ETWealth January 03, 2011

THE ECONOMIC TIMES

wealth

www.wealth.economictimes.com | Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, New Delhi, Pune | January 3, 2011 | 48 pages | ` 5

Sensex 20,509.09

US (Dow Jones) 11,577.51

Gold `20,575 per 10 g

Silver `46,065 per kg

Currency `44.71 per $

● Weekly +2.17% ● Yearly +17.43%

● Weekly +0.03% ● Yearly +11.02%

● Weekly +1.04% ● Yearly +23.17%

● Weekly +3.62% ● Yearly +71.44%

Markets ended on a high note. India outperformed China and Brazil in 2010.

US markets were up, but have underperformed emerging markets in 2010.

Gold prices rose smartly. The metal has outperformed the Sensex in 2010.

Silver zoomed during the week. It has risen 5.2% in the past four weeks.

● Weekly -0.93% ● Yearly -3.91% The dollar slipped further. It is close to its lowest level of `44.10 during 2010.

How to plan your taxes in 2011

PAGE 24

INSIDE INVESTING Can you gain from pennystocks? PAGE 8 Your money in 2011 PAGE 10 Get the power to beat inflation PAGE 14 Fund manager’s wisdom PAGE 16

Your fund’s alpha factor PAGE 18

Why is it difficult to get a locker PAGE 21 A bungee jumper’s guide to insurance PAGE 23 Financial planning PAGE 28 Guest column: Uma Shashikant PAGE 29

EARNING & SPENDING Your Esops’ real worth PAGE 42 Auction your trash for cash PAGE 43

Free and fair option PAGE 44 Money-making recipe PAGE 46 Money therapy PAGE 47

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

The Economic Times Wealth is available at an invitation price of `5/issue.

Turn the page to know how you can avail these little-known deductions

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02

Tax Planning

The Economic Times Wealth, January 3, 2011

TAX SAVING SECRETS The Income Tax Act 1961 is a voluminous work of legislation. Taxmann Publications’ latest edition of the Act runs into 1,125 pages. It’s enough to intimidate even the most diligent law student and tax expert, leave alone ordinary taxpayers. But hidden away in the 300-odd sections and 14 schedules are clauses that can benefit ordinary taxpayers—provided they know how to claim those benefits. Vivek Kaul and Khyati Dharamsi spoke to a range of tax experts to glean information on little-known tax benefits you may be entitled to. Here are eight deductions that can help you save tax over and above the tax-saving investments you make during the year.

1. Turn stock losses into tax gains Can you gain from the short-term losses you made on stocks? Yes, says the Income Tax Act. If you have made long-term capital gains from sale of property, gold or debt funds, you can set them off against short-term capital losses made on stocks and bring down your tax liability. “Short-term capital losses can be set off against both shortterm capital gains as well as taxable long-term capital gains,” says Sandeep Shanbhag, director of Wonderland Consultants, a Mumbai-based tax planning and financial consultancy. This can be especially useful for someone who has made profits on gold exchange-traded funds and physical gold this year. Suppose you have sold a property and made a long-term capital gain of `30 lakh after indexation. At 20%, the tax payable on this long-term capital gain is `6 lakh. However, if you have also sold some junk stocks during the year and made a short-term loss of `3 lakh, you can set this off against the gains from the property. Then the gain from the property will get reduced to only `27 lakh and tax payable will be `5.4 lakh. However, the law makes a distinction here. One cannot set off short-term gains from stocks against long-term capital losses from the other assets. “Long-term capital losses can only be set off against taxable long-term capital gains,” says Shanbhag.

How much tax can you save: Setting off a short-term loss of `3 lakh against longterm gains can help you save `60,000.

Proof required: Records of your equity trading account statements with details of the transactions that resulted in losses.

For the best travel insurance plans page 37

2. No HRA? There is still deduction for rent House rent can account for up to 4050% of the total household expenses. That’s why the house rent allowance is exempt from tax to a certain limit. But what if your salary does not include an HRA component or you are a self-employed professional or businessman? Under Section 80GG, you can claim deduction of the rent paid even if you don’t get HRA. “Not many people are aware of this deduction,” says chartered accountant Mehul Sheth.

But there are stiff conditions. The least of the following can be claimed as deduction: Rent paid minus 10% of total income, or `2,000 a month, or 25% of total income. Also, a taxpayer should not be drawing HRA or housing benefits. Besides, a taxpayer and the spouse or minor child cannot own a house in the city where the family resides. A taxpayer should also not claim tax benefits for another self-occupied house. Whew.

Incidentally, if you are living in your parents’ house, you can pay them rent. If your parents have no other income or pay a lower tax, this can bring down your tax liability significantly. However, the rent will be taxable as the income of the parent after a 30% standard deduction. This means, you can pay a senior citizen parent up to `3.43 lakh a year.

How much tax can you save: Given the stiff conditions, one can’t claim more than `2,000 as deduction per month under Sec 80GG. But this can bring down your tax by `7,400 a year in the highest tax bracket.

Proof required: A taxpayer has to declare on Form 10-BA that rent is being paid and is not receiving house rent allowance.

ILLUSTRATIONS: RAJ

Cover Story

The Economic Times Wealth, January 3, 2011

3. Pay lower tax if dependent is ill The treatment of a chronic illness can drain the finances of a taxpayer. That’s why the Income tax Act allows a taxpayer to claim a deduction of `40,000 if there is a dependent who suffers from an ailment specified under Section 80DDB. “The deduction is higher at `60,000 if the patient is a senior citizen,” says chartered accountant Paras Savla. The illnesses include neurological diseases such as dementia, dystonia musculorum deformans, motor neuron disease, ataxia, chorea, hemiballismus, aphasia and Parkinson’s disease, malignant cancers, full-blown Aids, chronic kidney failure and haematological disorders (haemophilia and thalassaemia). Dependents can include spouses, children, parents and siblings.

However, there are a few conditions. The patient should be wholly or mainly dependent on a taxpayer and should not have separately claimed deduction for the disability. If the amount spent is reimbursed by an employer or an insurance company, there is no deduction. If a taxpayer gets a partial reimbursement of the expenses, the balance can be claimed as deduction.

4. It’s time you benefit from your political affinity Can you lower your tax if you have political affiliations? Yes. Any amount contributed to a recognised political party can be claimed as a deduction under Section 80GGC (80GGB for corporates). “This is a deduction introduced in April 2010. The donation can also be made to an electoral trust that works to conduct elections,” says Sheth. Interestingly, unlike other deductions, there is no ceiling on the amount that can be claimed as a deduction. Of course, the deduction is available only if the donation went into party coffers.

Cash given to individuals doesn’t make the cut.

Other donations also get you tax benefits. Under Section 80G, donations to charitable organisations get deduction ranging from 50% to 100%. It pays to know how much deduction would be available before you reach for the chequebook. But there is a ceiling on the deduction a taxpayer can claim in a year. “The quantum of deduction is limited to 10% of the gross total income of the donor,” says Tapati Ghose, partner at Deloitte Haskins & Sells.

Also, only cash donations count. Food, clothes and medicines do not qualify.

How much tax can you save: In the highest tax bracket, a donation of `1 lakh to a political party can bring down your tax by `30,900.

Proof required: A stamped receipt of the payment from a political party.

How much tax can you save: If a dependent is a patient, a taxpayer’s liability shrinks by `12,360 in the highest income bracket.

If the patient is a senior citizen, the tax is lowered by `18,540.

Proof required: A certificate of the illness from a specialist in a government hospital.

03

04

Tax Planning

The Economic Times Wealth, January 3, 2011

5. Put that education loan to work The rising cost of higher education is forcing people to borrow money to pay the fees of their children’s professional courses. The taxman is sympathetic and offers a deduction that can lower the cost of a loan. The interest paid on an education loan is fully deductible from taxable income under

Section 80E. Till a few years ago, this deduction was available only to the borrower. Now, even a parent or a spouse can avail of it. What’s more, this now includes loans taken for vocational courses. “If a parent or legal guardian takes the loan, he can claim deduction for the interest paid for up to eight successive years, starting from the year in which the interest is first paid,” says Shanbhag.

However, loans taken for siblings and other relatives do not qualify. Also, the lender must be a recognised financial institution; loans from employers or individuals do not fit the bill.

How much tax can you save: If you take a `10-lakh education loan at 10% interest for 8 years, you can save `1.41 lakh in tax in the highest tax bracket. This will bring down the effective cost of the loan to 7% per annum.

Proof required: Loan statement from lender.

For a tax-planning ready reckoner, turn to page 24

6. Use disabilities to your advantage There are other signs to suggest that the taxman is not the heartless Scrooge often made out to be. A taxpayer suffering from disability can claim a deduction of `75,000 under Section 80U. If there is a disabled dependent, deduction under Section80DD comes into play. Disability includes blindness, low vision, leprosy, hearing impairment, loco-motor disability, mental retardation and mental illness. Deduction is available only if the impairment is at least 40% (the degree of disorder is certified by select government doctors). If the disability is severe (80% or above), the deduction is `1 lakh a year. The dependant could include the taxpayer’s spouse, children, parents and even siblings. Incidentally, the deduction is offered as a lump sum and does not depend on the actual amount that a taxpayer may spend on self or on a disabled dependent. However, the disabled person should be wholly or mainly dependent on a taxpayer for maintenance, and should not have claimed deduction for the disability under Section 80U separately.

7. A second home loan opens up unlimited deduction Income tax laws encourage the growing trend of buying a second house. Under Section 24b, a taxpayer can claim a deduction of up to `1.5 lakh for interest paid on a home loan. But if a taxpayer buys a second house through a fresh home loan and gives it on rent, the entire interest paid on the home loan during a given year can be claimed as a deduction.

As Savla says, “If you have more than one house, any one is deemed to be rented out.

So the interest income on the home loan for that house can be claimed entirely for deduction, provided the rental income or a deemed income is charged to tax.”

How much tax can you save: If you have taken a home loan of `50 lakh at 9.5% for 20 years, your interest payment in the first year will be `4.7 lakh and you can save tax up to `1.09 lakh.

How much tax can you save: A deduction of `75,000 can reduce tax by `23,175 in the highest tax bracket. In the case of severe disability, tax is lowered by `30,900.

Proof required: Loan account statement from your lender.

Proof required: A certificate of disability from a civil surgeon or the chief medical officer of a government hospital.

8. Claim HRA as well as home loan benefits

The Income Tax Act doesn’t expressly disallow HRA exemption along with deduction of home loan interest. Silence signifies approval. ” SANDEEP SHANBHAG DIRECTOR, WONDERLAND CONSULTANTS

This might surprise many people, but you can claim house rent allowance (HRA) exemption as well as the tax benefits on the interest paid on a home loan.

Many organisations do not allow employees to claim both benefits. Their logic is that house rent allowance is exempt if an employee is paying rent and home loan benefits apply only for a self-occupied house.

You can’t be doing both at the same time. But this is a gray area in the Income Tax Act. “In legal terms, silence signifies approval.

In other words, the Act need not expressly allow something. The lack of express disallowance also signifies intention of approval,” says Shanbhag. Given this, HRA and interest on home loan are two separate provisions and claiming one of them as a deduction does not influence the other.

As Shanbhag puts it, “The taxpayer may own

There are many such examples in the tax laws. Let’s take for instance, Section 80C and Section 80D (medical insurance). “Everyone will agree that both Section 80C and Section 80D can be separately claimed. But does it expressly say so anywhere?” asks Shanbhag.

How much tax can you save: In the highest tax bracket, a deduction for `1.5 lakh will bring down your tax by `46,350. If you pay rent and can claim HRA exemption of `1.2 lakh, your tax is lowered by `37,080. That’s a total tax saving of `83,430 a year.

Proof required: Loan account statement from your lender. any number of flats, either in the same city that he works in or elsewhere in India or abroad, but that in no way influences the HRA deduction that a taxpayer is entitled to.”

Please send your feedback to etwealth@indiatimes.com

06

Last Week

The Economic Times Wealth, January 3, 2011

1-week change %

Weekly wealth monitor

1-year change%

23.17

STOCKS

17.43

16.67

7.83 4.50 1.03

10-yr GoI bond yield

Balanced funds

1.80 Equity funds

1.04

0.15 Gold

Weekly % change

25.35 78.25 236.3

21.29 19.28 17.68

DEBT FUNDS

NAV ( `)

Weekly % change

Canara Robeco InDiGo Templeton India IBA Birla Sun Life Dynamic Bond

10.41 31.55 16.07

0.40 0.32 0.30

EQUITY FUNDS

NAV ( `)

Weekly % change

SBI Magnum SFU DSP BR Micro-Cap Fund JM Emerging Leaders Fund

43.77 17.13 8.83

5.47 3.53 3.38

2.17

Income funds

Weekly % change

WORLD INDICES Sensex

Argentina Merval Mexico IPC 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.

Price ( `)

Gammon Infra Projects Jaypee Infratech Hindustan Oil Exploration

13.09 7.91

The top three

Data as on 31 December

3,523.59 38,550.79 69,304.81

1.36 1.23 1.20

* Figures as of 31 December. Stocks are BSE 500 stocks. Debt funds are income funds.

Source: Bloomberg

bulletin board

top news Credit cards to have extra security Come New Year, and credit card transactions over phone will have an extra layer of security. Banks have introduced an additional password system for credit card customers. The step was taken after a RBI direction for making phone banking more secure. As per the RBI guideline, banks will decline any telephonic banking transactions where the customers do not have a One-Time Password (OTP). The password will be valid for a single use and would remain in effect for 2 hours. The customers would need to generate a separate OTP for each interactive voice response transaction.

TELECOM

Airtel raises mobile surfing rates If you have been used to dirt-cheap surfing rates on your mobile, this may come as a small shock to you if you use Airtel. The market leader in mobile space has nearly doubled its mobile internet browsing charges, from 30p/50 KB to 30p/20 KB. Also, Airtel's Live WAP portal, which was free of charge till now, will be charged at the rate of 30p/20 KB, effective 28 December, 2010.

BANKING

NHB tightens housing loan rules

A pick of corporate filings by companies at stock exchanges Idea Cellular allotted 2.48 lakh equity shares of `10 each under the Employee Stock Option Scheme.

Gitanjali Gems acquired 90% stake in Giantti Italia S.R.L, a MIlan, Italy-based company.

Union Bank of India raised its base rate by 50 basis points i.e. from 8.50% to 9.00%.

Esab India declared a second interim dividend of `10 for equity share of `10 each.

Tata Coffee declared an interim dividend of `5 per share on the paid-up equity capital for the current financial year.

HCL Infosystems said it would acquire 20% equity stake in Dubai-based Techmart Telecom.

Surya Pharmaceutical acquired US-based analgesic drug brand ActivOn for $22 million.

Development Credit Bank allotted 49,530 equity shares of `10 each on 27 December, 2010, under Employee Stock Option Plan.

Corporation Bank increased its base rate by 65 basis points to 8.9% per annum from 8.25% per annum effective 3 January 2011.

Powersoft Global Solutions allotted 2.25 crore shares of `10 each as bonus issue to shareholders who appeared in records before 28 December.

Ortin Laboratories said it allotted 6.8 lakh shares to promoters and 3.5 lakh shares to others at `18 per share.

HDFC Bank allotted 5.56 lakh equity shares to employees under the employees stock options scheme.

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

National Housing Bank (NHB), the regulator of housing finance companies (HFCs), has taken a cue from the Reserve Bank of India and tightened norms governing housing loans dispensed by entities under its control.

NHB has raised the provisioning on teaser loans, stipulated a higher loanto-value ratio, raised risk weightages on loans above `75 lakh and asked lending entities to set aside 0.40 % of total outstanding loans given to entities other than individuals. Companies such as HDFC, GIC Housing, LIC Housing Finance and others come under the purview of the NHB. The new rules also limit the amount a person can borrow against property to 90% where the value of the property is less than `20 lakh. There was no limit earlier on such loans. All other loans against property have been capped at 80% of the property's value.

BUY

INFLATION

1.12 lakh shares in Garden Silk Mills at an average price of `117.

India to get a new price index India will have another measure of price changes, the producer price index (PPI), completing the bouquet of indices needed for a holistic picture of inflation. The ministry of industry has set up an internal committee to prepare a framework for the new index. The committee could take a couple of years to arrive at a commodity basket for PPI. The PPI will give an account of the economy's efficiency in transferring goods and services from the producer to the consumer. India has five gauges of inflation, measuring prices from wholesale level to retail level.

PROVIDENT FUND

HUFs asked to quit PPF after 15 years Hindu undivided families (HUFs) will now have to mandatorily exit the public provident fund (PPF) on completion of 15 years. The move is aimed at checking misuse as several people were investing in PPF to earn 8% tax-free returns as an individual as well as an HUF, which are set up by family members to avail tax benefits. After the government stopped fresh investment by HUFs in PPF from May 2005, many continued to park funds in the popular savings scheme as it earned them a 8% tax-free interest.

wealthwise

37.76 lakh shares in ACC Ltd at an average price of `1,077.

30,000 shares in HDFC at an average price of `700.

1 lakh shares in Gitanjali Gems Ltd at an average price of `211.

12,361 shares in Kemrock Industries & Exports at an average

price of `526.

51,933 shares in 20 Microns at an average price of `45.1.

SELL 95,000 shares in Marico Ltd at an average price of `120.87.

11,701 shares in Cipla at an average price of `364.

3,500 shares in Gujarat Gas at an average price of `401.

1,00 shares in Educomp Solutions at an average price of `523.

WWW.CARTOONSTOCK.COM

quote of the week Today when we are entering 2011, there is a fair amount of scepticism ...on the local front, we have politics to contend with and on the global front, we have good economics to contend with.”

SANJAY SINHA CEO, L&T MUTUAL FUND

This Week

The Economic Times Wealth, January 3, 2011

07

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

Which way will markets move?

Up by more than 2%:

Up by 2%:

At the same level:

Down by 2%:

5%

40%

35%

20%

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

63%

30%

7%

Large caps

Mid caps

Small 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.

Hits & duds

reader poll

Top 3 sectors (in %) Banking & Finance . . . .68 IT and Telecom . . . . . . .45 Pharmaceuticals . . . . . .38

WILL THE IPO MARKET CONTINUE TO BE STRONG IN 2011?

Worst 3 sectors Real Estate . . . . . . . . . . .60 Petroleum . . . . . . . . . . . .43 Manufacturing . . . . . . . .33

Majority of the readers feel the IPO market will continue to go strong. This is understandable as a host of major companies, including PSUs, line up with IPOs for next year.

Figures may not add up to 100 because of multiple responses

Market pulse ■

■

The coming months could be challenging for the economy and policymakers as India's current account deficit in the September quarter widened to a record $15.8 billion from $12.1 billion in June. This was an upshot of booming domestic consumer demand that sucked in imports and weak global demand that hurt service sector exports. A recent Goldman Sachs report said the current account deficit may widen to a record 4% this fiscal from 2.9% the previous year. The report said the deficit is increasingly being financed by short-term capital flows, which raises India's vulnerability in the external sector in the event of a reversal of capital flows. It, however, said India's forex reserves were adequate to offset temporary reversals.

The New Year is unlikely to bring down food inflation, as farmers watch unseasonal rains wipe major crops. Rains are hampering the sowing of winter wheat, coarse grains and oilseeds, putting further pressure on food inflation that touched a two-and-a-half month high at 14.44% on Thursday. The government, which has curbed exports for crops like onion, will have to come up with more ideas if it wants to curb inflation. Either ways, for the common man, prices will continue to dent savings.

weekly calendar Monday JAN

3

Dispatches from Maruti’s plant to begin after annual maintenance shutdown.

Thursday JAN

YES

6

Food inflation data to be released for week ending 25 December.

65% 28% NO

7% CAN’T SAY

Product launches ■ Kotak Mahindra Asset Management Company launched Kotak Multi Asset Allocation Fund, an openended debt scheme that aims to generate income by mainly investing in debt and money-market instruments.The scheme aims to invest up to 90 % in debt and money-market instruments, up to 20% in equity and equity-related instruments and up to 20% in gold.

■ Kochi-based Vibes Visual and Media Pvt Ltd unveiled Indiavibes, said to be India's first web TV, on 1 January with production hubs in Delhi, Mumbai, Chennai and Bangalore.

Resolution of the week Saturday JAN

8

Society of Indian Automobile Manufacturers to release local car sales data.

I will get my vehicle serviced regularly A clean engine means better mileage. If you spend `5,000 a month on fuel, you can save up to `300-400.

What you spend at the service station will be more than made up in 2-3 months. Plus you get a smoother ride and a cleaner car.

08

Stocks

The Economic Times Wealth, January 3, 2011

Wading through the penny street Auction your trash and earn a neat sum Page 43

Are Penny Stocks for Me?

T

o the first timers penny stocks may resemble a wholesale market where stocks are available at irresistibly low prices for bulk buying. The low price also makes these stocks look an amazingly low risk proposition—how much can I lose by betting on a stock priced at just `2.40? I get 1,000 stocks by spending only `2,400. The risk is losing this ‘small’ amount, but the reward could be a windfall since the price of some of these stocks gallop almost over night (e.g. over 125% a month for Vidhi Dyestuffs in the table on the right).

Enticing as it sounds, the catch in penny stocks is obvious too: Like everything else in life, a ‘cheap’ stock is cheap for a reason. Its business may be unstable or unclear. The governance is usually unknown and penny stocks are prime candidates for manipulation even by small-time operators. If investing in a blue-chip stock is a bet, putting money in penny stocks is a blind bet.

Being penny wise is as easy as being pound foolish.

Besides, these stocks may be quoting below `10 only because the companies have split the stocks and brought down the face value to `1. For instance, don’t jump to a conclusion that a stock with a face value of `10 that was quoting at `50 is “costly” and when it starts quoting at `5 after the face value is cut to `1 is “cheap”.

But while we don’t recommend investing in such stocks, we have no philosophical opposition either. A journey through the “penny street” is exciting, but investors need to be extra cautious and be ready for a rollercoaster ride that at times may just yield good returns. This is why we decided to showcase the “top gainers & losers” as well as the “top volume gainers and losers” from this segment once a month (this page will appear on first Monday of every month).

In generating these tables we have applied some basic filters for you—it should not be very small company (stocks with less than `10 crore market-cap eliminated from the list), should have sufficient trading volume (stocks with less than 1 lakh of average volume in the past one month have also been eliminated from the list), etc. However, stocks manipulated by operators can easily overcome these small hurdles and get into the list. So, use these tables only as starting point.

There were hectic actions on the “penny street” in December. Vidhi Dyestuffs Manufacturing—the company is into manufacturing of food colours—jumped up after the management announced that it had bought additional 0.49% stake from the open market. Several stocks that were gone out of the penny stocks universe have started entering back. For example, Shree Ashtavinayak Cine Vision is back in the sub-`10 league, after surging to `50 plus in November when its blockbuster film Dabangg made good collections. Its average daily volume also crashed by 93% compared to average volume in the month of November.

Please send your feedback to etwealth@indiatimes.com

Company

Market price (in `)

1-week (%) change

1-month (%) change

1-month average volume (in lakhs)

1-month average volume change (%)

Market cap (in `crore)

Top Price Gainers Vidhi Dyestuffs Manufacturing

8.89

31.70

125.06

3.13

20.17

44.45

Greenearth Resources & Projects

5.28

33.00

32.33

8.96

72.65

153.28

Adinath Bio-Labs

2.80

16.67

20.69

1.84

-34.59

61.80

Hiran Orgochem

9.32

-3.82

20.41

5.98

-38.95

91.94

BSEL Infrastructure Realty

7.99

9.60

13.01

1.01

-40.07

66.01

Empower Industries India

6.82

-1.02

10.00

5.93

69.02

596.14

FCS Software Solutions

1.66

14.48

9.93

35.33

-43.05

170.91

Avance Technologies

7.16

1.56

8.98

4.07

-27.55

458.53

JCT

3.56

2.59

8.21

2.94

-11.78

127.90

Beckons Industries

4.70

-2.69

7.06

12.54

-21.51

36.87

Top Price Losers Comfort Intech

2.96

-22.31

-78.38

10.51

-60.10

94.69

Shree Ashtavinayak Cine Vision

8.05

-21.46

-69.57

4.54

-92.33

663.88

Alka Securities

1.64

0.00

-47.94

2.22

-21.91

16.40

5.1

9.68

-37.88

1.33

99.58

25.55

Gemstone Investments

8.49

1.31

-35.92

1.19

-57.25

63.51

MTZ Polyfilms

1.99

-16.39

-29.93

1.20

-48.75

18.01

Swasti Vinayaka Synthetics

9.82

-16.00

-25.44

3.06

-49.92

68.74

Surat Textile Mills

2.90

-2.03

-22.04

1.21

69.70

64.41

Glory Polyfilms

7.00

9.55

-19.08

2.64

-55.72

41.63

Jai Mata Glass

2.04

-2.39

-18.07

1.16

-9.39

19.69

Sambhaav Media

2.44

-1.61

3.39

1.02

1630.75

35.65

Acil Cotton Industries

4.00

2.56

-2.68

7.34

381.36

44.32

Gennex Laboratories

1.32

-14.84

-2.22

2.21

335.94

16.70

Sigrun Holdings

5.08

-0.39

-11.65

4.31

191.95

271.88

Sanraa Media

0.20

0.00

5.26

119.69

169.07

23.92

Cybermate Infotek

1.88

3.87

5.62

2.84

121.15

11.76

SVC Superchem

1.99

-5.69

1.02

2.71

116.05

32.46

Tribhuvan Housing

Top Volume Gainers

Tribhuvan Housing

5.1

9.68

-37.88

1.33

99.58

25.55

Roselabs Industries

9.08

2.83

2.02

2.26

90.12

20.65

Bellary Steels & Alloys

2.45

-3.16

-1.61

14.81

79.61

179.19

Top Volume Losers Nandan Exim

2.45

11.36

5.60

1.34

-92.67

111.60

Shree Ashtavinayak Cine Vision

8.05

-21.46

-69.57

4.54

-92.33

663.88

Electrosteel Steels

9.86

2.82

-1.40

1.67

-90.77

2006.25

Avon Corporation

6.68

0.75

-1.47

3.82

-89.29

43.14

Nissan Copper

3.26

5.84

-11.89

3.13

-79.84

204.92

Sujana Universal Industries

8.19

6.23

-8.18

1.65

-76.50

106.75

Paras Petrofils

0.79

-1.25

-11.24

1.35

-75.00

26.40

Vijay Textiles

5.34

-12.75

-17.08

1.64

-74.29

61.41

IKF Technologies

3.48

2.96

0.00

5.06

-74.06

149.85

Facor Alloys

6.58

6.30

4.44

3.47

-72.17

129.03

Source: Capitaline; Data as on 31 December 2010. The stocks have been selected using the following filters: Price less than `10, one-month average volume greater than or equal to 1 lakh and market-capitalisation greater than or equal to `10 crore.

10

Investing

The Economic Times Wealth, January 3, 2011

Your money

in

2 11

The year 2010 brought back salary hikes that had to be foregone in 2009. That was just the beginning of a good year for wealth creation in which most assets in your portfolio—stocks, gold, property and even FDs—made handsome gains. Only inflation played party pooper, denting the real returns from your investments. Wouldn't it be wonderful if in 2011, your income and wealth rises at least as fast as they did last year, and the rate of inflation comes down? Right now that doesn’t seem likely. Future is never certain, but we list some possibilities here that will help you prepare for it better.

82.8%

1. India's rising income to push up your pay package Except those who work for government, everybody else’s income growth—and even job security—eventually depends on the health of the economy, which is best captured in three letters: GDP or Gross Domestic Product. The growth rate of GDP has picked up during 2010-11, and the year is mostly likely to show a 9% growth. That will ensure a good salary hike in most companies. So unless you have put up a really bad show at work, look forward to surprise jump in your pay cheque starting April 2011. GDP growth is the proverbial rising tide—it usually lifts all boats, including the stock market. So a slowdown in 2011-12 will moderate gains.

9.4 2006

RETURNS FROM SENSEX

15.3%

13.8%

08 06

07

8.3

09

10

11

-50.5% Scenarios for December 2011

2011

25,451 Bull case

SENSEX VALUE

20,509 Dec 2010

20,287 Dec 2007

8.9 INDIA’s GDP GROWTH (%)

42.9% 41.6%

8,891 Feb 2009

2010

23,165 Base case

16,924 Bear case

6.1 2008

2.4 2006

2. Global income to decide the country's growth Globalisation is not just an obscure economic term any more. It’s directly affecting the returns on our investment and the impact was most visible in 2010. Foreign institutional investors drove the markets almost singlehandedly by bringing in a record $29 billion.

Some of that foreign money was what the US central bank had printed for investments in the US (graph). Upshot for 2011? Keep an eye on global economic forces, for they dictate your fortune much more than you think. ET Wealth has a page to keep you abreast on this topic (pg 38 in this issue).

2.6

US’s GDP GROWTH (%)

2011

-2.8 2008 Source: ICICI DIRECT

10.4 2006

9 2011

6.8 2008 CHINA’s GDP GROWTH (%)

All 2011 figures are estimates

GRAPHICS: RAJ

3. Markets are in your portfolio, whether you invest in stocks or not From the finance minister to financial planners and from foreign investors to your pension fund manager, more people are watching movements in stock markets than ever. Why? Because from insurance schemes to pension plans to mutual funds, every investment option is getting market-linked—and so is your personal finance, whether you know it or not. With each passing year the trend will only accelerate.

So even if you don’t invest directly in stocks, do figure out your market exposure in 2011. And for those familiar with stocks, don’t expect the kind of returns you got in 2009 or 2010 from 2011.

The Economic Times Wealth, January 3, 2011

11

4. Lesson for the future from gold’s golden run Even though the returns on investing in gold won’t be as spectacular in 2011 as they were in 2010 (60%), the 24 metal has done enough 1-y .9% ear to earn itself a serious and permanent place in your portfolio. Of course every earning Indian is certain to have some amount of gold stashed away as jewellery, but make sure that you account for its value and plan for an annual addition to it—no matter however small and in what form. It could by say `10,000 a year and in ETF than the metal.

INFLATION RATE

19

3-y .4% ear

27

2-y .6% ear

5. Inflation: Biggest wealth destroyer

12%

CPI WPI

10.4%

RETURNS FROM GOLD

11.6%

8.6%

7.5% 9.6%

6.6% 7.2% 5.5%

2006

4.5% 3.8%

2007

2008

2009

2010

2011

Inflation is a doubleedged sword, with both edges cutting at the same time. It reduces the value of investment and raises the price of what money buys. Inflation is projected to remain high most of 2011 (see pg 12). Your task: Assess your family’s inflation (depends on your spending pattern) and aim at least 3% higher rate of return than your inflation. More on inflation and investing in the next week’s issue of this paper.

6. Crude price affects both income and expenses 98.5 2008 CRUDE $/BARREL

62.8 2009

80.3 2010

87.3 2011

When this issue of ET Wealth went to the press crude oil prices were projected to hit $100 a barrel sometime soon in 2011. Even if the price doesn’t reach the three-digit mark, or does that only gradually, the fact that people are betting on its upward spike is worrisome. Retail prices of petrol will rise even further since government isn’t subsidising it any more. diesel prices will continue to be kept low through subsidy—which in turn will affect the stock price of all oil marketing companies. More fundamentally, higher crude price will hurt the 2011-12 GDP growth, which we discussed in the first point.

7. Exchange rate to impact your household budget Global investing has taken roots with host of opportunities to 48.4 invest abroad—through real 2009 estate, stocks or funds. An appreciation in rupee can help RUPEE/US DOLLAR you earn a few extra percentEXCHANGE RATE ages, just as depreciation can cut your returns. If you haven’t taken a plunge in global investing, the value of rupee will still matter for your investments and 41.3 spending in 2011. From petrol to 2007 onion, every imported product will be cheaper if rupee remains strong, which it is expected to.

44.5 2011

So, both opportunities and difficulties in making money will grow in 2011. It will take more attention and action to create wealth, the upside is that if you monitor and manage your money well, opportunities for creating wealth will be definitely more than ever in the past. ET Wealth will be your guide in making wealth creation easier.

12

Guest Column The Economic Times Wealth, January 3, 2011

STOCKS

Look out for inflation threat Higher prices may neutralise all the good news, and this year too stock markets would remain volatile

W

hat a year we’ve had in 2010! We saw record foreign institutional investments ($29 billion at last count) on the back of a stunning market recovery starting in mid-2009. And yet markets moved up a niggling 17% or so. Equity issuance hit new highs. The government, too, made large disinvestments. Coal India got listed and is currently worth almost `2 lakh crore.

What’s 2011 going to be like ?

In a recent meeting with a highly respected fund manager, I got a surprisingly simple prognosis. We’ll pretty much stumble along the current path and post another year of low to moderate gains in stocks over 2011. There can be increased volatility, though. Consider the big picture: India is poised to overtake China’s growth rate sometime within the next five years and we are likely to get there sooner than most people think, given the large investments that have gone into some capital-heavy segments. So the West should be bullish on India, even if US or European markets might post a pullback of sorts. Also, keep in mind that growth returning to the western world is good news for exporters from India.

What are the numbers like? At `1,250 per share, the consensus Sensex earnings estimate for 201112 implies a P/E of around 16, which is a fair price to pay for India. We are certainly not in bubble territory. And will be looking much cheaper based on 2012-13 estimates. This will happen in the next six or seven months, once the audited balance sheets of large companies are in. But there are two risks to this theory: Oil prices and inflation (which is any“Long way linked to the first).

With regard to oil prices, it must

be said that the two largest market-cap companies in India will either gain (Reliance is currently at the edge of a major uptick in refining and petrochem businesses) or at worst remain neutral (higher subsidy for ONGC because of under recoveries by downstream oil marketing firms will cancel out oil price gains). The broader hit, however, can be significant because beyond a threshold (maybe $110 a barrel), government will find it virtually impossible to share subsidy without compromising its own finances.

Nor will it be able to pass on diesel price hikes completely without stoking inflation.

Thankfully enough, non-oil inflation is likely to cool off, notwithstanding onion and vegetable prices. This is due to a better monsoon and larger grain procurement by the government.

Unlike most doomsayers, who are fixated currently on the collective fiscal profligacy of governments around the world, the fund manager I spoke to thinks that the worst has almost been priced in with respect to the misdeeds of the Indian government. The recent scams involving LIC Housing Finance, Money Matters, etc have already resulted in a crack in banking stocks, which actually makes some PSU banks quite attractive.

With their wide reach, lower-operating costs (on an increasing lending base, assuming that credit growth persists around 18-20%) some of the decently managed PSU banks look like cheaper investment bets than many fancied private banks. Since 25% of Sensex/Nifty weight is accounted for by financials, any bounceback in this sector will provide a strong support to the broad indices.

WWW.CARTOONSTOCK.COM The relatively high return-onequities in the sector make for good investments, interest rate hikes notwithstanding.

There is also plenty to cheer about in sectors such as FMCG, consumer durables and pharmaceuticals as consumerled demand continues to grow.

Here, too, some moderation might happen if there is hike in prices led by commodity inflation.

If there is a real risk for Indian stocks in 2011 it is only inflation, whether stoked by government profligacy or whether imported via higher commodity prices. Monetary tightening is likely to be one of the responses that an increasingly beleaguered government will resort to. And thereby spike stock markets.

Sometimes, what’s good for term i like energy and transportation stocks. the economy is not necessarily good for the markets.

Short term i like lottery tickets.”

THE RISK FROM HIGHER PRICES Inflation may come down to 5.5-6% because of the high base effect. However, once the effect fades, inflation could head upward again after June, 2011.

A spike in crude prices and policy responses may pose concerns in terms of higher interest rates, which means higher borrowing cost for corporates.

Earnings of mid-caps and small-caps are more susceptible to inflation and interest rates due to limited bargaining power and difficulty in tapping funds at an efficient cost.

A sharp rise in commodity prices could also cause a spike in inflation. This will be negative for companies as input costs would increase.

The continued food inflation will affect India’s consumption appetite, a major driver for the markets.

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

14

Mutual Funds

The Economic Times Wealth, January 3, 2011

MIPs

Get the power to beat inflation Worried that rising prices are eating into your returns? Invest in MIPs to give your portfolio a tinge of equities to fight inflation.

KHYATI DHARAMSI & NUPUR ANAND

T

The DDT can be a big drain on returns. For instance, if you invested `1 lakh in the HDFC MIP Long-Term on 26 December 2009 and opted for a monthly dividend, you would have got `475 every month till now while the principle corpus would be `1,03,827. However, if you opted for the growth option and withdrew `475 every month, your corpus would have been higher at `1,05,227. In the dividend option, the investor lost `1,400 to DDT. “The SWP is a better strategy because it is more tax efficient,” says Nikhil Naik, a Mumbai-based independent financial adviser. He points out that the investor will have to pay tax on the short-term capital gains if he goes for an SWP. But that is too small compared to the loss in DDT.

he recent hike in fixed deposit rates has spread cheer among investors. But though fixed deposits are safe investments, they are no match against the relentless march of inflation. In the past three years, the average annual inflation rate has been 6.83%. If you invested in a fixed deposit at 7% three years ago, your returns would be a niggardly 0.17%. Fixed deposit rates have now risen to 8-9% but in the past one year, the average inflation rate has been 8.89%. So, an all-debt portfolio could make one poorer over the years.

These statistics hurt senior citizens and retirees the most.

Since most of these investors no longer earn but rely on income from investments, they cannot afford to take risks with their money. Yet, experts Returns (%) Portfolio allocation (%) advise that even risk-averse investors Scheme 3-year Inflation-adjusted Equity Debt and cash should have at least 10-15% of their portfolio invested in equities to be able to Reliance MIP 13.04 5.81 19.45 80.56 overtake the inflation rate. That is why Birla SL MIP II Savings 5 11.39 4.26 6.93 93.07 financial planners and wealth managers are increasingly HDFC MIP Long-term 9.93 2.90 22.21 77.79 recommending monthly income plans L&T MIP 8.79 1.83 18.17 81.83 (MIPs) to their clients. The category has seen a 740% rise in its AUM in the past ICICI Pru Child Care Study 8.71 1.76 22.3 77.71 one year, from `10,600 crore in NovemFixed deposit 7 0.16 0 100 ber 2009 to `89,190 crore now.

Returns as on 28 Dec 2010; average wholesale inflation in past three years 6.83% Source: NAV India MIPs invest primarily in debt instruments but a small chunk (15-20%) of their corpus is invested in equities.

MIP buying guide This small exposure to equities pushes up their returns when markets are bullish but protects the downside during Buy only if you have an investment horizon of at least 3-4 downturns. The average MIP fell by 3.79% during the 2008 years. For a shorter term, go for pure debt funds or fixed meltdown while the best performer churned out 28.5%. maturity plans.

However, some of the more aggressive MIPs have up to 25% Don’t go for the dividend option because there is a exposure to equities, which increases the risk quotient. dividend distribution tax payable by the fund house.

Besides, the debt portion too carries a risk. Rising interest This brings down the overall returns. rates could bring down returns, as has been the case in 2010.

Choose a scheme with a consistent track record.

Despite good returns from equities, the drop in debt returns Don’t merely go by short-term performance. has pulled down the category average to just a little over 7%.

A high equity allocation can be rewarding but also risky.

“In an MIP, debt and equity both could be risky because they Buy only if you are comfortable with the equity exposure. are actively managed,” says Sunil Subramaniam, director, sales and marketing, Sundaram Mutual Fund.

This also means that MIPs should not completely replace fixed deposits in your income portfolio. Don’t allocate your enWithdrawals of `475 a month from the growth scheme tire corpus to this market-linked option. Besides, one should would result in capital gains of `281. In the highest 30% not read too much into the name. The term “monthly income” bracket, the tax is less than `90. What’s more, from the is only a generic description of this category of funds. Though second year, the gains are taxed at a flat 10% or 20% afgood MIPs such as HDFC MIP Long-term have maintained at ter indexation. least a 60% dividend every month for the past 4-5 years, there A word of caution. Don’t treat your MIP as a shortis no assurance of a monthly payout. term investment. Says Jayant Vidwans, director of However, one can create a stream of monthly income by optthe Mumbai-based Chaitanya Financial ing for a systematic withdrawal plan (SWP), in which a fixed Consultancy: “In the short-term, MIPs make no amount is redeemed from the investment on a predetermined sense. One should stay invested for a minimum date every month and paid to the investor. SWPs score over of three years.” Only then would the equity dividends in case of MIPs because they incur a lower tax. portion of the scheme be able to generate the Though dividends received from any mutual fund are tax free, kind of returns you are looking for. the fund house pays a dividend distribution tax (DDT) on the payouts from debt-based funds. This amount is deducted from Please send your feedback to the fund’s NAV. Only equity mutual funds, which invest at least etwealth@indiatimes.com 65% of their corpus in stocks, are exempt from DDT.

So much better than FD

RAJ

Ditch piracy and yet save money Page 44

16

Fund Manager’s Wisdom The Economic Times Wealth, January 3, 2011

EXPERTSPEAK

Avoid ‘flavour of the day’ ideas Funds managed

by Chirag Setalvad

HDFC Balanced

HDFC Capital Builder

HDFC Children's Gift-Invt plan

HDFC Children's Gift-Savings plan

HDFC LT Advantage

HDFC Mid-Cap Opportunities

HDFC Multiple Yield Plan 2005 —Jointly managed

HDFC Midcap Opportunities Fund Performance

30.42

18.68

17.06

13.27 9.19 7.52

7.49

-3.46 -0.90 6-month

1-year

Fund Category Benchmark*

3-year

*BSE200. As on 27 Dec 2010.

Returns (%) greater than one year are annualised

Sector allocation

16.69%

45.85%

Pharmaceuticals

Others

15.95% Banks

6.27% Chemicals NITIN SONAWANE

6.13%

5.63%

CHIRAG SETALVAD Age: 37 Qualification BBA (University of North Carolina) Current position Senior fund manager, HDFC Mutual Fund

My annual target for the fund To beat the relevant benchmark by 6-7%.

The Chirag Setalvad way of investing I believe in a bottom-up approach based on fundamental analysis with an emphasis on business quality, understandability and margin of safety.

My risk appetite is Moderate. Risk lies in not understanding what you are doing. The important thing is to take calculated risks after considering alternative probabilities and outcomes.

Capital protection is of paramount importance.

management, colleagues etc.

Small investors should

Abrasives & Grinding wheels

Electric equipment

Nearly 3% of corpus is in cash holdings/debt.

As on 30 November 2010.

Focus on investing via SIPs.

How frequently do you churn your portfolio?

Top 5 stocks (% of net assets)

My average portfolio churn is about 15%.

What I do differently

My best decision

I try to avoid 'flavour of the day’ ideas.

Has been to always work with smart, like-minded people.

My own money is invested in

My worst decision

Ipca Laboratories 5.08 Exide Industries

4.09

Lupin

4.07

Carborundum Universal

My outlook for 2011 Markets are reasonably valued and returns are likely to track earnings growth with greater stock-specific moves.

Five things my stock-picks must have Sound management, attractive valuations, strong return on capital and good cash flows.

Mutual funds—diversified equity 50-60% and fixed income 40%.

One bias I try to control Confirmation bias—tendency to be more receptive to information that confirms your hypothesis.

What I like about my job I don’t touch stocks That do not have straightforward management.

Constant learning through reading, interacting with smart, accomplished people; company

Not selling fast enough when an investment thesis goes wrong.

Which books have influenced your investing process?

One Up On Wall Street by Peter Lynch, Why Smart People Make Big Money Mistakes by Gary Belksky and Thomas Gilovich and The Making Of An American Capitalist by Roger Lowenstein.

(As told to Khyati Dharamsi)

Crompton Greaves

3.74

3.47

As on 30 Nov 2010. Data source: NAV India

HDFC Midcap Opportunities Fund, with an asset of `1,184 crores, is the largest of the seven funds managed by Chirag Setalvad.

11.6% is the 3-year annualised returns of HDFC Balanced fund managed by Chirag Setalvad. Category average is 2.41%

18

Mutual Funds

The Economic Times Wealth, January 3, 2011

PERFORMANCE

Your fund’s alpha factor Knowing the alpha value of your mutual fund is important because it tells you the risk-adjusted returns over a period of time.

SAMEER BHARDWAJ

W

hile evaluating the performance of a fund, analysts look at several factors such as the asset size, expense ratio, past returns and company or sector allocation patterns among others. Out of these, the past performance of a fund is widely quoted in fact sheets, research reports and advertisements that solicit mutual fund investments. Though the past performance of a fund is important, it completely ignores the risks taken by the fund.

Mutual funds face two types of risks while investing in stocks: i) Company specific and ii) market specific. A fund aims to eliminate company-specific risks by diversifying their holdings. However, market risk (also known as systematic risk) cannot be eradicated. A well-diversified mutual fund then is prone to market risks only. The returns that a fund generates

must be in accordance with the risks it is exposed to. Such risk-adjusted returns are called expected returns.

For making risk-return analysis, analysts use a statistical tool known as alpha (also known as Jensen’s alpha after American economist Michael Jensen who developed it). This measures a fund’s returns relative to its expected returns. A fund that consistently generates higher return relative to its expected return is an outperformer. Alpha is also used by analysts to evaluate the performance of the fund manager. A positive value of alpha means that the fund manager’s stock-picking and market-timing skills are above average.

For a retail investor the alpha value is important because it measures the excess returns a fund has generated in relation to the returns generated by its benchmark.

Alpha values are readily available on websites like valuereseachonline.com and myplexus.com.

The real worth of your Esops Page 42

Top 10 Positive Alpha funds—Consistent Outperformers Benchmark

Inception Date

1-year returns (%) Fund Benchmark

3-year returns (%) Fund Benchmark

5-year returns (%) Fund Benchmark Jensen’s alpha

Tata Dividend Yield Fund

Sensex

25 Nov ‘04

30.97

15.17

5.63

-0.30

18.77

16.68

HDFC Capital Builder

S&P CNX 500

1 Feb ‘94

26.93

12.12

3.59

-2.97

17.87

14.78

0.06

HDFC Equity Fund

S&P CNX 500

1 Jan ‘95

27.27

12.12

10.01

-2.97

22.57

14.78

0.06

Birla Sun Life Dividend Yield Plus

S&P CNX 500

26 Feb ‘03

27.63

12.12

11.11

-2.97

18.75

14.78

0.06

Reliance Equity Opportunities Fund

BSE 100

31 Mar ‘05

29.40

13.36

5.90

-1.96

21.72

16.40

0.06

IDFC Premier Equity Fund - Plan A

BSE 500

28 Sep ‘05

30.52

14.25

7.57

-2.90

28.20

15.79

0.06

HDFC Growth Fund

Sensex

11 Sep ‘00

25.49

15.17

4.77

-0.30

22.57

16.68

0.05

ICICI Pru Discovery Fund

Nifty

18 Aug ‘04

25.77

15.60

10.97

-0.46

19.37

16.49

0.05

HDFC Core & Satellite Fund

BSE 200

17 Sep ‘04

26.04

13.96

5.41

-2.01

18.36

16.21

0.05

Sahara Wealth Plus - Variable Pricing

S&P CNX 500

8 Sep ‘05

25.32

12.12

2.40

-2.97

15.07

14.78

0.05

Scheme Name

0.07

Data source: NAV India. Returns as on 28 Dec 2010

Top 10 Negative Alpha funds—Consistent Underperformers Scheme Name

Benchmark

Inception Date

1-year returns (%) Fund Benchmark

3-year returns (%) Fund Benchmark

5-year returns (%) Fund Benchmark

Jensons Alpha

UTI-Infrastructure Fund

BSE 100

19 Apr ‘04

-0.36

13.36

-9.94

-1.96

15.35

16.40

-0.05

JM Emerging Leaders Fund

BSE 200

27 Jul ‘05

3.12

13.96

-25.11

-2.01

-3.72

16.21

-0.04

JM Equity Fund

Sensex

1 Apr ‘95

10.46

15.17

-11.62

-0.30

7.59

16.68

-0.02

Tata Equity Opportunities Fund - B

Sensex

5 Apr ‘96

8.46

15.17

-6.00

-0.30

15.18

16.68

-0.02

BNP Paribas Opportunities Fund

BSE 200

15 Apr ‘05

9.51

13.96

-16.42

-2.01

5.92

16.21

-0.02

HSBC Midcap Equity Fund

BSE Mid-Cap

19 May ‘05

11.28

14.56

-8.38

-7.32

10.21

11.86

-0.02

UTI-Top 100 Fund

BSE 100

6 Oct ‘93

11.03

13.36

-4.50

-1.96

13.10

16.40

-0.01

Taurus Discovery Fund

CNX Midcap

3 Jan ‘96

12.41

16.77

-18.93

-1.57

3.64

16.89

-0.01

Birla Sun Life Basic Industries Fund

BSE 200

15 Jan ‘00

11.68

13.96

-4.28

-2.01

15.80

16.21

-0.01

Birla Sun Life Advantage Fund

Sensex

3 Apr ‘01

11.89

15.17

-4.22

-0.30

13.10

16.68

-0.01

Do such positive alpha funds really perform better than the negative alpha funds?

We decided to test this by studying the performance of equity-diversified funds. The funds were filtered by looking at funds that are more than five years old and only growth-option funds were selected. After applying these filters we zeroed-in on 116 funds.

Out of these, 69 were positive alpha, 24 were negative and 23 have alpha value of zero. We ignored funds with zero alpha values.

We then analysed the performance of positive and negative alpha funds over a period of one year, three years and five years.

In these three time periods 56% of the positive alpha funds consistently outperformed their benchmarks. On the other hand, 58% of the negative alpha funds consistently underperformed their benchmarks. This shows that the funds that generate excess returns have the ability to outperform in the medium term and the long term.

However, alpha should be used cautiously while evaluating funds that are not fully diversified. This is because alpha only considers market risk and ignores companyspecific risks. Therefore, it gives a distorted picture of the risk-adjusted returns in case of less-diversified funds because such funds are also prone to the companyspecific risks.

Please send your feedback to etwealth@indiatimes.com

Fund Portfolio

The Economic Times Wealth, January 3, 2011

19

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

Watch show on fund portfolios every Saturday at 12.30 pm and every Sunday at 10.30 am See page 34 for the ETW Funds 100 list of best funds.

Top 5 stocks in equity holding (in `)

2,19,777

ICICI Bank

8,313.71 (5.48%) 6,265.94 (4.13%) 5,880.96 (3.88%) 4,457.63 (2.94%) 4,333.66 (2.86%)

State Bank of India Infosys Technologies

Annualised return

Bharti Airtel

18.74

Kotak Mahindra Bank

Top 5 sectors in equity holding (in `)

Portfolio asset allocation Others 5.02%

29,936.77 (19.74%) 22,062.12 (14.55%) 16,730.82 (11.03%) 14,761.90 (9.73%) 12,666.18 (8.35%)

Financial Energy Engineering

Debt 25.36%

Technology Services

Equity 69.61%

Equity market-cap break-up Tiny 0.01%

Equity investment style Blend

Not classified 0.94%

Value

Small-cap 15.62%

CAPITALISATION

Large

Growth

Medium

T

his portfolio suits investors looking for moderate growth from equity investments and are not comfortable with aggressive exposure to stocks. The portfolio has given annualised returns of 18% since launch, which is fairly impressive. All four funds in the portfolio are balanced schemes, which are not only good asset allocation tools but also highly tax efficient.

Balanced funds automatically re-align your investment when the market goes up by moving some of the gains into debt. This saves the investor the trouble of having to rebalance the portfolio. These hybrid schemes also enjoy greater flexibility than equity funds when it comes to asset allocation. During a bear phase, a balanced scheme can bring down its equity allocation to as low as 40% of its corpus compared to the 80% allocation that an equity scheme has to maintain. Alternatively, during bull runs, it can raise the equity portion to as high as 75% of the corpus.

Then there is the tax efficiency factor.

Though 30% of the portfolio is invested in debt and cash, the returns will enjoy the tax exemptions given to long-term capital gains from equity investments. For investors, it's a winwin situation.

This portfolio’s equity investment is spread over large-, mid- and small-cap stocks to give the perfect blend of growth at moderate risk.

Faye D’Souza

Fund value (`)

Giant 36.78%

Mid-cap 28.03% Large-cap 18.62%

Small

‘Good returns at low risk’ Fund

INVESTMENT STYLE

Debt rating break-up Funds in the portfolio Investment Annualised Rating `) returns (%) per month (`

Fund

DSPBR Balanced-G

2,500

18.5

FT India Balanced-G

2,500

16.1

HDFC Prudence-G

2,500

24.2

Reliance Reg Savings Balanced-G

2,500

23.9

Total Portfolio

10,000

18.5

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

Cash & Call Money 12.28% `8,140 P1+ 13.33% AA `8,835 AA+ 5.81% 4.7% `3,851 `3,113

Net Receivables 3.81% `2,529

Others 0.44% `359

Repos 0.06% `292

AAA 23.77% `15,758

GOI Securities 35.32% `23,411

‘I seek high returns’ Fund

‘I want regular growth’ Fund

‘I can’t take risk’ Fund

‘I want regular income’ Fund

Fund value

Fund value

Fund value

Fund value

(`)

2,26,734

(`)

2,22,909

Annualised return

23.1%

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

Equities: 80-90% Debt: 10-20% Funds Annualised returns (%) DSPBR Short Term-G 5.5 IDFC Premier Equity Plan A-G 35.7 L&T Opportunities-G 20.4 Reliance Regular Savings Equity-G 24.5 Sundaram S.M.I.L.E. Reg-G 17.1 UTI Opportunities-G 26.5

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

Funds Annualised returns (%) BSL Frontline Eqt A-G 24.8 Canara Robeco Income-G 4.9 DSPBR Short Term-G 5.5 DSPBR Top 100 Eqt Reg-G 22.6 DWS Investment Opp Reg-G 17.6 HDFC Top 200-G 29.0 UTI Dividend Yield-G 31.2

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

(`)

2,08,718

11,31,835

Annualised return

Annualised return

11.8%

16.1%

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

20.7%

(`)

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

Funds Annualised returns (%) FT India Dynamic PE Ratio FoF-G 12.8 HDFC MIP Long-term-G 11.8 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

20

Provident Fund

The Economic Times Wealth, January 3, 2011

INTERVIEW

‘Why go to a mutual fund?

Invest all your money with us’ The Employees’ Provident Fund Organisation (EPFO) plans to put restriction on withdrawals from Employees Provident Fund (EPF) accounts.

Central Provident Fund Commissioner Samirendra Chatterjee says the purpose of such an account is defeated when people withdraw money every time they change jobs. He expects subscribers to take out nearly `10,000 crore thanks to EPFO’s decision to stop crediting interest in “inoperative” accounts by 1 April this year. Excerpts from an interview with Vikas Dhoot

The modalities have been finalised and will be advertised soon. On 1 April this year, whoever has a PF account dormant for over 36 months will stop getting interest. I expect `10,000 crore to be taken away from our system.

Can these dormant accounts be transferred to a worker’s current account?

Of course. That is the message we want to give. People should not withdraw the balance.

They should transfer it. Today, people have three or four PF accounts, just like bank accounts. My message to them is there is no other system in this country that will give them 8.5%-9.5% tax-free returns with 100% capital safety. Once you withdraw it, you can’t reinvest such amounts into the employees provident fund (EPF). A `1,00,000 balance will give you `8,500 tax-free. A bank would give you 5-6%, subject to tax. This is the best saving mechanism for the risk-averse.

Suppose I have changed five jobs. How do I consolidate those PF accounts?

Today there is an incentive for them to do this because of the pressure that there will be no interest credited to these accounts. People in industries with high attrition rates and multiple PF accounts have an incentive to transfer all past accounts in the current job’s PF account. What I would suggest is: Apply and forward it to our respective regional office.

The Employees’ Provident Fund (EPF) was originally set up to ensure that people saved up for their retirement. But the cause for concern now is that many employees withdraw money from the fund very early on. A pilot survey of 4 lakh subscribers in eight districts under the Karnal Provident Fund Office reveals that people see it as just another kind of investment. Some key findings:

I resign, therefore I withdraw…

Resignation is one of the biggest reasons for huge withdrawals from the EPF

5.04

% Life insurance premium payment

0.80% Transfer

3.53% Advance

88.89

1.74

% Resignation

% Settlements other than resignation

…even if I saved only a small amount Almost 50% withdrew money even before the fund value reached `10,000

24.1% 22.4%

SHOME BASU

You plan to stop crediting interest in PF accounts where no fresh money has been deposited for three years. What’s the amount at stake?

90% EPF accounts close in two years

Up to `5,000

19.5% 24.7%

`500110,000

9.4%

Above `50,000

`10,001 `20,000 -20,000 -50,000

Will employees have to follow a different procedure for transfer applications then?

For employees, the same procedure has to be followed up. Fill up Form 13, give it to the past employer who will endorse it and send it to the local PF office.

Workers may simply choose to withdraw money as it is easier than the tedious transfer process. It won’t be painful any more. Once you withdraw it, you won’t get similar tax benefits and returns.

Is there a cap on how much one can invest in EPF?

Did you know 12% of the employee’s share is only a minimum statutory amount to invest in the EPF? It is possible to invest even 100% of salary if a worker wants. I am now trying to propagate that people should invest all their savings with us. Why do you need to go to a mutual fund?

A lot of employers deduct 12% on the whole salary, including IT firms such as Tata Consultancy Services and Infosys Technologies. If your pay is `1 lakh, they deduct `12,000 towards PF as workers’ contribution. Such employees can invest up to `1 lakh a month into the EPF. Some other firms restrict PF contributions to basic salary up to `6,500. In such cases, employees can invest up to `6,500 every month into the EPF, without any extra charges.

It is possible to invest even 100% of the salary into the EPF. I am now trying to propagate that people should invest all their savings with us. shows that 90% of all withdrawals are on account of resignations. People work for two or three months and withdraw their entire PF balance and take up a new job and a new PF account. Employees end up eating all their savings. Within two years, 90% of total accounts get closed. Accumulations are very low: `10,000 on an average. Everyone needs money sometimes, but they should not consume all their savings whenever a need arises. The PF account should serve its purpose—having a `15,000 balance at retirement is ridiculous. We will have to take it to the central board of EPFO’s trustees and point out that this is a joke.

Every six months to a year, you change your job and withdraw your PF. If you want to buy a microwave or a cell phone, you withdraw your PF. That makes us more like a bank.

What about withdrawals?

I am trying to put some restrictions on withdrawals. An analysis of one of our offices

Please send your feedback to etwealth@indiatimes.com

…because I resign very often As high as 54% of such employees spent less than two years in one job 30.2% Less than 1 year

24.1% 1 to 2 year

15.5% 3 to 5 year 10.4% 5 to 10 year

15% 2 to 3 year

4.6% Above 10 year

…. I am young and I hopped A huge majority of them emptied their money decades before retirement

13.1% Up to 25 yrs

24.8% 25-30 yrs 20.4% 30-35 yrs

1.5% Above 60 yrs

24.9% 40-60 yrs 15.2% 30-35 yrs

Banking

The Economic Times Wealth, January 3, 2011

21

SAFE DEPOSIT

Why is it difficult to get a locker?

Going against RBI guidelines, banks arm-twist customers into opening an account or buying a financial product before renting a safe-deposit locker.

PRIYA KAPOOR

W

e do have lockers available, madam,” said the relationship manager (RM) of a private-sector bank near my home in west Delhi. I was ecstatic to hear an answer in the affirmative after trying my luck at several banks across the city. I was relieved that I would not have to worry about my jewellery and other valuables any more.

“We have medium-sized lockers available.

Will it serve your purpose?” asked the RM. That was exactly what I was looking for.

However, my happiness was short-lived. On asking about the rent and paperwork, I was told that the annual rent was `1,600 and I had to provide proof of residence and a copy of my PAN card.

And then came the sucker punch. I had to invest `10,000 in a fixed deposit! “Don’t worry, madam,” the RM assured me. “Your fixed deposit will earn interest. Till you hold a locker with us you cannot withdraw from it. It is sort of a security deposit.”

The same story was played out at another bank. Lockers were available at an annual rent of `1,300. But here the bank asked for `50,000 investments in financial products sold by it.

Says Harsh Setia, a Bangalore-based engineer: “I went to at least six banks. Everywhere they asked me to open an account and invest in a product. In fact one back wanted me to buy financial products worth `2 lakh as a pre-requisite for getting a locker.”

Across the country banks, both public- and private-sector ones, are thumbing their nose at the Reserve Bank of India (RBI) directive that prohibits investment in fixed deposits or any other financial product as a precondition to the opening of lockers.

According to the central bank’s guidelines,

What RBI says...

Customer does not have to invest in any bank product or open an account to get a locker To ensure regular payment of rent, banks can obtain a fixed deposit covering only three years rent and charges for breaking the locker, if necessary Banks should maintain a wait list for allotment of lockers; all applications for allotment should be given a wait-list number Banks should give a copy of the agreement regarding operation of the locker to customer at the time of allotment

Charges (in `) Banks

Small

Medium

Large

Axis Bank

1,200

2,500

5,000

Citibank

4,000

9,000

20,000

SBI

1,000

2,500

3,000

Bank of Baroda 1,200

2,000

3,000

Locker rental charges for metro and urban areas for one year Rates are indicative; size of lockers varies across banks.

Source: Bank websites

…and what banks do Ask customers to invest in fixed deposits or any other investment that it sells Open a savings account No waiting list number given in most cases

banks “may face situations where the lockerhirer neither operates the locker nor pays rent. To ensure prompt payment of locker rent, banks may at the time of allotment, obtain a fixed deposit which would cover three years’ rent and the charges for breaking open the locker in case of an eventuality”.

Banks, however, have their own reasons for insisting on a “financial relationship” with a prospective locker-owner. “While it is not mandatory, we ask customers to open either a current or savings account with us for operational convenience of rent recovery,” says Surinder Chawla, head (retail liabilities product group), HDFC Bank. “A savings account facilitates easier rent payments by way of direct debits,” adds Puneet Kapoor, executive vice-president, Kotak

Mahindra Bank.

So is there a way out? If you are unwilling to open an account or invest in products that the bank is selling, then the easiest way to get a locker is to share it. While banks allow allotment of a locker on a joint-holder basis, the second holder can be added later. In such cases, the banks ask the first locker holder to give a written declaration of the relationship with the second holder. The second holder also has to fulfil the know-your-customer (KYC) norms before being registered as a joint holder. “When you sign up as an additional locker holder and the locker is operated on an either/or basis, then the new holder has independent access to the locker,” says Kapoor.

Another way to safe guard your jewellery

is by availing of an overdraft against gold jewellery. This is a short-term measure and should be used only in an emergency.

Apart from non-banking financial companies (NBFCs) such as Muthoot Finance and Manappuram Finance, some public and private banks too offer this facility. Under the facility, the jewellery is pledged and a percentage of its value is parked in a current account. Some banks and NBFCs also charge a small processing fee. You have to pay interest only when you make any withdrawal. A flip-side to this solution is that thie facility has to be renewed frequently.

Please send your feedback to etwealth@indiatimes.com

22

Fixed Income

The Economic Times Wealth, January 3, 2011

FD VS FMP

Earn in 370 days what you would have in 500 days The recent hike in interest rates have made fixed deposits very attractive. If you are planning to open one, check if a fixed maturity plan won’t work better for you.

But it seems FMPs are victims of a misconception among most investors that they are t is a paradox but investments that yield equity linked schemes. Since FMPs are offered higher returns aren’t always the most popby mutual funds, many small investors think ular. Take for instance, the abysmal that the money is used to invest in the stock interest that retail investors show in fixed market. “When we suggest FMPs to customers, maturity plans (FMPs) compared to fixed they refuse, saying that they are scared to put deposits (FDs). FMPs deliver substantially higher money in stocks,” says certified financial planner returns yet they are nowhere close to being as K.V. Balaji. popular as FDs. This is a problem even debt funds face. “Most The prevailing interest rate for one-year FDs is customers feel that returns on fixed deposits are 7.5-8.5%. Senior citizens (investors over 60 years) guaranteed, which is more or less true given that get a wee bit 0.25-0.5% more. If you opt for oddbig banks that have gone bankrupt have been restenure FDs which mature in, say 500 days, you cued by the government,” says one. The market can get anywhere between 8% and 8.5%. On the regulator, on the other hand does not allow other hand, one-year FMPs are currently offering mutual funds to guarantee returns. indicative returns of around 8.5-8.9%. Pretty That is also why your broker will only give much the same returns, right? No. If you take indicative returns that can be earned from the into account the tax treatment of FMP. Also, these indicative the income from both options, the returns will apply for net return earned from an FMP is investments that are held till far higher for an investor in the maturity. Premature Given the highest tax bracket (taxable withdrawals could result in income of over `8 lakh a year). lower returns. different tax How to buy an FMP: Mutual This is because the interest treatment, the from the FD is treated as income funds regularly launch FMPs of net return from other sources and taxed at different maturities. They are the marginal rate. In the highest more popular towards the end earned from tax bracket, this is 30.9% of a reporting quarter. You can an FMP is including the surcharge. However, invest in one just like any much better the gains from the 370-day FMP mutual fund.

Tax treatment: As already are treated as long-term capital than that gains because the holding period explained, the returns from earned from is more than a year. The tax on FMPs are higher due to the lower an FD such gains is lower at a flat 10.3% tax on long-term gains. Therfore, or 20.6% after indexation. Indexago for maturities of at least 365 tion takes into account the inflation during the days to ensure that you get the benefit.

Options available: FMPs like other mutual funds holding period and accordingly adjusts the buying price of an asset. The investor can choose offer both growth and dividend options. Due to to go with any of the two options. tax reasons those investing in an FMP of greater As the table on the left shows, given the lower than one year should opt for the growth option tax on gains from FMPs, one could earn higher and for any other maturity the dividend option returns from a 370-day FMP than from a 500-day works better.

Liquidity: However, one negative aspect of FMPs FD. In the months to come, interest rates are expected to go up, which would push FMP is that the liquidity is very low. Till a few months returns further up. “I wouldn’t be surprised if the back, you could redeem an FMP at any time by a FMP returns touch 10% before 31 March,” says a paying an exit load of around 2%. Now, mutual debt fund manager. funds are no longer allowed to redeem FMPs Yet, retail investors have largely stayed away before the maturity date. If an investor wants from this tax-efficient investment option and to exit, he can sell on the exchange. However, continue to pour their money into tax inefficient there are virtually no buyers. So, it will be FDs. One reason for this bias could be that FMPs virtually impossible to withdraw before the are not as widely available as FDs. You can open maturity date. an FD at any bank branch, brokerage house or even a post office. On the other hand, FMPs are Please send your feedback to distributed through mutual fund brokers and etwealth@indiatimes.com select bank branches.

VIVEK KAUL & KHYATI DHARAMSI

CHANDER

I

How FMPs give you higher returns than FDs Investment Interest rate/indicative return (%) Maturity value Indexed cost (@ 5% inflation) Gain Maximum tax rate (%) Tax

Net gain Post-tax annualised yield (%)

500-day FD

370-day FMP

`1,00,000

`1,00,000

8.1

8.5

`1,11,096

`1,08,500

NA

`1,05,000

`11,096

`3,500

30.9

20.6

`3,429

`721

`7,667

`7,779

5.6

7.78

In 500 days, the fixed deposit earns less than the 370day FMP. If the FMP proceeds were reinvested for another 130 days at, say 5%, the investor can earn far more than what the FD would make.

Insurance

The Economic Times Wealth, January 3, 2011

The physically challenged

OFF-BEAT COVERS

A bungee jumper’s guide to insurance Insurers are warming up to adventure sports, disability and expensive assets. But the onus is still on a customer to chase unconventional cover.

PREETI KULKARNI

A

n ideal questionnaire for insurers reads like this: Age: 35; Marital status: Married; Children: Yes, school-going; Monthly income: In five figures; Smoker: no.

Add exercise to the list and they are mighty pleased.

Adventure sports? That is pushing it, an insurance company would tell you.

Put another way, an insurer’s delight is a customer who is healthy as the chances of illness and death along with claims are reduced, has income to guarantee uninterrupted premiums, and nurses enough ambitions for the kids to obtain

23

child plans and unit-linked insurance plans.

Insurance companies typically cover risks that are easily understood and can be quantified. For that reason, they are skittish about insuring adventure sports such as mountaineering, scuba diving, paragliding and bungee jumping, handicapped dependents or an expensive collection of jewels and paintings.

Still, companies such as ICICI Prudential, Future Generali Life Insurance Bajaj Allianz and Cholamandalam General Insurance are waking up to these sections of coverage, lured by the business potential.

Here are things you will encounter when the need for coverage is unusual to an insurer.

Adventure sports Cover for adventure sports is still a fledgling segment.

Companies such as Bajaj and Cholamandalam General Insurance cover adventure sport injuries only under their travel insurance policies. Bajaj’s cover is limited to overseas travel.

Insurers also throw riders at customers. “We cover injuries arising out of adventure sports if the customer specifically requests for it at the time of purchase,” says Cholamandalam GS brand and product management head Neeraj Moorjani,.

ICICI Prudential covers injuries only if a customer participates not more than twice a year. Bajaj’s policies stipulate that a customer participates under the supervision of trained professionals. The company insists that policyholders can take part only in winter sports and mountaineering where ropes or guides are customarily used.

In this backdrop, a tailor-made policy is a rarity. Future Generali Life Insurance chief actuary Gorakhnath Agarwal says the company does not offer a customised policy.

Premium here is higher because the risk of accidental death or disability is on the upside. Under Cholamandalam’s silver plan, a 30-year-old individual on a 15-day tour to countries other than the US and Canada is charged `711 for a $100,000 cover. If cover related to adventure sports is included, the premium swells to `2,133.

Future Generali offers a normal policy after charging additional premium.

Extreme sport enthusiasts must declare their interest while they apply for life cover. An insurer can deny insurance or charge extra premium commensurate with the risks involved. If an insurer discovers your taste for adventure during investigation, a claim could be rejected.

Life insurers have long been pushing child Ulips by working the anxiety of parents over the financial security of children. The concern is more pronounced for parents of the disabled.

An individual can deduct up to `1,00,000 a year from the taxable income if the amount is spent on a dependent’s treatment, training and rehabilitation. An insurance policy in which a disabled dependent is the nominee secures the same benefit. India’s biggest insurer LIC has designed two such policies: Jeevan Aadhar and Jeevan Vishwas.

The tax benefit rises with the degree of disability that has to be certified in Form 10IA by a qualified doctor in a government hospital. “The amount of deduction is `1,00,000 if the severity of disability is 80% or more. Else, it is `50,000,” says Adroit Tax Services director Vaibhav Sankla.

An insured individual’s claims after a dependent dies will be taxed as income.

For instance, a 35-year-old individual with a dependent aged 5 seeking a sum assured of `1 lakh under Jeevan Aadhar over a term of 15 years has to pay `4,095 a year as premium. The benefits are segregated into guaranteed and variable. Up to 20% of the amount is paid in lump sum and the balance in the form of RAJ & ALANAKR annuities.

The Rich Insurers are beginning to share the affinity of bankers for high net worth individuals. Under wealth management, banks offer the rich many privileges. To tap the segment, Tata-AIG General Insurance has devised the insurance equivalent of wealth management. The company covers paintings, rare antiques, high-end jewellery and cars under an offering called Private Client Group.

“This product category caters to ultra high net worth individuals who want to insure their high-end assets like luxury cars, jewellery, paintings and so on,” says Tata-AIG General CEO Gaurav Garg. A single policy covers all assets. It is an annual contract with no cap on the maximum cover. The sum assured is calculated after ascertaining the value of items.

Tata AIG premiums rise up to 2% of the sum insured.

They are subject to client profile, usage pattern, value of per item, claim history, security on premise and size of the portfolio. In case an art collection is damaged, the company’s network of conservators, appraisers, restoration and repair specialists will address the problem.

Professional indemnity Professionals such as doctors, engineers, lawyers and chartered accountants who make mistakes at work cannot hide behind the adage ‘It’s human to err’. They have to make good or minimise losses to clients. Companies such as New India Assurance, National Insurance,and ICICI Lombard cover covers the compensation a policyholder is liable to pay under their ‘Professional Indemnity Insurance’ product category.

New India’s product caters to several professionals while National Insurance covers only doctors and medical practitioners.

Expenses incurred during defence in court are also covered if a policyholder has an insurer’s consent. The insurance will not work if a liability arises out of a violation of law or is criminal. Off-the-shelf products in unconventional coverage may still be few and far between, but chasing an insurer may throw up solutions. Dive right in.

Please send your feedback to etwealth@indiatimes.com

24

Learn & Keep

8.5%

8-9%

9% 5-6%

7-12%

7-10%

6-12%

Totally market-linked

7-8%

This compulsory deduction from salary is a good way to build a nest egg.

Assured returns for risk-averse investors.

Best tax-saving option for senior citizens.

Not a good way to either save tax or buy life cover.

Allows exposure to equity markets

Allow equity exposure but watch out for high charges

Gives life cover also but watch out for high charges Potential to give highest returns among all options.

To avail additional deduction under Sec 80CCF

EPF

PPF, NSCs, 5-yr fixed deposits Senior Citizen's Savings Scheme Endowment and money-back insurance New Pension Scheme Pension plans

Ulips

ELSS Infrastructure bonds

` 1 lakh

Up to ` 1.5

The principle repaid of a housing loan The interest paid on the loan is deductible under Sec 24(b) Premium for self, family, parents deductible under Sec 80D

Housing loan repayment Housing loan interest Medical insurance

You can invest up to `1.2 lakh a year in the options listed above. Add up your figure to know how much more is needed

How much more you need to invest

` 1 lakh

Tuition fees of two children deductible

School Fees

` 1 lakh under Sec 80C

+

self and family

`15,000 for

lakh a year

LIMIT

WHAT'S DEDUCTIBLE

OPTION

Expenses that get you tax benefits

RETURNS

WHY INVEST IN IT

OPTION

Your investment checklist

DTC proposes tax-free withdrawals

LOW: Partial withdrawals allowed.

Interest income taxable

` 20,000 under Sec 80CCF

`15,000 for parents and `20,000 in case of senior citizens.

Helps bring down the cost of the housing loan.

=

Handy for those paying a big EMI and have little left for tax savings.

YOUR EXPENSES

YOU INVESTED

YOUR TAX SAVINGS SO FAR

`1,20,000

Tax-free income

Both parents can’t claim deduction for the same expense.

COMMENTS

LOW: Lock in of 5-7 years

MODERATE: Lockin of 3 years

Tax-free income

Tax-free withdrawals after retirement

VERY LOW: No withdrawals before retirement.

MODERATE: Partial withdrawals allowed.

Tax-free income

Taxable

LOW: Interest paid per quarter.

LOW: Possible to take loan against the policy.

PPF income is tax free but NSC and FD income taxable

Amount you get on retirement is completely tax free.

VERY LOW. A onetime partial withdrawal allowed for major goals.

LOW: Withdrawals allowed after 6 years

TAXABILITY

LIQUIDITY

ELSS will cease to be a tax saving option after the Direct Taxes Code comes into effect in April 2012. Make most of it till then.

Buy infrastructure bonds after factoring in the 5-year lock in.

Some may find it better to pay tax and invest the money elsewhere.

Don’t buy a life insurance plan with a cover of less than 20 times the annual premium. It won’t get benefit when new tax laws are passed.

Buy a health cover for your parents and get addiitonal deduction of `15,000. The deduction is higher (`20,000) if they are senior citizens.

For most income earners New Year begins with the task of figuring out how much tax they can save before the financial year ends. The checklist below will help you do exactly that. Under Sections 80C and 80CCF of the Income Tax Act, you can make tax deductible investments of up to `1.20 lakh in a year. But that’s not all. There are expenses that help you cut taxes too.

Tax planning 2011

The Economic Times Wealth, January 3, 2011

26

Family Finances

The Economic Times Wealth, January 3, 2011

My company is sending me to Sydney next year for two years. I will be earning a lot more which can take care of my marriage and emergency needs” HARISH PADIKAR

Harish Padikar with his mother MOHAMMED ASAD

Way to Goal

Padikar’s asset allocation

Goal

8% Equity

6% Debt EXISTING

86% Real estate

37%

57% Cash

Equity PROPOSED

6

% Debt

Proposed asset allocation is only for the short term and it will change as Padikar would invest towards his goals over time

7 `

lakh

is the approximate current net worth of Padikar

Time to achieve

Future cost (`)

Resources used

Further investment required (`/pm)

6 months

2.5 lakh

Cash from sale of property + cash in hand

Nil

Emergency fund

1 yr

1.5 lakh

Cash from sale of property

Nil

Car

5 yrs

5.4 lakh

Invested proceeds from sale of property+ SIP

Nil

Home

8 yrs

39.8 lakh

Invested proceeds from surrendering endowment policy

18,000+ 1,500 for 6 yrs+ 4,699*

Child’s education

19 yrs

15.1 lakh

NA

1,746*

Retirement

30 yrs

5 crore

PPF+EPF

11,888+9,080*

Marriage

* At present, Padikar’s investible surplus is not sufficient these investments, it is assumed these can be made over time (through SIPs) as income increases; Inflation assumed to be 6 % per annum. Equity portfolio to grow at 12%, debt at 8% per annum A comprehensive plan has been mailed to Padikar

Family Finances

The Economic Times Wealth, January 3, 2011

YOUNG EARNER

Gearing up for a long journey

Saves about 50% but invests only 11% of his income Expensive, inadequate life insurance cover for someone with two dependents Inadequate corpus to meet emergency needs

How can 25-year-old Harish Padikar balance responsibilities with goals? has not been appreciating more than 2-3% per annum. Even Padikar wants to get rid wenty-five-year-old Harish off the house in his village but not before he Padikar has many things on his buys another property. The sentiment of plate. Padikar, who works as a feeling secure with the notion of owning a senior software engineer in tangible asset like a house is completely norBangalore, takes care of his mal. But Padikar needs to understand that mother and younger brother Ashok, wants the house is not being used by any of his to get married next year and also wants to family members and even a regular savings build up funds for emergency needs. All this account can fetch him a return of 3.5% per will cost money to this young man, who annum. He has already saved `40,000 for started working about three years back. his marriage, the balance of `2.1 lakh and Like others, buying a car, owning a house the need for a corpus for emergencies can and having a comfortable life after be funded from the proceeds of the retirement are all part of his plan. But will property sale. This money can be invested he be able to fulfil these dreams with so in liquid funds which will ensure that many financial responsibilities on his returns equivalent to inflation are shoulders? generated.

Yes. But only if Padikar makes a drastic Padikar is not convinced as he has reasons change to his financial plans. His monthly to believe that selling the house may not be income is `42,000 and after his household the only solution. “My company is sending and other expenses are accounted for, he is me to Sydney next year for two years. I will left with a surplus of `19,443. Padikar’s be earning a lot more which can take care of immediate financial needs include my marriage and emergency needs.Also, my accumulating `2.5 lakh for his marriage and brother Ashok will become self-sufficient in `1.5 lakh for meeting contingencies. He is a year,” reasons Padikar. already servicing two loans that he had But what he forgets is that the requirement taken for buying a vehicle and a for these funds is going to arise in the washing machine and taking very near future and hence it would Kumud Borkar, further loans will put his future be advisable that he should not rely at 80, is busy financial needs in jeopardy. Well on anticipated income. Besides, writing books and earning there is more to Padikar’s Padikar’s current investible surplus Page 46 income stream, which can be is in any case falling short of the used to ease up his financial investments that he needs to make to burden if used appropriately. fulfil his aspirations. Even if we account Padikar owns a house in Sira, a town in for the fact that the two loans, constraining Karnataka’s Tumkur district. The house has his investment capacity, will be paid off in been put on rent. “I don't think that two years from now, there would still be a anybody from my family will ever go back deficit of `15,525. While the annual increases there to live,” he says. Hence we suggest to his income will take care of this deficit to a that Padikar should sell off that property to great extent but the burden would definitely meet his immediate financial goals of lighten up for him if he would invest the funding his marriage and emergency needs. money he earns from his Sydney While the idea of selling property to get secondment towards fulfilling his future married does sound foolish and archaic but financial needs. Also, his financial planning a closer look at the dynamics of the situation would need to be reviewed on the basis of will force anyone to think otherwise. the financial status of his prospective life Padikar gets rental income of only `1,000 partner. per month from that house. The current The remaining balance of `2.4 lakh from value of the house is `6 lakh and the value selling the property can be invested in DSP SHOBHANA CHADHA

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PADIKAR’S BEST MOVES… Investment in mutual funds through systematic investment plans Saving rate of about 45% Realises the importance of building an emergency fund …AND THE WORST Traditional and expensive insurance plan with cover of only `3 lakh About 77% of the investible surplus lying idle Investments in thematic funds not ideal in long-term horizon Not using his village property to the best of his financial interests

Blackrock Equity Fund, Fidelity Equity Fund, Canara Rebeco Equity Fund and Reliance Growth Fund in equal amounts of `60,000 each, suggests SKP Securities.

Padikar wants to own a car worth `5 lakh in five years from now and this amount can take care of such medium-term requirements.

The young man also wants to own a twobedroom apartment in Bangalore in eight years from now. A house of his choice would cost him about `40 lakh in eight years, hence to fulfil the goal Padikar would have to invest ` 19,500 in mutual funds through SIPs. Padikar has been investing in thematic funds like Magnum Contra and such funds may not be ideal for a portfolio like Padikar’s since it has a long-term perspective. In such a time horizon diversified equity funds can be a much better choice . Hence, SKP Securities suggests that he could stop all his present SIP investments. And till 2011-12, he should invest upto `8,500 of his monthly investible surplus in Fidelity Tax Advantage Fund.

Thereafter, he can reduce this amount to `2,500 per month from 2012-13 onwards.

The remaining balance of surplus can be

27

equally divided between HDFC Equity Fund and Reliance Growth Fund, says SKP Securities. Even after making all these investments, there would still be an investment gap `4,699 per month towards meeting this goal which can be bridged through increments in his income.

While Padikar and his mother are sufficiently covered for health insurance by his employers, his life insurance cover is inadequate. At present, Padikar has two financial dependents and his current policy assures him a cover of only `3 lakh, which is not at all sufficient. Hence, he should surrender his endowment policy once it acquires a surrender value after two years and take a 25 year pure term plan with sum assured of `25 lakh. The annual premium for such a policy should be `5,000 much less than `20,000 which he is paying right now. Hence switching from an endowment policy to a pure term policy will also improve his investible surplus. Also, the `1 lakh of the surrender value of the endowment policy that he would get in 2012 should be invested in a diversified equity mutual fund. And it can contribute towards buying a house that Padikar wants to buy in eight years.

There are two more long-term goals, which might be tough to attain—the education of his child and his retirement.

The primary education of his child should not be a cause of concern for Padikar as it can be funded out of his household savings.

But as of now Padikar has no funds that he can start investing for higher education of his child. Assuming an inflation of 6% per annum, he would need to accumulate about `15.1 lakh for higher education of his child in 19 years from now. To build this corpus, he would need to make a monthly investment of `1,764 through SIPs. Also, for his retirement, which is 30 years from now, Padikar would need a corpus of `5 crore to maintain his current standard of living. Once Padikar's loans are paid off by 2013, he can direct the amount of `5,888, being used for his monthly installments towards public provident fund. This investment together with his monthly employee provident fund contribution of `6,000 would grow to about 37% of the required amount in 30 years from now. But here again, there would be a deficit of `9,080 in his monthly investments.

However this should not dishearten Padikar because he is young and still has 30 years of work and hence similar number of years of salaried life ahead of him. His income would continue to grow through increments and he should be able to increase his SIP commitments. SKP Securities suggests that the increased investements in SIPs should be done through diversified equity mutual funds so a balanced exposure is maintained between mid-capital and large-capital investments.

Padikar’s aspirations maybe similar to all men of his age but his responsibilities are not. The going has definitely been tough for this young gentleman and as it seems it will continue to be. But he may not have to scale down his desires if he continues to be a disciplined investor and is dedicated enough to review his financial plans on a yearly basis.

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

Write to us at etwealth@indiatimes.com

28

Financial Planning

The Economic Times Wealth, January 3, 2011

THE MONEY

Paper Work

QUESTION

Accessing Your Credit Information Report

Pradeep has received a one-time bonus of `6 lakh.

He has an outstanding home loan of `35 lakh repayable over the next 15 years. His EMI for the loan is `40,000 and his monthly post-tax income is `90,000. Pradeep is unable to save regularly and barely manages to put away about `1 lakh in a year for tax savings. He tries to spend carefully, but there are times when he rolls over his credit card bill or takes personal loans from his bank. Should he repay the loan or invest the bonus in some other option?

Your credit information report (CIR) contains details of your credit history and track record in taking and repaying loans from banks and finance companies. A loan applicant with a good credit record will find access to loans easier, faster and on favourable terms.

The Credit Information Bureau of India Ltd (Cibil) consolidates the information on individual borrowers’ credit history, sourced from different member credit institutions such as banks, credit card companies and NBFCs, into a single report called the CIR. This is then made available to its members (banks, finance companies) to facilitate their lending decisions.

You can access your own CIR for a fee. You can also check and correct errors in the report and to initiate action to improve your credit record. It is a good idea to keep your CIR updated and correct, so it is easier and faster for you to apply and get loans at competitive rates.

G

iven his yearly savings of `1 lakh, it is clear that the house is Pradeep’s biggest asset. He first needs to build a more diverse wealth portfolio. He can do this by either investing the bonus in other assets or using it to prepay the home loan. The choice depends on Pradeep’s spending and saving habits.

If he is unable to save regularly because his expenses are high, he needs to reduce his EMI. Right now it accounts for 45% of his post-tax income and forces him to borrow at high rates or roll over his credit card bills.

Monthly savings from the lower EMI can be invested into other assets. He could also consider prepaying the home loan to reduce the tenure of the loan, which can result in big savings in interest costs. However, if Pradeep is not very disciplined and thinks he might end up spending the surplus, he should invest the bonus amount in other assets. The higher EMI will be a squeeze on his finances, but also serve as a forced saving. This way, he would also build up assets that are more liquid and accessible during emergencies.

Assuming that the value of his house could appreciate at a rate higher than the interest rate on his housing loan, he should continue to fund it with a loan, rather than his own capital. He should repay the loan only if he is accumulating costly credit card debt and other loans due to his high EMI.

1 Fill up a CIR request form. It can be downloaded from www.cibil.com/access credit.htm

2 Also submit selfattested copies of address proof (bank statement, utility bill) and identify proof (PAN card, passport or voter’s ID.)

3 Make demand draft `142 in favour of 'Credit Information Bureau (India) Ltd', payable at Mumbai.

If paid online, send unique registration ID and transaction ID.

RAJ

SMART THINGS TO KNOW: New Pension Scheme

1

2

3

4

5

* The NPS offers Tier 1 and Tier 2 accounts. Both invest in same funds but Tier 2 accounts are more flexible. Only Tier 1 account holders can open a Tier 2 account.

Withdrawals from Tier 1 accounts are restricted. Also, a certain percentage of the Tier 1 corpus must be invested in an annuity on maturity. No restrictions on withdrawals from Tier 2 accounts.

Tier 1 accounts should have at least four transactions and a minimum investment of `6,000 in a year.

Tier 2 accounts require a minimum balance of `2,000.

Annual maintenance is charged only for your Tier 1 account.

Per transaction fee applies to the Tier 2 account. The fund management charges are the same for both type of accounts.

6

4 Send documents and draft to Cibil at: Hoechst House, 6th Floor, 193 Backbay Reclamation, Nariman Point, Mumbai 400 021

2 An investor can transfer funds from a Tier 2 account to a Tier 1 account but not the other way round. Income tax benefits under Sec 80C available only for investments in Tier 1 accounts.

Open both type of NPS accounts but put the chunk of your investments in the Tier 2 account. Invest the minimum required amount in the Tier 1 account four times a year.

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

Points to note Restricted Access: Your CIR is accessible only to you and to members of Cibil who may want to cross check the credentials of a prospective borrower. A third person cannot see your CIR. Corrections: If you find errors in your CIR, you have to approach your lender. Cibil will alter the CIR only when members report changes.

Rating: CIR only provides factual information on your repayment record. It does not classify, rank or rate you based on your credit history.

Guest Column

The Economic Times Wealth, January 3, 2011

29

FINANCIAL PLANNING

Why investors miss targets

Most small investors neither have the ability to pick good stocks nor have the required temperament for equity investing. For them, mutual funds are the best way to buy stocks, says Uma Shashikant

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any investors understand the power of equity investing and the handsome returns that good stocks can deliver in the long term.

Getting it right a few times encourages them to persist and turn into long-term investors.

The limitation for many direct investors in equity is the inability to deal with the complexities and the unknowns strewn in their path. Few rules seem to work consistently and no expert is able to indicate the right time to enter or exit a stock. The equity investing saga is thus filled with triumphs and disasters, making it a tough and demanding journey.

The most important impediment for direct investors is the “buy list”. It is also the weakest link in the decision making process.

Identifying the right stock is a laborious process requiring access to a large amount of information, research, data and analysis.

The “free-rider” solution that most investors seek is fraught with too many risks. Investors buying from the recommended stocks of brokers, advisors and experts run the risk of bias. “Advice-based” buying may not be safe due to the presence of vested interests, not apparently visible to investors. Commercial research on stocks is now available to retail investors, but my friends in that business tell me that getting subscriptions is still tough.

Free but mostly reckless online advice is a formidable barrier to growth of priced but intensive research. Direct investors’ stock picks are seldom backed by solid reasons, but instead feature harmful tactics.

Many investors tend to seek solace in crowds and pick stocks that others are buying. They use information on most traded stocks, stocks with high delivery volumes and stocks that have witnessed a sharp rise in price to choose their investments. They are thus buying into momentum and hoping that there will be other buyers after them who will be willing to pay more for their stocks. But the surge in buying interest in a stock can wane too soon, leaving little time for the investor to quit the stock. Short-term traders who take positions based on technical indicators focus on their capital, and will book losses to leave a stock that is falling. Retail

6 reasons to opt for mutual funds Diversification: Your investment is spread over a portfolio of 35-40 stocks and 8-10 sectors, thus reducing the risk of investing in 4-5 stocks directly.

Access to research: Mutual fund houses have access to extensive data, research and analysis of sectors and individual companies.

RAJ

Traders will book losses and leave a falling stock but retail investors will hold on to it all the way down. Momentum buying has been the bane of many retail investors who are left holding dud stocks at a fraction of the purchase price. investors, who have used the same indicators to buy, will look for returns and tend to hold the stock all the way down, unwilling to book losses. Momentum buying has been the bane of many retail investors left holding dud stocks at a fraction of the purchase price.

Adding to the buying woes of investors is the “noise” in the markets. The fundamental merits of good stocks do not change every day. But the market price of stocks does. As new information tends to build into price, investors find it difficult to time their decisions.

The pressure to buy increases as the stock price moves up, which actually makes the timing worse. This is true for mutual funds as well. Money chases past performers whose net asset value (NAV) has moved up significantly. Investors do not buy into an idea or theme, but buy after price action is visible. Thus on both counts of selecting the

right stock and the right time, decisions of the common investor are heavily loaded against success. I am yet to hear of solid, replicable and sensible strategies from investors to overcome these odds.

It is immensely simpler to choose an equity fund instead, where the task of building the portfolio is assigned to a fund manager who has in his command the resources to create and manage an equity portfolio. Many of my friends and readers of this column may sulk at this much-repeated, but simple idea. They only have to pit their portfolio against a fund and see if they manage to beat the best minds in fund management. Not individual stock picks but entire portfolios. It is unlikely that a strategically disadvantaged portfolio will beat the index, leave alone the fund manager.

A 2.5% annual fee is a small price for a far simpler route to building long-term wealth.

Expert management: Your money is managed by some of the best minds in the stock investing community.

Calculated decisions: Instead of knee-jerk reactions to market noise, mutual funds take buy and sell decisions after a lot of deliberation.

No personal bias: The investment decisions of a mutual fund are taken collectively and are therefore relatively free of personal bias.

Low cost: The 2-2.5% expense ratio (or cost charged tot he investor) that is payable in a year is low compared to what one stands to gain in the long term.

The author is managing director, Center for Investment Education and Learning, and can be reached at uma.shashikant@ciel.co.in Please send your feedback to etwealth@indiatimes.com

30

Mis-selling

The Economic Times Wealth, January 3, 2011

MYSTERY BUYING

Get `2.75-lakh personal loan, but pay interest for `3 lakh While looking for a personal loan of `3 lakh, Khyati Dharamsi taps a non-banking financial company. Its relationship manager tries to dupe her by saying a flat rate of interest is better than a reducing one.

WHAT I WAS TOLD

WHAT WAS WRONG

Reducing rate is double the flat rate

Reducing rate of interest is not always double that of the flat rate.

It depends on the amount of loan and its tenure.

“On a reducing balance rate, you don't have to pay anything on pre-payment of loan"

You have to pay the principle and the interest accumulated till that period in addition to the pre-payment penalty in both types of interest calculation.

“This 9.45% loan is cheaper than a bank’s”

Flat rate of 9.45% works out to be 17% on a reducing balance method. It sounds cheaper, it doesn't come cheap.

“It makes no difference if you pay processing fee in cash or we deduct it from loan”

This way, you get an actual loan of less than `3 lakh, but pay an EMI of a `3 lakh loan. If you pay the processing fee, you won’t have to pay interest on it.

RAJ

P

laced at the entrance of the office, the big banner proclaimed the USP of the nonbanking finance company (NBFC)—“No disclosure of the purpose of the loan.” I was grateful. Despite racking my brains for hours, I hadn’t come up with an urgent reason for a `3lakh personal loan. All the options seemed clichéd—illness in family, debtors threatening to sue or capitation fee for a sibling’s education. Weekend doses of potboiler movies were taking their toll.

The relationship manger (RM) lived up to the NBFC—not once did he ask why I wanted `3 lakh. The questions were basic.

“Do you own a credit card or have you taken any other loan?” he began. “No,” I replied. My credit record was clean. In fact, I had no record at all. Most investors think this is a good thing. Would the RM let on the truth? He did: “We need to examine your credit record with Credit Information Bureau India Limited for the past one year.

If you have no loan or credit card, there is no record. We can’t give you a loan.”

I was stumped. My application had been turned down within five minutes. Where were the false promises to ensure I took a loan? They were coming. The first one was a lame attempt. “Take a credit card. Don't use it if you are uncomfortable. After one year, we will give the loan,” said the RM.

Flat rate Vs Reducing rate Under flat rate, the interest is charged on the entire principle amount, irrespective of amount repaid.

For example, if you repay `10,000 of a `1-lakh loan, the interest for the next EMI will be calculated on `1 lakh.

When you are a lender, a flat rate of interest is more beneficial.

In a reducing rate the interest is calculated on the outstanding amount.

For example, if you take a `1-lakh loan and repay `10,000, the interest for the next EMI is calculated on `90,000.

When you are a borrower, a reducing rate of interest is preferable.

What about the emergency for which I needed the money? Would it wait for one year? Of course, I had forgotten. The NBFC didn’t ask for the purpose of the loan, so they couldn’t be bothered.

I murmured something about an emergency and started to get up. “Wait,” ordered the RM. I sat down again. “Does anyone in your family have a credit card?

Or has anyone taken a loan?” he asked His second attempt hit pay dirt. I told him that my husband had a credit card and was servicing a home loan. Would that do?

for more videos and images visit : http://tinyurl.com/369rxjf

“Of course. Take the loan in his name.

What is his annual income?” he asked. I gave a random figure. He tinkered with a calculator and said my husband was eligible for a personal loan up to `6 lakh. It wasn’t his business that my husband’s cash flow could not accommodate another EMI. It was time to ask the most important question: “What is the interest rate on my loan?” The RM excused himself to discuss it with his senior. Within five minutes he had the answer: “Your EMI will be `10,696.”

Alarm bells ought to have started clanging. Instead of revealing the loan rate, the RM was talking about the EMI. Why? I pushed him to tell me the loan rate. He hemmed and hawed but seeing no way out, gave me the figure: 9.45% It wasn’t shocking. As expected, the

NBFC was charging 7-15% lower interest than banks. This is why people go to them: lesser paperwork and cheaper rates. Also, most don’t know the difference between a flat rate and a reducing balance rate.

I wasn’t supposed to know either.

Continuing to play a naïve investor, I asked: “What will be the rate in the way banks calculate interest?”

The RM was not ready for the poser. He stared at me, his computer screen and again at me. Finally, he said reluctantly: 17%.

The cat was out of the bag. Banks advertise loan rates calculated on reducing balance, while NBFC’s rate was applicable on the entire loan. In absolute terms, the EMIs would not be very different.

I asked the RM to explain why the second figure was higher. “It has been calculated on a reducing balance whereas ours is a flat loan rate. Double the flat rate and you get the reducing rate,” he said. In that case, twice 9.45 should be 17, right?

Even ordinary investors would have seen through his sham. The RM knew he had messed up. Quickly, he moved to plan B. If you can’t convince, confuse. “In a flat rate loan, you have to pay the entire amount if you pre-pay within six months. In a reducing balance loan rate, you don't have to pay anything except the principle.” Did the RM realise he was favouring banks and not the NBFC? Trying to rush, the RM explained the sanctioning of loan. I had to give photocopies of some documents.

EMIs would start from 3 February.

“So I won't pay anything for the month of January, right?” I asked. The RM’s smile slipped a notch. “You will be charged a preEMI interest of `10,000 up to 3 February 2011. I can’t set up the direct debit from 3 January as it is only two working days from sanction date (30 December). But don’t worry. The amount will be deducted from the loan cheque,” he said.

What about the processing fee? It was 2% of the loan and would be deducted from the loan cheque as well. I insisted on paying pre-EMI interest and processing fee—totaling `25,000 in cash. But the RM didn’t budge. “We are doing this for you.

How does it matter whether you pay now or through the loan?” he asked.

It didn't matter to him. I would be the one paying 17% interest on `3.25 lakh instead of `3 lakh. When I confronted him with this, the RM offered another deal: “If you take this loan from me, I will reduce the interest to 16% and the processing fee to 1.5%.” I had to give him credit: He was a lousy RM but a relentless salesman. It is a pity that most people can’t make out the difference.

Please send your feedback to etwealth@indiatimes.com

Your Queries

The Economic Times Wealth, January 3, 2011

31

QUESTION OF THE WEEK 1

2

3

Q&A

4

5

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

2. Mutual Funds Dhirendra Kumar, CEO, Value Research

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

3. Insurance Amit Suri, CFP, AUM Financial Planners

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

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

MUTUAL FUNDS I have invested `3 lakh in 12 different mutual funds. In addition, I am also investing in three other funds through the SIP route until March 2011. I plan to sell some of these funds. Please advice.

- H Sahoo

Though we are unable to evaluate your funds, having twelve funds is not the way to diversify your portfolio. Align your holdings so that you have a core set of funds which account for up to 70-80% of your portfolio which will be strong, while the balance of your portfolio will invest in funds that seek to accelerate faster. This way, there is scope for the overall portfolio to earn better returns. SIP is a good way of investing regularly. But check if the funds fit into your overall fund portfolio.

Ten years ago, my father invested `1,000 in a fund and had opted for a dividend option.

He, however, made no nominees. I have been unable to encash the dividend cheques. How can I transfer these benefits and ownership of the fund?

- Subhash Dutta

option, then the gains, if any, on sale of the units received as dividend reinvestment within a year before the date of sale would be taxable as short-term capital gains.

My brother and I took a joint education loan to pay for my brother’s one-year MBA course. Now the bank has sent me the statement of education loan interest to get a tax relief under Section 80e. I am paying the loan EMI. Can I claim tax relief under the above Section?

- Kusum Goel

Unfortunately, deduction under Section 80E cannot be claimed for interest paid on loan taken for higher education of brother.

Such deduction can be claimed only if the loan is taken for higher education for self, spouse or child.

INSURANCE My son is going abroad for studies for two years, and then may decide to stay for another three years. If I take a medical policy, will it cover him overseas?

- Anil Kapur

Mutual fund documents seek a nominee at the time of application, but it is not compulsory. It is likely that your father did the same. Inform the fund house about your father’s demise, in case you have not done so. Next, check if your father named a nominee. You will then need to produce a succession document, indicating you as the legal heir and beneficiary. It is only after this that you can get the fund and the pending dividends transferred to your name.

Ordinary mediclaim policy bought in India does not cover treatment taken abroad.

Your son can buy the Student Overseas Mediclaim Insurance plan, which covers up to two years. After that if he continues with his education and has a valid student visa, the same policy can be renewed further.

However, most foreign universities, especially in the US, require students to have medical insurance from local insurers when they enrol.

TAXATION

REAL ESTATE

I had invested `50,000 in an equity fund and sold it after three years for `1 lakh. Do I have to show the gain as my income in the year whether I sell the fund or not?

- Aban Irani

I and my brother share a house, but electricity and water connections are in my brother’s name. Will this have an impact related to property ownerships 15 years from now?

- R. Sharma

Long-term capital gains arising on sale of units of equity mutual funds are exempt from tax. You should, therefore, show such gains as tax-exempt. However, if you had invested with a dividend reinvestment

Presuming all the title documents that give you an ownership status are properly stamped and registered, there should not be any issue on your joint ownership. However,

it is advisable to intimate the concerned authorities and try for getting your name also endorsed along with your brother.

I participated in an auction held by a bank `2,82,500) for the for a house. I paid 25% (` auction process and bid allotment. Later, due to my mother’s ill health and other financial losses, I could not pay the balance amount. On requesting the managers of the bank to return the bid amount, I was told that the amount has been forfeited. What should I do?

- Prasad Thunga

The fact that you participated in an auction and got the bid clearly indicates that you were aware of the terms and conditions of the offer. You cannot blame the bank staff for not returning your money as you have not fulfilled the terms accepted by you. You had the option of not participating in the auction. The branch will follow the rules framed by its head office and individual branch managers do not have authority to mend or break the rules.

After I bought a new house in 1995, I bought a house insurance policy. However, in the middle of the term, I moved out and rented the flat. Will the person to whom I have rented out the flat benefit from the policy?

- Rajesh Tripathi

The insurance coverage is on the house and not on the person living inside. You can be rest assured that the house that you own and insured is covered by insurance irrespective of whether you are staying or have rented the same. In fact, it is prudent to always insure your house whether it is self occupied, on rent or vacant, to safeguard yourself against any of the loss. You will always have the insurable interest in the house.

LOANS I am a VIP customer of a bank. Last month, my gold credit card was cancelled because I

Ask Experts

I have a Ulip for a cover of `4 lakh and I pay a premium of `20,000 per annum. I paid three out of four premiums but I was unable to pay the last as I was not well. I received a letter from the company stating that the policy has lapsed. What should I do to revive the policy? If I surrender the policy, what will be my loss?

- Vikram

Premium payments for your life insurance policies should not stop at any time, more so when you were ill.

Even if you were not able to pay up the premiums, you should have opted for a premium holiday and cover continuance option. Under this option, you would have been covered despite not paying the premiums. Now, you can revive your policy by paying the due premium along with the revival formalities of your insurance company. However, if you decide to surrender the policy, you will get the current fund value minus any surrender charges under the policy.

had not used it for a long time. No warning was given in this regard. This has proved to be very inconvenient as I am leaving for the US soon. Can a bank behave this way? My interactions with the local branch have been of no help.

- Subhash Purohit

Banks have started cleaning-up operations with regard to credit cards. This is specially true of ones which are not used for quite sometime. This is being done to safeguard both the client and the bank. Instead of the local branch, you may write to their credit card section and or the nodal officer at their headquaters, explaining that you would like to hold the card. The bank will certainly help you.

Can a bank accept the same cheque from a party whose cheque was once returned with the remark ‘Payment Stopped’ and present it again through clearing for encashment? I am facing proceedings under Negotiable Instruments Act, Section 138 due to this.

- Tushar Sharma

Section 138 can be used only if i) Cheque should have been presented within six months of its issue or within the period of its validity, whichever is earlier, ii) Payee should have made a demand for payment after the cheque is returned unpaid and iii) The drawer should have failed to pay the amount within 15 days of the receipt of notice. So far, as the first condition is concerned, clause (a) of the provison to Section 138 does not put any restriction upon the payee to successfully present a dishonoured cheque during the period of validity.

A cheque can be presented again within its validity period, with the expectation that it would be encashed.

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

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34 37 38

39 Loans and deposits 40 Real estate City profile: Bangalore 41

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 119.00

Gujarat NRE Coke

115.00

NMDC

113.00

Fortis Healthcare

104.00

OVERALL RANK

See revenue column in the adjacent table

Least Expensive Stocks 5 stocks with lowest PE Prakash Industries

5.34

ICSA India

5.53

J Kumar Infraprojects

6.11

Texmaco

6.42

Ess Dee Aluminium

6.59

See PE column in adjacent table

Best PEGs Top 5 stocks with least price earning growth ratio

3i Infotech

0.04

0.05

Jubilant Life Sciences

G

707.00

IRB Infrastructure

Godawari Power

Mercator Lines

0.07

0.07

0.07 Gujarat NRE Coke

See PEG column in adjacent table

Income Generators Top 5 stocks with highest dividend yield Gateway Distriparks | 4.53 Shipping Corp of India | 3.86 Oil & Natural Gas Corp | 3.63 NIIT Technologies | 3.52 GE Shipping Co | 3.38 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

0.94 Shiv-Vani Oil & Gas Explora

0.95 See downside risk and beta columns in adjacent table

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

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

R

Revenue

51.33 81.13 37.52 60.89 71.14 55.38 90.47 65.85 66.65 40.93 48.50 20.03 59.65 50.18 15.27 38.76 45.80 707.09 80.43 17.17 24.19 89.01 38.78 49.87 36.58 44.37 21.73 68.97 30.47 38.66 115.20 64.10 35.24 38.61 41.79 41.93 33.13 67.63 39.80 16.94 59.20 39.33 43.51 25.20 60.82 25.60 41.29 31.85 39.36 43.43 27.36 24.94 52.18 43.31 22.68 76.27 13.81 22.17 28.30 98.36 36.74 60.45 52.48 37.39 45.98 40.88 44.62 57.24 38.89

O

W

T

Net Profit

101.33 108.45 147.74 74.17 86.91 68.23 106.77 43.80 78.29 262.36 33.76 54.91 74.15 87.61 764.64 315.61 57.69 621.67 400.96 16.58 36.34 73.66 38.48 75.72 36.58 57.66 61.44 104.37 42.76 29.02 7897.74 209.04 49.62 39.08 32.79 24.26 57.11 120.31 107.19 49.67 72.83 42.33 47.94 51.05 144.94 20.85 43.30 42.39 29.82 68.53 289.05 19.68 52.00 74.86 47.15 27.80 52.66 58.42 2434.84 65.66 42.20 78.65 44.16 79.50 43.92 19.81 52.72 73.80 45.30

H

% EPS

98.70 116.63 131.96 75.46 51.19 68.27 58.14 43.80 55.19 200.91 31.95 54.24 72.36 76.84 715.06 279.40 49.67 616.78 358.43 226.09 36.72 73.87 36.13 60.45 35.99 56.27 60.11 87.50 32.42 27.02 2230.15 209.47 43.23 37.60 62.85 67.97 60.98 63.33 109.06 49.64 34.69 42.34 49.82 39.99 157.63 20.85 33.41 31.23 27.90 64.62 288.75 19.90 35.70 73.10 37.84 27.82 51.71 34.85 2151.36 57.50 41.90 56.82 48.43 73.30 45.75 19.09 41.25 69.07 16.42

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

10.98 11.44 9.77 19.91 6.59 14.79 11.06 6.11 10.22 26.88 8.69 10.25 27.15 22.27 33.27 53.86 8.74 60.40 25.75 9.83 14.26 25.94 8.09 10.11 9.36 18.84 14.69 16.04 8.70 9.78 153.67 40.46 6.42 7.71 12.35 16.00 21.01 21.29 24.48 12.88 14.05 11.45 26.71 12.86 68.33 6.74 19.97 5.53 15.39 27.12 80.23 9.49 8.79 33.15 14.52 7.66 11.56 10.92 588.84 34.13 20.61 21.98 14.58 28.70 23.24 12.19 15.01 33.68 5.34

R A T I O S

P/B

Div Yield

PEG

1.28 1.17 1.12 2.30 2.52 1.27 0.98 1.58 2.10 9.10 1.55 0.92 15.93 1.88 1.13 1.58 1.36 1.87 0.64 2.02 2.73 7.40 1.32 3.44 2.04 4.70 0.87 0.98 1.52 1.55 2.59 9.73 1.12 1.34 1.92 1.70 5.84 2.30 1.64 1.79 2.45 3.70 7.27 2.24 3.25 1.37 2.56 0.95 1.84 6.62 7.47 1.18 0.95 10.33 2.55 1.70 2.20 0.94 2.26 12.49 4.91 1.53 3.67 5.98 4.21 1.57 2.56 7.09 1.04

1.43 0.76 1.21 2.41 0.43 2.40 0.00 1.29 0.87 1.16 2.78 3.38 1.35 0.77 2.56 0.60 0.38 0.00 0.35 0.72 3.63 0.97 1.02 1.00 3.52 1.53 3.86 0.00 0.25 2.13 1.56 0.57 1.84 0.55 0.82 0.50 1.05 0.34 1.27 2.59 0.81 0.54 1.00 0.67 1.05 2.73 1.55 1.13 4.53 1.09 0.67 1.58 0.00 0.78 1.16 0.96 0.92 0.59 0.83 1.11 0.83 0.31 0.69 0.94 1.41 0.94 0.33 0.48 0.00

0.11 0.10 0.07 0.26 0.13 0.22 0.19 0.14 0.19 0.13 0.27 0.19 0.38 0.29 0.05 0.19 0.18 0.10 0.07 0.04 0.39 0.35 0.22 0.17 0.26 0.33 0.24 0.18 0.27 0.36 0.07 0.19 0.15 0.20 0.20 0.24 0.34 0.34 0.22 0.26 0.41 0.27 0.54 0.32 0.43 0.32 0.60 0.18 0.55 0.42 0.28 0.48 0.25 0.45 0.38 0.28 0.22 0.31 0.27 0.59 0.49 0.39 0.30 0.39 0.51 0.64 0.36 0.49 0.33

R I S K Downside Risk

1.37 1.24 1.75 1.42 1.07 1.18 1.95 1.67 1.70 1.62 1.59 1.44 1.08 1.75 1.32 1.32 1.97 1.24 1.99 1.18 0.94 1.66 1.36 1.78 1.33 1.23 1.30 1.29 0.95 1.34 2.12 1.16 4.04 1.40 1.40 1.63 1.15 1.70 1.74 1.42 1.80 1.52 0.87 1.06 1.24 1.42 0.89 1.61 1.33 1.26 1.11 1.07 2.33 0.97 1.44 2.39 1.71 2.01 2.08 1.46 1.15 1.86 1.72 1.41 1.47 1.55 1.52 0.84 1.97

R A T I N G

Bear Beta

No. of Analysts

Consensus Rating

1.09 0.82 1.62 1.45 0.82 1.14 1.87 1.62 1.39 1.81 1.28 1.88 0.59 1.68 1.39 0.92 1.38 0.97 2.57 0.87 0.54 1.09 1.48 1.79 0.96 0.96 1.53 0.50 0.35 0.83 1.91 0.68 1.62 1.42 0.60 1.33 0.07 0.86 1.58 1.18 2.22 0.69 0.72 0.90 0.76 0.99 0.62 1.67 0.73 0.50 0.43 1.05 1.32 0.39 0.94 2.20 1.27 1.60 2.01 0.24 0.75 2.14 1.17 0.90 0.89 1.34 1.46 0.32 1.75

16 6 15 45 5 8 31 8 7 45 10 17 57 20 7 11 8 33 7 24 47 31 12 34 6 13 13 6 15 15 6 30 7 9 7 40 10 6 9 13 50 16 48 43 7 9 32 6 12 13 46 16 5 13 20 6 7 13 31 31 23 35 8 17 37 38 17 10 10

5.00 4.50 4.87 3.91 5.00 4.00 4.42 4.75 4.86 4.64 4.90 4.24 3.86 4.80 4.43 4.73 5.00 3.12 4.43 4.67 4.30 4.71 4.67 3.38 4.67 4.54 3.85 3.17 4.73 4.47 4.00 3.80 4.00 5.00 4.43 4.53 4.80 4.83 3.78 4.23 3.98 4.94 4.08 3.88 4.00 4.78 3.84 4.33 4.58 4.15 3.65 4.50 4.60 4.46 4.70 4.83 5.00 4.92 4.13 3.87 4.70 3.60 4.63 4.24 3.68 4.63 4.53 4.30 5.00

Smart Stats Analysts’ Pets

G OVERALL RANK

Top 5 stocks with only buy recommendation DLF Jyothy Laboratories Patel Engineering HCL Technologies Monnet Ispat & Energy Exide Industries Aban Offshore Tata Chemicals Redington India Ratnamani Metals & Tubes McLeod Russel India GVK Power & Infrastructure Unichem Laboratories Gujarat Gas Co Indraprastha Gas Apollo Hospitals Enterprise Glenmark Pharmaceuticals Simplex Infrastructures Fortis Healthcare Sun TV Network Allcargo Global Logistics NMDC Polaris Software Lab IRB Infrastructure Developers Sun Pharmaceutical Industries Tata Consultancy Services Mundra Port and SEZ National Aluminium Co Ranbaxy Laboratories Hindustan Petroleum Corp GAIL India

Usha Martin

16 Prakash Allied Industries Digital Services 10

9

33

The Economic Times Wealth, January 3, 2011

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

NMDC 0.19 0.07

Ashok Leyland

0.07

Aban Offshore

0.05 Reliance Industries 0.05 Unichem Laboratories Figures show improvement in rating on a scale of 0-5

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

R

O

Revenue

W

T

Net Profit

48.92 47.52 33.72 40.31 58.72 40.45 11.04 16.39 31.67 27.64 22.80 28.49 32.28 46.99 83.79 44.40 34.20 31.68 103.86 44.48 33.63 112.79 20.85 119.30 54.57 42.96 93.96 27.47 29.57 20.19 23.31

65.28 55.73 20.96 50.22 35.75 58.60 106.97 44.33 46.07 21.74 28.72 140.66 39.05 50.69 34.26 59.11 64.16 44.71 185.71 55.37 36.43 126.95 19.00 38.47 44.91 33.83 89.82 66.65 300.84 6.62 22.30

H

%

V A L U A T I O N

EPS

P/E

P/B

67.83 45.40 20.75 46.56 23.73 48.29 101.61 36.82 47.06 19.60 35.16 89.90 39.15 49.31 33.72 57.64 61.66 43.46 89.83 55.96 28.17 125.33 18.47 37.64 45.73 34.64 90.07 71.24 339.70 9.14 22.30

28.82 26.16 9.82 24.45 10.82 27.29 11.53 15.35 17.35 6.83 10.30 39.76 17.93 29.43 22.02 41.94 28.47 16.10 55.81 39.82 12.71 31.91 9.76 19.88 37.48 32.72 44.61 30.32 83.94 9.02 19.46

2.03 5.02 1.56 4.93 3.69 7.44 1.92 2.03 2.98 1.52 1.74 2.02 3.92 6.65 5.75 3.49 4.06 2.09 2.46 10.98 1.83 7.71 1.81 3.76 6.44 12.44 8.33 2.37 5.73 1.08 3.62

0.70 1.50 0.66 0.98 0.89 0.77 0.44 2.31 1.24 1.84 1.85 0.00 1.67 2.02 1.34 0.75 0.11 0.49 0.00 1.43 0.70 0.64 1.99 0.67 0.57 1.71 0.56 0.65 0.00 3.09 1.47

What is Not

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.

Motherson Sumi Systems -0.04

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.

DLF -0.04 Tata Consultancy Services -0.03

Rating rationale

PEG

0.42 0.58 0.47 0.53 0.46 0.57 0.11 0.42 0.37 0.35 0.29 0.44 0.46 0.60 0.65 0.73 0.46 0.37 0.62 0.71 0.45 0.25 0.53 0.53 0.82 0.94 0.50 0.43 0.25 0.99 0.87

R I S K Downside Risk

1.65 1.49 1.39 1.42 1.17 1.31 2.07 1.36 1.25 1.40 1.85 1.31 1.47 1.10 1.40 1.30 1.35 1.45 1.20 1.20 1.24 1.63 1.58 1.77 1.03 1.05 1.43 1.23 1.21 1.40 0.97

R A T I N G

Bear Beta

No. of Analysts

Consensus Rating

1.67 0.43 1.51 1.37 1.09 0.74 2.02 1.22 0.66 1.25 1.30 1.47 0.68 0.90 0.51 0.83 0.90 0.75 1.20 0.93 0.71 1.43 1.22 1.53 0.34 0.90 1.21 0.98 1.36 0.40 0.51

37 12 26 55 10 29 26 16 5 6 6 21 8 17 26 14 36 26 12 34 8 14 14 33 44 63 21 33 42 40 43

3.32 4.25 4.85 4.07 4.40 4.52 3.27 4.06 4.20 4.50 4.67 4.52 4.63 3.53 3.88 4.57 4.36 3.73 3.75 3.76 4.25 2.57 4.71 4.24 3.64 4.10 3.67 1.48 3.21 3.25 4.21

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

Jubilant Life Sciences -0.01

R A T I O S Div Yield

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

ETIG Sectoral Indices

BSE Sensex

BEST FIVE 5.80 ET Retail

Top 5 Mid-Cap Stocks

Markets continue to move up due to high FII inflows

20509.09

5.12

Top 5 weekly gainers (price) Hindustan Oil CMP: 236.30 | % Chg: 17.68

1

3.72

ET Chemicals

ET Realty

3.63

1 year 1 week

-25.60 ET Shipping

3.58

ET NBFC

3.33

Ruchi Soya Industries CMP: 120.25 | % Chg: 17.03

2

21.04

KEC International CMP: 104.60 | % Chg: 16.51

3

17.43 2.17

7.32

Blue Dart Express CMP: 1164.10 | % Chg: 13.57

4

17558.73 Figures in the box indicate weekly and year-to-date percentage change in Sensex

Delta Corp CMP: 106.55 | % Chg: 12.99

5

29.87 WORST FIVE ET Oil & Gas

-0.16

Top 5 Large-Cap Stocks

Top 5 Small-Cap Stocks

Top 5 weekly gainers (price)

Top 5 weekly gainers (price)

5.10 ET Sugar

1

0.29

2

-021-29 ET Auto-Ancillaries

0.93 28.15

ET Capital Goods

Percentage change

1.39 3.58

1 Week 1 Year

1

MMTC Price: 1170.45 | % Chg: 13.90

3

Hindustan Zinc Price: 1367.20 | % Chg: 7.43

4

1.25 11.11

ET Metal

Jaypee Infratech Price: 78.25 | % Chg: 19.28

United Breweries Price: 505.55 | % Chg: 6.98

5

Union Bank of India Price: 347.50 | % Chg: 6.84

Dynacons Systems CMP: 1.19 | % Chg: 56.58

2

Symphony CMP: 833.55 | % Chg: 39.56

3

Solid Stone Company CMP: 63.40 | % Chg: 38.58

4 Stock price as on 31 December 2010

PVP Ventures CMP: 11.06 | % Chg: 36.21

5

Binani Industries CMP: 223.15 | % Chg: 34.59

34

Smart Stats

The Economic Times Wealth, January 3, 2011

ETW FUNDS 100 B E S T

F U N D S

T O

B U I L D

Y O U R

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

P O R T F O L I O

LAGGARDS

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

Equity: Large- Cap 5-year returns 10.43 LICMF Sensex Advantage

VALUE RESEARCH FUND RATING

NET ASSETS (`CR)

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

1-YEAR

( % ) 3-YEARS

5-YEARS

Franklin India Bluechip

HDFC Index Sensex Plus

LICMF Index Nifty

EXPENSE RATIO

13.51

Equity: Large Cap 3358.07

1.03

15.48

23.01

5.70

20.18

1.85

58.78

0.14

14.63

19.08

4.43

19.28

1.00

DSPBR Top 100 Equity Reg

2773.27

-0.17

12.05

16.86

4.34

22.03

1.86

IDFC Imperial Equity Plan A

514.74

0.29

10.98

16.41

4.27

—

2.33

ICICI Prudential Growth

364.70

2.25

14.81

17.71

2.47

17.06

2.28

Sahara Growth

6.23

-2.56

8.36

10.33

2.34

19.31

2.50

Reliance Equity Advantage Retail

1322.61

-0.54

12.49

19.22

1.83

—

1.95

ICICI Prudential Index Retail

80.86

1.24

15.13

18.84

1.28

17.98

0.67

IDFC Equity Plan A

581.36

1.59

15.25

18.68

-0.08

—

2.21

23% 1-year return of Franklin Bluechip is the highest for the category.

UTI Equity

HDFC Index Nifty

13.61 LICMF Index Sensex

14.12 HDFC Index Sensex

8.26 Principal Growth

9069.73

2117.39

FT India Life Stage FoF 20s

Fidelity India Growth

UTI Opportunities

-0.36 2.12

15.08 15.49

24.63 20.26

10.08 7.11

22.87 17.03

1.79

10.25

1.90

LICMF Opportunities

14.35

0.29

11.54

17.70

6.79

16.53

0.75

379.60

1.36

14.47

27.23

6.76

—

2.31

10.77

1581.62

1.28

16.80

19.28

6.43

17.84

1.95

LICMF Growth

Fidelity Equity

3307.21

0.21

13.58

26.92

5.64

21.16

1.85

Birla Sun Life Frontline Equity Plan A

2529.13

0.75

13.73

18.85

5.44

22.65

1.88

Canara Robeco Equity Diversified

386.08

-2.49

9.04

20.55

4.73

19.57

2.32

11.57 Taurus Bonanza

Baroda Pioneer Growth

58.00

-0.21

13.02

14.18

4.71

19.43

2.50

11.66

Franklin India Flexi Cap

2367.50

-1.12

15.51

20.79

3.55

18.34

1.88

Magnum MultiCap

Tata Equity Management

192.05

-0.33

7.83

15.20

3.51

—

2.38

Reliance NRI Equity

143.33

-1.29

11.10

20.41

3.24

21.15

2.43

Franklin India Prima Plus

1940.47

-2.27

12.73

19.00

2.95

19.95

1.91

UTI Contra

236.12

-3.90

6.95

8.20

2.84

—

2.36

Tata Pure Equity

662.54

-2.60

10.22

18.65

2.37

19.52

2.20

Principal Large Cap

489.68

0.13

11.40

20.97

1.72

21.67

2.26

DSPBR Opportunities

896.37

-1.42

13.42

23.96

1.57

18.88

2.08

-16.36 LICMF India Vision

-16.03

Equity: Multi Cap Quantum Long Term Equity

65.75

1.28

17.04

28.36

11.76

—

1.56

7872.99

-0.17

16.92

28.62

10.44

22.58

1.79

UTI Dividend Yield

2781.62

0.32

14.38

24.22

9.09

21.27

1.88

Birla Sun Life Asset Allocation Aggressive

14.05

0.16

8.30

15.68

7.88

18.10

0.35

Templeton India Growth

793.92

-0.30

13.38

21.14

7.58

20.92

2.19

ICICI Prudential Dynamic

2593.47

2.39

11.55

21.11

6.76

21.73

1.87

Templeton India Equity Income

1220.27

3.85

21.98

Reliance Equity Opportunities

2694.26

-1.88

Fidelity International Opportunities

518.01

3.20

HDFC Growth

1423.23

DSPBR Equity

Reliance Regular Savings Equity

23.28

6.59

—

2.01

15.50

29.91

6.36

21.55

1.88

15.26

22.29

5.78

—

2.22

-0.49

14.16

27.71

5.21

22.53

1.97

2273.22

-2.23

11.93

19.33

4.82

23.29

1.89

3278.17

-1.06

11.51

18.85

3.51

26.88

1.85

11.8% 3-year return of Quantum Long Term Equity is the highest in category.

-10.91 JM Equity

-10.56 L&T Contra

-8.08 Taurus Starshare

-30.43 JM Small & Mid-Cap Reg

Birla Sun Life Dividend Yield Plus

608.46

-1.85

11.75

29.30

11.61

18.64

2.27

-24.69

ICICI Prudential Discovery

1488.43

0.25

12.45

27.43

11.59

19.41

1.99

JM Emerging Leaders

ING Dividend Yield

49.95

-1.65

11.39

26.68

9.66

18.71

2.50

-23.66

IDFC Premier Equity Plan A

1786.44

-1.39

16.25

32.05

8.15

28.04

1.93

JM Contra

HDFC Mid-Cap Opportunities

1206.60

-0.24

13.39

31.38

7.90

—

1.99

71.66

-1.34

6.99

13.87

6.36

—

2.50

DSPBR Small and Mid Cap Reg

1104.33

-1.83

12.90

28.27

6.05

—

2.06

Tata Dividend Yield

168.25

0.19

13.15

31.87

5.98

18.53

2.41

UTI Master Value

633.22

0.90

13.02

27.72

5.73

15.49

2.24

DSPBR Micro Cap Reg

411.59

-4.86

8.89

41.71

3.88

—

2.31

Sundaram Select Midcap Reg

2357.36

-1.66

13.73

19.86

2.76

22.88

1.89

Sahara Mid-Cap Fund

12.41

-3.42

9.49

23.20

1.90

16.94

2.48

Birla Sun Life Mid Cap Plan A

1974.77

-1.72

8.51

12.87

1.48

19.80

1.91

ING Contra

14.06

-2.41

5.34

10.84

0.62

—

2.50

Religare Mid Cap

40.86

-5.48

10.18

25.89

-1.61

—

2.50

Equity: Infrastructure

3680.72

-1.52

9.66

10.23

-3.16

22.20

1.82

Taurus Infrastructure

25.78

-4.41

5.36

11.16

-4.40

—

2.50

Birla Sun Life Infrastructure Plan A

41.7% 1-year return of DSPBR Micro Cap Fund is highest for any equity fund.

-18.62 Taurus Discovery

-12.89 L&T Global Advantage

560.39

-5.26

5.20

9.15

-4.62

—

2.22

7.82 JM Balanced

Baroda Pioneer Balance

9.66

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

3063.00

-5.55

5.43

13.42

-5.62

18.22

1.84

LICMF ULIS

Tata Infrastructure

2175.17

-6.28

5.26

8.82

-6.65

18.95

1.89

10.36 LICMF Balanced

Which funds should you invest in?

See our Fund Portfolios on page 19 to know the funds that best suit your risk profile and requirements

Franklin India Bluechip

19.78 DWS Alpha Equity Regular

19.31 Sahara Growth

19.28 HDFC Index Sensex Plus

22.87 HDFC Top 200

22.65 Birla Sun Life Frontline Equity Plan A

21.67 Principal Large Cap

21.16 Fidelity Equity

21.15 Reliance NRI Equity

11.76 Quantum Long Term Equity

10.44 HDFC Equity

9.09 UTI Dividend Yield

7.88 Birla Sun Life Asset Allocation Aggressive

7.75 ICICI Prudential Dynamic Inst I

12.96 ICICI Prudential Discovery Inst I

11.61 Birla Sun Life Dividend Yield Plus

11.59 ICICI Prudential Discovery

9.66 ING Dividend Yield

8.15 IDFC Premier Equity Plan A

Hybrid: Equity-oriented 5-year returns 8.58

ICICI Prudential Infrastructure

20.18

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

Equity: Mid & Small Cap

Religare Contra

DSPBR Top 100 Equity Reg

Equity: Multi-Cap 3-year returns

BNP Paribas Opportunities

HDFC Equity

22.03

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

Equity: Large & Mid Cap HDFC Top 200

LEADERS

10.73 UTI CCP Advantage

20.7 HDFC Prudence

18.81 Birla Sun Life 95

18.71 DSPBR Balanced

18.61 Principal Conservative Growth

18.41 Tata Balanced

Smart Stats

The Economic Times Wealth, January 3, 2011

ETW FUNDS 100

35

Top 5 SIPs NET ASSETS (`CR)

VALUE RESEARCH FUND RATING

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

Reliance Growth

38.06%

Equity: Tax Planning Canara Robeco Equity Tax Saver

HDFC Taxsaver

219.92

-2.66

9.85

24.83

8.05

22.13

2.38

2884.62

-1.30

13.33

26.04

6.80

17.76

1.86

Fidelity Tax Advantage

1296.25

-0.06

13.92

29.17

6.54

—

2.00

ICICI Prudential Tax Plan

1296.50

1.35

13.81

24.38

5.47

15.42

2.00

HDFC LT Advantage

1015.67

1.33

17.10

28.79

5.20

14.70

2.02

Sahara Tax Gain

11.90

-2.22

10.72

20.16

5.12

18.90

2.50

Religare Tax Plan

109.30

-1.86

10.78

22.61

4.87

—

2.49

Taurus Tax Shield

62.49

-2.19

13.98

18.27

2.14

14.93

2.50

DSPBR Tax Saver

940.75

-1.93

10.37

22.75

0.04

—

2.08

Franklin Infotech

Not Rated

139.04

15.05

27.84

33.45

15.76

13.27

2.43

UTI Banking Sector Reg

Not Rated

212.65

-6.15

20.71

35.96

9.17

23.22

2.39

Reliance Diversified Power Sector Retail

Not Rated

5180.92

-6.36

-0.05

5.33

0.38

28.95

1.81

29.1% 1-year returns of Fidelity Tax Advantage is the highest for ELSS category.

Magnum Contra

34.90% HDFC Equity

33.93% HDFC Top 200

33.51% Reliance Vision

32.62% SIP: Systematic investment plan

% annualised returns

as on 30 December

Equity: Sectoral

Equity: SWPs Top 5 schemes based on 3-year SWP Returns

Hybrid: Equity-oriented HDFC Balanced

193.39

1.29

10.98

26.12

11.46

17.33

2.15

Reliance Regular Savings Balanced

698.79

-2.17

10.48

21.48

10.96

18.27

2.22

HDFC Prudence

5334.10

-0.50

11.46

25.61

10.80

20.70

1.82

Birla Sun Life 95

363.18

0.00

10.74

19.42

7.09

18.81

2.33

DSPBR Balanced

774.93

-1.43

9.18

15.30

5.85

18.71

2.08

Canara Robeco Balance

186.99

-2.39

7.28

17.31

5.19

17.65

2.39

20.7% 5-year returns of HDFC Prudence is higher than average equity fund.

Reliance MIP

14.45% Birla Sun Life MIP II Savings 5

11.74% HDFC MIP Long-term

10.86% UTI CRTS 81

Hybrid: Arbitrage

9.61%

HDFC Arbitrage Wholesale

HDFC Arbitrage Retail

Kotak Equity Arbitrage

SBI Arbitrage Opportunities

125.10

UTI SPrEAD

158.35

43.29

2.35

4.53

6.65

6.90

—

—

93.58

2.28

4.39

6.39

6.62

—

0.83

244.06

2.38

4.12

6.26

6.58

7.20

0.95

1.97

3.71

5.66

6.00

—

0.76

1.78

3.07

4.67

7.20

—

1.00

5.35

10.60

10.03

12.03

1.45

Hybrid: Debt-oriented Conservative HDFC MIP Long-term

8780.15

0.66

Reliance MIP

7019.12

0.41

4.54

8.63

13.13

12.44

1.55

Birla Sun Life Monthly Income

639.23

1.06

4.05

7.69

7.47

10.11

1.98

UTI Monthly Income Scheme

370.31

0.92

3.68

7.34

8.05

9.29

1.80

DWS Money Plus Advantage Reg

178.94

2.17

3.22

6.85

8.24

—

1.99

Birla Sun Life MIP II Savings 5

1454.73

1.12

3.17

5.94

11.44

9.88

1.38

L&T MIP

114.41

0.85

3.52

5.47

8.89

9.79

2.23

HDFC Multiple Yield Plan 2005

9.47% as on 30 December

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

Lowest Expense Ratio Top 5 equity diversified schemes with lowest cost of investment 0.16%

0.15%

0.14%

Debt: Income DWS Premier Bond Reg

13.42

2.09

2.51

6.87

8.64

6.96

2.04

IDFC SSI Medium-term Plan A

275.47

0.92

1.67

6.68

9.22

8.27

2.00 0.57

Birla Sun Life Medium Term Retail

106.25

1.66

3.00

5.90

—

—

BNP Paribas Bond Reg

18.69

1.07

2.52

5.83

—

—

1.99

LICMF Bond

87.05

0.80

1.98

5.79

8.06

7.45

1.43

Principal Income Long Term

Birla Sun Life Dynamic Bond Ret

Sahara Income Canara Robeco Income Reliance Regular Savings Debt Ret

19.83

1.00

2.15

5.64

7.35

7.57

2.25

7095.29

0.90

2.03

5.54

9.33

8.57

0.98

136.05

1.69

3.06

5.38

9.85

8.62

0.35

227.62

1.20

1.85

4.92

13.38

10.16

2.12

2123.59

0.63

1.59

4.73

6.23

5.08

1.47

BNP Paribas Flexi Debt Reg

250.31

0.12

0.85

3.79

9.90

9.27

2.07

ICICI Prudential Long-term Reg

83.96

0.37

0.67

3.50

6.68

6.96

1.44

Log on to www.wealth.economictimes.com for an exhaustive list.

Methodology

EQUITIES (figures over past 3 yrs)

The Top 100 includes only those funds that have a 5- or 4-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

Next 22.5%

Middle 35%

Next 22.5%

Bottom 10%

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

IDFC Money Manager Investment B

0.10%

Birla Sun Life Short Term Opportunities Ret

Taurus Ultra Short Term Bond Retail

Tata Floating Rate LT

Birla Sun Life Floating Rate LT Ret

Expense ratio as on 30 September 2010

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

9,070

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

Top 10%

13.4%

Returns and ratings as on 30 Dec 2010, Assets and Expense Ratio as on 30 Sep 2010

Did not find your fund here?

0.09%

Tax planning: Offer tax rebate under section 80C (Not covered in ETW Funds 100 listing)

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

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.

Equity-oriented: Average equity exposure more than 60 %

Despite these rigorous filters, the list includes 2/3 funds of each category to maximise choice from the best funds. The fund categories are:

Asset allocation: Invest fully in equity or debt as per market

2,529

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

AUM, in ` crore, as on 30 September 2010.

Methdology of selected Top 100 funds on www.wealth.economictimes.com

36

Smart Stats

The Economic Times Wealth, January 3, 2011

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 [%]

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

12.83 28.10 171.98 35.95 20.78 29.08 22.06 31.56 28.05 35.06 60.63 26.31 12.85 90.78 24.15 18.59 11.22 23.64 25.74 23.22 29.25 32.17 33.11 19.21 19.62 1111.67 1219.26 14.22 20.09 84.68 10.67 11.37 79.40 15.12 19.63 13.43 57.44 47.94 290.20 218.28 50.13 38.24 28.37 23.45 18.78 19.40 118.15 42.71 22.28 43.42 19.58 32.59 22.43 17.04 17.65 16.07 30.56 13.07 12.92 16.53 17.01 19.41 15.83 30.88 25.01 35.90 14.73 14.40 29.22 22.80 17.40 14.08 14.27 32.99 19.19 24.97 20.28 30.75 32.07 11.52 13.25 11.31 11.31 17.23 25.55 122.05 34.02 13.07 17.99 15.38 15.20 11.62 18.42 40.90 15.61 25.30 30.43 13.25

0.04 -0.95 -1.31 0.16 1.05 0.94 1.41 1.28 0.79 0.41 0.79 1.08 -4.26 -3.25 2.21 -3.51 0.12 -1.58 1.39 -4.91 0.65 1.13 0.90 2.02 1.44 1.18 1.05 -5.45 1.46 -1.40 2.23 2.16 -5.61 0.95 -0.74 -4.38 1.61 0.95 -3.62 0.48 -0.89 0.29 0.53 0.32 0.66 1.23 0.26 2.61 1.13 0.21 1.38 1.09 0.97 0.00 0.33 0.98 -2.45 1.18 1.09 1.21 0.43 0.40 -0.35 2.03 1.61 1.12 3.00 1.75 -0.45 0.48 2.61 1.37 -1.79 1.97 2.01 0.86 2.63 0.81 1.02 1.06 1.00 3.57 3.57 -1.32 1.44 0.30 0.59 2.50 1.10 1.05 0.93 1.01 -2.33 1.56 0.41 0.68 0.40 1.48

1-year

10.95 15.02 13.84 15.68 7.33 11.26 6.56 3.15 9.32 3.81 17.60 7.17 18.18 12.97 18.18 21.43 3.79 27.99 3.28 11.90 8.89 17.80 5.06 5.27 4.18 4.74 4.19 14.25 3.95 16.62 7.12 7.13 16.74 27.74 22.39 13.97 17.89 18.06 17.85 23.30 14.69 17.70 13.40 11.33 8.76 7.88 28.26 31.65 12.29 28.08 5.89 5.66 5.55 6.57 10.31 9.58 22.43 4.85 4.48 4.73 4.87 6.59 17.82 15.70 11.55 14.68 6.28 5.61 12.78 28.74 22.17 15.22 18.92 5.35 5.67 3.77 19.43 2.97 3.54 4.30 4.12 17.32 17.32 11.16 7.35 22.05 23.53 6.01 3.38 4.38 3.91 7.05 18.99 19.56 4.44 4.10 18.17 4.83

Scheme Name

Category

NAV (`) 3-month

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

13.53 30.60 14.36 109.23 25.30 27.13 22.72 39.90 32.99 32.32 21.79 27.18 49.60 14.92 43.17 47.32 17.31 18.20 14.09 53.37 22.72 60.35 45.57 19.18 57.65 88.24 64.73 68.63 616.25 120.81 92.41 25.10 20.20 41.62 21.31 18.74 104.10 38.12 497.30 501.20 16.85 42.05 22.11 287.83 287.95 12.65 17.18 23.54 15.70 11.53 51.05 100.97 45.63 34.62 47.49 85.08 18.75 50.68 45.61 17.16 36.35 18.61 69.61 49.34 45.38 33.17 23.21 14.57 16.74 32.72 31.53 84.25 27.63 17.52 15.61 173.29 19.90 14.80 14.11 35.60 20.82 63.18 57.18 33.30 20.14 38.01 19.86

Returns as on 30th December 2010

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.

Get the power to beat inflation page 14

2.04 0.63 0.74 -0.66 0.59 0.59 -4.11 -1.43 1.40 1.40 0.95 -4.36 -2.27 -2.04 -1.86 -0.61 -1.93 0.96 0.78 -0.71 1.53 -3.64 -1.87 1.19 -4.92 -0.97 -0.64 -0.22 1.26 -4.17 -1.13 -0.67 0.90 0.94 0.50 0.53 -1.97 -1.83 -2.40 -2.35 -2.52 -1.29 -4.92 -3.64 -3.59 2.27 -6.58 -0.09 -0.88 1.67 0.51 -0.16 0.63 -6.11 -1.31 -0.49 0.08 0.10 -3.14 1.02 0.92 0.47 -0.34 1.05 -0.66 1.80 1.89 1.80 1.18 0.77 0.73 0.13 0.90 0.64 0.27 -0.31 1.91 1.91 1.10 -5.44 0.79 1.62 0.14 -3.95 0.65 0.95 0.03

1-year

5.42 2.78 26.50 16.52 4.48 4.45 14.99 16.63 5.22 5.06 3.69 26.71 18.26 16.56 20.65 15.73 15.40 8.21 17.21 12.24 10.24 8.94 18.24 5.14 17.27 18.68 12.65 20.21 18.87 16.76 11.73 24.63 3.62 17.70 4.67 4.91 15.94 30.17 16.82 17.06 25.23 20.41 23.10 14.65 15.02 5.54 0.57 26.10 11.74 7.54 12.79 16.59 20.29 9.03 12.66 14.84 20.34 16.54 16.49 4.03 17.61 2.92 20.10 17.43 14.13 1.83 2.00 1.83 3.27 3.44 4.80 16.27 5.23 17.57 11.03 13.55 4.66 4.66 3.68 0.56 9.26 18.09 18.75 18.59 7.09 17.81 9.48

Smart Stats

BEST TRAVEL INSURANCE PLANS Every week ET Wealth brings you the rankings of one financial product done by i-save*.

This week, we look at the best travel insurance plans for single trips available in the market.

No Star

Cholamandalam Travel Insurance Silver

NA

Future Generali Travel Suraksha Standard

No Star

No Star

HDFC Ergo Travel Insurance Silver

ICICI Lombard Travel Overseas Gold

ICICI Lombard Travel Overseas Platinum

No Star

No Star

Iffco Tokio Travel Protector Bronze

Oriental Insurance Overseas Mediclaim Plan A-1

No Starr

NA

NA

Reliance Travel Care Insurance Standard

NA

Royal Sundaram Travel Insurance Classic Plan

NA

NA

Star Health Travel Protect Individual

Tata AIG Travel Guard Silver Plan

NA

NA

Universal Sompo Travel Insurance Silver

NA

NA

No star Good price rating gives Reliance an overall high rating

Cholamandalam Travel Insurance Gold

NA

Future Generali Travel Suraksha Silver

No Star

HDFC Ergo Travel Insurance Gold

ICICI Lombard Overseas Travel Gold

ICICI Lombard Overseas Travel Platinum

No Star

No Star

Iffco Tokio Travel Protector Gold

Oriental Insurance Overseas Mediclaim Plan B-1

No Star

No Star

NA

NA

Reliance Travel Care Insurance Silver

NA

Royal Sundaram Travel Insurance Classic Silver

NA

NA

Star Health Travel Protect Individual

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 durations (days in a single round trip ranging from 7 days upto 180 days) and geographical location of travel (including US/Canada and excluding US/Canada) for a given Sum Assured.

Product features: Features are assigned a numerical score based on product benefits, customer availability and flexibility

Cover: $100,000

Cholamandalam Travel Insurance Silver

Superior Product Excellent Product Good Product Average Product Below Average Product Ratings below the 10th percentile

Despite low on service, Iffco’s pricing gives one of its plans a good rating.

Servicing capabilities: scores are awarded to customer servicing and claims settlement statistics. These are not product specific and data published by IRDA for last 2 years is used for purposes of comparison and allocating of a relative numerical score, adjusted for age.

Superior

Bajaj Allianz Travel Elite Silver

Excellent

Bajaj Allianz Travel Companion Travel Care

Good

Overall product ratings

Average

Servicing ratings

Coverage: Comprehensive. All overseas travel insurance products (Individual and Single Trip) whose prices and features data is 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.

Below average

Features ratings

i-save rating methodology for Travel insurance - single trip

No star

Price ratings

Rating methodology

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

Cover: $50,000

Product Name

37

The Economic Times Wealth, January 3, 2011

Cover: $200,000

Bajaj Allianz Travel Companion Travel Secure

Bajaj Allianz Travel Elite Gold

HDFC Ergo Travel Insurance Platinum

Universal Sompo Travel Insurance Gold

NA

Tata AIG Travel Guard Gold

NA

NA

Universal scores highly on both price and features ratings

0

10

20

30

40

50

60

70

80

90

<10th 10-25th 25-45th 45-65th 65-85th >85th Percentile position of product

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.

Cover: $250,000

Cholamandalam Travel Insurance Gold

NA

Future Generali Travel Suraksha Gold

No Star

No Star

ICICI Lombard Overseas Travel Gold

Travel Insurance Buying Guide

ICICI Lombard Overseas Travel Platinum

No Star

No Star

Overseas Travel Insurance provides you financial protection

Iffco Tokio Travel Protector Silver Iffco Tokio Travel Protector Gold

Oriental Insurance Overseas Mediclaim Plan A-2

No Star

NA

NA

Reliance Travel Care Insurance Gold

NA

Star Health Travel Protect Individual

Bajaj Allianz Travel Elite Platinum

No Star

Bajaj Allianz Travel Companion Travel Value

Future Generali Travel Suraksha Platinum Plan

No Star

Iffco Tokio Travel Protector Gold

Oriental Insurance Overseas Mediclaim Plan B-2

No Star

N/A

N/A

against various risks associated with overseas travel including medical emergencies, personal accident, personal liability, loss of baggage or documents, delays or cancellation of trips etc.

Single trip insurance covers you for a single return journey

to a specified location. It is usually purchased with defined dates for start and end of a single trip and the policy terminates at the end date so specified unless extended.

Cover: $500,000

Reliance Travel Care Insurance Platinum

N/A

Star Health Travel Protect Individual

Universal Sompo Travel Insurance Platinum

N/A

Tata AIG Travel Guard Platinum Plan

N/A

N/A

Typically the Sum Assured for medical emergencies and

related expenses is the overall sum assured for these plans while other benefits have specific associated sub-limits.

While comparing products, their features and prices, it is

worthwhile to take into consideration some of the following: For features related to coverage of medical expenses, do

consider any sub-limits per illness. Products with no such sub-limits or higher amounts associated with these sub-limits may be better options.

Some products may have separate limits above a certain

Notes Where Service Scores could not be calculated due to lack of publicly available information, service stars are marked as 'NA'. For such products an overall product rating is also not available. However, for new companies like Universal Sompo, overall product rating takes price and features ratings into consideration. Servicing rating is not considered as published data may not be available, or may be statistically irrelevant.

Where a company has recently commenced operations or recently launched products in the product category , 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 The 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.

The i-save rating provides an opinion only on the relative competitiveness of a product compared to others in the same category and peer group.

Data available as of 30th November 2010 For detailed methodology, visit i-save.com If you have a comment on the coverage or ranking or need a clarification, please get in touch with etwfeedback@indiatimes.com

age; you may want to consider and compare these limits visa-vis the associated premium being charged Additional covers such as personal accident, loss/delay of

Why FMPs may be better than FDs page 22

baggage, Trip Delays/cancellation, Home insurance while you are away, financial assistance in the form of emergency cash etc.

WE RECOMMEND Compare products not just on price but also on features,

benefits, age to which renewability is available, day care procedures, sub limits etc.

Read the key features carefully before buying an insurance

* 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

contract Read the policy terms and conditions carefully when you

Please send your feedback to etwealth@indiatimes.com

receive it Check for policy exclusions

38

Global Stats

The Economic Times Wealth, January 3, 2011

GLOBAL INVESTING

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

Except for China, all emerging markets were on a roll last week and closed the year with a bang. On the other hand, except for the US, all developed markets suffered losses and ended 2010 on a dismal note.

France CAC 40 3,804.78 %

Canada S&P TSX 13,443.22 %

-2.45

0.45

UK FTSE 100 5,899.94 %

-1.81

China Shanghai Composite 2,80.808 %

Germany DAX 6,914.19 %

-2.03

1.23

Argentina MerVal 3,523.59 %

Japan Nikkei 225 10,228.92 %

-1.14 India BSE Sensex 20,509.09 %

Foreign investments continue to drive the markets

142,799.30 Avg Sensex value 17,090.31

19,927.59

Cumulative value 10,367.20

2.17

Cumulative FII investments in ` cr

Dec ‘09

Cumulative value

Brazil Bovespa 69,304.81 %

1.20

Hong Kong Hang Seng 23,035.45 %

0.88

Australia All Ordinaries 4,846.90 %

-0.44

All data on this page are as on 31 December 2010

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

UK 3.39

uch has been written emerging markets, particularly in India HOW KEY MARKETS WILL FARE about how record and Asean countries. “Another key risk inflows of Rs 1,49,500 for the emerging Asian story … is the China will remain one of the fastest growing crore of FII poor political leadership, which economies in 2011, with domestic investments pushed encourages excessive rent-seeking and consumption and investment as the up Indian markets in 2010 and how a doesn’t focus on building adequate main drivers. large chunk of the money meant to reinfrastructure to support high growth.”

Inflation remains a concern and could lead vive the US economy found its way to For example, the Indian infrastructure to further monetary tightening in China. emerging markets. It has also been arsector continues to be mired in a range gued that if the American economy of controversies including land acquisi 2011 will be positive for the equity markets. doesn’t recover, interest rates there tion, environmental clearance and The domestic liquidity environment will be tighter than the offshore Chinese equity will remain low and funds will resource allocation. India’s domestic market but this has already been partially continue to flow out of the US. A consumption-led growth could get factored in blue-chip prices. recent report by Mirae Asset Global derailed if decisive action is not taken Investments says this will be positive to root out corruption, says Mirae.

In Brazil, equities are attractive because for Asian equities over the short term Mirae is optimistic about the valuations are inexpensive. but negative for the health of Asian emergence of Hong Kong as a financial Double-digit earnings growth and singleeconomies as it might lead to hub. “Hong Kong will benefit from digit PE multiples offer significant upside for overheating. tightened financial regulations in investors in Brazilian stocks.

According to Mirae, inflation will be London and New York,” says the the biggest challenge for emerging report. This could lead to more global Falling opportunity costs and lower cost of markets in 2011 and the key economic financial institutions relocating their capital in Brazil are positives that could indicator to watch out for in the new business functions to Hong Kong. result in significant PE expansion on top of year. “Rising inflation could result in In addition, the Hong Kong Stock Exearnings growth. further monetary tightening, currency change will further strengthen its appreciation, or administrative position as a leading emerging market measures such as capital controls … which will haunt equity stock exchange as we are likely to see more MNCs with significant investors,” says the report. “While we do not believe emerging exposure to emerging markets or Asia seeking listing on the market assets are in a bubble yet, this is a possible risk for the HKSE. “Hong Kong will also become the primary market for next few years.” yuan-denominated listings that are open to foreign investors,” The report also lists corruption as a big stumbling block for says the report.

France 3.28

Japan 1.12

Inflation will haunt emerging markets in 2011 Higher asset prices and tighter monetary conditions could be the party poopers for emerging economies in the new year

Dec ‘10

Avg Sensex value

Govt Bond Yield USA 3.29

M

I-year change 16.36% 1-wk change 2.18% Current value 1,151.38

FII Investments

0.07

1.36

I-year change 9.55% 1-wk change 0.44% Current value 1,280.07

Bars plotted according to one-year change

-0.96

USA S&P 500 1,257.64 %

Mexico IPC 38,550.79 %

MSCI Emerging Markets Index

MSCI World

India 7.91

Australia 5.46

Singapore 2.69

Germany 2.93

China 3.85

Greece 12.44

South Africa 8.13

New Zealand 5.85

10-year bond yield (%)

Currency Exchange Rate Weaker dollar boosts the value of rupee Currency

` value

% Change Weekly

% Change Annually

Dollar

44.71

-0.93%

-3.91%

Euro

59.80

1.06%

-10.23%

Pound

69.71

-0.01%

-7.35%

Yen

0.55

1.19%

10.09%

Yuan

6.77

-0.63%

-0.72%

Brent Crude No indications of a slowdown in oil prices

$77.5/brl 31-Dec-09

$95.5/brl 31-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 2.50 9.20 4.38 12.10 5.01 0.75

1 year (%)

0.78 1.50 0.55 2.75 9.60 5.38 12.52 5.55 0.93

Smart Stats

39

The Economic Times Wealth, January 3, 2011

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

What `10,000 will grow to

8.50 8.30 8.15 8.00 7.50

10,877.48 10,856.19 10,840.25 10,824.32 10,771.36

8.75 8.75 8.75 8.75 8.60

11,890.01 11,890.01 11,890.01 11,890.01 11,855.15

Tenure: 3 years Lakshmi Vilas Bank Catholic Syrian Bank Karur Vysya Bank Tamilnad Mercantile Bank Andhra Bank

9.00 8.75 8.75 8.75 8.60

13,060.50 12,965.02 12,965.02 12,965.02 12,908.04

9.00 8.75 8.75 8.75 8.60

15,605.09 15,415.42 15,415.42 15,415.42 15,302.68

Top five senior citizen deposits Tenure: 1 year Karur Vysya Bank Tamilnad Mercantile Bank IDBI Bank Central Bank of India Corporation Bank Tenure: 2 years+ Lakshmi Vilas Bank Indian Bank Karur Vysya Bank Tamilnad Mercantile Bank Federal Bank

Interest rate (%) compounded qtrly

What `10,000 will grow to

9.25 9.25 8.90 8.50 8.50

10,957.58 10,957.58 10,920.15 10,877.48 10,877.48

9.50 9.25 9.25 9.25 9.10

12,065.67 12,006.86 12,006.86 12,006.86 11,971.70

Tenure: 3 years Lakshmi Vilas Bank Indian Bank Tamilnad Mercantile Bank Federal Bank IDBI Bank

9.75 9.25 9.25 9.10 9.00

13,350.81 13,156.62 13,156.62 13,098.87 13,060.50

Tenure: 5 years Karnataka Bank IDBI Bank Federal Bank Indian Bank United Bank of India

9.50 9.35 9.25 9.25 9.25

15,991.1 15,874.35 15,796.98 15,796.98 15,796.98

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

INTEREST RATE (%)

INTEREST RATE (%)

Tenure: 2 years Catholic Syrian Bank City Union Bank Lakshmi Vilas Bank Tamilnad Mercantile Bank Federal Bank

Tenure: 5 years Karnataka Bank Catholic Syrian Bank City Union Bank Federal Bank IDBI Bank

Cheapest Auto loans

Cheapest Personal loans Andhra Bank

SBI*

15.75 - 18.75

Axis

LOAN AMOUNT: `5 LAKH

Tenure: 1 year Catholic Syrian Bank South Indian Bank IDBI Bank Central Bank of India Andhra Bank

Interest rate (%) compounded qtrly

LOAN AMOUNT: `2 LAKH

Top five FDs

14-21

Citibank

16-18.5 15.5-22

HDFC Bank ICICI Bank

14-18 14

16

18

20

22

24

26

28

30

32

34

* Monthly reducing

Cheapest Home loans

ICICI

9.5-13 9.75-10.25

Bank of India Bank of Baroda*

9.75-10.25* 6

7

8

9

10

11

12

13

14

15

16

* Daily reducing

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

20 YEARS Interest rate (%)

Interest rate (%)

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

9.25-10.5

Cheapest Education loans

10 YEARS

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

8-9.75*

Axis

8.75 9.00 9.00 9.20 9.25

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

9.00 9.25 9.25 9.35 9.45

9.00 9.25 9.25 9.35 9.50

Corporation Bank IDBI Bank State Bank of India Union Bank Of India Punjab National Bank

9.25 9.25 9.35 9.50 9.75

Margin Money: 15%

11.50%

12%

11.75%

11.25%

11%

United Bank of India

Punjab National Bank

Syndicate Bank

State Bank of Bikaner and Jaipur

Corporation Bank

* Daily reducing

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

Postal Deposits Interest (%)

Minimum Invt. (`)

Maximum Invt. (`)

Features

Tax Benefits

Sec. 80C

National Savings Certificate

8.00a

100

No Limit

6 years tenure

Public Provident Fund

8.00b

500

70000 pa

15-year term; tax-free returns

Sec. 80C

Kisan Vikas Patra

8.41b

100

No limit

Money doubles in 8.7 years

None

Monthly Income Scheme

8.00

Single A/c.: 4.5 Lakhs

6 years tenure; monthly returns;

None

Joint A/c.: 9 lakhs

5% bonus after 6 years

None

1,500

Time Deposit

6.25-7.50

200

No Limit

Available in 1, 2, 3, 5 years

Sec. 80C

Recurring Deposits

7.50c

10

No Limit

5 years tenure

None

Sr. Citizen Saving Scheme

9.00d

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 30 December 2010 7.60%

Interest rate (%)

What `10,000 will grow to

8.75 8.50 8.50 8.50 8.30

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

BANK

State Bank of India

8%

State Bank of Mysore

8.25%

Corporation Bank

8.25%

8.50%

Bank Of Maharashtra

8.50%

United Bank of India

Canara Bank

8.95%

Dena Bank

9%

9%

IDBI Bank

Punjab National Bank

9%

a

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%

2,224

1,435

1,200

1,101

1,053

@ 10%

2,125 2,028

1,322 1,213

1,075 956

965 836

909 772

1,887

1,061

791

660

585

@ 8% @ 5%

Tenure

5

10

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

15

20

25

All data sourced from Economic Times Intelligence Group (ETIG)

40

Smart Stats

The Economic Times Wealth, January 3, 2011

REAL ESTATE

Patna

Lucknow

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

Kolkata APARTMENTS Locality

Rental Value ( `/month) Premium

Affordable

Premium

East

8,500

18,500

2,000

5,000

7,500 1,90,000

Salt Lake

12,500

18,500

3,000

4,500

1,00,000 1,90,000

8,500

13,000

2,000

Lucknow

3,700

APARTMENTS

Capital Value Affordable

7,500

Locality

Premium

22,500

NEXT WEEK: NORTH ZONE Delhi NCR, Jaipur, Chandigarh

PLOTS (`/sq yard)

Capital Value ( `/sq ft)

Affordable

Rajarhat - New Town

Kanpur

Kolkata

Rental Value ( `/month)

PLOTS (`/sq yard)

Capital Value (`/sq ft)

Capital Value

Affordable

Premium

Affordable

Premium

Affordable

Premium

North

5,000

10,000

1,500

2,600

7,000

16,000

Aliganj

5,000

8,000

1,500

2,200

8,000

11500

5,000

8,000

1,500

2,200

7,000

11,000

South

10,500

30,000

2,200

11,500

7,000

70,000

Hardoi Road

Alipore

25,000

30,000

8,000

11,500

60,000

70,000

East

4,000

10,000

1,500

3,700

9,000

16,000

Behala

9,000

12,000

2,200

2,900

7,000

12,500

Gomti Nagar

6,000

10,500

1,500

3,700

10,000

16,500

Central

12,500

30,000

5,200

12,500

42,000

75,000

Indira Nagar

5,000

10,500

1,500

2,700

10,000

15,500

Park Street

15,000

28,000

9,700

11,700

72,000

75,000

2

West

5,000

10,000

1,600

2,500

10,000

15,000

Ballygunge Place

12,500

20,000

5,200

6,800

42,000

50,000

1

Rajajipuram

5,000

8,500

1,600

2,500

10,000

13,000

North

6,000

17,000

1,700

3,200

6,500

10,500

0

Lake Town

10,500

17,000

2,000

3,200

6,500

10,500

Vikas Nagar

5,500

9,000

1,700

2,100

11,000

13,000

-1

6,000

8,500

1,700

2,800

6,500

10,500

-2

South

5,000

9,000

2,000

2,700

6,500

15,000

Janakipuram

5,000

7,500

2,000

2,700

6,500

15,000

Naya Haiderabad

5,000

8,500

2,000

2,300

7,500

13,500

Dumdum Others

12,500

22,000

2,500

7,500

25,500

65,000

Toughened glass

-3

Gol Park & Gariahat 15,000

22,000

5,000

7,500

60,000

65,000

-4

Dhakuria

17,000

2,500

3,400

25,500

30,000

-5

12,500

1.47%

-2.42% Nov ’09

Nov ’10

Apartment rental(`/month) 2 BHK=750-1100per sq ft

Apartment rental(`/month) 2 BHK=750-1100per sq ft

Market update: The commercial hub of east India, residential property rates have been affordable compared to other metros. However, with a pick-up in economic activity, prices are expected to go up in the next one year. Areas like Rajarhat will see an increase in supply as many projects are nearing completion.

Sponge iron 15

10.34%

10

Market update: Entry of national-level developers and retail brands in the city points towards the positive outlook for the city. The residential area is spread equally on both sides of the Gomti river. While the established residential locations are witnessing development of premium properties, many townships coming up in the suburbs.

5

Kanpur

0 -5

Patna

-10

APARTMENTS Locality

Rental Value ( `/month)

PLOTS (`/sq yard)

Capital Value ( `/sq ft)

Capital Value

Affordable

Premium

Affordable

Premium

Affordable

Premium

South

3,500

7,000

1,400

2,100

8,000

40,000

Govindnagar

4,000

5,500

1,500

2,100

15,000

40,000

Yashoda Nagar

3,500

4,500

1,400

1,700

East Civil Lines

4,500

6,000

1,300

8,000

10,000

1,300

-15 -20

-15.07% Nov ’09

Nov ’10

APARTMENTS

Aluminium pipes & tubes 3.0

Locality

Rental Value ( `/month)

PLOTS (`/sq yard)

Capital Value ( `/sq ft)

Capital Value

Affordable

Premium

Affordable

Premium

Affordable

Premium

North

2,500

7,500

1,800

4,300

15,000

57,000

8,000

11,500

2,700

9,000

41,000

2.5

Rajendra Nagar

5,000

6,500

3,200

4,300

30,000

57,000

1,700

25,000

41,000

2.0

Patna Bypass

2,500

4,000

1,800

2,500

15,000

20,000

1.5

South

2,500

3,500

2,000

3,000

15,000

23,000

1.0

Jai Prakash Nagar

2,500

3,500

2,000

3,000

15,000

23,000

Central

3,500

7,000

2,200

5,500

18,000

75,000

Boring Road

5,000

7,000

3,500

5,500

30,000

75,000

New Pataliputra Col

4,000

5,500

3,000

4,200

20,000

35,000 55,000

Lakhanpur

4,500

6,000

2,000

2,700

10,500

15,500

West

4,000

25,000

1,400

2,100

5,500

21,500

Chapeda Puliya

8,000

22,000

1,500

2,100

5,500

21,500

Sarojni nagar

7,500

10,500

1,500

2,000

6,000

12,000

0.5 0.0

0.62% 0.31%

North

7,000

10,000

2,500

3,800

8,500

41,000

Swarup Nagar

7,000

10,000

2,500

3,800

30,000

41,000

West

2,000

5,500

10,000

NA

NA

NA

NA

8,500

10,500

Bailey Road

3,000

4,500

3,000

5,500

18,000

55,000

Saguna More

3,000

4,500

2,000

2,500

10,000

20,000

East

3,500

9,500

2,500

5,700

20,000

80,000

Dak Bungla Road

7,000

9,500

3,500

5,700

40,000

80,000

Kazipur

3,500

4,500

2,500

3,000

20,000

39,000

Awas Vikas 1

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

Nov ’10

Construction machinery 3.0

Market update: With Kanpur Nagar Nigam set to develop a 25-km stretch as Ganga Heritage Zone to keep the river clean between Naramau and Kanpur Cantonment, rental and capital values in these areas is likely to improve.

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

Nov ’09

2.5 2.0

1.07%

1.5

Apartment rental(`/month) 2 BHK=750-1100 per sq ft

1.0

CONSTRUCTION COST MONITOR

0.5 0.0

10.3% 1.5% 1.1% Toughened glass

Sponge iron

Aluminium pipes & tubes

0.6% Construction machinery

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

-0.5

1.95% Nov ’09

Nov ’10

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

Market update: With improvement in the law and order situation and increase in purchasing power because of the creation of jobs, property prices in Patna have gone up consistently in the past three years. Many prominent companies have set up base in the prime locations in the city. This has boosted rental demand. Large scale projects have been launched in the suburbs and are likely to be completed in the next four years.

City Profile

The Economic Times Wealth, January 3, 2011

41

NH7

TO BANGALORE AIR PORT YELAHANKA

YELAHANKA SATELLITE TOWN

TUMKUR

Bangalore

N.E. PALAYAM TU

& Suburbs

VIJAY NAGAR RO

AD

HEBBAL

MA

SO MY

53%

RE

RO

SU

RR

OA

D

AD

KORAMANGALA

JAYANAGAR

28% 7%

6% East

HSR LAYOUT

South

5%

West

2%

In the next two years, north Bangalore will see a lot of commercial development including three industrial parks.

The international airport and the sixlane expressway have resulted in a lot of prestigious projects in the region.

In south Bangalore, improved connectivity to Electronic City, prestigious schools, hospitals and retail chains, will lead to a further rise in rentals.

Central

Map not to scale

-5%

D

WHITEFIELD HO

VIJAY NAGAR

18% North

OA

INDIRA NAGAR

PRICE CHANGE

6%

R AS DR

BANGALORE

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

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

MK UR

6 months 3 months

-19%

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

West ■

■

■

AFFORDABLE Nelamangala 2,200

■

PREMIUM Sadashivanagar 7,700

AFFORDABLE Basaveshwaranagar 2,200

■

AFFORDABLE Benson Town 7,200

■

PREMIUM MG Road 20,500

Bangalore 2009 2010* Mysore 2009 2010*

East

PREMIUM Malleshwaram 9,500

Central

PRICE APPRECIATION COMPARED TO CITIES IN THE REGION

■

AFFORDABLE Old Madras Rd 2,800

■

PREMIUM Koramangala 9,000

South

Chennai 2009 2010* Kochi 2009 2010*

Previous profiles of Mumbai, Delhi, Chennai available at wealth.economictimes.com Next week: Kolkata

GROWTH DRIVERS

6%

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

9% -1%

Metro Rail

2% 10% 1% 12% 3%

Jul-Sep'09 Average % change

■

AFFORDABLE Bannerghatta Rd 2,200

■

PREMIUM Banashankari 6,000

Most active real estate markets around Bangalore have seen an increase in property prices this year. However, unsold inventory and several of under-construction projects have kept residential prices under check in Kochi and Hyderabad

Jul-Sep'10 Average % change

LOCATIONS IN DEMAND Hebbal:

Proximity and good connectivity to the airport has increased demand. All arterial roads and road networks leading to the international airport intersect here.

Koramangala:

Central location, connectivity to Electronic City and to other prime residential areas has kept rental demand high.

HSR Layout:

One of the fastest-growing suburbs. Planned infrastructure and availability of land for new development has sustained demand.

38,000 residential apartments is the estimated supply in Bangalore between 2009 and 2011, according to Knight Frank. This translates into 72 million sq ft of space. Around 53% of this supply is likely to be 3-BHK apartments and 30% will comprise 2-BHK ones.

The metro rail on Reach 1—six stations from Byappanahalli to Trinity Circle—expected to start operations early this year. Reach 2, which starts from Magadi Road and stretches till Mysore Road, is scheduled to be commissioned

by August 2012.

Roads Two flyovers from City Market to Kengeri and from near St John's Hospital in Koramangala to Mysore Road. A bridge from K G Road to Corporation Circle and 12 underpasses across the city should help decongest traffic.

Infrastructure corridor Phase 1 of the 164-km expressway connecting Bangalore and Mysore will be completed early this year. Work on three other phases—a 9.1km link road connecting central Bangalore with peripheral road; a 41-km peripheral road around Bangalore city linking Hosur Road-NH 7 to Tumkur Road and a 111-km expressway to Mysore to start this year. Five townships will also come up along the corridor.

International airport Areas in north Bangalore and closer to the new airport will continue to be in demand.

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

42

Guest Column The Economic Times Wealth, January 03, 2011

TAX STRATEGY

Your Esops’ real worth Employee stock options are taxed twice—at the time of converting them into shares and if sold within a year of allotment, says Shankar P B 2

E

X has exercised all the 100 shares on 26 February 2010 and the shares have been allotted on 1 March 2010. The average price of the share listed in the Indian stock market on 26 February 2010 is `100.

`10

1

3

X sells all the shares on 20 November 2010, for `150. The tax implications arising from exercising and selling Esop is tabulated below: ALANKAR

mployee stock options (Esops) have been traditionally used by companies to reward and retain key employees. The benefits from Esops are taxed under various heads such as salary, capital gains, fringe benefit tax etc. The mishmash of taxation makes it difficult for the taxpayer to know the impact on his Esops.

The present scheme of taxation is as follows: Types of Esops: Though Esops are allotted under various names such as sweat equity, restricted stock units, stock purchase plan, stock appreciation rights etc, the law classifies Esops into two types. First, this benefit can be handed out as a notional stock where no shares are allotted, but an amount equivalent to the value of a company's shares is paid to employees.

Second, Esops become real stock when shares are allotted.

In the case of real stock, the taxman does not differentiate if the underlying security is an equity share, preference share or American depository receipt. The tax treatment is the same even if a company directly allots shares or though a trust.

Stages of taxation: The income arising on notional stock is taxable as salary when the amount is received.

In the case of real stocks, the benefits are taxed in two separate stages. When Esops are exercised, or converted into shares after paying the price, they are taxable as salary. They are also taxed as capital gains during sale of allotted shares if there are additional benefits at the time of sale.

Value for tax purpose: In the case of notional stock, the value for tax purposes is the amount the company pays to the employee. In the case of real stock, the value for tax is again arrived separately in two stages.

The first is at the time of conversion of Esops into shares. Here, the difference between the fair market value (FMV) of the stock allotted and the amount recovered (the exercise price—what employees pay to convert options into shares) from the employee is taxed as salary in the hands of the employee.

The FMV of the Esops depends on whether the shares are listed in India or otherwise. If shares are listed on a recognised Indian stock exchange, FMV would be linked to the market price of the shares on (or closer to) the date of exercise.

In case of other shares (including those listed on overseas bourses), the FMV is determined by a Category 1 merchant banker registered with the Securities and Exchange Board of India.

The value so determined can either be

Let us su 100 Es ppose X is gra ops on nted 1 Ja at a pric e of `10 nuary 2008, After b eing eli per share. gible, X conver h t his op tions in as to within to shar two ye es ars

4 2009-10

2010-11

EXERCISE

In case the employee sells immediately after allotment of shares, there would be no gains and accordingly, no tax implications (assuming there is no fluctuation in the fair market value of the shares between exercise date and sale date)

SELL

No. of shares: 100

No of shares: 100

Market price of share

Price at which employee sells (per share)

(Less) Price employee pays (per share)

0 `10

`10

(Less) Price when employee got Esops (per share)

0

`15

`100

Employee gains

Employee gains

`90

`50

Total taxable amount

Total taxable amount

`9,000

`5,000

Taxed as salary income

Taxed as capital gains

(per share)

(per share)

Other Factors: on the date of exercise or any date up to 180 days prior to the date of exercise.

Accordingly, even if there is no tangible benefit to employees at the time of exercise, they still have to pay income tax on the FMV of the shares (less any amount recovered).

Employees are also taxed when shares are sold within a year of allotment. Here, the difference between the sale price and FMV is taxed as capital gains.

So, in case an employee sells immediately after shares are allotted, there would be no gains and accordingly, no tax implications (assuming there is no fluctuation in the FMV of the shares between exercise date and sale date). But if an employee sells shares after a certain period, there could be gains or losses depending on the price at which the shares are sold.

The residential status of the individual: This would be more relevant in case

of internationally mobile employees, the Esop benefits could be taxed in more than one country, where the tax laws of other countries and the tax treaty agreed between India and such other country, if any, would also need to be considered.

The prevailing tax laws and rates of taxes applicable for an individual for

salary income and capital gains in the year of exercise and sale of shares, respectively. The tax rates and provisions may change year to year .The introduction of Direct Tax Code Bill will also lead to change in taxation of Esops.

The writer is manager (tax & regulatory services), Ernst & Young, India. The views expressed are personal Please send your feedback to etwealth@indiatimes.com

Earnings

The Economic Times Wealth, January 3, 2011

43

SECOND-HAND SALES

Auction your trash for cash Auctions are fast becoming the market place to sell a host of goods ranging from family heirlooms to kitchen appliances— and earn a neat sum.

Something you inherited from your grandfather may not be of any value to you, but a collector may be willing to pay good money to get his hands on it”

AMIT SHANBAUG

W

hen south Mumbai-based IT professional Amarnath Banerjee decided to get furniture for his recently furbished house, his first concern was to get rid of the old one. That's when his wife Sharmishta suggested that they approach spot auctioneers to help them out.

“We got a decent price for our old sofa. I don't think the scrap dealer could have matched the offer,” Banerjee said.

According to Deepa Thomas, senior manager (corporate communications & pop culture), eBay India, Philippines & Malaysia, there is lot of hidden wealth in everyone's house.

“Imagine something you inherited from your grandparents. For you it may not have any value, but a collector may be willing to pay good money to get his hands on it,” she says. And this is why stamps, coins and other collectibles have such a huge demand.

Auctions-both spot and online-are fast becoming the market place for a growing number of Indians to buy and sell a host of goods ranging from family heirlooms to kitchen appliances. Here's how to go about listing and earning from the sales.

Online auctions: There are a number of dedicated sites, including eBay, Nilaami.com and Ezeebids, where one can list used stuff like old furniture and even kitchen and home appliances. Listings in these sites are relatively easy.

After registering with the website, the seller has to upload high-resolution pictures, a short description of the products and a minimum bid price. Most websites charge a commission of 1-6% of the product beside a small listing fee. On eBay, there are no listing charges for the first 20 products and after the website charges `1 per product. An additional 4% is charged for the securepayment facility.

Once the site receives payment from a buyer for a product, it instructs the seller to ship the product. The buyer has the option of returning the product within 15 days if he is not satisfied with it and gets a refund. If the transaction goes smoothly, then the money is credited to the seller’s bank account.

In the online auction, the seller also gets the option to sell the product through a trading assistant in case the product is of high value for which a small additional fee is charged.

Spot auctions: Most big cities have a number of auction houses operating even today.

These are the traditional way of selling products where on a particular day various people can bid for the products put on sale.

The seller has to reach his products to the venue two days before the auction. If he is

DEEPA THOMAS, Senior manager eBay India

5 Steps to Sell Register with a website

Upload pictures and write up

Registered bidders put in their quotes; site will inform when goods are sold

Buyer pays the website

Money credited to seller’s bank account after deducting commission and listing fees

Online

1

2

3

4

5

Contact auction house

Reach goods two days before auction date

Get antiques valued by a professional

Buyer pays part of the money upfront and the remaining the next day

Auction house gives cash/ cheque to seller after deductions

Spot auction

Cost of Auction Agency

Charges

Embassy Auction Centre, Mumbai

Fixed charge `30 per item + commission charges 17% Imported vehicles 15% Withdrawal charges 3% for item with reserve price VAT between 5% and 12% 2% service charge

Murray & Co, Chennai

Commission of 12%, service tax 10.3% Transport cost actuals

eBay India

Listing fee `1 per item (free for first 20 listings); commission payable between 1% and 6% based on the category; 4% for secure payment facility

nilaami.com

Free registration. Additional category 10 paise, image upload 20 paise, highlighted item 20 paise, bold item 10 paise, home page feature 50 paise, media upload 50 paise

putting antique goods (including rare stamps or coins) on the block, then these have to be verified by a valuer, appointed by the auction house. Also unlike online auctions, the seller does not have the option of changing his mind. Once the goods are delivered to the auction house, it becomes the property of the centre.

Nearly everything—from antique furniture to music CDs—can be sold. “At times, we get in small articles where the seller does not have a reserve price in mind. For them any price would be a good price rather than throwing it away,” says Nayan Yagnik, proprietor of Mumbai-based Embassy's Auction Centre.

The centre levies a minimum of `30 plus a 17% commission as listing charges for articles which have low bidding price. For larger articles like imported vehicles, the centre charges a 15% flat commission on the sale price.

Chennai-based Murray & Co also deals with industrial disposal such as plants, machinery, scrap and real estate besides auctioning traditional collectibles. The company charges the consumer around 12% of the sales price as listing and auction charges.

According to Hemant Srivasta, senior partner at the auction house, the company allows the seller an option to withdraw his goods till the time it goes for auction but not after that. “If he withdraws, we just charge the person warehouse expenses,” he says.

Auctioning off things that are not used not only frees up space in cramped apartments but also adds to the family kitty. So check out your store room and see what can be put up on sale.

Please send your feedback to etwealth@indiatimes.com

44

Smart Spending

The Economic Times Wealth, January 3, 2011

ANTI-VIRUS

Free and fair option A free anti-virus solution from Microsoft for genuine Windows users is expected to click well. Maybe it is time for you to ditch piracy and yet save money!

In One Sweep Anti-virus solution Norton Internet Security 2011 Norton AntiVirus 2011

`) Price (` 1,534.99 1,109.99

McAfee AntiVirus Plus 2011 McAfee Internet Security 2011

1,040 1,986

OR Free for lifetime with Microsoft genune Windows

Kaspersky Lab Internet Security 2011 890 Quick Heal AntiVirus Pro 2011

1,119

(All packages are for a year)

Any genuine user of Windows XP, Vista, Windows 7 can download for free anti-virus protection solution Microsoft Security Essentials (MSE) at www.microsoft.com

Other free options Avast, AVG, Avira, Bitdefender, ClamWin, Comodo (with Firewall), Digital Defender, Immunet Pro, Malwarebytes, Panda Cloud

Microsoft has extended free download of MSE to small businesses with up to 10 PCs.

RAJ

ULLEKH NP

W

ith branded PC makers beginning to enjoy a pretty good run in India thanks to good pricing, many new buyers, especially of laptops, are increasingly getting used to genuine Windows pre-loaded into systems.

Such users of the “original” could download for free Microsoft’s antivirus protection solution Microsoft Security Essentials (MSE).

It is free for life, but then how good is this MSE? One could accuse the Redmond, Washington-based software giant of using anti-virus solution as yet another turf to hard sell its operating system, but one cannot deny MSE’s benefits, claim Microsoft officials. There is no clut-

ter and confusion: There are no trials, no renewals, no expiration, not even registration. It is light on your PC. And the software is optimised for the world’s most widely used operating system, they say.

Launched last year, Microsoft has lately extended free download of MSE to small businesses with up to 10 PCs. Pankaj Ukey, director, Windows (consumer and online business), Microsoft India, says this move comes in the wake of tremendous response for MSE in the country, where the price difference between branded and assembled PCs have narrowed over the years.

Take the case of Bangalore-based Konni Anoop. A network engineer, Anoop says he always used pirated Windows until recently when he bought a new PC. On his previous desktop computer, he used pirated Windows with anti-software

software by a reputed global company every year. “One good thing, apart from the fact that [Microsoft] Security Essentials is free, one doesn’t have to renew it and bother about expiry, paying for upgradation, etc. It is not heavy on your system,” he says. MSE provides protection against various types of malware such as computer virus, spyware, rootkits and trojan horses for Windows XP, Windows Vista and Windows 7.

“I know that it is always cheaper to go for pirated Windows and get anti-virus software from a reputed company. But in these days when you get Windows pre-loaded into your laptop, MSE looks like a good option to me,” says Anoop.

Interestingly, though there are several free-for-life anti-virus programs available in the market— such as those by Avast, AVG,

Bitdefender, Malwarebytes, Panda Cloud and so on—customers have a belief that paid solutions are more effective. But analysts say this perception is mostly likely to change in the case of Microsoft which enjoys a uniquely peculiar position in terms of brand name and reach.

By extending its customer base, from home users to small and medium businesses, Microsoft has, in recent months, incurred charges of unfair competition from its rivals.

MSE, unlike Microsoft Forefront protection solutions which are enterprise-oriented products, is largely for consumer use.

Akhilesh Tuteja, executive director at KPMG, is of the view that Microsoft’s strategy is likely to pay off in combating both piracy and the scourge of virus attacks on Windows. “I think the quality of MSE is good. The challenge, however, lies

in how the company is going to make into an all-encompassing threat-management system.”

Microsoft’s Ukey expects “things to be smoother” now with the recent launch of the latest version of the anti-virus software, MSE 2.0.

While the company is bullish about its latest anti-virus package, rivals don’t see any short-term threat to their business from MSE, especially in India.

Jagannath Patnaik, director, channel sales (South Asia), Kaspersky Lab India, a Moscowheadquartered anti-virus solutions provider, says MSE doesn’t pose any threat to the company in the short term. “We have expertise in the segment and have the wherewithal to take on Microsoft in the long term in the anti-virus software business,” he says.

According to Gaurav Kanwal, country sales manager, India, (consumer products and solutions), Symantec, referring to MSE as an essential security solution is misleading. “With 65% of consumers worldwide falling victim to cyber crime, the need to choose the strongest, most comprehensive protection available is more important than ever,” he says, adding “We believe the false sense of security provided by these tools (as MSE) is almost as dangerous as having no security at all”.

But KPMG’s Tuteja feels “one cannot conclude the product is less effective than others”.

Ukey says, “MSE has been rated well by multiple agencies as one of the best products available.”

Call it a user perspective, but Anoop clearly sums up the likely picture: “The price difference between branded and assembled PCs has narrowed. With more people starting to use branded PCs, and therefore original Windows, more people are expected to use MSE as well, which comes for free.”

Looks like fait accompli.

Please send your feedback to etwealth@indiatimes.com

My First Year

The Economic Times Wealth, January 3, 2011

45

ENTREPRENEURSHIP

I came to Mumbai with `900 Anup Bhaiya today manages assets worth `500 crore and heads a financial services company that withstood the turmoil of the 2008 meltdown and recession that followed.

Anup Bhaiya | 33 years Age at starting business: 30 years Company Name: Money Honey

Financial Services Ltd Seed capital:

`1 Lakh

Source of money: Self, angel investors

T

hank god. It is the first thing I do when I enter my Goregaon office and look back at the past 30 months. When I launched a financial services business in May 2008, I never planned for events as epochal as the global meltdown of September 2008 and the recession that followed. I was anxious through the second half of 2008 and early 2009. I began to doubt the decision to leave a cushy job and turn entrepreneur.

Though Esops and savings took care of my personal finance for the next three years, Money Honey Financial—I named the company after my daughter and our business—was a dream and passion rolled into one. Two months after the global crisis unfolded in 2008, the wage bill had grown to a staggering `2.5 lakh a month. In contrast, revenue was a mere one-tenth of that. Global finance powerhouses collapsed like a pack of cards, and here I was starting a financial services company from scratch.

Luckily, help came from my angel investors, their support instrumental in wading through a difficult time.

My entrepreneurial spirit also kept me going. I funded my college education by selling cloth at Khamgaon in Maharashtra’s Buldana district.

The days of working as a salesman ended prematurely when a decision to trade in oil cakes saddled me with a huge debt. I could never repay by selling cloth. I decided to move to Mumbai in 2000 in search of new pastures. It was the best thing to happen to me. I got a break with India Infoline, where I worked in areas from administration to distribution. I learnt the tricks of the trade. It was there that I got the idea of starting my own financial services company. With financial services on the verge of taking off in the country, I took the plunge.

The strategy to focus on insurance distribution bombed initially. It taught me the importance of offering an entire basket of products to customers. So when later, (market regulator) Sebi abolished entry loads on mutual funds, we were well positioned to make the most of the opportunity. I had also learnt a few things,

I won clients from foreign banks and big names in the industry through good relations BHARAT CHANDA

My personal finance for the first 3 years were taken care of by Esops and savings

Sending SMSes to clients was a new approach and was an instant hit

Offering every product in a portfolio is win-win.

Investors are happy.

For us, revenues diversify

Check out notably that relationship is at the As one relationship grew to another, off-beat heart of any business. It is through the number of investors under our fold insurance policies good relations that I have won grew substantially. This happened with Page 23 clients from foreign banks and big little advertising. This is a business of names in the industry. I believe an trust, which grows by word of mouth. Our investor stands by us if we offer an advice, backed with service, has helped entire gamut of products such as investment increase assets under management. planning, insurance planning, tax planning, I launched the business with a mere `1 lakh as retirement planning, portfolio management and capital, most of it my savings, and two wealth management with unbiased advice. employees. The team has since grown to 200 In the early days, we sent SMSes to clients, a with offices in Mumbai, Pune, Ahmedabad and new approach that became an instant hit.

Nagpur. Assets under management have swelled Another golden opportunity came in October to `500 crore. Now that we have got the model 2008, when fixed maturity plans (FMPs) and right, sky is the limit. We are looking to operate subsequent company fixed deposits were out of the top 30 cities in India with 1,000 launched by companies such as Tata Motors and members in the next two years.

Mahindra Financial. We saw investor interest in I am extremely religious. In the very first these products and managed to mobilise a month of business, I donated half the earnings to decent corpus, netting spreads of 1% during the Lord Siddhivinayak. It is due to god’s blessings period. The first year taught us the biggest that a person who came to Mumbai with just lesson yet: Offer investors every product they `900 in his pocket heads a business that want in the portfolio such as stocks, mutual manages `500 crore.

(As told to Prashant Mahesh) funds, bonds, fixed deposits, mutual funds, insurance and small savings schemes. It is a winwin strategy. The investor is happy. For us, there Please send your feedback to is diversification in revenues as we do not have etwealth@timesgroup.com to rely on a single product.

46

Senior Citizens

The Economic Times Wealth, January 3, 2011

Money-making recipe At 80, Kumud Borkar, a former chemist, is busy shoring up plans to reprint and translate her cookbook

NITIN SONAWANE

With the help of internet, you can make your own money in the world of publishing. You can approach self-publishing companies in India like Pothi, Depot, CinnamonTeal and Power-Publishers.

Follow these simple steps to get your book STEP 1 published: Log on to the company’s website, pick the size and cover of the book and choose from services such as layout, design STEP 2 and proofreading.

The book produced can be bought directly either from the self-publisher or in some cases like Depot they are stocked on the shelves of the Depot STEP 3 stores.

Most of these companies also offer print-on-demand services, which mean that you needn't stockpile your self-published STEP 4 books to sell them.

Apart from a fixed fee, these companies usually charge a commission on every copy sold.

KUMUD BORKAR | 80 | Former chemist

AMIT SHANBAUG

R

etirement can mean different things to different people. For some it is the end of the working life, for others it may be the beginning of a different career. When Kumud Borkar hung up her boots after running a medicine store for 20 years, she decide to choose the second option. She wrote Prerna, her first book (a cookbook) when she was in her late 60s and made nearly `3 lakh from it.

But why a cookbook? “After dining at my place, many friends and relatives would suggest I should write down my recipes. But I never took it seriously. However, when I was bedridden after a surgery for a couple of months, I decided to take it up. In a way it was to divert my mind from the pain and also to kill time,” says Borkar.

The book was self-published and it did more than help her kill time.

She managed to sell most of the 1,500 copies of her cookbook through word of mouth publicity

at `200 each. Her clientele were mostly members of community groups such as North Kanara GSB Trust. These groups have members, many of whose children are settled abroad and want to learn how to cook traditional dishes.

Since then, Borkar, now 80, has written religious hymns and short stories based on folklore.

But the beginning was not easy.

The first thing was to convince herself. It was her brother-in-law and his wife who encouraged her to start by writing down one recipe everyday. Her youngest daughter, Rupa Naik suggested that she include some ‘modern’ recipes to appeal to the younger generation as well. “Many of the recipes in the cookbook are traditional and have been passed on through generations. People would find it hard to believe that before marriage, I hardly knew how to cook. The most I could make was tea. My mother and my mother-inlaw were my teachers,” she says with a smile.

Besides common snacks like bhel puri and pao bhaji, Borkar’s

After dining at my place, many friends & relatives would suggest that I should write down my recipes. But I never took it seriously book includes variations of the dosa and traditional dishes from the coastal region of Karwar in Karnataka. “Karwaris are known for their fish curries, so getting all of them was a major task,” she says. There are also sections on vegetarian and meat dishes.

Like her book-writing skills, her profession was also accidental. “After losing my husband at the age of 35 and with three children to fend for, I had no option but to run my late husband’s shop. I soon realised that I needed to get the

necessary permissions and even took the required examinations,” she said. That ended up making Borkar the first qualified woman chemist in India. After running the business for 20 years she handed it over to her son.

Though age is slowly becoming a hurdle, Borkar has no plans of giving up writing. The gutsy woman who single-handedly raised a family, educated her children and ran a business is planning a reprint of her cookbook as well as translations into English and Hindi. A simplified version of the Bhagwad Gita and an English translation of her Marathi short stories are also in the pipeline.

An increasing number of retirees today want to continue using their skills or discover new ones but at a less gruelling pace than that offered by a full-time employment. A parttime job or pursuing one’s passion offers exactly that with a possibility of making money as a bonus.

Please send your feedback to etwealth@indiatimes.com

Last Word

I was happy to see a special page for senior citizens. The article ‘Fortune at Home’, which talked about reverse mortgage was very educative and timely. I have recently taken the same with the hope that it would take care of my financial requirement.

J.S. Bakshi It would be great if you publish an article on investing in the New Pension Scheme with tips and suggestion for good funds. It will help in tax deduction when Direct Tax Code comes into place.

Ravi Kokate We value your suggestion. Please refer to Page 28 for some quick tips on NPS. More to follow in future issues.

‘The trap called a guaranteed NAV’ made for an interesting read. Even reputed companies promise minimum guaranteed return in their brochures.

Regulatory bodies like Sebi should take action against these fraudulent practices.

CRV Ganesh

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 1 Inflation doesn’t affect FD returns as interest rate is fixed Y/N 2 Higher the alpha of a fund, the better for the investor

Y/N

3 You cannot invest more than 12% of your total income in Y/N the EPF in a year 4 One must buy an investment product or open a fixed deposit to be eligible to open a bank locker

Y/N

5 The returns from a fixed maturity plan are treated as long-term capital gains after one year

Y/N

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

`5,000 and will be crowned the ET Wealth Financial Wizard of the week.

Last week’s winner

6 No life insurance cover is available for an individual who takes part in extreme sport

Y/N

7 Esops are not taxable after one year of allotment as there is no tax on long-term capital gains from stocks

Y/N

8 A loan on a reducing rate of interest is more beneficial for the borrower

Y/N

9 All contributions made to the New Pension Scheme are eligible for tax deduction under Section 80C

Y/N

10 Emerging markets outperformed the global markets in 2010

Y/N

DARSHAN A. SHAH, Ahmedabad Solutions from the following were also useful:

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.

Venkatesh Vasanthan, New Delhi Neha Bhuskute

This week's situation: My company has selected me for a coveted two-year assignment in New York. Meanwhile, I took my management entrance tests and I have offers from A-list business school abroad. Should I opt for the project or my MBA? What will be better for my career in the long run?

-Animesh Mukherjee, Kolkata

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

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

Your feedback

The Economic Times Wealth, January 3, 2011

Please send your feedback to etwealth@indiatimes.com

HOBBY TURNED INTO BUSINESS

Money therapy Filmmaker Fareeda Mehta’s interest in reflexology is now paying rich dividends.

NUPUR ANAND

T

he idea that a hobby could also bring in a bit of money had never crossed Fareeda Mehta’s mind.

But the Mumbai-based documentary filmmaker’s dabbling in reflexology has added to her household kitty.

“For me it [reflexology] was just one of those things that I did in my spare time and only for my family and close friends. I never thought of earning from it,” says Mehta.

Reflexology is a form of alternative medicine in which treatment includes applying pressure on the soles. The process aims to stimulate circulation and open up various body channels.

She charges about `600 for a sitting at her home and `1,000 if she has to visit the patient’s home. The time spent on each patient varies from 45 minutes

to 90 minutes, depending on the arthritis, spondylitis and even cancer. nature of the ailment. On an average As Mehta puts it, “Every individual is Mehta, if not busy shooting films, sees unique and so the number of sittings three patients a day, five days a week. depends on a case-to-case basis.”

Her earnings from her hobby range Along with the treatment she upwards of `20,000 a month. recommends a certain lifestyle.

While on a business trip to Delhi in One of the major factors behind her 2002, Mehta completed a basic course growing clientage is that reflexology in reflexology. A believer in ‘holistic’ does not have any side effects. The living, she was naturally drawn to this burgeoning number of people interestform of medicine. Two more advanced ed in looking at alternative forms of courses followed, which were lifestyle, including meditation and augmented by reading books natural healing, has also helped and journals. her cause.

Her first patients were family Mehta insists that reflexology members and a few friends who asked continues to be a hobby, which her to treat them for minor ailments. doesn’t take too much of her Gradually, her popularity time. “It takes only few hours spread, primarily by word in a day leaving me free to of mouth. Today she has a carry on with other Are penny stocks regular client base. She assignments,” she says. for me? treats a range of patients And who would mind a Page 8 suffering from various dishobby that adds to the eases including sinus, monthly kitty?

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.

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: Rohit Saran (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. Applied For. MADE IN NEW DELHI Volume 1 No. 1