. So, cataract, hernia, etc diseases that are covered under individual policy after two years are covered here after one year. Existing diseases are covered, while expenses for maternity are covered only nine months after your office cover begins.
Exclusions
Co-pay
Insurance companies increase the premium for a person or a family in case many claims have been made under the policy and the premium is not sufficient to pay for the claims made. This percentage of increase is called loading.
There is no loading for the employee but the rising cost of medical cover is making companies ask their employees to shell out a fixed percentage of the hospital expenses on their own. The balance is provided by the insurance company.
Cover `1 lakh
`5 lakh
`3 lakh
`10 lakh
Age 56-60
`3,000 `9,000 `15,000 `30,000 `1,750 `5,250 `8,750 `17,500
51-55
46-50
Dental surgeries, HIV and Aids-related disease treatment, pure investigative tests, ayurvedic, unani or homeopathic treatment costs are not covered. Pregnancy is covered in several group insurance plans.
Loading
Extra charges
PREMIUM CALCULATOR
`1,200 `3,600 `6,000 `12,000 `800 `2,400 `4,000 `8,000
41-45
36-40
`550 `1,650 `2,750 `5,500 `300 `900 `1,500 `3,000
There are policies for senior citizens that provide cover up to 85 years (if you start policy from maximum 69 years) at a higher premium.
After retirement
These covers are available only to employees and hence once you leave the company or retire you will not be covered. Some companies offer to transfer the office cover to your individual health cover or a family floater for your family. You can pay them post-retirement and carry forward your accumulated benefits during working life.
GRAPHIC: CHANDER
26-35
21-25
`200 `600 `1,000 `2,000
Premium rates are indicative and may vary across companies; does not include service tax
Life Insurance
The Economic Times Wealth, December 27, 2010
23
ULIPS
Single premium, several catches Single-premium insurance policies are not tax-efficient. You may not be eligible for tax deduction and the maturity benefits too might get taxed. But your agent will not warn you about these pitfalls, as Vivek Kaul found out during a conversation with his agent-uncle.
A
late, leisurely breakfast of aaloo paranthas is a rare treat. So when the strident doorbell interrupted my feast, I was reluctant to greet the guest. Turns out, there were other, more compelling reasons to be unenthusiastic. For on my door was Uncle K. Relatives can be a painful breed—nosy and pesky. If one of them turns out to be an insurance agent, the pain quotient shoots up. Uncle K has been an agent all his life, and the only time he visits is to sweet talk me into buying yet another policy. He got down to business right away. “You know, I have this new single-premium unit linked insurance plan. As you must be
aware, Ulips are investment plans offered by insurance companies with a dash of life cover,” he began between sips of hot tea. “But why are you recommending this plan?” I interrupted eager to wrap up the conversation and get back to my breakfast. “It’s because you need to invest only once and get a tax deduction for it,” was the pat reply. I took a shot at derision: “Do I?” I asked. It failed. “Of course, you know that the premiums of life insurance policies are tax deductible up to `1 lakh,” Uncle K said. “The brochure to the policy clearly says that tax benefits as per the prevailing income tax laws,” he added. “Now only if Income Tax Act was as
RAJ
The tax deduction available under Section 80C to a single premium policy is limited to 20% of the cover.
any gibberish and expect to believe you?” Uncle K said. “These days youngsters think they know everything. Listen to me and you can save a neat packet on taxes,” he said. “Obviously, you won't take my word for it. Let's assume I invest `1 lakh in this single premium Ulip you are so excited about,” I started and instantly regretted the example as Uncle K's face beamed. “You want to invest `1 lakh. That's great,” he interrupted. “It is an example, don't expect me to invest so much and please don’t interrupt me,” I quickly clarified. “For this premium, my sum assured must be at least `1.1 lakh because the current regulation makes it mandatory for the minimum cover to be to be 110% of the premium for people less than 45 years old. The single premium of `1 lakh works out to be around 91% of the sum assured of `1.1 lakh,” I said, pausing to take a breath. “You are confusing me with so many numbers,” complained Uncle K. “Hold on, more data is coming up. As I pointed out, according to sub-section 3 of Section 80 C the premium is tax deductible up to a maximum of 20% of the sum assured. For the single-premium Ulip, it will be `22,000 (20% of `1.1 lakh). This is the amount eligible for deduction. I will end up paying tax on the balance premium of `78,000. My income is in the highest tax bracket, so I will have to cough up `24,102 as tax at the rate of 30.9%.” By now, Uncle K was looking everywhere except at me, trying to come up with some explanation. “I didn’t know all this. I assumed things will be as they always were. Is there any way out?” he asked sheepishly. “Yes, if one opts for a sum assured at least five times the single premium. Going back to the same example, it means opting for a
straight forward as that,” I said. “The sub section 3 of Section 80 C of the Income Tax Act 1961 clearly points out that a deduction is available only to so much of the premium, which is not in excess of the 20% of the sum assured [the technical term for the amount of life cover the individual taking the policy opts for] on the policy. So the entire premium invested in a single premium Ulip cannot be claimed as a deduction against taxable income,” I countered. “Now what was that? You come up with
Single-premium insurance plans are suitable if… Your income is irregular
You lack financial discipline
You have got a windfall
Self-employed professionals such as doctors, lawyers, consultants and businessmen have lumpy income. A single-premium plan may be a better option than an annual payment.
A missed premium can cause an insurance policy to lapse. Investors who don’t keep track of their finances may find a single-premium option more convenient than paying the premium every year.
If you get a huge amount as inheritance or severance pay and can’t decide how to deploy the funds, it might be useful to buy a single-premium policy. It will not get you tax benefits but at least it will give you insurance cover.
cover of at least `5 lakh. This way, 20% of the sum assured (`5 lakh) is equal to the premium of `1 lakh which will be entirely deductible,” I said with some flourish. A thoroughly embarrassed Uncle K muttered: “I will keep this is mind.” Aiming to discourage any future conversations on insurance, I added: “There is one more thing. As per Section 10 (10D(c)), the premium should not exceed 20% of the cover in any year of the policy’s tenure. Only then is the entire amount tax-free at maturity. If not, the maturity is added to the income of that year and taxed.” Uncle K was silent and I reveled in the idea that for once, he had nothing to say. I celebrated a little too soon. “You know so much about life insurance. Why don’t we team up to sell insurance? With your knowledge, we will make a killing,” he said. What did I say about a relative and insurance agent rolled into one?
Please send your feedback to etwealth@indiatimes.com
24
Learn & Keep
The Economic Times Wealth, December 27, 2010
FEBRUARY
APRIL
MAY
Take lunch to office
Use discount coupons
Join a car pool
Taking lunch to office can help you save a neat packet. If a meal costs `100 and you eat out about 15 days in a month, you are spending close to `1,500 on lunch.
Don’t throw away the discount coupons that come attached with menu leaflets of fast food chains. They can help you save up to `200 a month on your food, grocery and other bills.
JANUARY
Quit smoking
Start a car pool and see your savings zoom. If you travel 20 km to office and back, you spend about `3,000 a month. If you join a pool with two others, you can save up to `2,000 every month.
JUNE
Give tuition to your child Save the money you pay for your child’s tuition by teaching him yourself. This might not be possible for higher classes but you can save `1,500 a month for at least 4-5 years. Bonus: stronger family bonding
Save big by kicking the habit. If you smoke cigarettes worth `40 a day, you can save `1,200 a month by quitting. You also save on life and health insurance. AL TI S N G kh TE IN PO SAV 2 la .
MARCH
POTENTIAL SAVINGS
POTENTIAL SAVINGS
Make your AC efficient
`25.3 lakh
`1.7 lakh
`20.2 lakh
`32
`3
Four simple measures can improve the efficiency of your AC by up to 15%. Ensure it is in the shade, filters are clean, gaps between the windows are sealed and glass panes have a dark film. This can help save up `10 a day during summers.
POTENTIAL SAVINGS
IAL ENT POT VINGS SA h
lak
AL TI S N G TE IN kh PO SAV la 6
1.
`1
RESOLUTIONS FOR 2011 JULY
Imagine earning `1.54 crore in your lifetime by making 12 simple resolutions. Okay, not all of these resolutions are simple and we don’t even expect you to make all 12. Choose any three or four on this page and you will add a hefty sum to your retirement corpus. Like most New Year resolutions, the ones listed here are about behavioural changes—amending a habit, modifying a routine. The savings will be small initially, but swell over time. The gains will not only be financial. These resolutions will also improve your health (see February, July, November), increase bonding with the family (June) or help save the environment (December). Happy and wealthy New Year.
Cut down on eating out Every time you go out for dinner with your family, you spend a minimum of `800-1,200. By cutting down even one such dinner outing in a month, you can save a cool `1,000.
OCTOBER
SEPTEMBER
Optimise car mileage S ING SAV L IA kh ENT .8 la POT
If your car is a gas guzzler, four simple steps can help improve its mileage by 10%. Check tyre pressure and clean filters regularly, use correct gears and don’t drive with your foot on the clutch. If your monthly fuel bill is `3,000, you can save `300.
`16
AUGUST
Hire DVDs Spending way too much at the multiplex? One movie can leave you poorer by `8001,000 if you include snacks and drinks. Instead, you can hire a DVD to watch the movie. If you do that even once a month, you stand to save `750.
Jog your way to health
NOVEMBER
Health is wealth but you need not blow it away at the gym. Instead of spending `1,000 a month on a gym membership, jog your way to good health in the neighbourhood park.
Too much coffee at the cafe is not good for your financial health. Cut down on the number of trips by even two times a month and you can save `300.
Avoid coffee breaks
DECEMBER
Switch to CFL lighting They may be costlier but super savers in the long term. A CFL lamp consumes 22% of the energy used by an ordinary bulb. If you replace 15 bulbs in your house with CFLs, you can save up to `250 a month.
POTENTIAL SAVINGS
`16.8 lakh
POTENTIAL SAVINGS
POTENTIAL SAVINGS
`5 lakh
`4.2 lakh POTENTIAL SAVINGS
POTENTIAL SAVINGS
`5 lakh
`12.6 lakh Text: BABAR ZAIDI Graphic: RAJ
! Calculations assume that the monthly savings from each measure are invested in a scheme that earns 12% a year for 25 years.
26
Financial Planning
The Economic Times Wealth, December 27, 2010
THE MONEY
Paper Work
QUESTION
REGISTER MULTIPLE BANK A/CS WITH MFS Mutual fund investors have to mandatorily provide details of at least one bank account in their application forms. This bank account is registered in the folio of the investor and used for making redemptions and periodic dividend payments. However, when investors change or close an account, they do not inform all mutual funds they are invested in, of the change. They instead request for a change in bank account each time they make a redemption request. This may be risky. It is now possible to register multiple bank accounts with a mutual fund. The fund will verify and hold these details in the investor's folio. Investors can indicate the default bank account into which redemptions and dividends must be paid. They can also add or delete to the list of the bank accounts in their folio. Mutual funds will verify the bank account details before registering them. This service is not chargeable and can be availed by all investors by writing directly to the MFs or to the registrars and transfer agents.
Sudesh Kumar, who’s been working for the past five years, wants to buy a car. His take-home salary after all deductions and taxes stands at `40,000 per month. Kumar’s bank is willing to extend him a loan of `5 lakh, repayable over five years at a monthly instalment of `11,500. What are the implications of this decision on his finances?
S
udesh's loan will account for about 28% of his take-home pay, leaving him with little room for more loans. In case he needs a personal loan, educational loan or home loan, his large car loan will be an impediment. If he is sure he wouldn't be needing a bigger loan in the near future, he could go ahead with the car loan. The fixed nature of the monthly instalment will mean that as Sudesh's take-home pay moves up, the car loan becomes a smaller percentage of his income, allowing headroom for more loans, when needed. Sudesh needs to consciously build that headspace by not taking too many loans in the interim. If mandatory expenses (rent, grocery, bills etc.) take up about 60% of his income, after the car loan he saves only 12% of his income. Disciplined investment of savings is needed to balance out his assets. A car is a depreciating asset, whose resale value will be much lower than its cost. If he invests some savings in appreciating assets, even while he is servicing his loan, he would have created a buffer. If need arises, he can borrow against other assets he holds. It is not always necessary to hold back and save every rupee. Sudesh should indulge himself and feel happy about buying his car. He only needs to be sure that he gives himself space and time to earn and save for a while, before need arises for another loan.
FOUR SIMPLE STEPS
1 MFs have devised a multiple bank account registration form, which can be downloaded from mutual fund websites.
DOWNLOAD
2
DATE:
PAY:
` BANK XYZKSK S A A ASA 56 XYS
64 886500
NE
WAY BRUCE
4 46
46 4545
565656
Investors have to provide bank name, branch name, account number, account type (savings, current, or non-resident), and the IFSC code. IFSC code is the 11-digit number at the bottom of the cheque leaf.
3 Have a money dilemma? Write to us at etwealth@indiatimes.com
3 RAJ
SMART THINGS TO KNOW: Your credit card
In order to verify a bank account detail provided by the investor, MFs ask for a blank cheque, or a copy of bank statement/ passbook along with the registration form.
4
1
2
3
4
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MFs verify that the first holder of the folio is also an account holder in the bank account mentioned, by looking at the names printed on the cheque leaf or account statement/passbook.
5 31
Every card has a billing cycle. If you always fully pay your outstanding amount, you enjoy a free credit period on purchases made at the start of the billing cycle.
Points to note Paying the minimum amount is telling the bank to treat the balance as loan and charge interest on it. Interest rate on credit card loans is usually very high.
If even the minimum amount is not paid, cardholder gets flagged for delinquency and is technically a defaulter under terms of the card issuance.
All cash withdrawals using a credit card are loans from the date of such withdrawal. No free credit period exists for such loans.
Your bank may be willing to convert your credit card outstanding into personal loan at a lower interest, repayable in instalments. Talk to your bank if you have a problem paying your dues.
You can ask for revision of credit limits on your card, if you think you are spending too much.
All content on this page is courtesy Centre for Investment Education and Learning (CIEL)
Joint holders: If a folio is held by multiple unit holders, all holders need to sign the request for addition of bank accounts, even if the folio is being operated on ‘either or survivor' basis. Redemption request: If an investor makes a redemption request along with a change in the registered bank account, the new bank account detail will be subject to verification process, before the redemption is processed. Institutional investors: Institutional folios are operated by authorised signatories. All bank accounts being registered should be in the name of the entity that holds the portfolio.
Guest Column
The Economic Times Wealth, December 27, 2010
27
FINANCIAL PLANNING
How healthy is your portfolio? Managing your investment portfoilio is not just about picking the right product. Achieving the right mix is equally important, says Uma Shashikant
W
e seek expert help in our everyday tasks. Decisions are easily made when we can separate tasks that we would do from tasks that would require specialist advice. We also understand that we may not be able to efficiently replicate what specialists do, for lack of requisite skills and knowledge. We do not construct our house, tailor our clothes, or repair our broken equipment. Many of us, however, are guilty of not applying these rules when it comes to investing. The main reason for our penchant to manage our investment portfolio, is the focus on products. We think that as long as we have chosen the right stock, the right product, at the right time, we are good to go. Selection and timing skills don’t come easy. As a result, we end up with a mixed performance, winning mostly by default rather than by design, finding it tough to replicate our successes. Setting the same performance standard for investment managers and advisers, we judge them by how well they select and time investment decisions for us. This excessive focus on the toughest components of portfolio management not only leaves us dissatisfied, but also hurts our portfolio. Our portfolio suffers from a lack of a topdown approach that takes into account macrolevel decisions which can impact our long-term returns. A long-term portfolio requires focused management of asset allocation and weighting. We may be focusing on the stocks that we are selecting, while our wealth may be skewed due to a large holding in property, thus requiring correction. We may worry about the next stock to select while a large amount might be lying in bank deposits, earning a lower return. Asset allocation is neglected as a result. The rate of growth in our wealth is the weighted average of the proportion we hold and the return each asset earns. This number needs close monitoring and active management. Let’s consider some examples. Given the projected growth rate for the Indian economy, we are likely to see a boom in consumption, spurred by increasing per capita income. Is our portfolio positioned to take advantage of this trend? Unearthing of scams and the growing evidence of collusion between industry and politics is likely to delay project financing and bureaucratic decisions. Is our portfolio overweight in infrastructure and capital goods and thus prone to more risk? We may be immensely well off, if we sharpened the skill to manage our money top-down and leave the bottomup strategies for professional investment managers. We should be able to demand asset allocation and review services from our wealth advisers, if we think we may not be able to actively do so on our own. Unfortunately, many advisers think their job
What your portfolio manager must disclose Agreement: The portfolio manager has to enter into an agreement in writing with you, clearly defining the relationship and setting out their mutual rights, liabilities and obligations relating to the management of funds or portfolio of securities.
GETTY IMAGES
The author is managing director, Center for Investment Education and Learning, and can be reached at uma.shashikant@ciel.co.in
is limited to helping investors pick the ‘right’ product. If advisers look at themselves as ’asset allocators’ who will match the investor need towards a strategically built portfolio, we may see growth of another professional segment in the wealth management business. While an investment manager delivers relative return on a portfolio (that moves along with a benchmark), the challenge really should be to create a portfolio that delivers target returns investors have set to meet their financial goals. We do not see this kind of focus among advisers or investors. Smart advisers may be able to distill macro trends and advise on tactically moving funds from one asset type to another, keeping the
We think that as long as we have chosen the right stock, the right product, at the right time, we are good to go. Selection and timing skills don’t come easy. As a result, we end up with a mixed performance investors’ target return in focus. Long-term wealth creation for investors suffers due to the overt focus on the micro-level issues of selection and timing of stocks and products. Investment managers, advisers, and investors tend to spend time and energy at this level, leading to poor differentiation of functions. We also settle for a sub-optimal performance of our investments. Our wealth deserves better.
Please send your feedback to etwealth@indiatimes.com
Charges: The portfolio manager has to take prior permission from the client for charging fees for each activity for which service is rendered. Portfolio managers cannot impose a lock-in on the investment. However, they can charge exit fees for early exit, as laid down in the agreement. Portfolio details: The portfolio manager is required to furnish periodically a report to the client, as agreed in the contract, but not exceeding a period of six months and as and when required by the client. The report should contain: (a) Composition and value of the portfolio (b) Transactions undertaken during the period of report (c) Beneficial interest received during that period in respect of interest, dividend, bonus shares, rights shares and debentures; (d) Expenses incurred in managing the portfolio (e) Details of risks in future Grievance redressal: The portfolio manager has to give a disclosure document in which the grievance redressal mechanism along with the name, address and telephone number of the investor relation officer who attends to investor queries and complaints is mentioned.
28
Mis-selling
The Economic Times Wealth, December 27, 2010
MYSTERY BUYING
The trap called guaranteed NAV Vivek Kaul approached a bank relationship manager to understand guaranteed-NAV Ulips. The explanation was built on falsehoods that, alarmingly, seemed true and logical.
6 MUST KNOWS ABOUT GUARANTEED NAV
6
I
No instrument that invests In equities can guarantee returns. The Securities and Exchange Board of India does not allow even mutual funds to guarantee returns. The highest NAV is not the same as the highest level of market during the policy's tenure.
WWW.CARTOONSTOCK.COM
1 2 3 4 5
May be not as deceptive as this cartoon, but mis-selling of Ulips is endemic and deceptive
There is no minimum return guaranteed by the policies. The insurance companies do not explain how they manage to deliver the guaranteed returns without incurring losses. There are more transparent equity instruments, such as mutual funds, which offer exposure to stocks.
t is guaranteed,” said the relationship manager (RM), stretching the ‘ees’ for emphasis. He needn’t have. I got the idea, or at least, pretended to. The guaranteed-NAV Ulip (unitlinked insurance plan) would ensure that I earn the highest returns the market delivered during the tenure of the policy. A false smile in place, I sat back on the plush couch of the private sector bank. Ostensibly, I was digesting the implication—guaranteed returns from an equities instrument for 10 years. The absurdity of the promise was clear. How are investors misled so easily? Don’t they crunch numbers or ask how the insurance company will assure high returns consistently? Oblivious to my thoughts, the RM had ordered two cups of coffee and the application form of the Ulip. May be it was my imagination, but his smile seemed smug. What was he thinking? “One step closer to my monthly target? Just a few deals away from the grand prize of a trip to the Caribbean?” “You have to sign on every page of the
form. I will fill up the other details. You are investing `1 lakh a year, right?” asked the RM, breaking my reverie. True to my part of a gullible 34-year-old investor, I merely glanced through the form. Busy, impatient investors did not read through the fine print. It was supposed to be a waste of time. The problem was I had no intention of investing a single rupee in the instrument. The charade had got the better of me. So there I was, stalling for time, groping for an ingenuous excuse to get out. “Can you please explain once more how is the NAV guaranteed?” I asked. It was lame, but nothing else came to mind. The RM did not bat an eyelid. May be he was
accustomed to investors asking for repeats of his story about guaranteed-NAV Ulips. Say a lie a thousand times to make it true. “Of course. This plan is a 10-year unitlinked insurance plan which guarantees the highest NAV during the first seven years of the policy. You invest at the rate of `10 per unit. Say, after five years, the NAV of one unit is `35—the highest it reaches in the policy’s term. But by the time of maturity, the NAV has fallen to `28. Nevertheless, your returns will be calculated at the rate of `35 per unit. It is a win-win situation,” said the RM. It certainly seemed so, the way he put it. The RM’s final push was subtle: “So the
When guaranteed returns went bust A few years ago, the Unit Trust of India (UTI) had around `17,000 crore invested in its assured return schemes. All these schemes had to be shut down in 2002 when things started to go haywire. So, be on your guard when you hear guaranteed and equities together.
insurance company offers the best of three options: the highest NAV of the first seven years, the NAV at maturity or `10 per unit." What he did not say: “The policy goes all out to ensure the best for you. You can’t get a better deal.” How generous of the insurance companies. One would think they are a non-profit organisation, doling out the best returns for every investor. “Ulips invest in the stock market which goes up and down everyday. So how can they guarantee returns by investing in something so volatile?” I asked, wanting to gauge whether the RM knew how the ‘guaranteed returns’ were fixed. “This is why you should invest in it. It is what makes this Ulip special,” he replied. I probed further: “Let’s say the guaranteed-NAV policy raises `1,000 crore across India. The money is invested in the stock market. As per your example, five years later, the NAV touches `35. This means the `1,000 crore has grown to `3,500 crore. But at the end of 10 years, when the NAV is `28, the corpus is only `2,800 crore. How can the company pay `700 crore extra when it doesn't have the money?” For a better perspective, I added: “And what if there is a crash in the markets and the NAV drops to `15 at maturity? Then the insurer will have a corpus of `1,500 crore but need to cough up `3,500 crore.” The RM stared at me. The unassuming investor had metamorphosed into an aggressive, number-talking demon. One thing was certain, he did not know how the highest NAV of the Ulips are fixed. It wasn’t a surprise. Insurers are cagey about the math behind the guarantee. The trick is to gradually switch investments from equities to debt. The Ulips start out with maximum exposure to equities. As the date of maturity nears, the proportion of debt investments goes up. This is done by regularly booking profits from equities and transferring them to safe havens, ensuring that the NAV does not breach a predetermined level. Any loss due to the guaranteed returns is minimal. You get the highest NAV of the policy, but it is not the same as the highest level of the market. For some moments, I toyed with the idea of explaining the concept to the RM. Then I realised it would do no good. A fresher from a B-school, he had been taught to sell, not to understand how a product is constructed. His next remark confirmed my opinion: “I don't know the answer to your question. But if you leave your number, I will check and revert. Meanwhile, take the product brochure and the application form.” The bank had trained him well. The mask of the perfect salesman was back. Not needing an excuse any more, I got up and left the bank. Please send your feedback to etwealth@indiatimes.com
Guest Column The Economic Times Wealth, December 27, 2010
TAX STRATEGY
29
GETTY IMAGES
How to cut tax by investing in spouse’s name Gains from the investments made in the name of your spouse will be treated as your income and taxed accordingly. Sudhir Kaushik tells you how you can avoid this tax.
F
inancial planners contend that difficult to put two and two together. If the couples should ideally combine taxman discovers this circuitous their finances. The meshing transaction, you may be hauled up for tax together of the investments of evasion. the husband and wife not only Are there ways to avoid the clubbing provistrengthens the household’s financial fibre sions without crossing the line between tax but gives them a comprehensive view of the avoidance and tax evasion? Yes. If you want real situation. However, the taxman has set to buy a house in your wife’s name but don’t limits to this joining of the finances of the want the rent to be taxed as your income, two spouses. you can loan her the money. In exchange, He has no problems if one spouse gives she can give you her jewellery. For example, money to the other. After all, it’s their money if you transfer a house worth `10 lakh to your and spouses are in the list of specified wife and she transfers her jewellery for the relatives whom you can gift any sum without same amount in your favour, then the rental attracting a gift tax. But if that money is income from that house would not be invested and earns an income, the clubbing taxable to you. provisions of the Income Tax Act come into One can also avoid clubbing of income by play. Section 64 of the Income tax Act says opting for tax exempt investments. There is that income derived from money gifted to a no tax on income from the Public Provident spouse will be treated as the income of the Fund (although the 8% interest rate offered giver. It will be clubbed with his (or her) and the 15-year lock-in does not compare income for the year and taxed accordingly. with fixed deposits). There is also no tax on For instance, if you buy a house in your gains from shares and equity mutual funds if wife’s name but she has not monetarily held for more than a year. So, if one invests contributed in the purchase, then the rental in these options in the name of the spouse, income from that house would be treated as there is no additional tax liability. your income and taxed at the applicable For the same reason, it’s better to gift gold rate. Similarly, if you give money to your wife jewellery instead of cash to your wife as a gift and she puts it in a fixed deposit, the because gold does not generate any income. interest would be taxed as your income. Besides, in the past few years the Don’t think you can get away by clever appreciation on gold has been higher than ploys involving other relatives. For instance, the returns offered by fixed deposits. one may think of gifting money to his The clubbing rule also applies in case of mother-in-law, a transaction that has no gift investments made in the name of minor tax implications. Then a few days later, the children (below 18 years). The income lady gifts the money to her daughter, which earned from such investments is clubbed again does not have any tax implications. with that of the parent who earns more. The money can then be invested Earlier, you could avoid this tax by without attracting clubbing investing in a long-term deposit which provisions, right? Wrong. Given would mature when your child Not keeping your spouse in the loop that most big-ticket transactions turned 18. But this rule changed a about your finances are now reported to the tax few years ago. Now, the interest can be disastrous department by third parties earned on fixed deposits and bonds Page 2 (banks, brokerages, mutual funds, is taxed every year even though the insurance companies), it may not be investor gets it on maturity. So,
If you buy property in your wife’s name but she has not contributed any money for the purchase, then the rental income from that property would be treated as your income and taxed accordingly.
4 tax-efficient strategies for couples If you want to buy a house in your wife’s name but don't want the rent to be taxed as your income, loan her the money instead. In exchange, she can give you her jewellery.
There is no tax on income from the PPF or on long-term capital gains from shares and equity mutual funds. Investing in these options will put no additional tax liability.
It's better to gift gold jewellery instead of cash to your wife because gold does not generate any income. Besides, it has given higher than fixed deposits.
If a wife saves a little out of the money given to her for household expenses, that money is her own. If it is invested, the gains will not be clubbed with the income of the husband.
opening fixed deposits in the name of minors makes little sense any more. Instead, open a PPF account in the name of the child because, as mentioned earlier, PPF income is not taxable at any stage. The contribution to your own PPF account and that of the child cannot exceed the overall limit of `70,000 a year. However, the tax man does allow a few concessions to couples. If a wife saves a little out of the money given to her for household expenses, that money is treated as her own. If it is invested, the income will be treated as her income and not clubbed with that of the husband. But this clause is subject to a reasonable limit. Incidentally, a wife can help her husband save tax even before they get married. If a couple is engaged, and the girl does not have any taxable income or pays tax at a lower rate, her fiancé can transfer money to her. The income from those assets won’t be included in his income because the transaction took place before they got married. One can give up to `1.9 lakh (the tax exempt limit for women) without putting any tax liability on the girl.
Sudhir Kaushik is co-founder & CFO, TaxSpanner.com Please send your feedback to etwealth@indiatimes.com
30
Your Queries
The Economic Times Wealth, December 27, 2010
QUESTION OF THE WEEK 1
2
3
Q&A
PANEL MEMBERS 1. Taxation Vaibhav Sankla, Founder Director, ADROIT 2. Mutual Funds Dhirendra Kumar, CEO, Value Research
4
5
3. Insurance Amit Suri, CFP, AUM Financial Planners 4. Banking VN Kulkarni, Chief Counsellor, Abhay Credit Counselling Centre
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5. Real Estate Subhankar Mitra, Associate Director (Strategic Consulting), Jones Lang LaSalle India 6. Real Estate (Legal) Dhiraj D. Jain, partner (real estate), SN Gupta Company
ET Wealth brings the collective wisdom of six investing experts to help answer readers queries on various personal finance-related matters.
MUTUAL FUNDS I am 28 and want to invest `4,000-5,000 per month in equity MFs. How can I invest online and keep a track of the units? - Hemant Kawadkar
You should start with a balanced fund like HDFC Prudence or Reliance Regular Savings Balanced Fund and then later move to a large-cap fund such as DSPBR Top 100 or IDFC Imperial Equity Plan A. You can invest online directly with a fund house, through your trading account or through third-party websites. They offer additional facilities through which you can view and analyse your fund holdings. I invest in mutual funds with the dividend option to get tax-free returns in retirement. I recently read that Sebi has directed all mutual funds to calculate dividend payments by a modified formula. How will this affect the dividend payouts and is there is a likelihood of reduction in these payouts? Should I switch my investments to growth? - Ramandeep Singh
Your strategy to invest in the dividend option of mutual funds worked well as it provided regular, tax-free income. The Sebi news is correct and will definitely reduce the dividend payout.Also, once the Direct Taxes Code (DTC) comes into play from April 1, 2012, you will not only receive less dividend, it will also attract a 5% tax. To counter this development, it is advisable for you to move to the growth option and redeem your holding units to meet your income needs. As these will be long-term capital gains, you will at least not pay tax on the gains. However, make sure that you do not redeem too much too soon by eroding your capital.
LOANS I have been the guarantor for the home loan of a friend, but he recently defaulted on EMIs. Can I withdraw now? Will his default affect my creditworthiness and reported to Cibil? - Satish Joshi
You cannot withdraw your guarantee unless your friend substitutes you with another guarantor who is acceptable to the bank.
However, you can inform the bank of your intention not to continue as a guarantor so that the process of finding another guarantor can begin. You will not be liable in case the bank grants any further advance from the date of revocation of your guarantee. You need not worry about Cibil as it contains credit history of commercial and consumer borrowers, and not the guarantor's data. I paid `50,000 to settle my credit card dues with a waiver of `10,000 (interest). Cibil’s records still reflect an outstanding of `10,000. How do I get my name removed from Cibil? Despite obtaining a ‘No Due’ certificate from the bank, other banks are refusing to sanction a home loan. - Meghna
You need to inform your banker, enclosing a copy of the ‘No Due’ certificate and ask them to correct the Cibil data. For the processing of home loan, you can explain the circumstances under which Cibil data was not updated and that you have taken up the matter with a concerned bank. You can even show the ‘No Due’ certificate as well as the letter written by you for correcting the data maintained by Cibil.
INSURANCE My parents have a medical policy for the past 10 years but have never made a claim. During this period, my father developed high blood pressure and my mother was diagnosed with type 2 diabetes. Should they declare these ailments to insurers? What happens if they want to raise their cover? Will they have to pay loading charges? - Ramesh Takle
If your parents are renewing the existing plan without increasing the insurance amount, they do not need to declare their medical status. However, if they wish to increase the sum assured, then this information is very critical. On the basis of the medical information, the insurance company may ask for a loading in premium or may increase the sum assured with the exclusion of pre-existing diseases for a pre-defined period or may even deny the increase in health insurance coverage.
What is the difference between nomination and assignment? - Sonia Raheja
Nomination is an authorisation to receive the claim arising out of policy in the event of the death of the life assured. It does not give the nominee an absolute right over the money received to the exclusion of other legal heirs. Nomination can also be changed or cancelled at any time during the lifetime of the policyholder at his/her will or by a subsequent assignment. Meanwhile, assignment of an insurance policy is a transfer or assignment of all rights and liabilities to the insurance policy in favour of the assignee.
TAXATION My wife and I jointly took a housing loan of `28.5 lakh in March 2010. Possession is expected by end-2011. I fall in the 30% tax bracket and my wife in the 20% bracket. Can I take rebate in 2010-11 on interest being paid in a ratio other than 50:50? - Sadhna V Devani
You can claim tax deductions on interest payable and principal amounts repaid for your housing loan only from the year of possession. Hence, if you do not receive possession by 31 March 2011 you will not be eligible to claim either of the deductions. If you wish to claim tax deductions on interest payable and principal repayments made in respect of your housing loan in equal proportion, you should bear the EMI in equal proportion. If your bank is auto debited every month, your wife should transfer 50% of the EMI to your account every month as her contribution. What are the tax implications for my nonresident Indian son who booked a shortterm capital gain of `25,000 on sale of mutual funds in India. - P R Chowdhury
If the mutual fund is equity-oriented, then basic exemption cannot be claimed and
Ask Experts
In 2008, my father bought a flat for investment purpose. He paid 60% of the total money but could not pay the rest as he passed away. Now the seller does not intend to complete the transaction as property prices have gone up by 35%. How can I persuade him to complete the transaction? I do not want my father’s money back. —Tushar Sharma
I presume that the sale of the house took place under a registered agreement. Normally, in such a case, the legal heirs get a right to the property and your case is no different. In case the seller does not agree, you can approach the consumer court with your grievances. Also, ensure that the will is probated (in case your father has left a will) or a succession certificate is obtained, as it will ease the entire process.
under section 111A, income tax is required to be paid @ 15.45%. If the mutual fund is non-equity oriented then no income tax would be payable. I bought a flat in 2007 for personal use and sold it in April 2010 to invest in another under-construction flat. What will be the tax liability on the extra amount of `50,000? How do I compute short-term capital gains tax? This is the second house in my name. - S Chaudhuri
The date of purchase will be same as the date of registration. However, if you had obtained the possession upon the final payment, the date of possession would be considered as the date of purchase of the house. The date of sale would be arrived at using the same principles. If the difference between the sale and purchase date is more than 36 months, the capital gains would be considered as long term. If not, the same would be considered as short term. Tax on short-term capital gains would be calculated as per your applicable slab rates.
REAL ESTATE I own 2,000 sq ft of land and want to provide it to a mobile company for tower erection. How should I go about the process and who do I contact ? -Tanmay Das
You can contact all mobile service providers in your region and apprise them of the availability of your land for lease. However, a less tiresome route would be to engage the services of a competent real estate agency, which will have the requirements of several suitable clients and can help you find a better deal. It will also help you in the contract process.
Have a question for our experts? Post it at etwquery@indiatimes.com
In This Section
smart stats
ET Funds 100 Insurance ranking Global investing
33 36 37
Loans and deposits 38 39 Real estate City profile: Chennai 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 119
Gujarat NRE Coke
114
NMDC
112
Godrej Consumer
OVERALL RANK
98
See revenue column in the adjacent table
Least Expensive Stocks 5 stocks with lowest PE Prakash Industries
4.98
ICSA India
5.44
Texmaco
6.26
J Kumar Infraprojects
6.32
Ess Dee Aluminium
6.53
See PE column in adjacent table
Best PEGs Top 5 stocks with least price earning growth ratio
3i Infotech
0.04
0.04
Jubilant Life Sciences
G
701
IRB Infrastructure
Godawari Power
Mercator Lines
0.07
0.07
0.06 Gujarat NRE Coke
See PEG column in adjacent table
Income Generators Top 5 stocks with highest dividend yield Gateway Distriparks | 4.58 Shipping Corp of India | 3.80 Oil & Natural Gas Corp | 3.61 NIIT Technologies | 3.52 GE Shipping Co | 3.47 Dividend stocks are considered safe stocks during a downturn. Figures indicate what an investor can earn as dividend for every `100 invested.
See dividend yield column in adjacent table
Least Risky Top 5 stocks with lowest downside risk Bosch
0.84 Power Grid Corp of India
Bharat Heavy Electricals
0.89
0.87 Oil & Natural Gas Corp
0.95 Shiv-Vani Oil & Gas Explora
0.97 See downside risk and beta columns in adjacent table
Usha Martin Godawari Power Bombay Rayon Fashions Ess Dee Aluminium Ashok Leyland Gujarat Industries Power HDIL J Kumar Infraprojects Pratibha Industries Deepak Fertilizers 3i Infotech GE Shipping Co Tata Motors Bajaj Auto Jubilant Life Sciences Mercator Lines KS Oils Sobha Developers Cairn India Unity Infraprojects BGR Energy Systems Aditya Birla Nuvo Oil & Natural Gas Corp Parsvnath Developers Sesa Goa Shipping Corp of India Opto Circuits India NIIT Technologies Shiv-Vani Oil & Gas Exploratio Gujarat NRE Coke Amtek Auto Texmaco Consolidated Construction Cons Thermax Roa India Sterlite Industries India Allied Digital Services Strides Arcolab Torrent Pharmaceuticals KEC International India Everest Kanto Cylinder NIIT Bharat Heavy Electricals EIH United Phosphorus Gateway Distriparks Ahluwalia Contracts JSW Steel Reliance Industries Rallis India ICSA India Power Grid Corp of India Orient Paper & Industries Cummins India Deccan Chronicle Holdings Dr Reddy's Laboratories Sarda Energy & Minerals S Kumars Nationwide Hindustan Construction Co Maharashtra Seamless Motherson Sumi Systems Hindustan Dorr Oliver Unitech Escorts Godrej Consumer Products Ipca Laboratories Bosch DLF Jyothy Laboratories
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69
R
Revenue
50.88 36.99 80.39 70.32 60.51 54.90 89.10 65.08 65.94 47.91 15.08 19.65 40.10 59.21 18.66 79.96 45.23 49.68 700.63 38.31 88.05 38.40 24.02 67.95 49.54 21.55 43.85 36.47 30.24 113.98 30.38 34.90 41.24 63.33 38.27 41.26 38.12 67.03 32.74 34.94 39.29 16.69 43.00 62.27 22.80 38.85 38.82 58.49 25.10 42.89 31.46 40.90 25.46 42.64 13.58 26.92 75.66 51.74 27.89 24.58 36.95 51.92 59.66 21.48 97.65 36.30 56.79 48.21 46.97
O
W
T
Net Profit
100.18 145.79 107.29 86.05 73.61 67.46 105.47 43.23 77.39 33.20 762.66 54.25 257.05 73.69 20.69 397.94 57.23 86.60 615.20 38.00 72.95 312.38 36.08 102.59 75.44 61.35 57.03 36.50 42.29 7815.92 126.54 49.24 32.19 207.56 28.59 23.43 38.63 119.07 56.48 26.49 105.12 49.09 47.45 160.03 48.01 29.33 41.84 71.35 50.63 67.74 41.94 42.30 19.81 74.08 52.12 285.50 26.78 51.25 2424.61 19.46 78.45 43.58 77.65 57.38 64.98 41.62 73.21 63.84 55.10
H
% EPS
100.19 130.19 115.48 50.67 74.91 67.47 57.28 43.23 54.44 31.42 713.48 53.60 197.27 71.90 230.26 355.14 49.22 75.90 610.34 35.67 73.16 277.21 36.46 85.87 59.89 60.17 55.65 35.90 32.00 2174.22 60.42 42.85 62.10 207.98 26.62 66.65 37.17 62.35 60.33 33.19 106.88 49.04 49.28 168.86 38.56 27.42 41.86 33.45 39.63 63.85 30.74 32.78 19.81 72.33 51.19 286.77 26.80 35.06 2140.63 19.44 72.28 47.79 56.07 34.62 56.86 41.33 68.50 66.40 44.81
V A L U A T I O N P/E
10.83 8.84 11.33 6.53 19.86 14.99 10.89 6.32 10.08 8.64 31.77 9.90 27.18 26.12 9.66 23.27 8.20 22.08 59.74 7.12 24.90 53.77 14.19 14.77 9.71 14.81 18.13 9.36 8.70 139.44 11.61 6.26 11.70 38.53 9.71 15.59 7.74 20.26 20.97 11.72 23.43 12.93 25.89 69.04 13.30 14.70 11.51 13.94 12.83 25.96 5.44 20.01 6.98 31.78 11.05 80.56 7.20 8.64 539.02 9.45 28.34 14.09 21.13 10.66 33.28 19.99 33.12 27.82 25.06
R A T I O S
P/B
Div Yield
PEG
1.26 1.02 1.16 2.49 2.29 1.28 0.96 1.64 2.07 1.55 1.08 0.89 9.20 15.33 1.99 0.58 1.28 1.86 1.85 1.16 7.10 1.58 2.71 0.90 3.30 0.88 4.52 2.04 1.52 2.35 0.62 1.09 1.82 9.26 1.54 1.66 1.35 2.19 5.83 2.81 1.57 1.80 7.05 3.28 2.34 1.75 3.72 2.43 2.23 6.34 0.94 2.56 1.42 9.91 2.10 7.50 1.59 0.94 2.07 1.18 5.91 3.54 1.47 0.92 12.18 4.76 6.97 1.96 4.81
1.43 1.34 0.76 0.44 2.34 2.35 0.00 1.22 0.87 2.80 2.60 3.47 1.11 1.38 0.72 0.38 0.41 0.78 0.00 1.12 1.01 0.60 3.61 0.00 1.05 3.80 1.54 3.52 0.25 1.66 0.00 1.88 0.84 0.60 2.10 0.52 0.54 0.35 1.05 1.35 1.27 2.57 1.01 1.04 1.27 4.58 0.53 0.82 0.66 1.14 1.16 1.54 2.64 0.81 0.95 0.67 1.00 0.00 0.88 1.57 0.95 0.70 0.32 0.58 1.13 0.85 0.48 0.71 1.57
0.11 0.07 0.10 0.13 0.27 0.22 0.19 0.15 0.19 0.28 0.04 0.18 0.14 0.36 0.04 0.07 0.17 0.29 0.10 0.20 0.34 0.19 0.39 0.17 0.16 0.25 0.33 0.26 0.27 0.06 0.19 0.15 0.19 0.19 0.36 0.23 0.21 0.32 0.35 0.35 0.22 0.26 0.53 0.41 0.34 0.54 0.28 0.42 0.32 0.41 0.18 0.61 0.35 0.44 0.22 0.28 0.27 0.25 0.25 0.49 0.39 0.29 0.38 0.31 0.59 0.48 0.48 0.42 0.56
R I S K Downside Risk
1.39 1.77 1.25 1.08 1.42 1.19 1.95 1.68 1.72 1.60 1.34 1.44 1.62 1.08 1.18 1.98 1.97 1.76 1.24 1.35 1.68 1.33 0.95 1.28 1.79 1.31 1.23 1.33 0.97 2.14 1.75 4.07 1.40 1.16 1.34 1.62 1.42 1.70 1.16 1.15 1.75 1.42 0.87 1.24 1.43 1.33 1.55 1.80 1.06 1.26 1.61 0.89 1.43 0.97 1.72 1.14 2.42 2.35 2.09 1.08 1.42 1.73 1.86 2.04 1.46 1.16 0.84 1.66 1.50
Bear Beta
1.11 1.62 0.83 0.86 1.47 1.18 1.88 1.67 1.45 1.28 1.36 1.90 1.86 0.58 0.83 2.61 1.33 1.70 0.94 1.40 1.10 0.91 0.54 0.50 1.79 1.56 0.97 0.98 0.38 1.86 1.12 1.58 0.64 0.68 0.84 1.36 1.44 0.82 0.05 0.62 1.61 1.20 0.70 0.80 0.94 0.75 0.70 2.24 0.91 0.51 1.67 0.64 1.06 0.43 1.27 0.43 2.16 1.37 2.00 1.07 0.88 1.15 2.15 1.66 0.30 0.77 0.33 1.66 0.43
R A T I N G No. of Analysts
16.00 15.00 6.00 5.00 45.00 8.00 31.00 8.00 7.00 10.00 7.00 17.00 44.00 56.00 25.00 7.00 8.00 20.00 33.00 12.00 31.00 11.00 47.00 6.00 34.00 13.00 13.00 6.00 15.00 6.00 5.00 7.00 7.00 30.00 15.00 40.00 9.00 6.00 10.00 25.00 9.00 13.00 48.00 7.00 20.00 12.00 16.00 50.00 43.00 13.00 6.00 32.00 9.00 13.00 7.00 46.00 6.00 5.00 31.00 15.00 18.00 8.00 35.00 13.00 31.00 23.00 10.00 38.00 12.00
Consensus Rating
5.00 4.87 4.50 5.00 3.84 4.00 4.42 4.75 4.86 4.90 4.43 4.24 4.64 3.84 4.68 4.43 5.00 4.80 3.12 4.67 4.71 4.73 4.30 3.17 3.38 3.85 4.54 4.67 4.73 4.00 5.00 4.00 4.43 3.80 4.47 4.53 5.00 4.83 4.80 4.48 3.78 4.23 4.08 4.00 4.70 4.58 4.94 3.98 3.84 4.15 4.33 3.84 4.78 4.46 5.00 3.65 4.83 4.60 4.13 4.47 4.28 4.63 3.60 4.92 3.84 4.70 4.30 3.37 4.25
32
Smart Stats
The Economic Times Wealth, December 27, 2010
Analysts’ Pets
G OVERALL RANK
Top 5 stocks with only buy recommendation Usha Martin
16 Prakash Allied Industries Digital Services 10
9
Deccan Chronicle Holdings
KS Oils
8
7
Figures are number of analysts tracking the stock. See last column in table.
What is Hot Stocks that improved their analyst rating in 1 week
Mercator Lines 0.43 0.10 Bombay Rayon Fashions 0.09 Gujarat Gas Co 0.08 Gateway Distriparks 0.08 JSW Steel Figures show improvement in rating on a scale of 0-5
Sintex Industries Tata Chemicals Prakash Industries Aban Offshore Exide Industries Monnet Ispat & Energy Petronet LNG WABCO-TVS India Nagarjuna Construction Co HCL Technologies Patel Engineering Ratnamani Metals & Tubes Indraprastha Gas Redington India Gujarat Gas Co Glenmark Pharmaceuticals GVK Power & Infrastructure Apollo Hospitals Enterprise NMDC Unichem Laboratories McLeod Russel India IRB Infrastructure Developers Zee Entertainment Enterprises Sun TV Network Sun Pharmaceutical Simplex Infrastructures Ranbaxy Laboratories National Aluminium Co Tata Consuancy Services Polaris Software Lab Lupin
70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100
R
O
Revenue
W
T
Net Profit
44.42 18.65 38.38 10.98 40.00 57.61 44.90 67.99 40.37 39.69 33.23 27.34 83.10 31.31 46.64 33.83 28.23 43.89 112.01 33.06 22.88 118.56 42.20 44.17 54.30 31.26 29.36 27.14 42.22 20.31 37.05
51.98 48.02 44.25 106.68 58.10 35.01 43.70 82.25 19.34 49.33 21.43 21.41 33.93 45.55 50.35 63.70 138.63 58.33 126.11 38.45 27.35 38.58 42.24 55.00 44.40 44.19 301.34 66.06 33.00 18.30 45.55
H
% EPS
P/E
P/B
42.04 40.31 15.62 101.28 47.81 23.13 45.51 82.32 18.61 45.71 21.25 19.30 33.37 46.50 48.98 61.21 88.44 56.91 124.50 38.54 36.03 37.72 18.82 55.57 45.24 42.94 338.93 70.30 34.05 17.77 41.13
14.66 15.34 4.98 10.42 26.75 10.42 23.58 25.71 12.01 24.20 10.02 6.88 21.03 17.30 29.01 28.01 40.99 41.84 30.31 17.78 10.14 18.52 19.56 40.16 35.34 16.54 81.46 29.93 31.84 9.75 28.68
2.50 2.03 0.97 1.74 7.29 3.55 4.27 7.44 1.54 4.88 1.59 1.54 5.49 2.97 6.55 3.99 2.09 3.49 7.32 3.89 1.71 3.50 3.15 11.07 6.07 2.15 5.56 2.34 12.11 1.81 7.87
0.33 2.28 0.00 0.48 0.79 0.93 1.37 0.24 0.93 0.98 0.64 1.82 1.39 1.24 2.05 0.11 0.00 0.75 0.67 1.63 1.91 0.70 1.42 1.42 0.60 0.47 0.00 0.67 1.75 1.95 0.60
METHODOLOGY
Stocks that have gone down in analyst rating in 1 week
Only traded stocks: Of the 7,000-odd listed stocks, only 3,734 are currently traded. We considered only these stocks.
Four filters used to arrive at Top 100 stocks
Only big stocks: Companies with a market cap below `500 crore and annual revenues lower than `500 crore were dropped. This narrowed the universe to 564.
-0.17
Only well tracked: We picked stocks that are tracked by at least 5 analysts. This brought the list down to 305 stocks. Only profitable and growing: We considered stocks expected to show revenue growth in the next 4 quarters (list down to 246), net profit growth in the next 4 quarters (down to 224) and EPS growth in the next 4 quarters (down further to 213) were considered. The final filters were companies that made profits in past 4 quarters and have a positive net worth.
Bosch -0.14 Jubilant Life Sciences
-0.08
Rating rationale
Ashok Leyland -0.07 Zee Entertainment
-0.06
R A T I O S Div Yield
What is Not GE Shipping Co
V A L U A T I O N
PEG
0.35 0.38 0.32 0.10 0.56 0.45 0.52 0.31 0.65 0.53 0.47 0.36 0.63 0.37 0.59 0.46 0.46 0.74 0.24 0.46 0.28 0.49 1.04 0.72 0.78 0.39 0.24 0.43 0.94 0.55 0.70
R I S K Downside Risk
R A T I N G
Bear Beta
1.55 1.38 1.99 2.07 1.31 1.17 1.48 1.50 1.56 1.42 1.37 1.41 1.40 1.26 1.11 1.36 1.31 1.35 1.64 1.48 1.85 1.77 1.28 1.21 1.03 1.44 1.21 1.23 1.06 1.58 1.05
1.51 1.27 1.72 2.03 0.73 1.09 0.88 1.41 1.37 1.36 1.58 1.26 0.53 0.67 0.91 0.90 1.51 0.81 1.39 0.69 1.26 1.55 0.83 0.94 0.31 0.81 1.33 0.98 0.90 1.22 0.71
No. of Analysts
Consensus Rating
16.00 16.00 10.00 25.00 29.00 10.00 36.00 5.00 37.00 55.00 26.00 6.00 26.00 5.00 17.00 36.00 21.00 14.00 13.00 7.00 5.00 32.00 33.00 34.00 44.00 26.00 42.00 33.00 63.00 14.00 43.00
4.50 4.06 5.00 3.20 4.52 4.40 3.64 5.00 4.62 4.07 4.85 4.50 3.88 4.20 3.53 4.36 4.52 4.57 2.38 4.57 4.60 4.22 3.91 3.76 3.64 3.73 3.21 1.48 4.13 4.71 4.23
the better), 10% weight to net profit growth (higher the better) and 10% to growth in EPS (higher the better). Growth is calculated by comparing the "consensus estimate" for the next 12 months with the historical 12 month values. 2. ... But only at reasonable valuation Total weight: 40%, which comprises 10% weight to P/E ratio (lower the better), 10% to P/B ratio (lower the better), 10% to dividend yield (higher the better) and another 10% to PEG ratio (lower the better) 3. Analysts' views matter ... Total Weight: 20%—this consisted of 10% weight to the total number of analysts covering the stock (higher the better) and 10% to consensus rating (a composite rating based on the recommendations by all analysts who track a stock - higher the better). 4. ... So do the risks Total weight: 10% Two kinds of risks were considered. Downside risk (lower the better— 5% weight) and Bear Beta (lower the better—5% weight)
Having arrived at the final stocks universe, we ranked them using the following four principles. A percentile rating (i.e. on a 1-100 scale) is given to each parameter and the composite ranking is arrived at using the weighted average of these parameters. 1. Growth is the key ... Total weight: 30%, which is further split into 10% weight to revenue growth (higher
The ranking methodology has been developed by Narendra Nathan.. A detailed explanation of the methodology is available at www.wealth.economictimes.com Please send your views about ET Wealth Top 100 to etwealth@indiatimes.com
Figures show dip in rating on a scale of 0-5
BSE Sectoral Indices
BSE Sensex
Top 5 Mid-Cap Stocks
BSE Sector Indices- Weekly Change
Markets continue to move up due to high FII inflows
Top 5 weekly gainers (price)
BSE Metal
3.94
BSE IT Sector
1.78
BSE Tech
1.63
BSE Auto
20073.66
BF Utilities CMP: 844.30 | % Chg: 18.63
1
Shree Renuka Sugars CMP: 97.90 | % Chg: 14.70
2 1 year 1 week
1.28
Jubilant FoodWorks CMP: 631.25 | % Chg: 14.10
3
15.63 1.05
BSE FMCG Sector
1.17
BSE Sensex
1.05
BANKEX
0.44
BSE Healthcare
0.33
BSE Consumer Durable
0.24
BSE Power
0.05
BSE Realty Index BSE Oil BSE Capital Goods
-0.25
Amtek Auto CMP: 145.15 | % Chg: 13.93
4
17360.61 Figures in the box indicate weekly and year-to-date percentage change in Sensex
Mahindra Holidays & Resorts (I) CMP: 412.00 | % Chg: 12.57
5
Top 5 Large-Cap Stocks
Top 5 Small-Cap Stocks
Top 5 weekly gainers (price)
Top 5 weekly gainers (price)
1
Hero Honda Motors Price: 1929.45 | % Chg: 19.01
2
1
United Breweries Price: 472.55 | % Chg: 11.20
3
Reliance Communications Price: 141.90 | % Chg: 9.91
4
Sterlite Industries (India) Price: 184.80 | % Chg: 8.04
Shalibhadra Finance CMP: 47.35 | % Chg: 47.97
2
Saksoft CMP: 52.30 | % Chg: 37.63
3
Jindal Worldwide CMP: 297.45 | % Chg: 37.07
4
Kiri Dyes and Chemicals CMP: 442.60 | % Chg: 34.24
-0.43 -0.90
5
Hindalco Industries Price: 239.35 | % Chg: 7.86
Stock price as on 24 December 2010
5
Polytex India CMP: 26.25 | % Chg: 33.93
Smart Stats
The Economic Times Wealth, December 27, 2010
ETW FUNDS 100 B E S T
F U N D S
T O
B U I L D
Y O U R
LEADERS & LAGGARDS Taking a long-term view of fund returns, here is a list of 10 funds in each category — five leaders (worth investing in) and five laggards (that may be a drag on your portfolio)
P O R T F O L I O
LAGGARDS
ET Wealth collaborates with Value Research to identify the top-performing 100 funds across 10 categories. Equity funds and equity-oriented hybrid funds are ranked on 3year returns while debt-oriented hybrid and income funds are ranked on 1-year returns. NET ASSETS (`CR)
10.33
12.43 R E T U R N S 3-MONTHS 6-MONTHS
1-YEAR
( % ) 3-YEARS
5-YEARS
LICMF Index Nifty
EXPENSE RATIO
13.35
Equity: Large-Cap
HDFC Index Nifty
DSPBR Top 100 Equity Reg
2773.27
-0.46
11.62
15.56
5.83
22.15
1.86
Franklin India Bluechip
3358.07
0.57
13.96
22.05
7.07
20.32
1.85
HDFC Index Sensex Plus
58.78
-0.26
12.37
17.13
5.59
19.07
1.00
ICICI Prudential Growth
364.70
1.64
12.69
16.30
3.60
17.04
2.28
ICICI Prudential Index Retail
80.86
0.34
12.68
16.95
2.46
17.82
0.67
IDFC Equity Plan A
581.36
0.68
12.88
16.94
0.88
-
2.21 2.33
IDFC Imperial Equity Plan A
514.74
-0.77
10.39
15.41
5.85
-
Reliance Equity Advantage Retail
1322.61
-1.80
11.86
17.59
2.96
-
1.95
Sahara Growth
6.23
-3.89
7.87
9.28
4.20
19.33
2.50
13.50
0.87% expense ratio of ICICI Pru Index is among the lowest for equity funds
Birla Sun Life Frontline Equity Plan A
LICMF Index Sensex
14.01 HDFC Index Sensex
Principal Growth
58.00
2529.13
-0.80 -0.01
11.49 12.59
12.91 17.86
6.24 6.98
19.22 22.77
2.50
10.16
1.88
LICMF Opportunities
Canara Robeco Equity Diversified
386.08
-3.26
8.69
18.88
6.22
19.73
2.32
DSPBR Opportunities
896.37
-2.04
13.13
23.08
3.13
18.92
2.08
10.75
Fidelity Equity
3307.21
-0.95
12.45
25.48
6.92
21.08
1.85
LICMF Growth
Fidelity India Growth
379.60
0.00
13.12
26.00
7.91
-
2.31
Franklin India Flexi Cap
2367.50
-1.51
14.24
19.85
4.96
18.31
1.88
Franklin India Prima Plus
1940.47
-2.85
12.29
19.03
4.40
19.96
1.91
11.65 Magnum MultiCap
14.35
0.39
10.70
17.36
7.90
16.67
0.75
11.78
9069.73
-0.70
14.99
23.65
11.50
22.99
1.79
LICMF Equity
489.68
-0.53
10.93
20.09
3.15
21.75
2.26
Reliance NRI Equity
143.33
-1.29
13.19
21.75
4.91
21.50
2.43
Tata Equity Management
192.05
-1.18
7.72
14.57
4.49
-
2.38
Tata Pure Equity
662.54
-3.68
9.93
17.48
3.93
19.47
2.20
UTI Contra
236.12
-3.88
6.41
7.83
4.19
-
2.36
UTI Equity
2117.39
1.99
14.90
19.19
8.33
16.97
1.90
UTI Opportunities
1581.62
1.04
16.19
18.83
7.91
17.92
1.95
FT India Life Stage FoF 20s
HDFC Top 200
Principal Large Cap
-15.15 BNP Paribas Opportunities
-14.64
Equity: Multi-Cap Birla Sun Life Asset Allocation Aggressive
14.05
-0.58
7.82
15.04
9.08
18.07
0.35
-10.75
DSPBR Equity
2273.22
-2.49
11.42
19.10
6.58
23.29
1.89
JM Equity
Fidelity International Opportunities
518.01
2.44
14.28
22.35
6.79
-
2.22
-9.04
HDFC Equity
7872.99
-0.26
17.07
28.70
11.77
22.68
1.79
HDFC Growth
1423.23
-1.48
14.42
26.43
6.62
22.64
1.97
ICICI Prudential Dynamic
2593.47
1.87
10.08
21.00
7.69
21.92
1.87
26.6%
L&T Contra
5-year return of Reliance Regular Savings is the highest in category
Taurus Starshare
Reliance Equity Opportunities
Reliance Regular Savings Equity
Templeton India Equity Income
Templeton India Growth UTI Dividend Yield
65.75
0.39
17.25
27.72
2694.26
-2.89
13.79
28.95
3278.17
-2.06
11.75
18.41
1220.27
3.74
21.74
24.10
793.92
-0.80
12.61
2781.62
0.21
14.15
13.14
-
1.56
7.95
21.52
1.88
6.34
26.61
1.85
8.30
-
2.01
20.59
9.22
21.15
2.19
24.33
10.81
21.56
1.88
-6.70
-28.68
Birla Sun Life Dividend Yield Plus
608.46
-1.96
12.04
28.75
13.77
18.82
2.27
-23.63
Birla Sun Life Mid Cap Plan A
1974.77
-2.56
8.91
13.73
3.18
20.04
1.91
JM Emerging Leaders
DSPBR Micro Cap Reg
411.59
-6.01
6.50
42.96
4.51
-
2.31
-22.55
DSPBR Small and Mid Cap Reg
1104.33
-2.89
10.93
28.09
7.30
-
2.06
JM Contra
HDFC Mid-Cap Opportunities
1206.60
-0.96
12.38
30.88
9.03
-
1.99
1488.43
-0.16
10.14
26.20
12.87
19.47
1.99
IDFC Premier Equity Plan A
1786.44
-2.86
14.37
31.68
10.31
28.25
1.93
ING Contra
14.06
-2.66
5.45
10.22
2.74
-
2.50
ING Dividend Yield
49.95
-0.93
11.56
28.20
11.82
19.04
2.50
Religare Contra
71.66
-1.93
6.89
14.32
7.80
-
2.50
Religare Mid Cap
40.86
-5.40
9.52
28.00
0.53
-
2.50
Sahara Mid-Cap Fund
12.41
-3.34
9.21
24.47
3.78
16.99
2.48
Sundaram Select Midcap Reg
2357.36
-2.89
11.92
18.50
4.39
22.89
1.89
Tata Dividend Yield
168.25
-0.14
12.62
31.67
7.48
18.57
2.41
UTI Master Value
633.22
0.51
14.03
29.40
7.15
15.80
2.24
Equity: Infrastructure
560.39
-5.65
5.24
9.77
-3.23
-
2.22
DSPBR T.I.G.E.R. Reg
3063.00
-5.69
6.22
13.18
-3.66
18.51
1.84
3680.72
ICICI Prudential Infrastructure
28.3% 5-year return of IDFC Premier Equity is the highest in category
-17.39 Taurus Discovery
-12.07 L&T Global Advantage
Tata Infrastructure
Taurus Infrastructure
-1.97
8.80
9.83
-1.79
22.37
1.82
7.59 JM Balanced
Baroda Pioneer Balance
9.79
2175.17
-6.45
4.66
8.99
-5.17
19.13
1.89
LICMF ULIS
25.78
-5.68
2.36
12.49
-2.77
-
2.50
10.40 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
19.75 DWS Alpha Equity Regular
19.33 Sahara Growth
19.07 HDFC Index Sensex Plus
22.99 HDFC Top 200
22.77 Birla Sun Life Frontline Equity Plan A
21.75 Principal Large Cap
21.50 Reliance NRI Equity
21.08 Fidelity Equity
13.14 Quantum Long Term Equity
11.77 HDFC Equity
10.81 UTI Dividend Yield
9.22 Templeton India Growth
9.08 Birla Sun Life Asset Allocation Aggressive
14.27 ICICI Prudential Discovery Inst I
13.77 Birla Sun Life Dividend Yield Plus
12.87 ICICI Prudential Discovery
11.82 ING Dividend Yield
10.31 IDFC Premier Equity Plan-A
Hybrid: Equity-oriented 5-year returns 8.38
Birla Sun Life Infrastructure Plan A
20.32
Equity: Mid- & Small-Cap 3-year returns JM Small & Mid-Cap Reg
Equity: Mid & Small-Cap
ICICI Prudential Discovery
DSPBR Top 100 Equity Reg
Equity: Multi-Cap 3-year returns
LICMF India Vision
Quantum Long Term Equity
22.15
Equity: Large- & Mid- Cap 5-year returns 8.51
Equity: Large- & Mid-Cap Baroda Pioneer Growth
LEADERS
Equity: Large- Cap 5-year returns LICMF Sensex Advantage
VALUE RESEARCH FUND RATING
33
10.55 LICMF Balanced
20.71 HDFC Prudence
18.82 Principal Conservative Growth
18.81 DSPBR Balanced
18.60 Birla Sun Life 95
18.54 Tata Balanced
34
Smart Stats
The Economic Times Wealth, December 27, 2010
ETW FUNDS 100 VALUE RESEARCH FUND RATING
Top 5 SIPs NET ASSETS (`CR)
Top 5 equity funds based on 10-year SIP returns R E T U R N S 3-MONTHS 6-MONTHS
1-YEAR
( % ) 3-YEARS
5-YEARS
EXPENSE RATIO
Equity: Tax Planning Canara Robeco Equity Tax Saver
219.92
-3.51
9.51
23.55
9.66
22.12
2.38
DSPBR Tax Saver
940.75
-2.50
9.25
21.30
1.78
-
2.08
Fidelity Tax Advantage
1296.25
-1.24
12.93
27.82
7.83
-
2.00
HDFC LT Advantage
1015.67
1.73
16.22
28.55
6.74
14.94
2.02
HDFC Taxsaver
2884.62
-1.04
13.12
25.06
7.78
17.73
1.86
ICICI Prudential Tax Plan
1296.50
0.72
12.50
23.98
6.86
15.40
2.00
Religare Tax Plan
109.30
-2.82
9.88
23.16
6.57
-
2.49
Sahara Tax Gain
11.90
-2.89
10.07
19.27
6.81
18.94
2.50
Taurus Tax Shield
62.49
-2.48
14.27
19.13
4.39
15.00
2.50
2.43
9.7% returns of Canara Robeco Taxsaver in past 3 years is highest for ELSS.
Reliance Growth
37.34 Magnum Contra
34.31 HDFC Equity
33.42 HDFC Top 200
32.95 Reliance Vision
32.10 SIP: Systematic investment plan
% annualised returns
Equity: Sectoral Franklin Infotech
Not Rated
139.04
12.97
22.92
30.36
16.86
13.10
Reliance Diversified Power Sector Retail
Not Rated
5180.92
-8.39
-1.42
4.11
1.39
28.69
1.81
UTI Banking Sector Reg
Not Rated
212.65
-4.81
18.42
36.16
10.89
23.21
2.39
Equity: SWPs Top 5 schemes based on 3Y SWP Returns
Hybrid: Equity-oriented Birla Sun Life 95
363.18
-0.91
10.30
18.82
8.45
18.60
2.33
Canara Robeco Balance
186.99
-3.36
7.54
16.37
6.30
17.53
2.39
DSPBR Balanced
774.93
-1.66
8.82
15.09
7.19
18.81
2.08
HDFC Balanced
193.39
1.23
10.72
25.77
12.46
17.44
2.15
HDFC Prudence
5334.10
-0.79
11.46
25.63
11.63
20.71
1.82
Reliance Regular Savings Balanced
698.79
-1.87
11.14
21.82
12.84
18.20
2.22
93.58
2.23
4.27
6.34
6.61
-
0.83
Hybrid: Arbitrage HDFC Arbitrage Retail
HDFC Arbitrage Wholesale
43.29
2.30
4.41
6.62
6.88
-
—
Kotak Equity Arbitrage
244.06
2.24
3.95
6.14
6.52
7.17
0.95
SBI Arbitrage Opportunities
125.10
1.99
3.58
5.60
6.01
-
0.76
UTI SPrEAD
158.35
1.66
2.98
4.59
7.13
-
1.00
Birla Sun Life MIP II Savings 5
1454.73
0.97
3.09
5.78
11.41
9.85
1.38
Birla Sun Life Monthly Income
639.23
0.92
3.95
7.84
7.76
10.06
1.98
DWS Money Plus Advantage Reg
178.94
1.69
2.78
6.35
8.15
-
1.99
HDFC MIP Long-term
8780.15
0.68
5.47
10.61
10.38
12.04
1.45
L&T MIP
114.41
0.65
3.22
5.19
9.83
9.76
2.23
Reliance MIP
13.83
25.6% return of HDFC Prudence in past 1 year is higher than average equity fund.
Birla Sun Life MIP II Savings 5
11.70 HDFC MIP Long-term
10.51 UTI CRTS 81
9.45 HDFC Multiple Yield Plan 2005
9.36 as on 23 December
Hybrid: Debt-oriented Conservative
Reliance MIP
UTI Monthly Income Scheme
7019.12
0.43
4.57
8.67
13.79
12.54
1.55
370.31
0.90
3.32
7.28
8.41
9.29
1.80
1.99
5.38
9.42
8.53
0.98
Debt: Income Birla Sun Life Dynamic Bond Ret
7095.29
0.75
Birla Sun Life Medium Term Retail
106.25
1.60
2.96
5.85
-
-
0.57
BNP Paribas Bond Reg
18.69
1.08
2.54
7.14
-
-
1.99
BNP Paribas Flexi Debt Reg
250.31
0.20
0.92
3.96
9.96
9.27
2.07
Canara Robeco Income
227.62
1.30
1.76
4.73
13.36
10.13
2.12
DWS Premier Bond Reg
13.42
1.94
2.25
6.60
8.70
6.92
2.04
ICICI Prudential Long-term Reg
83.96
0.45
0.71
3.69
6.74
6.99
1.44
IDFC SSI Medium-term Plan A
275.47
0.93
1.69
6.71
9.25
8.26
2.00
LICMF Bond
87.05
0.73
1.94
4.93
8.12
7.46
1.43
Principal Income Long Term
19.83
1.02
2.16
5.45
7.46
7.56
2.25
Reliance Regular Savings Debt Ret
2123.59
0.61
1.53
4.75
6.22
5.06
1.47
Sahara Income
136.05
1.63
3.00
5.31
9.86
8.60
0.35
Log on to www.etwealth.com/et100/list for an exhaustive list.
Methodology
EQUITIES (figures over past 3 yrs)
The Top 100 includes only those funds that have a 5-, 4- or 3-star rating from Value Research. The rating is determined by subtracting a fund's risk score from its return score. The result is assigned stars according to the following distribution:
Large cap: More than 80% assets in large-cap companies
Top 10%
Next 22.5%
Middle 35%
Next 22.5%
Bottom 10%*
Fixed-income funds less than 18 months old, and equity funds less than 3-year old, have been excluded. This ensures that all the funds have existed long enough to track consistency of performance. Given the focus on long-term investing, liquid funds, short-term funds and FMPs are not a part of the list. For the same reason, we have considered only the growth option of funds that reinvest returns instead of offering dividends that increase the NAV of funds. Despite these rigorous filters, the list includes 2/3 funds of each category to maximise choice from the best funds. The fund categories are: *Not covered in ETW Funds 100 listing
12.5% returns of Reliance MIP in past 5 years is highest in the category.
Top 5 equity diversified schemes with lowest cost of investment 0.12
0.10
0.08
0.06
10.1% return of Canara Robeco Income in past 5 years is better than PPF, FDs.
0.04
0.02
0.00
Kotak Liquid Regular
Religare Liquid Retail
Birla Sun Life Floating Rate ST
LICMF Liquid
HDFC Cash Mgmt Call
Expense ratio as on 30 September 2010
Returns as on 23 Dec 2010, Rating as on 30 Nov 2010, Assets and Expense Ratio as on 30 Sep 2010
Did not find your fund here?
Lowest Expense Ratio
Largest AUM Funds Equity-Large- & Mid-cap funds with largest assets under management
9,070
Large and mid-cap: 60-80% assets in large-cap companies Multi-cap: 40-60% assets in large-cap companies Mid & small-cap: At least 60% assets in small and mid-cap companies Tax planning: Offer tax rebate under section 80C 3,662
International: More than 65% of assets invested abroad
3,307
Income: Vary average maturity as per objective
2,648
Gilt: Medium & Long-term: Invest in gilt securities
2,529
Equity-oriented: Average equity exposure more than 60 % Debt-oriented Aggressive: Average equity exposure between 25-60 % Debt-oriented Conservative: Average equity exposure less than 25 % Arbitrage: Seek arbitrage opportunities between equity and derivatives
HDFC Top 200
Reliance Vision
Fidelity Equity
UTI Mastershare
Birla Sun Life Frontline Equity- Plan A
Asset allocation: Invest fully in equity or debt as per market AUM, in ` crore, as on 30 September 2010. Methdology of selected Top 100 funds on www.wealth.economictimes.com
Smart Stats
The Economic Times Wealth, December 27, 2010
REMAINING FUNDS
These funds did not make it to the best lists under any category but have moderately high net assets. This makes it important to track their performance regularly
RETURNS [%]
Scheme Name
Category
NAV (`) 3-month
AIG India Equity Reg Baroda Pioneer ELSS 96 Birla Sun Life Advantage Birla Sun Life Asset Allocation Aggressive Birla Sun Life Asset Allocation Conservative Birla Sun Life Asset Allocation Moderate Birla Sun Life Gilt Plus Liquid Birla Sun Life Gilt Plus Reg Birla Sun Life GSF Long-term Birla Sun Life Income Birla Sun Life Index Birla Sun Life MIP Birla Sun Life Small & Midcap Birla Sun Life Tax Relief 96 Birla Sun Life Top 100 BNP Paribas Dividend Yield BNP Paribas Flexi Debt Reg Plan A Canara Robeco Emerging Equities Canara Robeco Gilt PGS Canara Robeco Infrastructure Canara Robeco MIP Canara Robeco Nifty Index DSPBR Government Securities DSPBR Savings Manager Aggressive DSPBR Savings Manager Moderate DSPBR Strategic Bond Inst DSPBR Strategic Bond Reg DSPBR T.I.G.E.R. Inst DSPBR Treasury Bill DWS Alpha Equity Regular DWS Money Plus Advantage Inst DWS Premier Bond Inst Escorts Growth Escorts High Yield Equity Fidelity India Special Situations Franklin India High Growth Companies Franklin India Index BSE Sensex Franklin India Index NSE Nifty Franklin India Prima Franklin India Taxshield FT India Balanced FT India Life Stage FoF 20s FT India Life Stage FoF 30s FT India Life Stage FoF 40s FT India Life Stage FoF 50s Plus FT India Life Stage FoF 50s Plus Floating Rate HDFC Capital Builder HDFC Children's Gift-Inv HDFC Children's Gift-Sav HDFC Core & Satellite HDFC Gilt Long-term HDFC High Interest HDFC Income HDFC MIP Short-term HDFC Multiple Yield HDFC Multiple Yield Plan 2005 HDFC Premier Multi-Cap HSBC Flexi Debt Inst HSBC Flexi Debt Regular HSBC Income Investment HSBC MIP Regular HSBC MIP Savings HSBC Tax Saver Equity ICICI Prudential Advisor-Aggressive ICICI Prudential Advisor-Moderate ICICI Prudential Advisor-Very Aggressive ICICI Prudential Blended Plan A ICICI Prudential Blended Plan B Option I ICICI Prudential ChildCare-Study ICICI Prudential Discovery Inst I ICICI Prudential Dynamic Inst I ICICI Prudential Eq & Der Wealth Optimiser Reg ICICI Prudential Equity Opportunities Inst ICICI Prudential Gilt Investment ICICI Prudential Gilt Investment PF ICICI Prudential Gilt Treasury ICICI Prudential Growth Inst I ICICI Prudential Income ICICI Prudential Income Inst ICICI Prudential Income Opportunities Inst ICICI Prudential Income Opportunities Retail ICICI Prudential Indo Asia Equity Inst ICICI Prudential Indo Asia Equity Retail ICICI Prudential Infrastructure Inst I ICICI Prudential MIP ICICI Prudential Power ICICI Prudential Power Inst I IDFC Arbitrage Plan B IDFC GSF Investment Plan A IDFC GSF PF Plan B IDFC GSF PF Regular IDFC SSI Medium-term Plan B ING C.U.B. ING Core Equity ING Gilt PF Dynamic ING Income ING Nifty Plus ING OptiMix Active Debt Multi Manager FoF
Equity: Large & Mid Cap Equity: Tax Planning Equity: Large & Mid Cap Equity: Multi Cap Hybrid: Debt-oriented Conservative Hybrid: Debt-oriented Aggressive Debt: Gilt Short Term Debt: Gilt Medium & Long Term Debt: Gilt Medium & Long Term Debt: Income Equity: Large Cap Hybrid: Debt-oriented Conservative Equity: Mid & Small Cap Equity: Tax Planning Equity: Large & Mid Cap Equity: Multi Cap Debt: Income Equity: Mid & Small Cap Debt: Gilt Medium & Long Term Equity: Infrastructure Hybrid: Debt-oriented Conservative Equity: Large Cap Debt: Gilt Medium & Long Term Hybrid: Debt-oriented Conservative Hybrid: Debt-oriented Conservative Debt: Income Debt: Income Equity: Infrastructure Debt: Gilt Short Term Equity: Large Cap Hybrid: Debt-oriented Conservative Debt: Income Equity: Mid & Small Cap Equity: Mid & Small Cap Equity: Multi Cap Equity: Multi Cap Equity: Large Cap Equity: Large Cap Equity: Mid & Small Cap Equity: Tax Planning Hybrid: Equity-oriented Equity: Large & Mid Cap Hybrid: Debt-oriented Aggressive Hybrid: Debt-oriented Aggressive Hybrid: Debt-oriented Aggressive Hybrid: Debt-oriented Conservative Equity: Multi Cap Hybrid: Equity-oriented Hybrid: Debt-oriented Conservative Equity: Multi Cap Debt: Gilt Medium & Long Term Debt: Income Debt: Income Hybrid: Debt-oriented Conservative Hybrid: Debt-oriented Conservative Hybrid: Debt-oriented Conservative Equity: Multi Cap Debt: Income Debt: Income Debt: Income Hybrid: Debt-oriented Conservative Hybrid: Debt-oriented Conservative Equity: Tax Planning Hybrid: Equity-oriented Hybrid: Debt-oriented Aggressive Equity: Large & Mid Cap Hybrid: Arbitrage Hybrid: Debt-oriented Conservative Hybrid: Debt-oriented Conservative Equity: Mid & Small Cap Equity: Multi Cap Hybrid: Equity-oriented Equity: Mid & Small Cap Debt: Gilt Medium & Long Term Debt: Gilt Medium & Long Term Debt: Gilt Short Term Equity: Large Cap Debt: Income Debt: Income Debt: Income Debt: Income Equity: Large & Mid Cap Equity: Large & Mid Cap Equity: Infrastructure Hybrid: Debt-oriented Conservative Equity: Large & Mid Cap Equity: Large & Mid Cap Hybrid: Arbitrage Debt: Gilt Medium & Long Term Debt: Gilt Medium & Long Term Debt: Gilt Medium & Long Term Debt: Income Equity: Mid & Small Cap Equity: Large & Mid Cap Debt: Gilt Medium & Long Term Debt: Income Equity: Large Cap Debt: Income
12.67 27.66 169.19 35.53 20.69 28.83 22.03 31.52 28.02 35.00 59.47 26.22 12.73 89.02 23.87 18.51 11.21 23.36 25.67 23.03 29.14 31.54 33.02 19.15 19.56 1109.97 1217.51 14.11 20.06 83.29 10.61 11.33 79.02 15.10 19.37 13.27 56.30 46.99 288.07 215.95 49.71 37.93 28.20 23.34 18.70 19.34 116.64 42.00 22.19 42.91 19.53 32.52 22.39 16.98 17.60 16.01 30.17 13.05 12.90 16.50 16.97 19.35 15.63 30.53 24.79 35.39 14.68 14.38 29.08 22.44 17.20 13.94 14.12 32.91 19.14 24.93 19.94 30.69 32.00 11.50 13.23 11.21 11.21 17.01 25.44 120.87 33.68 13.03 17.92 15.32 15.15 11.61 18.39 40.65 15.58 25.25 29.88 13.22
-0.78 -1.39 -1.70 -0.58 0.85 0.37 1.38 1.70 1.02 0.42 -0.11 0.92 -4.71 -4.53 1.23 -3.54 0.20 -2.34 1.32 -5.58 0.55 0.29 0.93 2.13 1.41 1.11 0.98 -5.34 1.41 -2.43 1.76 2.01 -5.18 2.92 -1.53 -3.90 0.62 0.07 -2.37 0.22 -1.35 0.39 0.81 0.79 1.01 1.10 0.36 2.60 1.48 -0.43 1.58 1.19 1.12 -0.08 0.48 0.92 -3.24 1.23 1.14 1.27 0.40 0.40 -0.85 1.29 1.05 0.16 2.66 1.69 -0.74 0.09 2.09 0.65 -1.26 1.91 1.91 0.89 2.05 0.71 0.92 0.98 0.92 3.60 3.60 -1.79 1.18 0.33 0.63 2.32 1.14 1.18 1.06 1.02 -2.70 1.73 0.49 0.70 -0.37 1.68
35
1-year
11.29 13.73 12.74 15.04 7.14 10.93 6.66 3.15 9.22 3.74 15.83 7.28 19.01 11.81 17.01 21.27 3.96 29.85 2.96 12.12 8.58 16.00 5.00 5.07 3.99 4.68 4.12 14.01 3.86 15.26 6.62 6.86 19.02 28.63 21.52 13.64 16.28 16.26 18.88 22.64 14.10 17.36 13.18 11.27 8.59 7.70 27.07 29.74 12.20 26.47 5.92 5.61 5.48 6.29 10.13 9.80 21.84 4.66 4.30 4.57 5.00 6.66 17.09 15.06 11.19 13.62 6.10 5.52 12.60 27.57 22.06 14.36 19.36 5.21 5.84 3.68 18.06 2.89 3.45 4.39 4.22 18.00 18.00 10.74 7.06 22.04 23.51 5.84 3.05 4.08 3.61 7.08 19.42 19.21 4.28 3.96 16.86 4.70
RETURNS [%]
Scheme Name
Category
JM Arbitrage Advantage JM G-Sec Regular Plan JP Morgan India Equity Kotak 30 Kotak Bond Deposit Kotak Bond Regular Kotak Contra Kotak Equity FoF Kotak Gilt Investment PF & Trust Kotak Gilt Investment Regular Kotak Gilt Saving Kotak Mid-Cap Kotak Opportunities L&T Hedged Equity L&T Midcap L&T Opportunities L&T Tax Saver LICMF Floater MIP LICMF Growth Magnum Balanced Magnum Children's Benefit Plan Magnum Contra Magnum Equity Magnum Gilt Short-term Magnum Global Magnum Multiplier Plus Magnum Taxgain Morgan Stanley Growth Nifty Benchmark ETS Nifty Junior BeES Principal Conservative Growth Principal Dividend Yield Principal GSF Principal Index Principal MIP Principal MIP Plus Principal Personal Tax Saver Reliance Equity Opportunities Inst Reliance Growth Reliance Growth Inst Reliance Long Term Equity Reliance NRI Equity Reliance Tax Saver Reliance Vision Reliance Vision Inst Religare Arbitrage Sahara Infrastructure Variable Pricing Sahara Wealth Plus Variable Pricing SBI Bluechip SBI Dynamic Bond Sundaram Balanced Reg Sundaram Growth Reg Sundaram India Leadership Reg Sundaram S.M.I.L.E. Reg Sundaram Taxsaver Tata Balanced Tata Contra Tata Equity PE Tata Growth Tata GSF HI Tata Index Nifty A Tata MIP Tata Select Equity Tata Tax Saving Templeton India CAP Gift Plan Templeton India GSF Composite Templeton India GSF Long-term Templeton India GSF PF Templeton India GSF Treasury Templeton India Income Templeton India Income Builder UTI Balanced UTI Bond UTI CCP Advantage UTI CCP Balanced UTI CRTS 81 UTI Gilt Advantage Long-term UTI Gilt Advantage Long-term Provident UTI G-Sec Short-term UTI Infrastructure UTI Mahila Unit Scheme UTI Master Index UTI Mastershare UTI Mid Cap UTI MIS-Advantage Plan UTI Nifty Index UTI Retirement Benefit Pension
Hybrid: Arbitrage Debt: Gilt Medium & Long Term Equity: Large & Mid Cap Equity: Large Cap Debt: Income Debt: Income Equity: Multi Cap Equity: Large & Mid Cap Debt: Gilt Medium & Long Term Debt: Gilt Medium & Long Term Debt: Gilt Short Term Equity: Mid & Small Cap Equity: Multi Cap Equity: Large & Mid Cap Equity: Mid & Small Cap Equity: Multi Cap Equity: Tax Planning Hybrid: Debt-oriented Conservative Equity: Large & Mid Cap Hybrid: Equity-oriented Hybrid: Debt-oriented Conservative Equity: Multi Cap Equity: Large & Mid Cap Debt: Gilt Short Term Equity: Mid & Small Cap Equity: Multi Cap Equity: Tax Planning Equity: Large & Mid Cap Equity: Large Cap Equity: Multi Cap Hybrid: Equity-oriented Equity: Mid & Small Cap Debt: Gilt Medium & Long Term Equity: Large Cap Hybrid: Debt-oriented Conservative Hybrid: Debt-oriented Conservative Equity: Tax Planning Equity: Multi Cap Equity: Mid & Small Cap Equity: Mid & Small Cap Equity: Mid & Small Cap Equity: Large & Mid Cap Equity: Tax Planning Equity: Large & Mid Cap Equity: Large & Mid Cap Hybrid: Arbitrage Equity: Infrastructure Equity: Multi Cap Equity: Large & Mid Cap Debt: Income Hybrid: Equity-oriented Equity: Large & Mid Cap Equity: Large & Mid Cap Equity: Mid & Small Cap Equity: Tax Planning Hybrid: Equity-oriented Equity: Multi Cap Equity: Multi Cap Equity: Mid & Small Cap Debt: Gilt Medium & Long Term Equity: Large Cap Hybrid: Debt-oriented Conservative Equity: Mid & Small Cap Equity: Tax Planning Hybrid: Equity-oriented Debt: Gilt Medium & Long Term Debt: Gilt Medium & Long Term Debt: Gilt Medium & Long Term Debt: Gilt Short Term Debt: Income Debt: Income Hybrid: Equity-oriented Debt: Income Hybrid: Equity-oriented Hybrid: Debt-oriented Aggressive Hybrid: Debt-oriented Conservative Debt: Gilt Medium & Long Term Debt: Gilt Medium & Long Term Debt: Gilt Short Term Equity: Infrastructure Hybrid: Debt-oriented Conservative Equity: Large Cap Equity: Large & Mid Cap Equity: Mid & Small Cap Hybrid: Debt-oriented Conservative Equity: Large Cap Hybrid: Debt-oriented Aggressive
Funds chosen on the basis of AUM In congruence with our mandate to cater to the interests of all invetsors, this table tracks performance of funds with AUMs more than `10 crore.
NAV (`) 3-month
13.52 30.54 14.13 108.11 25.29 27.11 22.53 39.43 32.90 32.23 21.77 26.81 49.08 14.64 42.94 46.69 17.06 18.13 13.90 52.83 22.54 59.51 45.16 19.16 56.80 86.94 63.72 67.70 604.00 120.08 92.01 25.09 20.16 40.79 21.27 18.70 103.17 37.36 489.74 493.57 16.59 41.92 21.85 284.85 284.96 12.62 17.03 23.13 15.53 11.50 50.52 99.44 44.87 34.26 46.65 84.31 18.51 50.04 45.55 17.13 35.62 18.57 68.88 48.71 45.02 33.09 23.15 14.53 16.72 32.67 31.45 83.36 27.58 17.25 15.50 172.55 19.84 14.75 14.10 35.43 20.73 61.93 56.30 32.85 20.08 37.27 19.78
Wondering how SIP returns are calculated? page 41
1.97 0.66 0.03 -0.92 0.71 0.71 -4.47 -2.28 1.44 1.44 0.98 -5.20 -2.90 -2.33 -1.60 -0.60 -2.51 0.85 0.05 -1.05 0.81 -4.77 -2.06 1.18 -5.13 -2.14 -1.76 -0.75 0.39 -4.80 -1.17 -0.24 1.06 0.05 0.44 0.45 -1.83 -2.84 -3.64 -3.59 -4.04 -1.29 -4.61 -3.71 -3.66 2.11 -7.59 -0.90 -1.52 1.67 0.67 -1.08 0.01 -6.30 -2.48 -0.80 -0.74 -0.19 -2.91 1.27 0.03 0.25 -1.17 0.33 -1.10 1.61 1.67 1.61 1.12 1.25 1.56 0.16 0.92 0.10 0.39 -0.40 1.89 1.89 1.16 -5.34 0.78 0.64 -0.95 -4.26 0.59 0.05 -0.13
1-year
5.42 2.45 24.88 15.42 4.57 4.54 14.46 15.86 5.14 4.98 3.59 26.51 17.62 15.09 20.89 15.68 14.57 8.04 16.42 12.02 10.09 8.52 17.73 5.13 18.63 18.17 11.40 18.94 17.07 16.86 12.36 25.45 3.37 15.85 4.72 4.96 15.49 29.21 17.24 17.48 26.00 21.75 23.26 14.85 15.21 5.39 1.05 24.63 11.65 7.19 12.18 15.87 19.41 9.18 11.20 14.35 20.24 16.28 17.91 3.99 15.78 3.01 20.65 16.39 13.52 1.42 1.51 1.42 3.19 3.44 4.70 15.81 5.10 16.43 10.77 13.33 4.31 4.31 3.67 1.06 9.32 16.50 17.76 20.15 6.99 16.02 9.50
36
Smart Stats
The Economic Times Wealth, December 27, 2010
BEST FLOATER HEALTH PLANS
Rating methodology i-save Rating Methodology for Health Insurance – Family Coverage: All health insurance products (family) whose prices and features data are available in the public domain have been covered. Some plans may have been excluded on account of not being comparable with the peer group, for example where the plan is available only for a specific customer segment.
Every week ET Wealth will bring you the rankings of one financial product done by i-save*. This week, we look at the best health insurance family plans available in the market. Product Name
Price ratings
Features ratings
Servicing ratings
Apollo Munich’s plans have good features but its service rating isn’t that high.
Overall product ratings
Ratings: i-save uses a relative rating methodology to rate health insurance products on a 0-5 stars scale. The product ratings are a weighted aggregate of the price, features and company service data, each rated on a relative 0-5 stars scale. The star ratings assigned correspond to the following:
Apollo Munich Easy Health Standard
Apollo Munich Easy Health Exclusive
Apollo Munich Easy Health Premium
Apollo Munich Maxima
No Star
Bajaj Allianz Health Guard Family
Bajaj Allianz Insta Insure
Bharti Axa Smart Health Basic
No Star
Bharti Axa Smart Health Premium
No Star
Bharti Axa Smart Health Optimum
No Star
No Star
Cholamandalam Family Health Insurance
No Star
Future Generali Health Suraksha Basic
Future Generali Health Suraksha Silver
Future Generali Health Suraksha Gold
Future Generali Health Suraksha Platinum
HDFC Ergo Health Suraksha
ICICI Lombard Family Floater Health
ICICI Lombard Health Advantage Plus Family
No Star
Iffco Tokio Base Plan
No Star
Servicing capabilities: Sscores are awarded to customer servicing and claims settlement statistics. These are not product specific and data published by IRDA for past 2 years is used for purposes of comparison and allocating of a relative numerical score, adjusted for age.
Iffco Tokio Wider Plan
No Star
For detailed methodology, visit i-save.com
Max Bupa Heartbeat Silver Plan
No Star
NA
Max Bupa Heartbeat Gold Plan
NA
Oriental Happy Family Floater Silver
NA
NA
Oriental Happy Family Floater Gold
NA
NA
Reliance Healthwise Policy Standard
Reliance Healthwise Policy Silver
No Star
Reliance Healthwise Policy Gold
No Star
No Star
Royal Sundaram Family Floater
NA
NA
Star Health Family Optima
Star Health Medi Classic
No Star
Where service scores could not be calculated due to lack of information, service stars are marked as 'NA'. For such products, the overall rating is also not available. Where a company has recently commenced operations, service scores have not been considered for rating. i-save Ratings are at a product level across customer segments and provide a relative ranking to products in their peer group and do not take into account personal or 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 as of 30 November 2010. If you have a comment of the coverage and ranking or need a clarification, please get in touch with etwfeedback@indiatimes.com
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 eldest member being covered (Young, Middle and Mature) across multiple combinations of adults and children and multiple covers.
High service scores give plans of HDFC Ergo and ICICI Lombard high overall rating.
Product features: Features are assigned a numerical score based on product benefits, customer availability and flexibility
Find out which type of health cover suits you page 22
<10
10-25
25-45
45-65
Superior
Excellent
Good
Despite low on service, Star’s pricing gives one of its plans a good rating.
Average
Below average
No star
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 family floater health insurance plans of all companies `) Life cover (`
Premiums for 2 adults, eldest member 35 years
Premiums for 2 adults, eldest member 45 years
3 lakh
3 lakh
5 lakh
5 lakh
Premiums for 2 adults + 1 child, eldest member 35 years 3 lakh
5 lakh
Premiums for 2 adults + 1 child, eldest member 45 years 3 lakh
5 lakh
Premiums for 2 adults + 2 children, eldest member 35 years 3 lakh
5 lakh
Premiums for 2 adults + 2 children, eldest member 45 years 3 lakh
5 lakh
Apollo Munich Easy health Standard
4,924
7,690
11,029
17,226
6,067
9,817
12,574
18,100
7,721
11,029
13,788
19,523
Apollo Munich Easy health Exclusive
5,873
8,844
12,683
19,810
7,390
11,289
14,460
20,816
8,879
12,683
15,856
22,452
Apollo Munich Easy Health Premium
N/A
11,054
N/A
24,761
N/A
14,112
N/A
26,019
N/A
15,855
N/A
28,065
21,106
N/A
21,106
N/A
28,468
N/A
28,468
N/A
28,468
N/A
28,468
N/A
Bajaj Allianz Health Guard Family
7,329
10,185
10,035
15,843
8,552
11,883
11,707
18,484
9,773
13,580
13,379
21,125
Bharti Axa Smart Health Premium
4,172
N/A
5,350
N/A
5,448
N/A
6,764
N/A
6,558
N/A
7,844
N/A
Bharti Axa Smart Health Optimum
N/A
8,835
N/A
15,709
N/A
12,143
N/A
19,054
N/A
14,651
N/A
21,489
6,926
9,692
7,863
10,900
8,055
11,272
9,144
12,678
9,184
12,853
10,917
15,127
Apollo Munich Maxima
Cholamandalam Family Health Insurance
Floater plan buying guide A family floater policy covers all family
members under a single policy. Check the limit on the number of children and the maximum age which varies across plans. Some companies offer guaranteed
renewals for life once you buy a policy. Most policies have a waiting period of 2-4
years for certain illnesses. One could live through this exclusion period without any complications in the early part of one’s life and be covered after the waiting period. Consider the following when buying a plan Costs associated with the treatment of
Future Generali Health Suraksha Basic
4,718
7,661
5,460
8,508
5,504
8,938
6,370
9,926
6,291
10,214
7,280
11,344
Future Generali Health Suraksha Gold
5,898
9,576
6,825
10,635
6,881
11,172
7,963
12,408
7,864
12,768
9,100
14,180
Future Generali Health Suraksha Silver
5,308
8,618
6,143
9,572
6,193
10,055
7,166
11,167
7,078
11,490
8,190
12,762
Hdfc Ergo Health Suraksha
5,480
N/A
6,595
N/A
7,077
N/A
8,192
N/A
8,675
N/A
9,790
N/A
ICICI Lombard Family Floater Health
4,570
N/A
5,519
N/A
5,920
N/A
6,869
N/A
7,270
N/A
8,219
N/A
We recommend:
15,000
N/A
15,000
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Compare products not just on price but
Iffco Tokio Base Plan
3,498
5,230
4,387
6,560
4,057
6,067
5,061
7,569
4,616
6,904
5,736
8,578
Iffco Tokio Wider Plan
4,517
6,739
5,823
8,807
5,311
7,943
6,792
10,159
6,115
9,146
7,763
11,610
Max Bupa Heartbeat Silver Plan **
8,413
N/A
11,218
N/A
9,530
N/A
13,012
N/A
10,664
N/A
14,326
N/A
also on features, benefits, age to which renewability is available, day care procedures, sub limits etc.
N/A
15,352
N/A
21,009
N/A
17,156
N/A
24,103
N/A
19,412
N/A
26,416
4,611
6,883
5,504
8,217
5,305
7,920
6,199
9,254
6,000
8,956
6,894
10,291
ICICI Lombard Health Advantage Plus Floater
Max Bupa Heartbeat Gold Plan ** Oriental Insurance Happy Floater (Silver Plan) Oriental Insurance Healthwise Policy Standard
5,915
9,866
8,212
13,317
7,074
11,814
9,667
15,955
8,324
13,919
11,385
19,121
Oriental Insurance Healthwise Policy Silver
8,232
13,762
11,446
18,593
9,853
16,490
13,484
22,286
11,604
19,436
15,889
26,719
Oriental Insurance Healthwise Policy Gold
12,285
20,582
17,108
27,828
14,717
24,673
20,164
33,368
17,344
29,092
23,772
40,017
Royal Sundaram Family Floater
5,387
7,735
7,764
11,064
7,356
10,598
9,733
13,928
9,325
13,462
11,701
16,791
Star Health Family Optima
4,396
6,530
4,810
7,198
4,622
6,999
5,327
7,771
4,754
7,583
5,637
8,466
Star Health Medi Classic
3,750
N/A
N/A
N/A
4,219
N/A
N/A
N/A
4,500
N/A
N/A
N/A
** Premiums as applicable for Delhi taken into account 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.
major illnesses as well as your premium paying capacity. Do not restrict your cover to fit the tax
exemption limit.
Read the key features carefully before
buying an insurance contract. Check for policy exclusions. You get a 15-day freelook period in which
you can return the policy if you do not agree with the terms and conditions or believe you were given wrong information. * i-saveTM ratings have been sourced from i-save.com, a unit of MAGI Research and Consultants Private Limited which analyses and rates financial products
Global Stats
GLOBAL INVESTING
Emerging Markets Emerging markets have risen twice as fast as global markets in the past one year
European and American markets outshone Asian markets last week. Among Asian markets, China and Japan ended negative. The biggest gainer among all the countries was Argentina
France CAC 40 3,900.39 %
Canada S&P TSX 13,383.16 %
0.85
1.38
China Shanghai Composite 2,835.16 %
Germany DAX 7,057.69 %
UK FTSE 100 6,008.92 %
0.47
2.34
MSCI Emerging Markets Index
MSCI World I-year change 8.72% 1-wk change 1.32% Current value 1,274.42
I-year change 15.71% 1-wk change 1.02% Current value 1,126.83
Bars plotted according to one-year change
-2.02
FII Investments USA S&P 500 1,256.77 %
Mexico IPC 38,081.07 %
37
The Economic Times Wealth, December 27, 2010
Japan Nikkei 225 10,279.19 %
1.12
-0.24
India BSE Sensex 20,073.66 %
0.22
Argentina MerVal 3,476.42 %
4.19
Foreign investments continue to drive the markets
139,390.3 Avg Sensex value 17,090.31
19,835.20
Cumulative value 10,367.20
1.05
Cumulative FII investments in ` cr
Dec ‘09
Cumulative value
Brazil Bovespa 68,485.96 %
Hong Kong Hang Seng 22,833.80 %
1.75
0.52
Australia All Ordinaries 4,868.30 %
0.32
Govt Bond Yield High interest rates in India help control inflation—but also attract foreign capital USA 3.38
All data on this page are as on 24 December 2010
UK 3.51
France 3.34
Japan 1.15
India 7.91
Australia 5.60
A
recent Ambit Capital Research report says 2011 could be a turbulent year for Indian stock markets because the current optimism is based on three assumptions that are unlikely to hold true:
India is expensive compared to other emerging markets 40
PE
30 20
Quantitative easing will work in the western world (despite the fact that it has never worked anywhere prior to this). Emerging markets will decouple financially from western markets (despite the fact the correlations between developed and emerging markets have actually risen over the past two years) The Indian market can continue to rally in a high-inflation environment (despite historical evidence suggesting that the Indian market struggles in a high inflation environment). There are other concerns about the market too with an important one being a degree of overvaluation (see graph). The concerns do seem valid. Though it’s difficult to say how much all the extra money supply created by the Federal Reserve will help the US economy,
10 0 Jan00
Jan05 MSCI India
Jan10 MSCI Emerging Markets
Higher oil prices mean greater inflation 6 4
8
Change in petrol prices (in `)
9 4 2
2 0
0
-2 Change in WPI Index
-4 -6 Jan07
Jan09 Petrol Prices (Left Scale)
-2 -4 -6 Jan10
WPI (right scale)
Source: Bloomberg, Ambit Capital
markets seem to believe that the recent signs of recovery in the US GDP rate will sustain. But the recovery in the world’s largest economy is anything but secure. As of today, “the loan books of US banks continue to shrink and consumer credit growth, in spite of a recent improvement, remains weak”, the Ambit report says. If loose money policy in the US fails, risk aversion will rise and fund flows to emerging markets (including India) could slow. So the speed of US recovery will matter greatly to the fortunes of Indian investors. Oil prices, which are already on an upward spiral, could get stoked further if recovery in the western economies picks up. Oil will not be the only commodity to go through a price spike. A sustained rise in commodity prices will reverse the recent fall in wholesale price inflation in India. So while the pickup in the domestic growth rate to 9% and above in the current financial year is a strong factor underlying optimism about Indian stock prices, the threat of external forces destablising growth beyond 2010-11 is real and strong. Keep an eye on the global economic events in the coming weeks. ET Wealth will look to update and alert you of such events on this page.
Singapore 2.64
Germany 2.97
China 3.81
Greece 12.18
The shadow of global events Markets are betting on a strengthening recovery of the US economy and weakening inflationary pressures. There is reason to question both assumptions.
Dec ‘10
Avg Sensex value
South Africa 8.20
New Zealand 5.85
10-year bond yield (%)
Currency Exchange Rate Weaker dollar boosts the value of rupee Currency
INR value
% Change Weekly
% Change Annually
USD-INR
45.12
-0.51%
-3.27%
EUR-INR
59.18
-1.79%
-11.80%
GBP-INR
69.72
-0.66%
-6.41%
YEN-INR
0.54
1.00%
6.79%
CNY-INR
6.81
0.04%
-0.34%
Brent Crude No indications of a spurt or drop in oil prices
$75/brl 24-Dec-09
$93/brl 24-Dec-10
Deposit Rates There is a wide variation between deposit rates Country
US UK Japan China India Russia Brazil Australia UAE
6 months (%)
0.45 1.04 0.34 2.20 9.00 4.38 11.55 5.01 0.75
1 year (%)
0.66 1.5 0.55 2.50 9.88 5.38 12.30 6.15 0.93
38
Smart Stats
The Economic Times Wealth, December 27, 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 10,771.36 10,771.36 10,771.36
8.75 8.60 8.50 8.50 8.50
11,890.01 11,855.15 11,831.96 11,831.96 11,831.96
Tenure: 3 years Karur Vysya Bank Federal Bank City Union Bank Indian Bank Indusind Bank
8.75 8.60 8.50 8.50 8.50
12,965.02 12,908.04 12,870.19 12,870.19 12,870.19
9.00 8.75 8.75 8.60 8.50
15,605.09 15,415.42 15,415.42 15,302.68 15,227.95
Top five senior citizen deposits Tenure: 1 year Central Bank of India Yes Bank Indian Overseas Bank DBS Bank Dena Bank Tenure: 2 years+ Indian Bank Karur Vysya Bank Federal Bank City Union Bank IDBI Bank Tenure: 3 years Indian Bank Federal Bank City Union Bank IDBI Bank Indian Overseas Bank Tenure: 5 years Karnataka Bank IDBI Bank Federal Bank Indian Bank United Bank of India
Interest rate (%) compounded qtrly
What `10,000 will grow to
8.50 8.50 8.25 8.00 8.00
10,877.48 10,877.48 10,850.88 10,824.32 10,824.32
9.25 9.25 9.10 9.00 9.00
12,006.86 12,006.86 11,971.70 11,948.31 11,948.31
9.25 9.10 9.00 9.00 9.00
ICICI Bank
9.50 9.35 9.25 9.25 9.25
15,991.10 15,874.35 15,796.98 15,796.98 15,796.98
Interest rate (%)
SBI
14-18
Axis
14-21
HDFC Bank
15.5-22
StanChartered
15.5-22
SBI
16-20 14
16
18
20
22
24
26
28
30
32
34
* Monthly reducing
ICICI
9.5-13 9.75-10.25
Bank of India Bank of Baroda
9.75-10.25* 6
7
8
9
10
12
13
14
15
16
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
10
No limit
5-year tenure
None
1,000
15 lakh
5-year tenure; minimum age 55*
None
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 22 December 2010 7.60%
8.00%
8.00%
8.25%
8.25%
8.50%
8.50%
8.95%
9.00%
9.00%
What `10,000 will grow to
8.75 8.50 8.50 8.50 8.30
11
* 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
13,156.62 13,098.87 13,060.50 13,060.50 13,060.50
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 7.50 7.50 7.50
Tenure: 2 years City Union Bank Federal Bank Indian Bank Indusind Bank Karnataka Bank
Tenure: 5 years Karnataka Bank City Union Bank Federal Bank IDBI Bank Central Bank of India
Cheapest Auto loans
Cheapest Personal loans
LOAN AMOUNT: `5 LAKH
Tenure: 1 year Central Bank of India DBS Bank Dena Bank Dhanalakshmi Bank Indian Overseas 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
IDBI Bank
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
5
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
10
Choose this calculator to check your loan affordability. For example, a `5 lakh loan at 12% for 10 years will translate into an EMI of `1,435 x 5 = `7,175
15
20
25
All data sourced from Economic Times Intelligence Group (ETIG)
Smart Stats
The Economic Times Wealth, December 27, 2010
REAL ESTATE
Ahmedabad
ET Wealth and Magicbricks track the rentals and prices of residential properties in metros, tier I and tier II cities. For those who dream of building their own house, a construction cost index comprising price changes of four key raw materials of construction is also calculated. The information on this page rotates by regions, covering every region of the country once in four weeks. CONSTRUCTION INFLATION
Mumbai
Mumbai
Nagpur NEXT WEEK: EAST ZONE
Pune
Kolkata, Bhubaneswar, Guwahati
Ahmedabad
APARTMENTS Locality
West Bandra (E)
Rental Value ( `/month)
APARTMENTS
Capital Value ( `/sq ft)
Affordable
Premium
Affordable
Premium
7,000
82,000
1,500
51,000
36,000
52,000
7,500
51,000
Virar
8,000
11,000
1,500
4,200
Central
7,000
36,000
1,000
25,500
Powai
26,000
31,000
6,000
25,500
Kalyan
11,000
16,000
1,200
2,600
South
11,000
82,000
Church Gate
57,000
82,000
41,000
87,000
Prabhadevi
11,000
17,000
17,000
30,000
Navi Mumbai
6,500
16,000
1,700
9,300
Kharghar
11,000
16,000
5,300
9,300
Kalamboli
6,500
16,000
1,700
2,400
8,000 87,000
Locality
5% was the estimated correction in prices in south Mumbai in the past one year
Building Bricks 15
13.97%
12
Nov ’09
Oct ’10
Pune
Stone
North Kalyani Nagar
Rental Value ( `/month)
PLOTS (`/sq yard)
Capital Value ( `/sq ft)
Premium
North
8,000
35,000
1,700
3,500
11,000
80,000
Sola
70,000
12,000
30,000
3,000
3,500
22,000
Chandkheda
8,000
15,000
2,200
2,700
11,000
22,000
West
5,000
23,000
1,700
4,500
16,000
90,000
C G Road
7,000
13,000
2,700
4,500
50,000
90,000
Bopal
5,000
7,000
1,700
2,500
22,000
39,000
Central
9,000
16,000
2,200
4,000
35,000
52,000
Ambawadi
12,500
16,000
2,200
4,000
36,000
52,000
Sabarmati
9,000
11,000
2,500
3,700
35,000
46,000
6.34%
6
Premium
Affordable
Premium
Affordable
Premium
9,000
21,000
2,500
11,000
8,700
28,000
35,000
2,700
5,400
50,000
80,000
35,000
2,700
5,400
50,000
80,000
Ramdev Nagar
7,000
15,000
2,700
4,500
50,000
75,000
Others
6,000
20,000
1,800
5,000
Judges Bungalow
6,000
20,000
2,800
5,000
NA
NA
Jivraj Park
6,500
14,000
1,800
3,100
NA
NA
4.97%
Capital Value
Affordable
7,000 16,000
Market update: Western Ahmedabad’s real estate market has witnessed land deals to the tune of `400 crore in the past 20 days. Most of these deals are for high-end residential schemes. A number of Gujarati corporate houses have entered the market in recent months, the latest being the Sandesh Group and the Adani Group.
12 9
Locality
Affordable
Apartment rental (`/month) 2 BHK=750-1,100 per sq ft
15
APARTMENTS
Premium
6
0
Capital Value
Affordable
Satellite
3
Market update: Nearer suburbs such as Borivali and beyond and the far suburbs like Thane and Navi Mumbai continue to be dominated by end users and have shown steadily increasing potential in the past two years. Only the prime locations in south and central Mumbai have seen some correction.
PLOTS (`/sq yard)
Capital Value (`/sq ft)
Premium
South
4.14%
Rental Value ( `/month) Affordable
9
Apartment rental(`/month) 2 BHK=750-1,100 per sq ft
39
Nagpur
3 0
Oct ’10
10,000
20,000
4,200
11,000
15,000
Kharadi
9,000
16,000
2,500
5,000
8,700
15,000
East
8,000
22,000
2,500
12,800
12,500
30,000
Cement
10,000
22,000
4,000
12,800
15,000
30,000
8
Affordable
Premium
Affordable
Premium
Affordable
Premium
Hadapsar
8,000
13,500
2,500
5,000
12,500
18,000
7
North
2,500
22,000
1,600
6,800
12,000
90,000
Central
6,000
18,000
2,000 70,000
10,800
25,000
6
Civil Lines
9,000
22,000
5,500
6,800
45,000
90,000
Kothrud
10,000
18,000
4,500
7,000
15,200
25,000
5
Kamptee
2,500
4,500
1,600
2,000
12,000
24,000
Dhankawadi
6,000
11,000
2,000
3,900
12,000
15,000
East
5,000
11,000
1,500
5,700
25,000
60,000
West
9,000
23,000
3,500
9,000
20,000
31,000
Wardhman Nagar
5,000
11,000
3,000
5,500
40,000
60,000
Deccan Gymkhana
15,000
23,000
6,500
9,000
20,000
31,000
1
Khaamla
5,500
8,500
1,500
4,000
25,000
40,000
9,000
17,000
3,500
8,000
20,000
31,000
0
West
5,000
12,000
2,500
6,000
28,000
65,000
South
10,000
15,000
2,800
5,000
10,000
20,000
Dharamperth
6,000
12,000
4,500
6,000
45,000
65,000
Parvati
10,000
15,000
4,000
5,000
10,500
20,000
Ambazari Layout
5,000
7,500
2,500
4,500
30,000
40,000
Wanowarie
10,000
15,000
2,800
3,900
10,000
20,000
Steel
South
3,000
7,000
1,500
5,000
6,000
20,000
8
Wardha Road
3,500
7,000
1,500
5,000
6,500
17,000
7
Besa
4,000
6,000
1,500
2,700
6,000
15,000
Central
2,000
15,000
1,000
7,000
45,000
90,000
Ramdespeth
9,000
12,500
5,500
7,000
60,000
90,000
Buti Bore
2,000
4,000
1,000
2,500
NA
NA
Koregoan Park
Baner Road
28,000
Nov ’09
Apartment rental(`/month) 2 BHK=750-1,100 per sq ft
Market update: Abundance of residential projects in most locations has kept prices affordable. However, the central-eastern side still commands premium because of the overall level of development.
APARTMENTS Locality
7.69%
4 3
1.26%
2
Nov ’09
Oct ’10
6 5
3.55%
4 3
Rental Value ( `/month)
PLOTS (`/sq yard)
Capital Value ( `/sq ft)
Capital Value
Apartment rental(`/month) 2 BHK=750-1,100 per sq ft
2
Most locations in the above mentioned cities have both affordable as well as premium buying options. This also includes prices of resale property.
1
CONSTRUCTION COST MONITOR
0
4.9% 4.1% Stone
Bricks
-0.14% Nov ’09
3.5% 1.2% Steel
Cement
Figures are year-on-year change in prices as on 31 October, 2010
Oct ’10
The trendlines show the rate of inflation according to the Wholesale Price Index (WPI) for specific construction materials.
Market update: Multi-modal International Cargo Hub and Airport (MIHAN), the most ambitious government project, spread over 4,354 hectares is driving up property prices. MIHAN is divided into two major parts: An international airport to serve as a cargo hub and a Special Economic Zone (SEZ) with a residential zone on the southern end of Nagpur adjoining the present airport. Most of the upcoming residential projects are townships.
40
City Profile
The Economic Times Wealth, December 27, 2010
Chennai
N.E. PALAYAM
& Suburbs
ENNORE
CHENNAI
In the third part of the series that evaluates the real estate markets of different cities across India ET Wealth and Magicbricks take a look at Chennai
VILLIVAKKAM
AVADI
EGMORE
ANNA NAGAR
NUNGAMBAKKAM K.K. NAGAR
5%
PRICE CHANGE (Average percentage price change in different parts of the city)
3% 2% North
2% 2%
2% West
BAY OF BENGAL
VELACHERY
South
South
3% PALLAVARAM
2% South
1%
INJAMBAKKAM
VANDALUR
6 months 3 months
-2%
BUYING OPTIONS (Average property rates in ` per sq ft) North ■
AFFORDABLE Cholaimedu 5,300
■
PREMIUM Cholaimedu 5,800
Chennai 2009 2010*
West ■
■
Central
PREMIUM Kilpauk 10,000
South
■
AFFORDABLE Pallikaranai 3,400
■
AFFORDABLE Medavakkam 3,400
■
PREMIUM Boat Club Road 26,500
■
PREMIUM Valmiki Nagar 15,700
■
AFFORDABLE T Nagar 5,700
■
PREMIUM Nungambakkam 8,800
Previous profiles: Mumbai, Delhi Next week: Bangalore Profiles available at wealth.economictimes.com
GROWTH DRIVERS 10%
Some big infrastructure projects underway that could influence real estate prices in nearby locations
1%
Bangalore 2009 2010*
AFFORDABLE Ambatthur HO 2,500
Others
PRICE APPRECIATION COMPARED TO CITIES IN THE REGION
6%
Metro Rail
9%
Hyderabad 2009 0% 2010*
3%
Kochi 2009 2010*
3%
Two corridoes—Washermenpet to Airport (23.1 km) and Chennai Central to St Thomas Mount (22 km) are part of Phase 1 of the project. One stretch likely to be operational by 2013, phase 1 to be completed in 2014-2015. 12%
Oct-Dec ’09 Average % change Oct-Dec ’10 Average % change
Most active real estate markets around Chennai have seen an increase in property prices this year, with Bangalore having the highest rate. Unsold inventory and under construction projects have kept the prices under check in Kochi and Hyderabad
LOCATIONS IN DEMAND Sriperumbudur:
Good demand for houses on rent from industrial workers who most often have to travel from the city or nearby towns. Also there are several engineering colleges and institutes, in the vicinity
25%
Adyar :
Central location and presence of good schools have kept demand for rental property high.
Velachery:
As more and more IT parks are coming up on the Old Mahabalipuram Road, IT and working-class people are settling in Velachery.
The difference in prices between the most expensive residential and commercial properties in the city. Chennai is one of the very few cities and the only metro city where prime commercial property is cheaper than premium residential property rates.
Roads Five flyovers and subways to be opened next year in north Chennai. The proposed elevated corridors along the East Coast Road to ease congestion in south Chennai. Four-lane flyovers at Thirumangalam, Moolakadai and a three-lane flyover at Vyasarpadi to ease vehicular movement on NH5.
IT City The IT Special Economic Zone coming up on 26 acres on Old Mahabalipuram Road will also have residential apartments, serviced apartments, malls and entertainment complex.
Airport expansion New terminal buildings for domestic and international sectors, construction of bridge across the Adyar river, construction of a flyover in front of the airport to connect domestic and international terminals and a multi-level car parking are part of the expansion project. While most of these infrastructure projects promise some appreciation in prices, the amount may depend on the timely completion of these projects too.
Wealth Basics
The Economic Times Wealth, December 27, 2010
41
HOW TO Calculate SIP returns
I
nvestments in mutual funds through systematic investment plans (SIPs) have become a favoured route for most investors. SIPs help in benefiting from market volatility: investors buy more units when market falls (volume gain) and fewer when market climbs (value gain). But one question dogs every investor’s mind: How are SIP returns calculated? It is very easy to calculate a fund’s return when the investments are made through the non-SIP (lump sum) route. This is because the entry date and exit date are known. However, in case of an SIP, although the exit date and the exit value is known, there are series of dates on which the investments are made--implying multiple entry dates. Moreover, there are possibilities of variations in the amount of investments made at different time intervals. For example, one may be investing `2,500 every month that could be increased to `4,500 per month or reduced to `1,500 per month. How to estimate returns from such investments? The most widely used method is known as the internal rate of return or IRR method. IRR is useful not only for SIP returns but also for estimating returns from money back insurance policies and bond yields. This calculation method equates the discounted value of the stream of investments (also known as cash outflows) to the discounted exit value of the investment (cash inflows). The discount rate that equates the present value of cash outflows and the present value of cash inflows is the rate of return earned by an SIP. Let us understand this with an example: Assume you were investing `2,500 per month in HDFC Equity fund (growth option) from October 2009 onwards. The investment was made on the 1st of every month and the tenure of the SIP was October 2009 to December 2010. This means a stream of 15 payments of `2,500. The last SIP was made on 1 December 2010 and all the units (accumulated over the tenure of the SIP) were redeemed on the same day. The exit value of the investment is `46,004. Now, we need to look for a discount rate that will equate the present value of `46,004 (cash inflow) and the present value of stream of SIPs, that is `2,500 (cash outflows). Using IRR, we get the return as 2.85% per month or 34.25% annualised return. Now let us check if 2.85% return equates the present value of cash inflow and cash outflows. If we discount the value of `46,004 fifteen months back (at the beginning of first month) with 2.85% rate we get `30,161. Similarly, we discount the stream of `2,500 one by one to the beginning of first month. We sum the stream of discounted values and we get `30,161. Therefore, 2.85% per month equates the present value of cash inflows and cash outflows. These calculations have to be worked out using financial calculators or a spreadsheet. Working it out manually is very cumbersome and would require the mathematical genius of Einstein. If that makes you feel challenged, the formula is:
A 3-step guide to calculate your SIP returns
1 In an Excel worksheet on the top menu of the page, go to ‘insert’ and then to ‘function’ Your monthly SIP return multiply it by 12 to get your annualised SIP return
2
3
Select a category ‘Financial’ and select function as IRR and hit ok button
GETTY IMAGES
The ‘r’in the formula is the IRR or SIP return that you need to estimate. Clearly, the equation appears complicated. However, if you are MS Excel savvy, you can work out such calculation in seconds. MS Excel has a built in function for IRR. The only requirement is that you need to input `2500 in 15 consecutive cells with a negative sign (as these are cash outflows). In the 15th cell, just add the terminal value of `46,004 and use the function IRR. It will give you the value of 2.85% in no time. Should you Apart from Excel, there are buy tax-saving online IRR calculators available that funds? Page 14 works out the calculation for you. Two such websites are engineeringtoolbox.com and datadynamica.com. Apart from SIP returns, IRR can also be used for calculating returns from your money back insurance policies which also pay back money at regular intervals in addition to bonus paid out by some insurers. Moreover, survivors get the full benefit of the amount insured irrespective of the money paybacks. As in case of an SIP, the insured pays premiums at regular intervals (say annually). Therefore, if at any point in time, one wants to estimate the returns, one can easily use the IRR by equating the present value of premium payments and the present value of payback amount plus bonus (if any). — Sameer Bhardwaj Please send your feedback to etwealth@indiatimes.com
42
Jobs & Income
The Economic Times Wealth, December 27, 2010
SALARY
Should you go for a fat salary or a better job role? Choosing a superior job profile over a higher salary at the beginning of your career can be more rewarding
MALINI GOYAL
H
ave I sold myself cheap? Should I have bargained harder? These are questions most job seekers grapple with when negotiating for a new job. For youngsters today, cost-to-company (CTC) and designation remain the biggest brag factors among peers. What you earn and how well you negotiate your salary are critical to ensuring your longterm financial well-being. But how does a career strategy focused largely on a salary package play out in the long run? What’s your take home? When starting out one's career, peer pressure is high. How much one makes is as important for one's social standing as it is for one's wallet. Not surprisingly, young executives switch jobs for as little as 10% and bargain hard for salary hikes. In the short run, it matters. One is the obvious compounding effect. Two equally competent executives starting out at the same time with different negotiating skills can end up with significant gaps in salaries after barely six years and three job hops. Not to forget that in the early years when the base salary is low, a differential of even 10% adds some cushion to the financial well-being. There is another reason why negotiating well for salaries feels important. Since the present salary has a significant bearing on the future compensation packages, these two executives may command very different CTC packages from their prospective employers. “Do not expect the new employer to bridge the gap in one stroke, no matter how hard you try,” says Vineet Kaul, chief people officer, Hindalco India. “Over time, as one proves his performance in the new company the gap is generally narrowed and bridged,” he adds. The flip side But there are many who find themselves in the clutches of what some call the ‘golden handcuffs’. A great salary may not promise a great job after all. At times, an executive may have so outpriced himself in the job market vis-a-vis peers that his CTC simply shuts out numerous exciting job opportunities. Also, he may often be stuck in a job with no joy or learning left. Pricing one's skills at the highest level of the salary band may play out adversely at a
Twin trajectories Employee A (lower ladder) starts off at a lower salary but a better job profile than employee B (higher ladder). In a few years, the superior role not only helps him reach a higher level in the hierarchy, but his salary is also far bigger than B’s.
ALANKAR
psychological level. In most organisations, there is a salary band attached with each job level. No matter how hard one bargains, the salary cannot cross the upper limit. For someone joining at the topmost level of the band, there would be additional, selfinflicted pressure to deliver in a new job. Add to it the fact that in the highly competitive job market, a low-paid competent executive can easily be lured away by competitors. And his present employer may do his best to retain him. “Obviously, the pain of that guy leaving is that much more,” says Prashant Deo Singh, head (human resources), Panasonic India. The organisation will do its best—by either
offering an exciting assignment or project or a salary hike to keep him. Beyond salary Is salary the best thing to haggle and bargain on? “While salary and company brand are important, what is most rewarding in the long run is the kind of job profile one has had throughout his career,” says Singh of Panasonic India. A great job profile with a small company is any day more preferable to a not-so-nice job profile with a big brand name. Over time, compensation almost becomes a hygiene factor and the poor salary bargainer more or less makes up if he takes care of a good job profile. So if you have a choice, bargain for a better role more than
anything else. That's what will deliver the bang for the buck in the long run. This is especially true of executives with one to seven years of experience, says Bimal Rath, former HR head of Nokia India and founder of Think Talent, an HR consultancy firm. But there is one thing poor bargainers may want to do to not get shortchanged, advises Rath. “Be frank. Tell them during salary discussions that I would like to get fair salary so that when I join I do not feel cheated,” he says. This normally works.
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Alternative Investment
The Economic Times Wealth, December 27, 2010
43
DIAMOND
Don’t go by sparkle alone Though treasured by most, diamonds do not make for as good an investment as gold. Not in the short term, certainly not in the long term.
VIDYALAXMI
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here is a common thread running through the spending habits of legendary singer Lata Mangeshkar and Renuka Jagannath, a Mumbai-based housewife. Both share a fervent interest in diamonds. They are part of a growing tribe of faithfuls. “Demand for diamonds has shown consistent growth over the past three years, and this year too,” says RK Nagarkar of Tribhovandas Bhimji Zaveri - The Original, a leading jewellery company. But unknown to Jagannath, diamonds pale before gold in terms of investment returns for reasons ranging from ambiguities over pricing to grading and buyback opportunities. Missing price mechanism Diamonds, unlike gold, lack a standard benchmark pricing and are often sold at the ‘asking’ rate. The Rapaport Diamond Report, an industry publication, outlines the price of diamonds based on the five Cs—carat, colour, clarity, cut and cost. But the price mentioned remains on paper. Jewellers are entitled to a certain discount, which varies. The result is that a diamond ring worth `30,000 at one jeweller could be cheaper or costlier at another. “Rapaport price is a loose benchmark. The mean price is based on external conditions such as demand-supply and foreign exchange,” says Vijay Bhambwani, CEO of bsplindia.com, an investment advisory. Diamonds also lack a strong ‘price discovery’ model as they are yet to grow into an investment option like gold, which is lapped up during marriages or sold during crises. The lack of “a standardised benchmark for pricing is a deterrent to the industry”, says Anuj Rakyan, managing director of Ananya Jewels, adding that efforts to establish a daily pricing index similar to that of gold by a few experts fizzled out. Grading difficulties Diamonds are best graded in raw form. Once turned into jewellery, it’s hard to detect their colour and clarity. “Even when a lab grades a diamond, the certificate comes with a disclaimer that the actual colour and clarity may differ,” says Rakyan. The completely colourless variety is graded from D to V, with D being the best. As regards
5 Cs, of diamond pricing
Gold vs Diamond
Returns (in $ terms)
27.64% 24.97%
22.29%
22.14%
2-year
5-year
4-year
1-year
Carat Colour Clarity Cut Cost
GOLD One-year returns are impressive, but way lower than gold’s
People value diamonds highly because they perceive them to be scarce. They’re not”
19.39% 3-year
14.63% 3.15% 0.62%
1.15%
DIAMOND
1.52%
BARRY J NALEBUFF, ADAM M BRANDENBURGER IN THEIR BOOK CO-OPETITION
Returns greater than one year are annualised. Returns calculated as on 24 Dec based on ABN AMRO-composite diamond price index & Bloomberg gold index; Unlike gold there are no universal benchmark for diamond prices
clarity, the clearest diamond is the rarest and hence, the costliest. Such a diamond is graded as internally flawless (IF) while less superior varieties have grades of very very slightly included (VVS1 and VVS2), very slightly included (VS1 and VS2), slightly included (SI1 and SI2) and imperfect (I1, I2 and I3). “As one moves across the grades, the prices may rise by `600-700 per carat. But it’s difficult for a customer to check these aspects over the counter,” says Mehul Choksi, chairman and managing director of jewellers and diamond merchants Gitanjali Group. Selling is no picnic Many jewellers are hesitant to buy back a diamond because they may be unable to cough up money. “Even after ascertaining the value of a diamond, I may be unable to buy because I may not have [so much] cash at that point of time,” says Rakyan.
There are also concerns over quality. Wellknown retailers such as Tribhovandas, Tanishq and Gili refuse to buy diamonds not sold by them for this reason. They promise to buy back their diamonds at 85% of the prevailing rates minus the making charges. That shrivels to nearly 75% in the case of smalltime jewellers. Small- and medium-sized jewellers do accept all diamond jewellery, but at a huge discount. “The market was flooded with American diamonds of poor quality two decades ago. Jewellers have also encountered stunningly crafted fake diamonds that are difficult to identify even with several lab tests,” says Bhambwani. Adds Kartik Jhaveri, a certified financial planner, “This is a business based on trust. Certain merchants don’t even offer a quality certificate. Unless you know the diamond
merchant and are aware of the nitty-gritty of the business, don’t step into it.” The bottom line is that if you are buying diamonds for their ornamental value, be warned of these disclaimers. If investment is on your mind, think twice, given the ambiguity and lack of standardisation in buyback deals. “For an investment vehicle to be successful, investors should know that their capital is safe, they can withdraw a certain sum or the entire corpus at any point of time. They should also be able to track prices daily and trade on a regulated platform. Diamonds must fulfil these criteria to qualify as an investment option,” says Bhambwani.
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44
Smart Spending
The Economic Times Wealth, December 27, 2010
PART OWNERSHIP
Get luxury for less Fractional ownership allows you to own a yacht or an aeroplane at a fraction of the original cost.
NUPUR ANAND
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ver thought of spending the weekend in the high seas on your own yacht? Or flying to a business meeting in your own jet? You don’t have to be a billionaire to own these rich man’s toys. Fractional ownership helps you do these like any Wall Street moghul. Fractional ownership means jointly owning an asset (such as an aeroplane or a yacht) with a few other investors, as opposed to sole ownership. Use of the asset depends on the size of your share. The bigger the share, the more hours you get on your plane or boat. The cost of owning and maintaining the asset is shared by the group. Why fractional ownership? Even if you happen to own a plane or a yacht, you don't really use it throughout the year. Experts point out that private aircraft are used for a maximum of 200 hours a year, while a yacht is used for around 30 days. However, not using your prized possession too often does not mean you are not spending on it. As the owner you still have to bear the maintenance costs. “A boat bought for `50 lakh is hardly used for more than 15-20 days a year. In fractional ownership, you pay only a part of the total cost but still use the boat for the required number of days,” says Shakeel Kudroli, director of Aquasail, an aqua sports firm. He goes on to explain how for `10 lakh, one can own a `50-lakh yacht with four other owners. The other advantage here is that all the administrative costs are taken care of by the service providers. Sunita N, a Mumbai-based businesswoman who is a fractional owner of a boat, says, “It is a good and a hassle-free option for people who are busy and cannot take out time to maintain their assets. And you also get to own a boat without investing the whole amount.” Manav Singh, managing director of Club One Air, an air charter company explains,
“These are expensive propositions and it is not only the initial cost, but even the maintenance costs are very high. A fractional ownership allows you to share both the initial cost and the maintenance cost.” He adds that an aircraft like Cirrus costs `2 crore but through fractional ownership, an investor can use it for `25 lakh. Terms and conditions Like owning an apartment or a car, in fractional ownership too the yacht or plane belongs to you. You can use the asset whenever your co-owners are not using it. The first step is of course to book your time slot with the service provider. Sometimes co-owners share the time slot, which brings down the running cost of the asset. Like any other asset, you can sell or gift your share to somebody else. If you are selling off your share then the onus is on you to find a buyer. But in certain cases, the service provider can help you find one. While you can organise parties or events on the yacht or plane, you cannot hire or lease it out to a third party. Charges The service provider takes care of the crew. For some providers, it is mandatory to take at least the basic sailing lessons. Nobody else but the professional crew is allowed to steer the yacht or fly the plane. While there are no maintenance charges for aircraft (the part owner pays for the fuel when it is in use), for yachts the annual maintenance charge is generally fixed between 8-12% of the total cost. This is split among the co-owners. The annual payment includes insurance and management costs, plus fees for the service provider. Your variable cost will involve fuel charges. Some service providers include the maintenance fee in the one-time cost of the asset, so you don’t need to pay for an annual maintenance fee, but only for the fuel consumed. The asset is split into fractions for the initial capital, expenditure, maintenance and use. Service providers generally
Pay for a slice and enjoy the full pie Cost*
Fractional Ownership**
`10 Lakh for 1/5th `49-50 lakh
Jet (Cirrus)
`25 Lakh for 1/8th
Boats (31SF & 31 HT) `2 Crore (approx)
*Cost can vary from one model to another **The term can vary depending on the service provider
fix the minimum and maximum number of the people that can share the property. A less-expensive option If you don’t have the money for fractional ownership try time-share. In this concept, you can buy time on a boat or an aircraft of your choice. It works as a club membership. In this the ownership remains with the service provider. You just pay a one-time cost, pay for the fuel and then cruise along. Generally, the sailing time is 5-6 hours. The usage time depends on the amount you have paid and the choice of the boat. Different boats have different price range. So larger the boat, more the money that gets deducted from your account. For instance, for `3 lakh you can choose to either cruise on a 25-foot boat 10 times or enjoy being on a 40-foot boat for six times. And remember, the cost on weekends can be about `5,00010,000 higher than what it is on weekdays. In time share, the other option is that you
pay a membership fee for a certain number of years and get unlimited trips on the boat. West Coast Marine, a yachting services company, for instance charges `15 lakh for five years. Most other providers charge every time a customer wants to use a boat. In both the scenarios, fuel costs are borne by the user. Fine print Aashim Mongia, managing director of West Coast Marine says, “Make an informed decision when it comes to choosing the service provider. One must be extremely careful of safety issues.” As all these assets are fully insured, you can sail or fly away to the choice of your destination. So now you can pay for a slice and still enjoy the full pie!
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Entrepreneur
The Economic Times Wealth, December 27, 2010
45
LID ON RENTALS
Virtual office, real savings An office that costs a fraction of a real one and packs the same services anywhere in the world. A dream come true for start-ups.
LO
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AMIT SHANBAUG
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f Shabd Saran Mishra, director of Mumbai-based Renaissance EServices, were to open a 1,000-sq ft office in London, he would have to pay up to £150,000, or around `1.05 crore a year. In Mumbai, the same costs Mishra, whose company provides e-learning and publishing support services, nearly `6 lakh annually. Costly and out of reach for most entrepreneurs, did you say? Yes and maybe not. Mishra can operate in London for £25,000, or around `17.5 lakh, a year thanks to the concept of a virtual office. He could run the business in Mumbai too for `9,500 a month using the same model. By partnering a virtual office service provider, businesses can save nearly 75%, in some cases 90%, of the cost of establishing a real office. The savings are an upshot of renting lesser square footage and equipment. A customer can pick a receptionist, an accountant, an email forwarding system and a meeting room, among others from a menu of services depending on the needs. Entrepreneurs who embrace the idea mostly eliminate the need for physical infrastructure. In many cases, a virtual office features only a post box managed by a service provider. Mishra is a recent entrant to this world and part of a growing tribe of entrepreneurs running businesses abroad from their camps anywhere in the globe. He established an ‘office’ in London after he tied up with 4 Business, a virtual office service provider. “My visiting card boasts of an office in London while I just pay a tenth of the cost of an actual office there,” he says. The UK office has a receptionist and an accountant. Virtual offices are godsend for businesses
hamstrung by steep office rentals. For instance, an office in the business hub of Nariman Point in Mumbai would cost up to `450 per sq ft a month. That is besides the investment in infrastructure. With a virtual office, companies are shelling out only a fraction of the cost of an actual one. Cost-effectiveness is among the biggest advantages of a virtual office, says Ram Shridhar, chief executive of VirtuIndia, a Chennai-based virtual office space service company. “A leased office costs around `25,000 in Chennai. Add to it other operating costs,” he says. “The same benefits can be availed for just `2,500 a month.” A virtual office appeals to workers because it offers the convenience of working from anywhere. Companies, especially start-ups, are enchanted because expenses on leasing and running a workplace are banished. These benefits apart, there are savings in travel and overhead costs.Virtual offices create a balance between the professional and practical, says Pankaj Kapoor, managing director of Liases Foras, a property research firm. Companies need space to run operations, but they prefer minimising expenses if the workforce is not more than say, two, he says. Businesses can focus on expansion when a virtual office handles administrative tasks such as phone calls, photocopying and printing, says Madhusudan Thakur, country head, Regus India, which provides virtual office services in India and overseas. Customers also have the incentive of pay per use. The services of an accountant, a marketer, receptionist or lawyer are billed according to the hours they work. The bouquet of services include an address in a key city across the globe, access
Up to 90% cheaper Expenses to establish a 1,000-sq ft leased office in Mumbai Head
Actual infrastructure cost
Virtual office service
Security deposit
`1,00,000 -1,50000
Nil `2,500-4,000
Monthly rental
`25,000-30,000
Receptionist
`5,000-8,000
Nil (charges included in package)
Interiors and office equipment
`2,00,000-2,50,000
Nil
Communication expenses (Fax, telephone, voice mail)
As per usage
`2,500-4000
ADVANTAGES
LIMITATIONS
Cost-effective compared to creating a new office infrastructure
Risk from fly-by-night operators who can establish operations without investments
Cheaper by 75-90% in certain cases
Some countries insist on compulsory registration before setting up businesses; there the concept would not hold true
Services help reduce overhead costs as businesses are not paying for airconditioning, heating or related expenses Paying for space and communication infrastructure only when needed
to boardrooms, workspace for as little as 10 minutes or a day, and a complete communication package that includes a local telephone number, trained multilingual receptionists at a chosen location, local fax numbers, access to voicemail delivery via email or SMS. A total package in this case from Servcorp, a Sydney-based virtual office service provider, would cost around $208 or around `9,500 a month. For separate services such as address, communication and meetings, the company charges around $87.6 or nearly `4,000 each. Servcorp also offers a ‘virtual pause’—a
Advantageous only in the initial years, else credibility of the company is questioned. Low awareness of the service in India
freeze on rentals for up to three months—for customers whose business is in trouble and are looking to cut costs. The raft of benefits perhaps explains why the business of virtual offices grew even during recession. “When we started three years ago, we just had three clients,” says Shridhar. The list has grown to 34 dedicated clients, most from countries such as Germany, Australia and Singapore, he says.
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46
Senior Citizens
The Economic Times Wealth, December 27, 2010
:: STRATEGY To reverse mortage his 1,000 sq ft apartment worth `60 lakh.
:: BENEFITS Receives monthly income of `9,600 for his flat. This supplements the `9,000 he gets as annuity from his investments. SHOME BASU
MADAN GOPAL MATHUR | 67 | Retired PSU manager
Fortune at home Madan Gopal Mathur unlocked the value of his property by reverse mortgaging it to a bank BABAR ZAIDI
REVERSE MORTGAGE PRIMER Reverse mortgage is the opposite of a home loan. Instead of paying EMIs, the owner gets monthly payments from the bank. The money received is a loan and therefore tax-free. With every payment, the bank's ownership of the house increases. After the owner's death, heirs have to repay the reverse mortgage loan taken against the property. Only senior citizens are eligible to use this facility. Also, they should be living in the house that has been mortgaged.
T
he number of Indians with a net worth of `1 crore has grown exponentially in the past decade. But you won’t find these crorepatis zipping around in flashy cars or splurging at shopping malls. That’s because for many of these crorepatis, the biggest chunk of their wealth is lying locked as the property in which they live. They may have an eight-figure net worth but their monthly income is in four figures. Madan Gopal Mathur, 67, is among the asset-rich but cashstrapped property owners. But three years ago, this retired PSU manager found the key to unlock the value of his property when he reverse mortaged his 1,000 sq ft apartment in Delhi. Reverse mortgage is just the opposite of a home loan. In a loan, a person buys property with money given by the bank and repays it with EMIs. In reverse mortgage, the bank starts giving the owner a monthly payment as a
This scheme is a godsend. It helps retirees lead a peaceful life and forces their children to save.” loan against his house. The owner can borrow up to 75% of the value of the property. After his death, his heirs have to repay the reverse mortgage loan taken by him against the property. “It acts as a forced saving for the owner’s children,” says Mathur. What’s more, the house is revalued every five years and the borrowing limit is accordingly revised. In 2007, his house was valued at `60 lakh and he was allowed to borrow up to `40 lakh against it over the next 15 years. The EMI was fixed at `9,600. The move helped Mathur more than double his
monthly income from `9,000 to `18,600. “The government’s decision to introduce reverse mortgage is a godsend for retirees like me," he says. Till then, Mathur was facing difficulties trying to make ends meet. After taking voluntary retirement in 2001, he found that his nest egg of `22 lakh was not as big as it appeared. A good chunk went into repaying loans and he was left with `12 lakh which he invested in a few insurance plans for annuity income. “It was difficult to manage the household with the `9,000 I got as annuity,” he says. Mathur tried different options to supplement his income. Since he had a financial background (he had retired as general manager, finance, of Bhel), he started selling life insurance. But he could not keep up with the pace required for the job. He also had to travel long distances to explain the policies to prospective clients. Most of the times, the visits didn’t translate into sales and he made barely `3,000-4,000 a month. “I was spending more on fuel than what I
was earning in commissions,” he says. He could not take help from his children who had immigrated to the US. The first glimmer of hope came in 2007, when the government announced the reverse mortgage scheme. “It was a novel concept and not immediately understood by the public,” says Mathur. Some people even saw a stigma in the scheme. Imagine, funding your living expenses by pawning the house you live in. Yet, Mathur saw in it the panacea for his problems. When the Punjab National Bank launched the scheme in 2007, he was among the first applicants. Though most of his problems are behind him, Mathur has broader concerns on his mind. “The life expectancy in India is rising but few people are financially prepared to deal with this,” he says. “Reverse mortgage can help them tide over the problem in their sunset years,” he says.
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Last Word
It will be helpful if you can add one more column of current or latest stock price or NAV in your list, so that the reader can decide on the spot. K. F. Laskari Thank you for your suggestion. We will add NAVs from the next issue.
I would request you to publish private company's FDs too as many good rated / unrated company’s FDs are available in the market nowadays which give good interest rates. Vishal Desai We value your suggestion and we will try to add select private companies’ FD too.
Is it possible to carry explanations to the MQ answers? Paresh Valia Thank you for your suggestion. The idea of MQ is to engage readers to read the stories in a detailed manner. You can find all answers and explanations of the questions in the issue itself.
What’s your Money Quotient? Are you a savvy investor or a dodo when it comes to personal finance? Take this quick test to find out your PF quotient
47
Financial Wizard of the Week Bring out the planner in you and suggest a strategy for a financial problem to one of our readers. The best solution will receive an Indiatimes gift voucher worth
1 You cannot invest more than $200,000 abroad in a year
Y/N
2 Tax-saving mutual funds have a lock-in period of five years
Y/N
3 You need a visa to purchase property in the US
Y/N
4 Like gold, diamonds also have a standard benchmark pricing
Y/N
5 If you break a one year fixed deposit at the end of eight months, you are not paid any interest
Y/N
Last week’s winner
6 Waiting period during which no claims can be made for certain diseases is shorter in group insurance policy
Y/N
MEETA RAMCHANDANI, Mumbai
7 If you invest in the name of your spouse who has no other income, there will be no tax on the income
Y/N
8 Portfolio manager has to take prior permission from client for charging fees for each service he provides
Y/N
9 Monthly income from reverse mortgage is taxable
Y/N
`5,000 and will be crowned the ET Wealth Financial Wizard of the week.
Solutions from the following were also useful:
10 There is no free credit period on cash withdrawals made Y/N from a credit card Give yourself one point for every correct answer >> 8-10: You are 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.
Mithun Jathal, New Delhi Ashish Saurabh, Kolkata
This week's situation: I plan to buy a house in Delhi. My wife likes a house in suburbs, but I want a house closer to the city. It costs `15 lakh more due to the location— I think that will push up its price in future. But my wife says addons like a gym and club make up for location disadvantage. Which of the two apartments are better? -Rohan Khanna, Delhi
>> 0-3: You have a lot of catching up to do. Remember it’s never too late. Answers: 1 Yes. 2 No. 3 No. 4 No. 5 No. 6 Yes. 7 No. 8 Yes. 9 No. 10 Yes
Readers’ suggestions
The Economic Times Wealth, December 27, 2010
Please send your feedback to etwealth@indiatimes.com
HOBBY TURNED INTO BUSINESS SHOBHANA CHADHA
F
SHOME BASU
Sound of money Delhi-based Ankur Agarwal turned his love for music into a profit-making hobby, while managing his family business. His hobby earns `25,000 a month, and it is just the beginning. The Economic Times Wealth, published by Bennett, Coleman & Co. Ltd., exercises due care and caution in collecting the data before publication. In spite of this, if any omission, inaccuracy or printing errors occur with regard to the data contained in this newspaper, The Economic Times Wealth will not be held responsible or liable. The content hereof does not constitute any form of advice, recommendation or arrangement by the newspaper. The Economic Times Wealth will not be liable for any direct or indirect losses caused because of readers’ reliance on the same in making any specific or other decisions. Readers are recommended to make appropriate enquiries and seek appropriate advice before making any specific or other decisions.
or 28-year-old Ankur Agarwal, electronic music has always been a passion. But unlike many others, Agarwal, a timber merchant, has successfully monetised his hobby. Agarwal’s interest in music started at a young age pushing him to join the school music team. Later in college in the UK, the passion flowered. There, besides studying for an engineering degree, he remixed songs creating new sounds and even recorded songs in his own voice during his leisure hours. And time and opportunity permitting, he offered his services as a radio- and disc-jockey. When Agarwal returned to Delhi in 2007, he joined the family business of supplying imported timber. A chance introduction with the co-owners of Audio Ashram, an alternative-music company, proved to be a boon for Agarwal. Audio Ashram was planning to launch an online radio station, which was devoted to electronic music, a genre comprising of trance, psychedelic, techno and ambient music among others. Seeing his knowledge and passion, the company roped Agarwal as the business head of the music label. Not only did he help launch their online radio Radio79.com, but he also became involved in managing music events, online
music sales and sponsorships for the company. What began as a mere passion started bearing financial fruits. Acknowledging his contribution to the business and the time and energy that Agarwal spent, Audio Ashram offered him a profit-sharing arrangement. Over the past few years, Agarwal has seen his efforts reaping results and that acted as a huge incentive for him to continue to juggle between his family business and hobby. The returns have been generous. He has been regularly receiving about 5% of the company’s profits, which earn him about `25,000 per month. He believes that this is just the beginning of his career with the music company as Audio Ashram hopes to increase profit margins by at least 12% by the end of 2011. Agarwal says his timber business has not suffered because of his growing involvement in music. His work hours at the music company are flexible and the hours he spends depend upon the projects. He’s happy investing his time in his moneyspinning hobby, but ensures that he keeps a regular track of imports from countries in South America and Africa. Have a hobby that earns you money? Tell us at etwealth@indiatimes.com
Published for the proprietors, Bennett, Coleman & Co. Ltd., by Balraj Arora at Times House, 7, Bahadur Shah Zafar Marg, New Delhi-110 002, Phone: 011-23302000, Fax: 011-23323346 and printed by him at Times of India Press, 13 & 15/1, Site IV, Industrial Area, Sahibabad (UP), Regd. Office: Dr Dadabhai Naoroji Road, Mumbai-400 001. Editor (Delhi Market): Javed Sayed (Responsible for selection of news under PRB Act). © Reproduction in whole or in part without written permission of the publisher is prohibited. All rights reserved. RNI No. 26749/74. MADE IN NEW DELHI Volume 38 No. 256