Personal Finance Magazine Moneylife 25 August 2011 by Moneylife Digital

SUCHETA DALAL ON: DUBIOUS SCHEMES LOBBY FOR LEGITIMACY

CONSISTENCY IN SEBI’S CONSENT PROCEEDINGS

Personal Finance Magazine

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DAMODARAN COMMITTEE REPORT: A DAMP SQUIB

25 August 2011

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d l i h C s n a l P The Best Options for a Secure Future

3NEW Sections from this Issue

EARNING CURVE

CURRENT ACCOUNT

STREET BEAT

FUNDS

How Many Funds Should You Have?

– Venus Remedies – Seshasayee Paper

Cover Page_143.indd 2

– Sajjan Jindal faces Mamata – No Food or Gifts during AGMs

Debit+Equity? Poor Idea

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Volume 6, Issue 13 12 August – 25 August 2011

Debashis Basu

Editor & Publisher editor@moneylife.in

Sucheta Dalal

Managing Editor suchetadalal@yahoo.com

Editorial Consultant Dr Nita Mukherjee

Editorial, Advertisement, Circulation & Subscription Office 315, 3rd Floor, Hind Service Industries Premises, Off Veer Savarkar Marg, Shivaji Park, Dadar (W), Mumbai - 400 028 Tel: 022 2444 1059/60 Fax: 022 2444 2771 E-mail: mail@moneylife.in

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Letters to the Editor

the private sector, Praful Patel’s hammer & tongs job on Air India and his magnanimous concessions to private airport operators, and Murli Deora’s devotion to Reliance Industries Ltd (and the US), etc. b) Its desperate pro-US obsession: The Centre has done everything it can to get the nuclear deal through—even if this meant GRIN & BEAR IT jettisoning its political allies or buying votes; its gradual sidelining It is common knowledge that the of Mani Shankar Aiyar by dropping Dr Manmohan Singh government him from two ministries; the is ineffective. The regime is able elevation of Murli Deora and the to cover up its misdeeds through a embarrassments witnessed through brilliant use of deceit and bluster. the various WikiLeaks exposés. The government might have The desperation of the US to keep been a deliberate and conniving bystander to the loot. But, in media Dr Singh, Montek Singh Ahluwalia and P Chidambaram at the management and cunning g an deception, it has proven to ttop to pursue its strategic interests—so that America be second to none. can maintain domination Let us try to decipher over the Indian the primary motivations policymaking apparatus— driving this government. is visible now. Using these It is guilty of the highest politicians, the US has crime against the nation been able to promote because of its desperation n its own senior generals to pursue its twin obsessions. within the Indian establishment. a) Its eager pro-corporate When journalists, politicians and obsession: The entire crony bureaucrats (against whom there capitalistic ‘India story’—the are allegations that they sold out Radia tapes; the loot in the mining to the US) are presented with the sector; interest rates being kept so WikiLeaks evidence, the accused do low that even the inefficient can not refute these claims; they rubbish prosper—are basically a form of them, saying that there is ‘nothing grossly subsidising the rich. There’s new’ in the WikiLeaks claim. I more; the cunning application of public-private partnerships to favour feel that a number of anti-national proposals have Write to the Editor! been pushed The only investment that Win jewellery through under the enhances your face value. guise of pro-poor posturing and schemes for the underprivileged. This government’s secret ceding of sovereignty Congratulations Rajesh Mathur from Allahabad! to the US and Your letter to the Editor wins a Surat Diamond gift. big corporates Keep writing! Keep winning! has been its ``

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LETTERS

` most striking feature. To prevent

public outrage at such grossly anti-people measures, a pro-people appearance had to be fabricated. This government has mastered the art of faking appearances.

and anger. That is the only option— keep mum, no matter what happens. Rajesh Mathur, LIG 137 A, Govindpur Colony, Teliarganj, Allahabad 211004, by email

NITROGEN TYRES

This is with reference to Personal Business-Auto column (Moneylife, 28 July 2011). I have a totally different view from Veeresh Malik’s on nitrogen air tyres. I have been inflating my car tyres with nitrogen gas (for over two years). I had initially spent only Rs125 for inflating five tyres with nitrogen gas. If necessary, after three-four months, the tyre pressure can be checked. I have driven my car for a year without even getting the tyres checked. Just last month, I made it a point to get the tyre pressure That has not been difficult for a checked for safe driving during the government packed with deceptive monsoon. To my surprise, only and self-serving officials—saying my front tyres were down by two one thing and doing just the opposite. Many in the Indian media points. I got all four tyres inflated with the required pressure and I have been working on behalf of paid only Rs45 as top-up charges. the government (at least 20 or so What you have referred to is not senior journalists). These wheelerdealers work for big business houses a new scam involving filling of nitrogen; nor is it garbage, as stated. and politicians—and against the The close relative referred to (in the nation. They have moved rapidly article), I am sure was taken for a to subdue people’s anger against corruption and are trying to nip civil ride by the dealer who she trusted. In fact, tyres filled with nitrogen activism in the bud through tactics do not expand, unlike tyres filled like fault finding; legal nit-picking; with ordinary air which tend to imaginatively creating ‘whiffs of expand on hot roads. Besides, the scandal’ against the leaders of the people’s anti-corruption movement, pressure in all tyres is maintained, to undermine their moral credibility. as nitrogen does not leak like air. You don’t have to keep checking the Let us look at what the apologists pressure every time you go to fill up of the government are saying. They fuel. With well-maintained pressure, say that Anna Hazare’s movement you will have ease of driving; the and citizens taking to the street is not the way to go about things. The wear & tear on tyres will be low and the engine will not be damaged government’s criminal acts ought or overloaded while moving the car. not to be halted/brought down by seething public anger. That’s because I would suggest that the nipples of Parliament is democratically elected! the tube be replaced before filling In short, just grin and bear it—even nitrogen. However, since nitrogen gas is not available everywhere, you if you feel like erupting in disgust

can inflate your tyres with ordinary air—at any local station if necessary, to keep the journey going. There is no need to go to the same dealer only to fill a tube with nitrogen gas. On your return journey, get the tube refilled with nitrogen at Rs25 per tyre. Hoshang Nekoo, H/11, Nowroze Baug, Dr SS Rao Road, Lalbaug, Mumbai 400012, by email Veeresh Malik replies: Thank you for your comments. 1) The car in question was fitted with tubeless tyres and the fact remains that the air pressure had dropped. I am not aware of what nipples need to be changed and how.

2) In no manual supplied by the manufacturers is there a manufacturer’s recommendation for nitrogen gas in tyres. Nor is it a recommended procedure in the service schedule. 3) Certainly, for high-performance driving, nitrogen in tyres may have benefits. But this is debatable. 4) Finally, when I took up this issue with the relevant manufacturer, they conceded that it was an error on the part of the servicing dealer to fill nitrogen when it had not been requested. ``

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LETTERS

` 5) The other points raised by you—

engine life, strain on engine, tyre life, etc., are not dependent on the gas used to fill the tyres but the tyre pressure. And here is something from Bridgestone on this subject that might be of interest (discussion at BHP-India). http://www.team-bhp. com/forum/technical-stuff/1753inflating-tyres-dry-nitrogen.html

AN OPEN LETTER TO THE CENTRE

After the recent 13/7 attacks, the faith of the people in the current government has been shattered. The promises after all the bomb blasts in Mumbai have been hollow. No plans have been put in place.

One gets the usual drivel from all Congress quarters, be it Sonia Gandhi, Dr Manmohan Singh or P Chidambaram. It is made to appear that the government is doing everything in its mite and keeping everything in check, but no concrete action is visible. In Maharashtra, RR Patil continues to walk with his personal security trailing behind him as he walks along Marine Drive in the evening. Policemen in Mumbai squad, especially those in the age

group of 30–60, are not even physically fit. Do we have a monthly physical training programme for the Mumbai police? Look at the utilities that the US provides its citizens— efficient public services, excellent infrastructure and amenities like parks and public libraries. All we do is to waste public money and fudge official statistics. Are state governments even aware of

changing the names of universities, towns & villages, and in cutting red ribbons to inaugurate delayed projects. Adi Daruwalla, by email

Correction: In our Street Beat section (issue dated 28 July 2011), we had written about National Peroxide where we had mentioned that “The company has gradually Bulls and bears are Write to the editor! increased the unpredictable. Invest in diamonds. Win jewellery production capacity of hydrogen peroxide at its Kalyan plant from about 30,000 million tonnes Write to the editor. If your letter is the best, You’ll per annum Win Surat Diamond jewellery. (mtpa).” The figure should have been 30,000 how many new buses have been metric tonnes per annum. In the added to their respective networks? issue dated 11 August 2011 (page I would appeal to politicians to work towards the betterment of the 39), we had identified certain companies as competitors to Andhra nation, not for lining the pockets Petrochemicals. These are not of their kurtas! Politicians love to dabble in non-issues and neglect the competitors of APL, but are users of critical ones. They only specialise in plasticisers. — Editor HELP US TO HELP YOU Moneylife offers its readers a unique service—helping redress grievances on a best-effort basis. However, we have limited resources to devote to this effort and can only pursue complaints that come to us by email. We request readers to please send us crisp complaints, with all the facts on email (not as an attachment) and send us the supporting documents, only if we ask for them. We cannot handle physical letters. — Editor

HOW TO REACH US

Letters to the Editor can be emailed to editor@moneylife.in or can be posted to: The Editor, Moneylife Magazine, Unit No. 315, 3rd Floor, Hind Service Industries, Off Veer Savarkar Marg, Dadar (W), Mumbai 400 028 or faxed to 022-24442771. Letters must include the writer’s full name, address and telephone number and may be edited for clarity or space. New Subscriptions & Customer Service For new subscription requests, complaints about current subscription and books, write to subscribe@moneylife.in or to Subscription Manager, Unit No. 315, 3rd Floor, Hind Service Industries, Off Veer Savarkar Marg, Dadar (W), Mumbai 400 028 or call 022-24441059-60 or fax to 022-24442771. Advertising For information and rates, email us at sales@moneylife.in or call 91-022-24441059-60.

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LETTER

ISSUE CONTENTS

25 August 2011

FROM THE

EDITOR Baby Steps

he more letters I receive from Moneylife readers, the more convinced I am on how well-informed our audience is. It is just sheer lack of space that prevents us from publishing more— but do keep your comments coming; also, we look forward to more feedback from you on our website www.moneylife.in. Moneylife’s Books section has always been vibrant (we don’t carry full-page excerpts). In one of our reviews, we have covered an in-depth study of the state of the Indian microfinance industry—and what its future looks like. Our prediction on how that strange animal called the market will behave would really interest you— given its wild gyrations that seem to be impacting the world. And securing your investments would be the first thing on your mind. Swimming as we are in volatility, this Moneylife issue gives you the legal aspects of secured debentures. From illegal mining and the quarry mafia, understanding the importance of your credit history, to using the Right to Information Act effectively, y, we have a host of events lined up for you from the Moneylife Mo Foundation. But please register p early—all the details that you det want are inside and a on www.mlfoundation.in. www.mlfo Many of o us long to hear the patter of little p feet. But Bu planning for your child’s future is no n child’s game. Solicited and So unsolicited u advice can a make you lose your way. Our Cover Story has it all. S Raj Pradhan with his new born daughter Who better to explain it all than Raj Pradhan? I leave you with this picture of the writer Raj and his latest little wonder—and, yes, Raj has given you more than a thousand words this time. From all of us at Moneylife—all the best to Raj and his family. Debashis Basu

28 Cover Story

Planning for your Child

Do you want a complete, secure plan for your child’s future? Raj Pradhan gives you all the options

13 Your Interest Do not call, or pay up to Rs2.5 lakh; MakeMyTrip fined for room with no bath; Compact Disc investors in a spin; NGO told to shut shelters over UID; File postal complaints online; Teachers denied 6th Pay Commission scales

14 Your Money Collective Amnesia; Surprisingly Good; SEBI Gets Active; New Launches: Share SIPping; HDFC Bank; IPOs, Anyone? Higher EMIs

16 Current Account – Now, Sajjan Jindal is facing the heat – No fancy food or gifts during AGMs

19 LOOSE CHANGE Moneylife Quiz; Soundbites

Disclaimer: Moneylife has a policy of not allowing its editorial staff to buy and sell stocks that are written about in the magazine. All personal transactions in individual stocks are subjected to internal disclosure rules.

MONEYLIFE | 25 August 2011 | 10

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CONTENTS

SAVING AND INVESTING

53 Earning Curve

Investor Protection Fund: Investors’ money captured by the industry; Multi-level Marketing: Racketeers’ escape route; Regulatory Reform: Arbitrary and opaque consent orders must stop

How many schemes should you have? TRAVEL

DIFFERENT STROKES

STOCKGRADER 43

Wasted Opportunity

Momentum

The Damodaran committee report is full of homilies and general statements rather than action points suited to the Indian ground reality

Titan rose 1% and Cadila Healthcare ended flat, while Orchid Chemicals plunged 13%

Ganj 58 McLeod & Dharamshala Jaideep Mukerji discovers this Himalayan paradise with its elegant mixture of British heritage and Tibetan Buddhist tradition

Medium Term

Lupin rose 1%, while Shoppers Stop dived 13% and Petronet fell by 4%

FUNDS

or 24 AA Bird Plane?

Long Term

Wyeth surged 3% and Castrol India ended flat, while Adani Enterprises plunged 11%

A lot of debt with a bit of equity is a poor idea, as ML Research Desk finds out

INSURANCE

48 Insurance Trends – – – SMART MONEY

Buy 26 Don’t Bond Funds, Yet The Reserve Bank of India has raised interest rates again. What does it mean to you as an investor? STOCKS

38 Street Beat Venus Remedies: Steady growth and profits; Seshasayee Paper & Boards: A short-term setback

–

Will the lure of monthly income work? Pension ULIP: IRDA changes tack “We want to retain our record of low claim rejection,” — Bajaj Allianz Life Fine Print: Aviva Dynamic P/E Fund; Ownership changes don’t matter for auto insurance; Future Generali simplifies motor insurance claims

42 Noise Filter Long-term investors should start looking for buying opportunities

Content.indd 3

Pyramid 62 Spotting Schemes and MLMs At a Moneylife Foundation workshop, Sucheta Dalal warned of any scheme that asks you to introduce more members to get extraordinary returns

AUTO

Exports Up, Local Sales Splutter

Improved public transport is making more people park their cars at home, while local fuel-efficient small autos are gaining traction globally

LEGALLY SPEAKING WHICH WAY

ML FOUNDATION EVENTS

How Secure Are Secured Debentures?

A ‘secured’ debenture does not necessarily imply that your investment is secure

BEYOND MONEY

with 66 Learning a Difference

ChildRaise Trust is committed to the empowerment of kids with special needs & adults with disabilities

DEPARTMENTS Letters ............................4 Book Review ....................56 Living .............................61 Money Facts ....................63

8/6/2011 5:09:28 PM

www.moneylife.in If you haven’t clicked on the Moneylife website yet, here’s e’s whyy you sshould. TOP of the LIST News you had better not miss Show Time The UTV Software share price rallied more than 100% in the six months before the US entertainment giant Walt Disney announced it would buy out the company

news reasons

why you must visit the Moneylife website

HAVE YOUR SAY Vote in the Moneylife poll on the top issues of the week Should the people accept the government’s Lok Pal Bill as an honest eﬀort to deal with corruption?

Yes

MARKET WATCH Rough Spell all over Again

Healthcare Will the Public Health Foundation of India become more transparent under the reputable NR Narayana Murthy?

As the markets struggle over concerns of an economic slowdown, we track the action for you day by day

Only 18

91%

Can’t Say

Make your opinion count

MONEY WISE What’s Right, What’s Not

Bhadresh Wamja, just 18, used the RTI to restore rations denied to villagers, a struggle that even inspired a policy decision in Gujarat

S&P CNX NIFTY

Safe and Sound

5,600

New microfinance regulations must guard against the misuse of powers and ensure protection of vulnerable borrowers

5,500

>> Since its big-bang IPO in October 2009, Sameer Manchanda’s Den Networks is down more than 50%

5,700

>> India Infoline’s Dividend Opportunities ETF is based on high-dividend yield stocks, a concept that is not quite relevant any more

5,400

5,300

ML FOUNDATION

5,200 15 Jul-11

25 Jul-11

05 Aug-11

Voicing concerns of investors

>> Taurus MF plans an open-ended equity fund that focuses on the banking sector, which has given good returns lately

WEB EXCLUSIVES On issues that matter to you

>> Speak Asia oﬃcials have been arrested and a multi-pronged investigation has begun into the aﬀairs of the MLM company that Moneylife exposed consistently, and Moneylife Foundation complained about. To participate in the activities of the Foundation log on to www.mlfoundation.in and register your name. Membership is free

on twitter

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If you are a twi erer, ttype http://twitter. com/Mldigital to c pick up Moneylife exclusives, up to date e news and reports on our activities

Veeresh Malik

Karan Kharb

R Vijayaraghavan

Anil Thakraney

The RAK Carrier that sank oﬀ Mumbai should have reached Mumbai from Singapore in 10 days, but it took 40. Where was it in between?

We’ve missed out on the value of cooperation over competition, standard of ‘life’ over standard of ‘living’, and the urge to give rather than grab

Our education is geared to producing sterile graduates fit for nothing productive; yet, parents are spending more on educating children

Why is it that the I&B ministry is doing nothing about the many surrogate liquor ads that get aired on prime time television these days?

TO GET THIS AND MORE... SUBSCRIBE TO OUR DAILY NEWSLETTER FOR FREE

8/6/2011 4:59:05 PM

Your Interest Do Not Call, or Pay up to Rs2.5 lakh Now, those pesky telemarketing calls selling insurance, loans or any kind of product, have become a thing of the past? As from 1st August, the new ‘National Do Not Call’ registry has imposed fines ranging from Rs25,000 to Rs2.5 lakh, on telemarketers calling or sending messages on mobile phone numbers that are registered with it. A separate numbering series starting with ‘140’ is available to identify such calls. Experts say the move will hit banks, insurers and brokers the he most. More than half the calls are known to originate inate from them. Some ome believe that this his will lead these businesses sinesses to adopt a more re targeted strategy. egy. ED

FIN

MakeMyTrip Fined for Room with No Bath The Consumer Disputes Redressal Forum, Bengaluru, has ordered MakeMyTrip.com to pay Rs6,000 for inconveniencing a couple. The customers had complained that they were made to wait for long hours at the hotel reception and were not provided a room with an attached bath. The company p y refuted the that it allegations, but acknowledged ack was difficult to handle a large travellers. The group of tr stated that “When Forum sta operator) is not able (the ope to organise organ the trip and is n not able to handle the crowd, nobody th compels them to c do d it.”

Public Interest

Investor Interest

Compact Disc Investors in a Spin Compact Disc India’s investors are fuming after the company ny was forced to put off its delisting plan due to a dispute with HSBC BC Bank. The company was restrained from continuing with the he delisting after the Bank filed a recovery suit. Compact Disc has said it would file a case for damages of Rs20 crore against the Bank. ank. But investors are wondering how the company can afford to o buy back shares, when it has not paid dividends over the past ast couple of years and has no money to repay HSBC Bank.

NGO Told to Shut Shelters over UID

File Postal Complaints Online

Indo Global Social Service Society had been enrolling homeless people at its shelters for the Unique Identification number, on its address. The NGO sought clarity on the liability if any person thus enrolled got into some legal mess. It also took up the case in which a volunteer was questioned by the police following the death of a resident, on the basis of a survey slip found on the deceased. In a curt reply, the Delhi government said that the work would be undertaken by ‘Mission Convergence’, the mother NGO. Indo Global has since been told to close its shelters.

The Department of Economic Aﬀairs has opened a single-window system for complaints about products, distribution or services of post oﬃce investment schemes. Complaints, not exceeding 2,500 characters, can be registered in the online form on the Website of the National Savings Institute, with details of the state and district to which the complainant belongs, in order to channel it to the appropriate regional centre. Documents supporting the complaint can also be attached and a code will be generated on the basis of information provided. This can be used to track the status of the complaint.

Teachers Denied 6th Pay Commission Scales A majority of colleges, including many business schools, are not paying their professors according to the Sixth Pay Commission, but are continuing with the scales of the Fifth Pay Commission. Some of these institutions are accredited by the All India Council for Technical Education. Academicians have complained that regulators like the University Grants Commission, AICTE and the Medical Council of India are aware of this but they have Cou matter. Prof AK Sengupta, founder and convenor of done nothing in the matte the Higher Education Forum says not more than 10%-15% of the institutions institutio have implemented the Sixth Pay Commission award while a small number have implemented a it partially.

Edited & Compiled by: Mario Rodrigues & Alekh Angre

Your Interest.indd 1

Consumer Interest

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Your Money ALTERNATIVE INVESTMENT

MUTUAL FUNDS

Collective Amnesia

SEBI Gets Active

The regulator acts—and backtracks

EBI has come out with an ambit of what it calls collective investments schemes (CIS). The first time SEBI came up with the idea of regulating CIS was when many investors were taken for a ride by ‘plantation’ companies, literally promising that money would grow on trees. We don’t know what has prompted the current move but we sure know that Moneylife has broken the story on how Osian’s Art Fund raised more than a hundred crore rupees for a three-year art fund but has not yet been able to pay back the redemption amounts fully. We had also pointed out that SEBI had grossly failed to regulate the scheme as a CIS—even after engaging with the Osian promoters. Now, everything from venture funds to private equity funds, infrastructure equity funds and social venture funds would come under alternative investment which SEBI will supervise. It remains to be seen how the rules will be enforced, since the learning of plantation schemes was quickly forgotten.

CORPORATE PERFORMANCE

Surprisingly Good! As of 1st August, 559 companies (from over 1,300 companies on the Moneylife database) have declared their financial results for the June 2011 Decent Numbers quarter. The numbers June 2011 quarter Vs June 2010 results so far are as per our of 559 companies expectations; there is 30% 29% no reason for investors 25% to cheer. With an 20% overall revenue growth 15% 14% of 29% and operating 10% profit growth of just 5% 14%, India Inc has 0% Sale Q-o-Q OP Q-o-Q managed to put up a Growth Growth decent performance.

MONEYLIFE | 25 August 2011 | 14

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he market regulator has reintroduced entry-load in some form in mutual funds (MFs) which was abruptly banned in August 2009 and led to a massive disrup on. A transac on charge of Rs100 will be levied on exis ng MF folios. SEBI has also decided to levy a transac on charge of Rs150 on new MF folios. However, there would be no transac on fee on investments SEBI has realised the worth Rs10,000 or less in difficulty in getting mutual funds. the number of SEBI has also unique folios and has decided to asked the industry to simplify KYC your continue with the old (know customer) formula norms and make them uniform across all market players. Meanwhile, although SEBI is sensi ve to the problems plaguing the MF industry, it can do precious li le. One indicator is that it has backed oﬀ from an earlier direc ve to the fund houses to provide unique folios of investors. HN Sinor, CEO, AMFI (Associa on of Mutual utual Funds of India), has been quoted ass saying: “SEBI has realised the diﬃculty ulty in ge ng the number of unique folios and has asked the industry to o

NEW LAUNCHES Share SIPping: Revenues of broking firms depend on being able to get you to trade as much as possible. To encourage frequent trading, they used to send morning sms, make calls and play many other tricks. Well, investors have not exactly embraced the idea of trading frequently. They are actually staying away from the stock market. So surprise, surprise; stockbrokers are now encouraging people to buy stocks ‘systematically’, that is, buy a constant amount of shares over a long period using the principle of constant share purchase and rupee cost ``

Edited & Compiled by: Mario Rodrigues & Dolly Mirchandani

8/5/2011 9:27:33 PM

Fixed Income

Regulation

con nue with the old formula.” Since the beginning of FY11-12, fund houses had been providing the number of folios. Earlier, if an investor had invested in two schemes of a fund house, it was counted as two folios. But, SEBI wanted it to be counted as only one folio—unique customer— which was not an easy task. Fund managers said data sharing among fund houses was not common and coun ng unique customers was not possible. SEBI was forced to retract. The real reason is that investors’ folios are declining rapidly and such an exercise would have resulted in 30%-40% reduc on in retail folios. The folios in the equity segment con nued to decline in the June quarter. The industry lost more than half a million folios during the period, compared to SEBI chairman UK Sinha the March quarter, while overall folios declined by 231,850. SEBI has also raised the minimum open oﬀer requirement to 26% from 20%, providing an exit for more investors. Also, a company can acquire up to 25% in a firm without the need for an open oﬀer. SEBI has removed the non-compete fee that the acquirer firm pays to the promoters of target firms to prevent the la er from taking up the same business. Th The regulator also plans to cut IPO form size siz to one-fourth to simplify the process. proce It should now take a look at the mutual fund form and consider m whether an average saver would be whe keen kee to brave through a booklet-size form. form

Stocks

Tax

Banking

IPO

IPOs, Anyone?

ndia Inc’s plans to raise over Rs35,000 crore from initial public offers (IPOs) this year have been put on hold. There is no participation by investors in Indian equities and promoters are still hoping to sell new shares at high valuations. Mobile phone-maker Micromax Informatics, known for some really crude advertising, has withdrawn its Rs426 crore IPO due to volatile market conditions. The company is valued around $1 billion. Among the other hopefuls are IFCI Factors, an arm of financial institution IFCI, (to raise Rs1,000 crore) and road-marking materials manufacturer Automark Industries which plans to raise Rs12.5 crore. Companies that have access to global markets are bypassing India and taking

In Limbo Jindal Power

Rs2,500 crore

Lodha Developers Rs2,500 crore BPTP

Rs1,500 crore

Kumar Urban

Rs320 crore

Neptune

Rs370 crore

that route. Apparently, copper-gold and base metals explorer Mogul Resources—which has three projects in India—plans to list on the Australian Securities Exchange in October. Mogul launched an Australian dollar 7.5 million IPO to pursue exploration across a portfolio of mines.

BORROWING ` averaging. ICICI Direct already has such a plan and now Reliance and Geojit BNP Paribas have launched an SIP (systematic investment plan) for stock investment.

HDFC Bank: For a very long time, HDFC Bank did not offer credit cards. When it did offer them, it was to account-holders. The Bank, therefore, bypassed the problem of huge bad loans that affected other banks when they aggressively expanded their credit cards in mid-2000s. Now, 17 years after it was established, HDFC Bank is finally offering its credit cards to even non-account-holders.

Higher EMIs

ndividual borrowers are feeling the pressure of higher EMIs (equated monthly instalments) on home loans, which have increased to 12.5% over the last one year. In many cases, borrowers are now being asked to make a lump-sum payment as the tenure has gone past 20 years due to the rise in rates. The RBI has increased key policy rates 11 times in the past 16 months which has led to higher lending rates and increase in EMIs for companies and individuals.

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CURRENT ACCOUNT

P R O J E C T S I N L IM BO

Singur to Salboni Now Sajjan Jindal is facing the heat

ince she took over as the chief minister of West Bengal, Mamata Banerjee has been giving a tough time to the industrialists who were allotted land by the erstwhile Left Front government for their ‘dream’ projects. The passing of the Singur Land Rehabilitation and Development Act in June has triggered the alarm for industrialists. While the Tatas are battling it out in at the Calcutta High Court, Jindal Steel Works (JSW) SW) is frantically trying to save its greenfield project in Salboni. boni. Ms Banerjee ee has hauled up JSW twice, seeking an explanation on n the delay in the construction ction of the 10-million tonnes (MT) plant. Company chief Sajjan Jindal

is desperately trying to meet her, but the chief minister has already made her disapproval clear about companies who “are sitting on the land but doing nothing.” JSW, however, claims to be working on the township near the project, but the work hasn’t progressed much since it signed an agreement with the Left Front government in 2007 to set up a steel plant. Worse, it has failed to get into a lease agreement. The same logic has been used to dispo dispossess Tatas of the Singur land. land If the 5,000-acre Salboni Salbo project gets scrapped, it will spell further trouble for JSW which has been hit badly tainted by the after being taint Karnataka Lokayukta report. Moneylife Mo had reported in re December that Dece JSW’s Salboni JSW

Jindal Steel Works chief Sajjan Jindal

West Bengal chief minister Mamata Banerjee

project, which would comprise a 600MW (megawatt) captive power plant and 1,000MW independent power project, was not likely to make any progress. Massive investments were planned in phases for developing coal mines and a berth at Haldia port. The plant was supposed to create 10,000 jobs, also providing employment for the erstwhile landowners. Since the agreement in 2007, the project suffered several delays. It got listed as an SEZ (special economic zone) in 2008, allegations of wrongful land acquisitions surfaced, the global recession came about and then the Maoist agitation started. The Salboni plant was Sajjan Jindal’s first project after 13 years since the setting up of the Jindal Vijayanagar Steel plant which had almost bankrupted him. Towards the end of 2010, JSW took over Ispat Industries which delayed the project further. The ‘big’ industrial projects, like the POSCO plant in Orissa, the Mittal steel plant in Karnataka, and JSW’s Salboni project, have been delayed for long. With environmental norms tightening and local resistance gathering strength, their dreams will take a long time to be realised. And, by then, they may come at a higher price.

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Here’s what is coming up! ILLEGAL MINING—BLOOD AND IRON August

Screening of the documentary on illegal mining—Blood and Iron by Paranjoy Guha Thakurta, an independent journalist—followed by a discussion

These were the events Moneylife Foundation held over the past fortnight UNDERSTANDING PYRAMID SCHEMES July

UNDERSTANDING THE IMPORTANCE OF YOUR CREDIT HISTORY August

Mohan Jayaram, COO, Experian Credit Information Company, pany, will explain the importance ce of credit reports, histories and the credit reporting system

HOW TO USE THE RIGHT TO INFORMATION ACT EFFECTIVELY September

Shailesh Gandhi, Central Information Commissioner,r, will address a seminar on the Right to Information at the Ravindra Natya Mandir,r, Prabhadevi, Mumbai

Workshop on Understanding Pyramid Schemes by Sucheta Dalal. Ms Dalal spoke on how to invest safely by avoiding pyramid yramid schemes as well as multiltilevel marketing eting schemes

HOW TO BE SAFE & SMART WITH YOUR MONEY July

A seminar on the fundamental principles of savings and investments was organised exclusively for management students at Sadhana Centre for Management & Leadership Development in Pune

HOW TO BE SAFE & SMART WITH YOUR MONEY August

The financial literacy seminar was organised exclusively for the medical community along with the Indian Medical Association

Call 022-24441058-60, or email us at mail@mlfoundation.in or log on to www.mlfoundation.in

THE TRUTHS ABOUT MUTUAL FUNDS August

Event Ad.indd 1

Debashis Basu enlightened participants at a workshop on how to analyse each sector and pick the right scheme according to one’s needs

8/4/2011 7:36:53 PM

CURRENT ACCOUNT

C O R P O R A T E GOVERNANC E

No Fancy Food or Gifts during AGMs Ministry of corporate affairs feels that freebies divert attention

f you are a shareholder, and look forward to annual general meetings (AGMs) for the goodies and the food, the good days may soon come to an end. The ministry of corporate affairs has posted a circular on its website, asking for feedback on a proposed ban on distribution of gifts at AGMs of companies. After receiving representations, the government has realised that gifts are often used to divert the attention of shareholders from the main purpose of the AGM. In

BOTTOMLINE BY MORPARIA

addition to that, “shareholders are kept busy collecting gifts, gift coupons and packets of snacks during the progress of the meeting, while corporates manage to pass certain resolutions without any debate on the same.” Hence, the proposed ban. According to the “Secretarial Standard on General Meetings” issued by the Institute of Company Secretaries of India, no gifts, gift coupons or cash in lieu of gifts should be distributed to the members at—or in connection with—the meeting. To keep up the standards of good corporate governance, the government thinks that no company should offer anything other than tea, coffee, soft drinks and snacks

at an AGM. As a courtesy to shareholders, these may be made available before the start of the meeting. Any other ‘enticement’ will be treated as misconduct. “The directors of such companies shall be liable to pay back the cost of such expenses to the company and shall also be liable for the penal action as provided under Section (168) of the Companies Act, 1956, for not convening the AGM properly as required under Section (166) of the Companies Act, 1956,” says the circular. While this is a commendable move, if the ban is imposed, its success will remain doubtful. Who will investigate the matter, if such an incident is reported? When the recipients are happy with the gifts, they will seldom report such ‘misconduct’.

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LOOSE CHANGE

Surprise Gift for Quiz winners from:

Moneylife Quiz - 108 Another quiz to tickle your brain. The answers to this quiz are in this very issue. The winner will be chosen by a lucky draw from correct entries. The answers will be published in the next issue. Send in your answers to quiz@moneylife.in with the Quiz no., your name, address and telephone number before 21 August 2011. 1. Who has been awarded the Ramon Magsaysay award in 2011 for empowerment of women in Maharashtra? a. Nileema Mishra b. Jyoti Deshmukh c. Aruna Roy d. Teesta Setalvad 2. When was the Anglican Church of Saint John in the Wilderness built? a. 1760 b. 1800 c. 1852 d. 1925 3. Who is the managing director of VR Wealth Advisors Pvt Ltd? a. Ravi Thakur b. Manoj Shirke c. Vivek Rege d. Sahil Kapur 4. Which company did Seshasayee Paper & Boards Ltd acquire this calendar year? a. Century Paper b. Ballarpur Industries c. JK Paper d. Subburaj Papers Ltd 5. Which company was known as Schlafhorst Engineering India until May 2011? a. Integra Engineering India b. AIA Engineering c. Baffin Engineering Works d. Sanghvi Movers 6. Which insurance company has launched ‘Guaranteed Monthly Income Plan’? a. SBI Life b. Max New York Life Insurance c. Bharti AXA Life d. Oriental Life 7. Who coined the term ‘diworsification’? a. James Montier b. Warren Buffett c. Peter Lynch d. John Keith 8. Whose brainchild is the MIT Media Lab? a. John Mill b. Nicholas Negroponte c. Stephen Brown d. John Galbraith The answers to Moneylife Quiz-107 are: • 1-a. 1931 • 2-b. Dabur India • 3-c. Patwari Electricals • 4-d. Lifetime Achievement Award • 5-a. Alan Roth • 6-b. Birla Sun Life Insurance Company • 7-b. Intelligent Pune • 8-c. Shriram Subramanian In all, 23 readers got all the answers right last time. The winner of Quiz-107 is Mukesh Kumar Agarwal from Mumbai. Congrats Sir! You will get a surprise gift from Surat Diamond Jewellery.

Sound Bites “Dr Manmohan Singh said in his 1991 Budget speech that the days of free lunches are over. He comes back as Prime Minister and does nothing but provide free lunches” – YASHWANT SINHA, FORMER FINANCE MINISTER, in The Hindu Business Line

“US market myopia is perhaps the single cause of survival for our other bellwether Internet firm, Rediff.com” – MAHESH MURTHY, PARTNER, SEEDFUND, in Tehelka

“We started the first commercial bank branch at Dharavi when I was the chairman of Indian Bank. Whether it is rural or urban, the under-privileged poor are excluded” – KC CHAKRABARTY, DEPUTY GOVERNOR, RBI, on Bloomberg UTV

“Globally, we are more credible than both RIL and RCOM” – NEERAJ MONGA, EXECUTIVE VP, VERITAS INVESTMENT RESEARCH, in The Economic Times 19 | 25 August 2011 | MONEYLIFE

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Exclusive news, the stories behind the headlines and the truth between the lines by Sucheta Dalal

I N VE S T O R PROT E C T ION F UND

Money Grab Investors’ money captured by the industry

n one of the most brazen moves in recent times, the ministry of corporate affairs (MCA) has allowed the spending of a fat pool of unclaimed investors’ funds that will be decided by a set of bureaucrats and industry associations. Here is how it has happened. When the Companies Act was amended in 2000, TS Krishnamurthy, then secretary, MCA, and later India’s chief election commissioner, felt that unclaimed dividends and interest, lying with companies was investors’ money and must be used for them. The Investor Education and Protection Fund (IEPF) was created by an amendment (Section 205 C) to the Act and companies were directed to transfer to this Fund dividend and interest that remained unclaimed for seven years. There is more than Rs400 crore in the Fund to be used for investor education/ protection. IEPF framed guidelines for accreditation of NGOs to fund them. Immediately after IEPF was created, Confederation of Indian Industry (CII), Institute of Chartered Accountants of India (ICAI), the Institute of Company Secretaries of India (ICSI) and others, began to lobby for the money.

In the initial years, while this writer was on the IEPF administration board, such requests were rejected. We argued that investors’ problems arose out of issues with companies and their paid accountants and intermediaries. It would be a travesty to allow the same dubious bunch access to investors’ money for investor education. More importantly, these organisations could very easily seek corporate funding to sponsor investor education, instead of attempting to grab unclaimed investor funds. IEPF also had a strict NGO accreditation policy requiring a proven record of investor-related activities. However, in the past four years, hundreds of NGOs who have no truck with investor issues have received IEPF funds. Things worsened in February 2009. The IEPF board, which is supposed to have five independent members, now has NSE’s managing director Ravi Narain and representatives of ICAI, ICSI, ICWAI, FICCI and CII; Sajjan Jindal personally represents FICCI. There isn’t even a token presence of an investor representative. Naturally, they are unlikely to support public interest litigation (PIL) (as planned and cleared), or investor protection initiatives such as independently funded grading of initial public offerings (rejected without explanation). Instead, industry associations

and a few NGOs got funds to conduct 3,000 investor education seminars! Further, financial support to IEPF’s projects such as www. watchoutinvestors.com and www. investorhelpline.in has been terminated from 30th June this year. In effect, corporate India has finally captured funds supposed to be meant for investors!

MULTI-LEVEL MARKETING

Seeking Legitmacy Racketeers’ escape route

he Securities and Exchange Board of India (SEBI) has released a discussion paper on its plans to regulate private fund pools to reduce fraud and market risk. While some private equity (PE) fund managers expressed surprise at this move, we are told a few top PE funds support the plan because registration and regulation, they believe, will give them an identity that is separate from speculators, such as hedge funds, who also take the Mauritius route to India. Meanwhile, we learn that multilevel marketing schemes (MLMs) and others with powerful political friends are also lobbying for greater legitimacy. They have stepped up pressure to amend the Prize Chits and Money Circulation Schemes (Banning) Act of 1978 which lumps MLMs along with dubious pyramid marketing schemes making them illegal in India. The rest of the 

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Lure of good life—provided you get business

` world makes a distinction and bans

pyramid schemes, even when they pretend to sell a product/service. Along with dubious Ponzi schemes, beleaguered collective schemes are also seeking legitimacy. For instance, Osian’s Art Fund, which is unable to repay investors, is seeking to place its assets under a trusteeship company. So does the Jaipur-based PACL India Ltd (or Pearls) which has collected a massive Rs20,000 crore on the pretext of investing in land and expanding its network through MLM. PACL has appointed a top Supreme Court lawyer and is shopping for a trustee company to legitimise its claimed land holdings on the Indo-Pak border. Even controversial Speak Asia was desperately trying to register a presence in India and diversify from shady surveys into real products to re-position itself as a direct selling company. It probably hoped to follow the politicallyconnected GoldQuest, (reborn as Q-Net) selling a bunch of products, including watches and holiday packages, with investments ranging

from Rs30,000 to Rs7 lakh. There are over 10,000 (police estimates) quick-money schemes operating in every state and digging a hole into the savings of people by luring them with false promises. Unfortunately, no regulator wants to touch these ‘private fund pools’.

REGULATORY REFORM

Whose Consent? Arbitrary and opaque consent orders must stop

EBI’s decision to bring consistency to its consent system is long overdue and probably triggered by a PIL on the issue. Moneylife has repeatedly exposed, with examples, the arbitrariness and poor transparency in SEBI’s consent proceedings. We have also written on how some entities have got away with illegitimate ‘administrative warnings’ (there is no provision for these in the SEBI Act) or allowed to file for consent even for grave and repeated offences (some for as many as even six or seven times).

Under this process, the investigation is closed by paying a settlement amount without admitting or denying wrongdoing. The consent order has to detail the charges and the amount paid in settlement. However, SEBI officials often issue opaque orders at their whim. Capital market circles attribute this arbitrariness to corruption and arrogance or both. Since Parliamentary oversight of SEBI is sketchy, nobody ever questioned the regulator. However, the PIL has triggered action. Another push factor was the Supreme Court’s comments that forced on SEBI the ignominy of restoring three orders (by a twomember bench of its own board) after they had been dubiously declared void (or non est) to protect former SEBI chairman CB Bhave. SEBI’s move to bring consistency to consent orders is welcome, but it will become meaningful only if it undertakes an independent exercise to evolve a clear framework that prescribes minimum penalties for an exhaustive list of clearly specified offences and that ‘speaking orders’ are issued in each case after detailing charges against the entity filing consent terms. Further, these consent orders must be posted on SEBI’s website on a database that is searchable by the name of the entity or under various intermediary categories. A SEBI director has assured Moneylife that he will take up these suggestions with the board. We will watch the developments very closely.

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DIFFERENT STROKES SUCHETA DALAL

BAN K C U STO MER SER V I CE S

Wasted Opportunity The Damodaran committee report is full of homilies and general statements rather than action points suited to the Indian ground reality

fter 13 months of deliberations and so much fact, we would have liked the Damodaran committee of drama over its release, the report of the to identify those banks (ideally specific names) which Damodaran committee on customer services in have significantly improved their grievance redressal banks has turned out to be a damp squib. The committee mechanism (a few have) and those that couldn’t care members have apparently worked hard, personally less. Let’s look at a few specific issues. The committee’s visited different parts of the country and documented their observations copiously. But the recommendations first mandate was to “review the existing system of come in the form of homilies and generalisations. In attending to consumer complaints.” The obvious place fact, one wonders why on earth Mr Damodaran was to start would have been to check how seriously banks delaying the release of this report to the point that an take their customer service committees, or is this a embarrassed Reserve Bank of India (RBI) was forced to perfunctory exercise to comply with an RBI diktat? The resort to all kinds of subterfuge and submit it without a report’s biggest lapse is the failure to discuss rampant mis-selling by target-driven relationship managers who letter of transmittal from the chairman. Remember, the RBI, starting from Dr Y Venugopal are guilty of making fake promises to lure people to buy Reddy’s tenure as governor, has done a lot to fix customer insurance products or trade in derivatives. This needs a service issues. Every bank is required to have multiple separate discussion. If the committee wanted anecdotal information, it levels of customer services oversight. They need to hold could easily have been obtained customer meetings; complaints through surveys or ‘mystery are pooled and reported to a Take bank lockers. The standing committee; and, finally, committee evades the issue shopping’. We needed specific Take the simple the board has an obligation to because banks have made recommendations. example of bank lockers. The study them. Our interaction pertinent points about high committee evades the issue because with thousands of savers across costs of real estate and banks have made pertinent points the country, at Moneylife security for maintaining about high costs of real estate and Foundation’s financial literacy lockers. It merely asks the security for maintaining lockers. seminars and workshops, reveals that many people complain about RBI to revisit the guidelines It merely asks the RBI to revisit the guidelines “to ensure that the banking services, but few ever file formal complaints or follow them through. However, activity itself is not dis-incentivised (and) the customers those who do, find that the system often works even continue to have availability of lockers at an affordable without rushing to the Banking Ombudsman. In fact, charge.” The same goes for recommendations on bank service banks do far better than capital market intermediaries or charges. While reporting customers’ desires with regard insurance companies in handling grievances. This should have made the Damodaran committee’s to service quality, these ought to have been weighed job easier, because the committee could have focused on against costs and feasibility. After all, as a customer, analysing what is not working and attempted to offer I too desire the service standards of a foreign bank’s clearheaded solutions based on ground realities. Had the priority customer while paying what the nationalised committee bothered to meet members of bank customer banks charge! We would have liked the report to service committees, it could even have identified previous consider banks’ perspectives on these, instead of making fatwas that have not worked and dropped them. In unilateral recommendations that will be debated and ``

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DIFFERENT STROKES SUCHETA DALAL

` negotiated by the Indian Banks’ Association (IBA) until

codes has not reached ‘the desired level’.” What it fails to mention is that the BCSBI is being run by the RBI the RBI closes the debate by issuing an order. The report does have several useful suggestions, and will be handed over to banks in 2012. What is the such as uniform account-opening form, high charges chance of awareness increasing after that? And what for small services (especially demand drafts required by is the solution? It also wants BCSBI to “rate banks on students), TDS (tax deduction at source) certificates, customer service and also come out with a minimum filing of form 15H and life certificates by senior citizens, benchmarking of banking services.” This has an reporting to credit information bureaus and a slew of interesting background. In 2006-07, an NGO supported recommendations on home loans. These are all welcome. by RBI had conducted a rather flawed exercise of rating banks. The IBA immediately But some positive suggestions announced that it would conduct such as account number a regular and more scientific portability (if a person moves to rating on its own. This never another branch of the same bank) happened. While it is a good should have had a comment on idea to give BSCBI this job of the cost of implementation and rating banks, what happens after technological feasibility. 2012? Does the role of BCSBI On the other hand, the blind itself need a re-evaluation? If acceptance of the concept of so, the time to do it is now. The unique identification (UID) committee is silent on this. numbers is a shocker. Surely, Another half-baked committee members should recommendation is that the have known that there is a insurance cover for bank deposits groundswell of opinion against should be increased to Rs5 the invasion of privacy through lakh to “encourage individuals biometric identification, to keep all their deposits in a especially the attempts to M Damodaran bank.” It also wants to explore make it mandatory through the backdoor. The Damodaran Blind acceptance of the concept the possibility of full insurance cover for bank deposits. This committee has suggested of Unique Identification is a seemingly good suggestion. biometric identification for ‘no Number is a shocker. But consider this. A deposit frills’ accounts. It should have Committee members should insurance cover is unnecessary taken the trouble to check what have known that there is a for nationalised banks; even large happened to the excitement over fingerprint-based ATM pins, groundswell of opinion against private banks are most unlikely touted as an easy method of the invasion of privacy through to be allowed to fail. The global biometric identification, financial crisis of 2008 has plenty financial inclusion seven years of evidence of governments ago. NGOs who have worked especially the attempts to with Citibank and ICICI Bank make it mandatory through the bailing out the banking system. In India, the RBI didn’t allow tell us that the machines often backdoor Global Trust Bank (GTB) to fail to recognise the fingerprints of those involved in hard physical work. That is why fail because it exposed its own failed supervision. The increased cover makes sense only for politicallybanks no longer tom-tom biometric ATMs. The entire discussion on why the concept of manipulated cooperative banks or tiny private banks. ‘correspondent banking’ has not worked is rather woolly. Do we really need it? I wish the Damodaran committee The report is very strong on technology connected with had given us some data about the payouts by the Deposit credit cards, ATM cards and stored-value cards. But even Insurance and Credit Guarantee Corporation. Given that the report is largely a bunch of homilies, a this is focused on high-value customers with no mention of the fact that reasonable charges could encourage golden opportunity to create a framework for customer Internet-based transactions on stored-value cards which services rooted in Indian reality has been lost. allow loading and reloading of smaller sums of money. Sucheta Dalal is the managing editor of Moneylife. Subscribers The report mentions that “awareness about BCSBI get free help in resolving their problems with select providers of (The Banking Codes and Standards Board of India) financial services. She can be reached at suchetadalal@yahoo.com

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MUTUAL FUNDS POINTERS

HYBRID FUNDS

A Bird or A Plane? M

utual fund schemes come in different categories. In simple terms, there are schemes that invest your money in equities and those that invest in bonds. And then there are schemes that invest most of your money in bonds and a small amount in equities. These are hybrid schemes which can be branded as capital protection funds or monthly income plans (MIPs). These have the same basic strategy: lock up the bulk of the money in debt products (which provide safety) and put a small part of the money into equities. More recently, since gold has been on a massive run, there are schemes that also put a small amount of money in gold. A little bit of everything can be good in real life— like a set meal—but as a concoction in mutual fund schemes, the idea is unsound.

Capital-protection Funds Capital protection is for investors seeking growth of capital with some protection during a market downturn. Take a look at the performance of capital-protection funds. We have chosen schemes that are more than one year old. The performance is ‘since inception’. Out of nine such funds only three have barely managed to equal their benchmark; six of them underperformed.

A lot of debt with a bit of equity is a poor idea, as ML Research Desk finds out While Franklin Templeton Capital Protection Oriented Fund-5 Years has given a post-tax return of 7%, the next ones—Franklin Templeton Capital Safety Fund-5 Years Plan and UTI Capital Protection Oriented Scheme-Series I-5—have also yielded post-tax returns of 7% each. What if you had invested in Sundaram CPO Fund-Series I-5 Yrs, SBI Capital Protection Oriented Fund-Series I and Birla Sun Life Capital Protection Oriented Fund-Series 2? The returns would have been 5%, 3% and 2%, respectively. Investors, who flocked to capital-protection funds attracted by the marketing pitch, would be wondering why a bank fixed deposit (FD) was any worse where return is fixed and capital is protected. The lesson: If you want to protect your capital through bond investment via mutual funds, you will have to give up on returns. A true capital-protection fund should protect the entire capital invested with the fund under any circumstances—like a bank FD. Is this possible? The fact is there is simply no tradable security—and products based on them—which can guarantee capital protection, except very short-term cash equivalents.

Equities can lose a lot of value very quickly. But even the best of bonds can lose value when interest rates go up. So, theoretically, the claim of capital protection that these schemes are making is false. During the collapse of 2008, for instance, these schemes should have protected investors from the downslide. They performed miserably against their benchmarks in that year, yielding pathetic returns of -8% on an average. So, even with a minimal exposure to equities, such investments drag down the returns for the whole scheme.

Monthly Income Plans The next category of funds that mix debt and equity are MIPs. As we pointed out some time ago (Moneylife, 16 June 2011), MIPs do not provide a regular monthly income. They cannot. This is because neither debt nor equity can guarantee anything, with unchanging regularity, especially over one to three years. When interest rates rise, the value of debt falls. At such times, if the equity part performs well, the return may be protected; but this is not certain. A typical MIP puts almost 85% of the fund into debt and keeps a small equity exposure for the upside. In an ideal world, such investors should earn a marginally better return than a portfolio that is exposed purely to debt. If the ``

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MUTUAL FUNDS POINTERS

` debt market goes sideways to down

and equity markets go sideways to up, MIPs will more than meet their expectations. What if interest rates go up (bond values go down) and the equity market declines? You will get the worst of both. There are 42 MIPs that have been in existence for more than one year. Of these, HDFC MF Monthly Income Plan–Long Term Plan has given a post-tax return of 11%, Birla Sun Life Monthly Income and Reliance MIP have yielded returns of 10% each, while FT India MIPPlan A and FT India MIP-Plan B have given returns of 9% each. SBI Magnum MIP–Floater and ING

New Hybrids The third, and more recent, category of funds that we have examined is that of hybrid funds which invest in a mix of equity, fixed-income securities and gold ETFs (exchange traded funds), a favourite among investors of late. The pitch is attractive. You are getting expert fund management to manage three assets at a time. Wonder why nobody launched these in, say, 2004? With gold added to the portfolio, the new hybrid schemes would still be more volatile than fixed-income products. These schemes are new and we don’t know how they would do in future. Canara Robeco InDiGo

Much Ado about Nothing Scheme

Launched

Post Tax Return*

Benchmark Return*

Franklin Templeton Capital Protection Oriented-5 Yrs

15 Jun-07

Franklin Templeton Capital Safety-5 Yrs

29 Dec-06

UTI Capital Protection Oriented-Series I-5 Yrs

21 Feb-07

Sundaram CPO-Series I-5 Yrs

24 Aug-07

SBI Capital Protection Oriented-Series I

21 Dec-07

Birla Sun Life Capital Protection Oriented-Series 2

31 May-10

Source: Mutual Funds India; Benchmark for all the schemes is Crisil MIP Blended Index; Returns since inception *

MIP Fund have reported post-tax returns of 5% each, whereas Baroda Pioneer MIP Fund, Sundaram MIP– Aggressive and Sundaram MIP– Conservative have given returns of 4% each.

Fund, Religare MIP Plus and Taurus MIP Advantage Fund reported posttax returns of 8%, 6% and 5%, respectively. The worst performers are the three schemes from ING Mutual Fund, namely, ING Optimix

Financial Planning Fund–Aggressive, ING Optimix Financial Planning Fund-Prudent Plan and ING Optimix Financial Planning Fund– Conservative; they have given a post tax return of 1% each.

Who are hybrids for? Hybrid schemes are targeted at those who have a low to medium risk appetite and long-term horizon. MIPs are specifically targeted at investors whose investment objective is beating inflation and getting income at regular intervals. Capitalprotection funds are supposed to appeal to those who have a fear of stocks and have put money in bank FDs. But the hidden risk is never explained to these risk-averse investors who would otherwise have had their money nicely saved up in FDs. On the face of it, the flexibility of the MIP fund manager to buy debt and stocks that he prefers may seem like a tool to earn higher returns, but few fund managers are able to navigate successfully through cycles of rising markets and falling interest rates. Hybrid schemes enjoy a tax advantage over bank FDs because, as long-term investments, a lower tax rate is applicable to them. But for the risk-averse investors, hybrid schemes do not deliver higher post-tax returns than bank FDs after adjusting for risk.

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SMART MONEY R BALAKRISHNAN

INT ERE S T RAT ES

Donâ&#x20AC;&#x2122;t Buy Bond Funds, Yet The Reserve Bank of India has raised interest rates again. What does it mean to you as an investor?

he demand for money is slowing down. This can to lend but borrowers will be hard to find. The pressure be due to two reasons. One, businessmen feel that to meet targets of advances will become unbearable. This there are no opportunities to invest; or, two, the will result in either a decline in the interest rates lending cost of money (interest rate) is so high that the business or banks will be willing to lend to accounts which they provides no returns. To me, the second reason seems more would not do normally. Actually, a bit of both would relevant. Clearly, growth is visible. However, it does not happen. For the investor, this would perhaps signal the end of appear viable. So businesses do not add any capacities, thus throttling supply. Demand for their products, a period of rising interest rates. After the hike of 0.50% however, is not slackening and, hence, it gives businesses in bank rates by the RBI (Reserve Bank of India) on the power to price their goods higher and make extra 26th July, there may be one more in September which money. They can squeeze customers till they decide to should, perhaps, be the end of the tightening cycle. Once stop buying. In a third-world country that is growing at that is done, interest rates should start to cool off. So, this a furious pace, one customer more or less makes little is not the best time to jump into income or bond funds, difference. People may not buy a second home; but there yet. It is best for now to keep money in liquid funds or is no such option for items of daily need. These people do short-term plans until there is a clear indication that not mind living on credit and for them interest rates are the central bank has given up on raising interest rates not a deterrent for lifestyle borrowings. as a tool to bring inflation down. At that stage, it may So, while we have contraction be a worthwhile gamble to put some in credit demand for business, the Credit is growing, but money in income funds for a three- to retail demand for credit is strong. six-month period. Once interest rates the pace of growth is Thus, credit is growing, but the start to cool off, these funds tend to slackening, since retail give the best returns. And when there overall pace of growth is slackening, since retail credit is not a larger is a drop in rates by 2%-3%, one can credit is not a larger segment than industrial credit in these income funds. Hopefully, segment than industrial exit India, as yet. by then, the equity markets may also credit in India Now, let us look at the supply look attractive. (deposits/borrowings by banks) of Interest rates will continue to be credit. Deposits are growing at a record pace, thanks to determined by demand for credit (which is not related to near double-digit interest rates on fixed deposits. NRIs minor changes in cost of money) and supply of money (non-resident Indians) are remitting record amounts of (which accumulates through deposits). Everything is money, thanks to insecurity in their parts of the world, designed to push money into the banking system. For combined with the high interest rates in India. Another example, if you are an ex-employee of a bank that offers important factor is the shrinkage of limits available for a deposit rate of 10% on a 10-year recurring deposit banks to park their money in mutual funds. scheme, you can get an extra 1%. And another 0.5% Supply side will continue to grow due to the reluctance extra, if you are over 60! What further contributes to the of the corporate sector to borrow and the inflow of money supply is the obsession of our public sector banks to rank into deposits due to high interest rates. Simultaneously, themselves on the quantum of deposits. Forget about bankers do not want to voluntarily dilute credit quality long-term interest rates coming down significantly. Â&#x201E; too much. Thus, by the time the busy season (October to December quarter) commences, banks will have money The author can be reached at balakrishnanr@gmail.com

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COVER STORY

Planning for your

C hild Do you want a complete, secure plan for your child’s future? Raj Pradhan gives you all the options

fter 10 years of marriage, Karan Jain (name changed) was a happy man when his daughter was born. Karan was making good money, but family expenses were increasing. Then came a jolt—the friendly neighbourhood life insurance agent told Karan that expenses for his daughter’s higher education may amount to Rs30 lakh. Karan was in a tizzy. Just 20 years back, he had completed his engineering (computer science) at a private Mumbai college and his annual fees cost him just Rs8,000. But the situation has changed— Karan’s agent told him that nursery school fees could cost Rs20,000— and education inflation was galloping at 20% annually. Buy a child unitlinked insurance plan (ULIP) was the agent’s pitch, for Karan to put his finances, to support the

education and marriage of his daughter. Karan thought that this made sense. After all, doesn’t Sachin Tendulkar endorse such products? Being the good father that he is, Karan could feel an emotional connect with child ULIPs, among the other options he could consider for planning his child’s future. Often, people ignore the cost of future educational needs of their children. They plan to buy a house—or worse, an automobile—just because they can pay the EMI (equated monthly instalments) and make the down-payment. If your salary is being eaten up by such EMIs, have you given a thought to how much rearing a child would cost you? Expenses will grow exponentially— school fees, after-school care, extra-curricular activities, summer camps, higher education and marriage expenses. But slowly, families are beginning to understand how much child education can cost them. There are websites where you can calculate the future cost of education. Of course, these websites want you to assume what would ``

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` be the rate of inflation instead of supplying the data.

A recent NSSO (National Sample Survey Office) survey indicates that families are investing heavily in their children’s education and spending more on healthcare— at the expense of basic needs like food. Between 1999 and 2009, expenditure on food of rural families increased by 70% and 78% for urban households. Spending on education skyrocketed by 378% in rural areas and 345% in urban areas. Even after correcting for inflation, for the same period, education expenses increased by a hefty 162% in rural areas and 148% in urban areas. Assuming an inflation of 11% and education fees of Rs4.5 lakh today, the amount needed in 20 years will be Rs36.28 lakh. If you invest in a mix of financial products that fetch a return of 12%pa, you need to invest close to Rs50,353 per year for 20 years. Clearly, you need to plan. You can’t base this plan on emotion; nor can you neglect your other needs. Your retirement plan is as important as your child’s education. No longer can you blow up your retirement corpus and rely on your children to take care of your needs. For your child’s education and marriage, you need additional funds and goal-based financial planning. Do look at how you can save on your tax outflow from these plans, but don’t look at these investments purely from the point of tax-savings at the time of entry.

sum insured of Rs5 lakh is the minimum need, keeping medical inflation in mind. There are a few mediclaim policies in the market with maternity benefits, but at an increased premium. Check if your company’s group policy covers maternity and childcare expenses. Banks offer mediclaim products for customers at reasonable premiums. You may want to create a health savings fund to take care of medical expenses since mediclaim generally covers hospital stay of a minimum of 24 hours. A few policies, like Max Bupa Heartbeat, Apollo Munich p Easy Health and Star Health th Medi

A mediclaim, covering you and your family–whether individual or a family floater–is a crucial requirement

Cover Your Risk, but Don’t Over-insure The breadwinner in the family needs insurance, but dependents don’t. It means your life cover should be 1012 times your annual salary minus your investment assets and addition of any liabilities. It can be a term plan for pure risk protection or a bundled product, like a moneyback policy or ULIP, for savings plus risk protection. It will help the family survive and educate the children in case of untimely death of the breadwinner. If Rs60 lakh is the required insurance and you already have taken a child plan with Rs20 lakh sum assured (SA) with waiver of premium (WoP), other insurance can be only Rs40 lakh. Personal accident policy for covering temporary & permanent disability and accidental death is important as well as inexpensive—Rs100 for Rs1 lakh SA is a good bargain. The cover helps the family if you were to lose wages due to disability or accidental death. A mediclaim, covering you and your family—whether individual or a family floater—is a crucial requirement. A

Classic, cover your child from day one. Other policies normally cover children above the age of three months. Children over five years can have their independent health plan. Corpus Building through Investment Now that you have taken care of the risk coverage, it’s time to focus on financial planning and investing to grow your wealth. The best way to go about building a corpus for a child’s education is to save systematically in financial products that can create wealth over the long term. Lump-sum investment in equity and equity mutual funds is a good option only when the markets are beaten down. This calls for some knowledge, discipline and diversification. Your age and the child’s age matter the most while deciding on the investment avenue that is best suited for your need. If the child is a teenager and you have missed the bus for child-specific investment, you may have to rely on debt instruments like PPF (public provident fund), debt mutual funds or bank FDs (fixed deposits). The key criterion would be safety of capital and not returns. If you have a longer horizon, you can plan for equity mutual funds, child ULIPs, exchange-traded funds and stocks. It is also important to earmark your investments for specific goals and not lump them together. If you have more than 10 years to go before you need money for your child’s education, equity mutual funds will give the best returns. If you are in your early 30s ``

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` with Rs5 lakh annual salary, you will need life insurance

of Rs60 lakh SA. Of the salary, Rs1.5 lakh may go into investments (Section 80C for your retirement corpus and child’s education). The family will have to survive annually on the remaining Rs3.5 lakh minus taxes. The planning for your second kid, if you really want to have one, should happen even before the child is born. Let’s take a look at the different options. Public Provident Fund and Fixed Deposits: If you invest Rs70,000 in PPF every year and another Rs30,000 in a separate FD expecting to get post-tax return of 8% for the next 20 years, you will end up with Rs45 lakh due to compounding. You would have made more than the required Rs36.28 lakh, but this would have been possible since you invested Rs1 lakh @8% interest instead of Rs50,353 @12% by mix of financial products with some equity exposure. Moreover, if you are already putting Rs70,000 in PPF for yourself, you cannot put another Rs70,000 into PPF in your child’s Your Rs1 lakh investment name. Y

in equity and 35% in debt. Tata Young Citizens can invest a maximum of 50% in equity and 50% in debt. Fidelity India Children’s Plan comprises three funds, namely, education fund, marriage fund and savings fund. However, it is good only for segregation of your funds— such as investment for a child’s education. If you have discipline, you will do better with regular mutual funds. Some children’s mutual fund schemes have exit-load for an extended period which is a good deterrent for those who lack fiscal discipline. On the negative side, only a few are long-term performers. According to Yogin Sabnis, managing director, VSK Financial Consultancy Services Pvt Ltd, “A child MF is a balanced fund which itself is self-defeating as child-planning investments should be in equity, due to their long-term nature. If a customer wants to opt for a child ULIP, it is better to go for one with maximum equity exposure.” Traditional Child Insurance or Traditional Insurance: According to Rituraj Bhattacharya, head–market management & product development, Bajaj Allianz Life Insurance, “A child plan addresses the need for financial security through payouts at critical years of the child even in the absence of parents. Also, a child plan would be higher on the cover, compared to any other endowment plan. We have a plan called Bajaj Allianz ChildGain which covers both the child and parent where, in case of a parent’s death or permanent disability, further premiums are waived and, under the family income benefit feature, the child gets 1% of the SA per month.” While a child ULIP pays the beneficiary the SA on death and the fund value on maturity, a traditional plan pays the SA twice—once on death and then at maturity. Mr Bhattacharya says, “People buy a child plan emotionally. They may take risks in their investments, but want guarantees for child planning. This is because it is the only financial product which does not terminate on death. The company waives future premium and the plan continues till the policy term. Even with a longer horizon of policy term, people don’t want to take a risk on funds that are meant for their child’s education. The returns mean less to them compared to the guarantee of safety. Of the child plan market, 75% are traditional child policies and 25% are child ULIPs.” However, traditional insurance, fetching compounded annual return of less than 5%, is not worth considering. Returns on children’s traditional plans are lower than ``

Traditional insurance plans, fe fetching compounded annual return of less than 5%, are not worth considering per annum that qualifies for deduction under Section 80C should be in equity instruments for most of the period to beat inflation. The advantage of bank FDs is liquidity and they are a good option for those who need the funds for a child’s education within a few years. There is an exemption of Rs1,500 a year for each child’s income but is limited to two children. Any income in excess of it will have to be shown in your tax returns until the child turns 18. Assuming 10% returns, you can invest Rs15,000 each in the name of two children to get tax-free interest. The disadvantage with FDs is that they are almost fully taxed and income from FDs will not beat inflation. Debt mutual funds are a better bet because they are taxed at a lower rate but this difference will disappear after the new direct taxes code comes into effect. However, the problem with debt schemes is that if you get in at the wrong end of the interest rate cycle, your returns could be poor. Also, many debt funds perform rather poorly. Children’s Mutual Funds: The asset allocation in children’s mutual fund (MF) schemes between equity and debt varies. UTI CCP Advantage can invest up to 100%

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` those on regular traditional products because of the

inbuilt WoP which comes at a cost. A typical traditional plan invests little or nothing in equities and, hence, returns are minimal. There are children’s plans in the market that cover a child’s life. It should cover your death, not your child’s death. Customers are often ignorant on what they are really buying. In a true child plan, the proposer or the policyholder is the parent while the child is the automatic beneficiary. Gold: A lot of people put money in gold—at least for the marriage of a girl child. Is it a good idea? Gold is an important requirement in a child’s marriage and, hence, can be purchased systematically in small quantities over the years (not more than 5%-10% 5%-10 of one’s portfolio). Non-physical options, like gold ETF optio (exchange-traded fund), e-gold and gold fu fund of funds (FoF), (FoF are available if you have worries about abou safe-keeping of the yellow metal. E-gold, which allows reE-go mat to physical ggold, is a good option if the goal is getting physical gold for ge

Stocks can be purchased in the same proportion as the index, to create your own index fund. It will score over index schemes over the long term. Diversification and discipline is the key. Can you hold on even if the market crashes like it did in 2008? Child ULIPs: According to Deepak Yohannan, chief executive officer, MyInsuranceClub.com, “From a pure financial angle, mutual funds with a term plan are a better option than ULIPs. From the behavioural aspect and discipline, ULIPs offer value. People can stop an SIP (systematic investment plan) in a mutual fund and given a choice, may not even invest. Many sold their holdings when the market crashed in 2008-09. Child ULIPs are a good option as parents are allocating the funds for a long-term purpose. Financial investment should offer peace of mind; choose what is comfortable to you and stick to it.” A key feature of children’s plans is that the benefit goes only to the beneficiary, in this case, the child. Also, such a plan has provisions for the financial security of the child as these funds cannot be prematurely withdrawn after the death of the policyholder and utilised for other purposes. The WoP means that, in the absence of parents, the insurer will pay the premium and continue the policy. Maturity of the policy will coincide with the child’s education need and the fund value will be available for it. Emotional connect for parents and convenience of buying insurance and investment together is another plus point. However, there are huge variations in child plan offerings. Some don’t even offer the WoP option with plans that terminate on the death of the proposer after paying the SA plus the fund value. It is really a type-II ULIP. All of them come under the garb of ‘child ULIPs’. Some offer staggered payments of the SA; some pay at milestones for education; some pay loyalty additions. However, child ULIPs can be complicated to understand with respect to benefits and charges. Go for the simpler one with WoP. ULIP mortality charges are higher than term plan premiums. WoP has additional mortality charges with complicated calculations. Every insurer is calculating WoP charges differently as these are not standardised. Child ULIPs combine investment and insurance— which itself is a disadvantage. You are married to the product if you want to get real benefits. If the fund performance is poor, you may have to live with it. ULIPs prior to 1 September 2010 had the flexibility of ‘cover continuance’ wherein a customer could keep the policy in ``

A llot of people put money in gold gold—at least for the marriage of a girl child. Is it a good idea? a child’s marriage. However, with mar prices at an all-time high, gold is a risky investment. Index MFs, Index ETFs: Regular MFs have an expense ratio of 1.75% to 2.25%. Index funds may cost 1% to 1.5% while for index ETFs, like Benchmark Nifty BeES, it is as low as 0.5%. Index funds are cheaper and may do better than average MF schemes. The returns would be in line with the index and far lower than the top-performing mutual funds. Mutual Funds: MFs are among the best options for creating long-term wealth. The combination of mutual funds and term plans is one of the best options to ensure growth and protection. However, some MF schemes from fund houses, like JM Financial and LIC Nomura Mutual Fund, have been extremely poor performers. Picking wrong schemes can be a disaster. The top mutual fund schemes have outperformed ULIPs by miles. Stocks: Stocks are a great means to save for your child, if you are willing to hold blue-chips for the long term. The key is not to get affected by daily changes. The only charges are brokerage for buying and annual de-mat charges. There is no expense ratio like in the case of MFs.

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` force without paying premium (after the lock-in period).

The mortality charges would get deducted every year to cover the risk and the funds remain invested. This feature has been dropped by IRDA (the Insurance Regulatory and Development Authority). Vivek Rege, managing director, VR Wealth Advisors Pvt Ltd explains, “A child ULIP is purchased by parents to protect the future of a child by WoP in case the proposer dies. It is possible that the proposer has a genuine difficulty in paying premium in a particular year. Under the new regulation, if the premium is unpaid, the insurer will close the policy and return the funds. It defeats the child protection spirit for which parents buy child ULIPs.” Mutual Funds+Term Plan Vs Child ULIPs: This has been a hotly-debated issue for a long time and, hence, needs to be addressed in depth. Mr Sabnis says, “ULIPs may have reduced upfront costs, but most insurers have an equity fund management charge (FMC) to be closer to the maximum allowed—1.35%. FMC makes a huge difference in ULIP performance in the long term. Increasing of lock-in from three to five years is insufficient. As such, customers should not go for ULIPs unless they are looking for long-term investment of 10 to 30 years. A child ULIP does allow parents to earmark funds for education or marriage and, hence, has sentimental value. If a person is disciplined enough to keep mutual funds locked away without redeeming, along with a term plan, it is certainly a better option.” Keeping investments (mutual funds) and risk protection (term plans) separate offers more flexibility. The returns from mutual funds are transparent. It is easy to change mutual fund schemes or term plans. In ULIPs, NAV (net asset value) returns are not real returns because of charges like premium allocation (PA) and policy administration charge (PAC). In a term plan, the premium is constant over the full policy term. After all, how many customers calculate the mortality charges for different years for ULIPs or understand all the other charges? WoP has an additional mortality charge and will be difficult to compare across the different child ULIPs offered with differing features. The mortality factor for ULIPs increases according to age. Ideally, the total premium for a term plan over the policy term should be almost the same as the mortality charges of ULIPs over the same policy term, but it is not the case for online term plans which are really cheap. Our Cover Story (Moneylife, 16 June 2011) showed that online term plan premiums are

lower than even the first year mortality charges of ULIPs. However, there are some advantages of child ULIPs. The maturity value of child ULIPs may be lower than the fund value of mutual funds in the same period, but the WoP concept wins if the policyholder dies within certain specified years of taking the policy. There is value in the insurance company offering to pay the premium on your behalf (in case of death) and to continue the policy for the full term. Conceptually, the funds of a child plan will be reserved for the child’s education and not misused for ‘other’ family needs. It cannot be guaranteed; but there is the value of discipline enforced by a child plan which is not possible in regular mutual funds. The fund value is paid at the time of the defined education need. Parents have to allocate money for children’s financial planning. ULIPs are not really used for investments; mutual funds are where you put your money for fetching returns. Let us compare the performance of index mutual funds+Aegon Religare iTerm m plan (online), regular ULIP IP

How many customers calculate ntt the mortality charges for different ll years for ULIPs or understand all the other charges? Aegon Religare iMaximize Plan (online) and child plan Aegon Religare Rising Star Plan. We have assumed the same fund performance (10%pa). The comparison is for a 27-year-old with policy tenure of 20 years. The annual premium paid by the customer is assumed to be Rs1.66 lakh for 20 years. The sum assured for a ULIP is 30 times the premium—which is Rs50 lakh. The annual premium for the iTerm plan is Rs5,350. iMaximize ULIP has low charges—no PA charge and Rs100 per month as PAC. Rising Star Child ULIP has a PA charge of 4.4% of the premium in the first year, 3% (second to fifth year), 2% (6th to 10th year) and 1% thereafter. The PAC is Rs60 per month, increasing by 3% every year. The charges are in line with other ULIPs in the market. The death benefit for iMaximize Plan is higher of the sum assured or fund value. For proper comparison, we have assumed the death benefit to be the sum assured plus fund value; mortality charges have been calculated accordingly. Fund management charge is not considered in the calculation as it will be almost same between index mutual funds and ULIPs. Higher age will mean higher standard mortality ``

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` and WoP mortality and, hence, may not work as well.

The mortality charges for iMaximize are the lowest in the industry; yet, it is a much more expensive option than premium payment for iTerm. The WoP mortality charges in the Rising Star Plan get added to regular mortality charges. Different plans will have different mortality charges as well as varying WoP mortality charges and, hence, are not comparable in all cases. Remember also that every ULIP has different charges; child ULIPs have fancy features which entail additional charges. Choose a child ULIP which offers the sum assured on death, WoP to continue the policy and pays the fund value at the end of the policy. Ideally, the one with the lowest charges will be the best option as your mileage will vary, based on the charges which are transparent; but it needs a lot of work to really figure this out. Now to the results of the comparison. If the policyholder outlives

reducing units and can leave a customer clueless. Term plans have a fixed premium for the full policy term and are transparent as the customers know exactly how much they pay for risk coverage. Mortality rates for child ULIPs are much more than the cover for the SA. They take into account WoP by calculating the ‘sum at risk’ (SAR) which includes the outstanding premium payments that the insurer possibly has to make if the policy proposer dies anytime during the policy term. Any additional benefit offered by the plan, like Max New York Life Shiksha Plus II offering to pay 10% of SA every year for 10 years after death to pay for school fee support, also gets added to the SAR. This means higher mortality charges—which an average customer cannot even calculate. There are no free lunches from insurance companies. They know what risk they are taking and will make customers pay for it. Insurers have been ‘creative’ in child ULIP mortality charges. Some have a mortality table which is applied to SAR. Some have a standard mortality table and another for WoP—which can be fixed for age of entry, premium and policy term (in some cases) or variable based on current age, premium and the remaining policy term. Some insurers calculate the present value of future premium payments for WoP mortality charges while others simply add the future premium payments for the same calculation. Some insurers don’t give WoP mortality charges in their brochure—specifying that it is dependent on age, gender, outstanding premium payment term of the policy, coverage option, premium amount and premium payment mode. How many customers can get to the nitty-gritty of mortality charges to compare child ULIPs? Aegon Religare Rising Star, Max New York Life Shiksha Plus II and Canara HSBC Oriental Bank of Commerce Life Insurance Future Smart Plan have low mortality factors for calculating mortality charges applied to SAR. If you are not comfortable with private insurers’ claim settlements or worry about their solvency even though they are IRDA-regulated, you will have to go with top-performing mutual funds along with governmentowned LIC’s (Life Insurance Corporation of India) term plan which costs more than double the premium of an online term plan. Peace of mind is important in financial decisions.

Keep an eye on the mortality charges as these can vary drastically among child ULIPs the policy term, a combination of MF+iTerm plan wins with a corpus of Rs1.01 crore. iMaximize Plan’s corpus is Rs99.62 lakh while Rising Star Plan’s is Rs96.42 lakh. If the policyholder expires, the combination of MF+iTerm plan or Rising Star Plan wins, depending on the year of death. If the policyholder dies anytime during the first to the 16th year, child ULIP Rising Star wins; in case of death in the 17th to 20th year, MF+iTerm plan wins. If you are a risk-taker and an optimist, MF+Term will work better. If you are a pessimist and risk-averse person, child ULIPs would be a better option. The above-mentioned example assumes ‘good health’ of the customer. Otherwise, the premiums will be loaded and the comparison may not apply. So, don’t choose child ULIPs just because you are in poor health. Creative Mortality: Sum at Risk Keep an eye on the mortality charges as these can vary drastically among child ULIPs. Mortality charges are out of IRDA’s regulations and, hence, can be a spoiler. The mortality charges of regular ULIPs are confusing to customers. Moreover, they are deducted every month by

Will & Trust—Do You Trust Your Family? There is an argument that a lump-sum given by term life ``

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` insurance may turn out to be a bane compared to child

ULIPs which keep money invested till the child really needs it for education (child ULIPs also pay SA after death of a policyholder). A large lump-sum suddenly obtained from the insurance company can be lost due to wrong advice or simply to unscrupulous people in the family. It really boils down to the financial literacy of family members. If your spouse is not willing to learn the basics of finance, the minimum one should understand is that the safest place for parking your money will be FDs of nationalised banks. It is better to be on the conservative side about the returns your family can generate from insurance money. There could be other steps, like writing a proper and taxefficient Will, to detail how the insurance money will be handled. What is the use of earning well when it can’t be smoothly passed to your heirs? Appoint one or more guardians in your Will, in whom you have faith, to take care of your minor child. This is an important step to be taken the moment your child is born. An option could be to set up a trust in the child’s name so that the money is safe and available when the child needs it. Mr Sabnis says, “Trust is helpful when parents think there is nobody to take care of their children in their absence. It is important to have the right people as trustees.” Trusts also protect against misuse or diversion of money.

expensive durables. As far as investments are concerned, if you don’t understand financial instruments, try to learn about them. If you cannot comprehend, walk away and stick to safer investments. Those lacking in discipline on financial matters may also look for an insurance product to enforce long-term systematic savings. There is no single best option. Taking route A or B is up to you as long as you reach the destination and fulfil the child financial planning objective. Making a decision to plan is better than not making one at all or getting confused with the choices. A good plan today is better than a perfect plan tomorrow. According to Vivek Rege, “There are different financial needs depending on family circumstances. If both parents are alive and both are employed or only one has a high-paying job, the focus is on cost-effective investments with lower charges. They usually go with mutual funds+term plans. If a single parent is raisingg g p a child due to divorce or spouse’s pouse’s death, the concerns are different. nt. If the single parent were to die, there here

Education loans are available and d are a great option to fund your children’s higher studies

Education Loans: Take or Skip? Retirement planning is more important as a priority and one should not dip into a post-retirement corpus for funding children’s education. Education loans are available and are a great option to fund your children’s higher studies. There is a cap of Rs10 lakh on loans taken for pursuing a course at an institute within the country and Rs20 lakh for studying abroad. Both limits may be inadequate in meeting the expenses at the best colleges and universities. In the US, most students work part-time to fund their education. It can even be jobs like flipping a burger at a fast-food chain or delivering pizza. The Indian attitude is different, but it is catching on here too. Taking a loan on your name for a child’s education can be a disaster if your child refuses to repay it even after he starts getting a handsome salary on completing education. Summing Up Start saving early, be a compulsive saver and keep expenses low. Building a corpus for your retirement, children’s education and marriage may mean forgoing frequently on fine-dining, overseas vacations and buying

may not be a trusted person to ensure that the child gets money at the time needed for higher education. The investment and insurance money may be at risk of getting into the wrong hands. “Child ULIPs pay the SA to the child’s bank account, waiver of premium is applied and fund value is paid at the time of education needs which can be after the child turns 18. There is a structure in place which can appeal to people in such a situation. It is important to have the child as a ‘beneficiary’ and not just a ‘nominee’ as the former can never be changed (unless the child dies). The nominee in an insurance policy can be changed.” He adds, “Children who are physically or mentally challenged need legal protection along with financial planning. In the case of a mentally challenged child, it is even more important to form a ‘trust’ to ensure that financial needs are taken care of in the absence of parents. It is important to choose trustees who would possibly live through the child’s critical years. ‘Trusts’ that need consensus of two-three trustees for decisions also reduce the chances of fund misappropriation.”

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MO NE Y L I F E S URVEY

Have You Planned Well? Our online survey shows that many Moneylife readers have not systematically done financial planning for their children. But they are smart enough to consider a mutual fund + term plan as a better option than child ULIPs 1. Have you planned for the different expenses for your child, such as higher education and marriage?

Yes, in detail -32% Somewhat but not systematically-52% Not at all-16% One-third of the respondents have done child financial planning in detail.

2. Do you think child financial planning is not of much use, because the amount of funds required is based on career choice, which itself is unknown?

Yes-19% No-71% Can’t Say-10%

Only one-fifth feel child financial planning is not of much use due to uncertainty of career choice.

3. Do you think child ULIPs products are difficult to understand?

Yes-37% No-46% Can’t Say-17%

ur survey on financial planning for children shows that one in three readers have done child financial planning in detail—a good sign. The Moneylife online survey received responses from 624 readers. Financial planning for children is an important step parents can take even if they are not clear about the career goals of their offspring. It is encouraging to see that only 19% of the respondents think that child financial planning is not of much use due to uncertainty of career choice. Child ULIPs are hard-sold by agents backed by advertisements on TV and print media, yet only 19% of the respondents have purchased a child ULIP. Some 50% of the respondents have come across insurance agents who are actively selling child ULIPs. As expected, 37% of the respondents find child ULIPs difficult to understand. Ten percent of the respondents think that a child ULIP is the best option for children’s financial planning. This

More than one-third of the respondents find it difficult to understand child ULIPs.

4. Do you think child ULIPs are the best option for a child’s financial planning?

Yes-10% No-72% Can’t Say-18%

One-tenth of the respondents think child ULIP is the best option for child financial planning.

is in line with the low number of respondents who have purchased a child ULIP and a high number of respondents who find child ULIPs difficult to understand. Only 11% of the respondents think that child ULIPs are a better option than child mutual fund + term plan. Clearly, they see unit-linked insurance as a negative option even if it is a child ULIP and perceive mutual funds as a better avenue for long-term wealth creation. Only 11% of the respondents find child ULIPs to be a better option than ``

MONEYLIFE | 25 August 2011 | 36

Cover Story.indd 10

8/5/2011 9:49:20 PM

COVER STORY

5. Do you think child ULIP is a better option than child mutual fund+term plan?

Yes-11% No-68% Can’t Say-21%

Two-thirds of the respondents think child mutual fund + term plan is better option than child ULIP.

6. Have you purchased a child ULIP?

Yes-19% No-81%

No-71% Can’t Say-18%

Less than one-fifth of the respondents have purchased a child ULIP.

One-tenth of the respondents think child ULIPs are a better option than regular mutual fund + term plan.

8. Do you think child ULIPs are a better option than index mutual fund/index ETF+term plan?

Yes-11% No-66% Can’t Say-23%

Two-thirds think index mutual fund/index ETF + term plan is a better option than child ULIP.

9. Do you think child traditional insurance is better than child ULIPs?

Yes-31% No-48% Can’t Say-21%

Yes-47% No-42% Can’t Say-11%

Almost half think it is better to go with secured investments even if the funds are needed after a decade.

11. Have you come across an insurance agent who is actively selling child ULIPs?

7. Do you think child ULIPs are a better option than regular mutual fund+term plan?

Yes-11%

10. Do you think it is better to go with PPF, FD, debt mutual fund, monthly income plan (MIP), FMP+term plan than child ULIPs, even if education funds are needed after a decade?

Almost one-third of the respondents think child traditional insurance is better option than child ULIPs.

` regular mutual fund + term plan or index mutual fund/

index ETF (exchange-traded fund) + term plan. Surprisingly, 31% of respondents think traditional insurance is better than a child ULIP—which points to a willingness to settle for lower returns as long as they are assured. Shockingly, 47% of the respondents think it is better to go with PPF (public provident fund), FDs (fixed deposits), debt mutual funds, MIPs (monthly income plans) and FMPs (fixed maturity plans) backed by a term plan instead of child ULIPs even if the money for education is required after a decade. Only 15% of the respondents are considering student

Half of the respondents have come across an insurance agent who is actively selling child ULIPs.

Yes-50% No-50%

12. Are you considering student loan rather than save for your child’s education?

Yes-15% No-70% Can’t Say-15%

Only one-seventh of the respondents are considering student loan rather than saving for child’s education.

13. Have you written a Will?

Yes-19% No-81%

Less than one-fifth of the respondents have written a Will.

Shockingly, 47% think it is better to go with PPF, FDs, debt mutual funds, MIPs, etc loans; they would rather save for the child’s education. The Western trend of educational loans has not caught on in India, although it may not be long before it becomes acceptable in India too. Only 19% of the respondents have written a Will. This is because even though people are convinced about the importance of writing a Will, there is a reluctance to do it in reality. This may be the first step people can take in securing their child’s financial future. In many families, dependents don’t even know the finances of the earning member and, without a Will, there can be tragic financial consequences in case of the untimely death of the breadwinner.

37 |25 August 2011 | MONEYLIFE

Cover Story.indd 11

8/5/2011 9:49:38 PM

STOCKS STREET BEAT

Unbiased & Methodical Stock Picking that Works!

VE NU S R E MEDIES

Health Boost

tio n St or ies of Pr ice Ma nip ula

Steady growth and profits

e had written about Venus Remedies in the Street Beat section of our issue dated 15 July 2010. The stock was trading at around Rs268 at that time. It went up to a high of Rs327 and is now trading at around the same levels as last year, but is still a good buy. The company is engaged mainly in manufacturing intravenous (I/V) fluids & injectables, ceftazidime, amlodipine, gliclazide and lisinopril. Its units are at Panchkula and Baddi (India) and Werne (Germany). Venus has filed more than 341 global patents, of which 74 have already received grants from various countries. The patents cover 51 countries across Europe, North America, the Far East, Australia, South America, Africa and the ASEAN (Association of Southeast Asian Nations). The anti-cancer segment contributes to 30% and the anti-infective segment contributes to 35% of the company’s total sales. The emerging pharmaceutical markets are projected to grow at a CAGR (compounded annual growth rate) of around 14.7% during 2009-2012, due to government support, patent expiries and low-cost operations, among other factors. The Indian pharmaceutical sector is well-placed to capitalise on a growing generic space, marked by rising generic penetration (over 20% of world’s generics are produced in India), large-selling drugs going off-patent, governmental push for cheaper generic drugs and innovator-generic partnerships. India is expected to rank among the top 10 global pharmaceutical markets by 2015, likely to touch Rs2.20 trillion and open up a probable $8-billion market for MNCs selling expensive drugs by 2015. The growing incidence of lifestyle disorders (diabetes, cancer, etc) will catalyse the growth of specialty and super-specialty therapies. India’s specialty and super-specialty therapies are likely to account for 45% of the market by 2015 (35.9% in 2006), according to a McKinsey report. ``

Hindustan Everest st Tools Tool (Rs46) The company was incorporated in 1962 as Hindustan Dowidat Tools to manufacture high-quality hand tools. After all these years, its revenues were just Rs11.05 crore in the March 2011 quarter. However, its operating profit for these years has been totally erratic. It reported an operating profit of just Rs54 lakh in the March 2009 quarter, operating losses in the next four (Rs)

Hindustan Everest Tools

160%

15 May-10

Dec-10

Aug -11

quarters and operating profit of a paltry Rs23 lakh in the June 2010 quarter and Rs20 lakh in the March 2011 quarter. The stock should be a dud, right? Well, in the Indian market, corporate performance has nothing to do with stock prices. The company’s stock jumped 160% from Rs17.75 on 21 May 2010 to Rs46.10 on 3 August 2011. Don’t expect the exchanges or SEBI to look into the price-rigging.

Recommended Price Rs18

MONEYLIFE STOCK IDEAS

THAT WORK

Moneylife Issue 8 April 2010

88%*

Exit Price Rs28

(Stop Profit triggered on 26 November 2010)

(SURYA PHARMACEUTICAL)

* Annualised returns

MONEYLIFE | 25 August 2011 | 38

Stock-Streetbeat.indd 2

8/5/2011 9:36:43 PM

25-26 August The Taj Palace Hotel New Delhi

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8/3/2011 2:48:52 PM

STREET BEAT WHICH WAY

Debashis Basu

Noise Filter

than I had thought. However, before tumbling into more gloom and doom, consider these three factors. Is it discounted? While making market forecasts, it is important to constantly ask yourself: What could be a Long-term investors should start surprise for the market? What is known is no surprise— looking for buying opportunities it is fully discounted. While the big news continues to make headlines well after the event, the market looks was cautiously positive last fortnight with a caveat ahead. Just see how the Nikkei jumped after the nuclear on what could make my optimism wane. I had disaster struck. This means that unless there are fresh identified these factors as “new evidence that the events to worry about, known negatives will not lead Indian corporate sector will not be able to grow at the market lower—no matter how much media dwells 12%-15% over the next three quarters and/or a hugely on the minutiae. negative global or local event.” We have not got a And don’t forget the pulley effect… More important, surprise so far on the first—the Indian corporate sector while it is natural to focus on the negatives, consider has not done too badly in the June quarter. But we got also that crude, the biggest contributor to Indian two negative events—local and global—a shocking inflation, is suddenly down 6%. The 50-basis point rise in repo rate on factors which can take a market 26th July and a severe slowdown down can also take an economy up. in the US. Reflecting the impact Finally, valuation... Last of the first, the Sensex tumbled fortnight, I had mentioned that from a high of 19,100 on 26th on the valuation front, we were July to 18,100; the impact of the not in undervalued territory. second has resulted in a quick This is because I believe that the sharp intraday decline to 16,991 consensus earnings of analysts are by 5th August. This has created too high. We have not seen forecasts new fundamental hurdles for the of Sensex earnings below Rs1,200, market’s advancement and my whereas I think that the number earlier sense of mild optimism could well be nearer Rs1,150. So, must remain on hold for now. I had said that “if this number is It could well be that we see correct, the Sensex starts looking more negative news emerging undervalued near 17,250, which from across the globe—more we almost hit in late June. We are a signs of slowdown, missteps by good 1,500 points above that.” Of policymakers and local negative course, I had not expected that the events. They have a way of coming Sensex would go down so low except due to a negative simultaneously—at least it seems so. Last fortnight, I had mentioned that there are just too many high-quality event. We had a negative event and the Sensex has hit 17,000. Long-term investors should experts who are warning that the largest start looking for buying opportunities as economy in the world is about to collapse Medium-term: Up markets fall further. into a deep slowdown, if not a recession. Long-term: — (Feedback at editor@moneylife.in) This has turned out to be more immediate

investment that is

not subject to market risks

Attractive gifts, invitation for events and free online help. For a subscription offer that is unique, look for a form elsewhere in this issue or on our website at www.moneylife.in

MONEYLIFE | 25 August 2011 | 42

Which way.indd 1

8/5/2011 11:12:52 PM

STOCKGRADER MOMENTUM

On Time

40%

Compounded Annual Return

Titan Industries rose 1% and Cadila Healthcare ended flat, while Orchid Chemicals plunged 13% Gainers: Healthy retail growth in jewellery and watches has pushed up Titan Industries’ year-on-year net profit by 76.4% for the quarter ended 30th June. The net profit was at Rs143.36 crore (Rs81.28 crore), while net sales grew by 62.1% at Rs2,020.51 crore (Rs1,252.76 crore). The jewellery business grew by 71.9% to Rs1,633.74 crore and the watches segment contributed Rs313 crore to the overall turnover (a growth of 23.2%). The stock gained 1% in the fortnight. GlaxoSmithKline Consumer Healthcare reported a 14.92% increase in net profit to Rs82.46 crore for the second quarter ended 30th June from Rs71.75 crore in the previous corresponding period. Net sales for the quarter grew 21.59% to Rs653.38 crore against Rs537.35 crore in the year-ago period. The stock rose 2%. The USFDA has given the green signal for commencement of drug supplies from Zydus Cadila’s formulations plant at Baddi (Himachal Pradesh). The plant—which currently caters to domestic and emerging markets—will commence supplies to the US. Cadila Healthcare ended flat. Balkrishna Industries jumped 10%. Company

RS Grade

Funda Grade

Final Grade

Entry Date

Dish TV India

06 Aug-10

Fed-Mogul Goetze

Prime Focus

Divi'S Laboratories

07 Jul-11

GSK Consumer

29 Apr-09

190%

Balkrishna Industries

07 Jul-11

10%

Losers: Orchid Chemicals & Pharmaceuticals’ consolidated net profit declined to Rs16.92 crore for the first quarter ended 30 June 2011 from Rs23.53 crore in the same period of the previous fiscal. The company’s total operating income rose to Rs449.23 crore for the April-June 2011 quarter, compared to Rs364.57 crore in the first quarter of FY10-11. The stock plunged 13%. Shriram Transport Finance reported a 20% increase in standalone net profit for the quarter ended 30th June on a 20% rise in its net interest income (NII) during the quarter. Net profit increased to Rs347 crore from Rs288.90 crore in the corresponding year-ago quarter. Total AUM (assets under management) as on 30 June 2011 stood at Rs36,997 crore over Rs36,182 crore as on 31 March 2011. The stock tumbled 15%. Bank of India tanked 11%, Hindalco declined 9% and Yes Bank fell 8%. Note: Please read our changed methodology for grading stocks (given below). We have also added a column showing returns since the stock’s appearance in the table. Returns from new stocks added are counted after one issue.

Company

RS Grade

Funda Grade

Final Grade

Entry Date

72%

Magma Fincorp

07 Jul-11

-11%

28 Apr-11

Bhushan Steel

28 Apr-11

-29%

07 Jul-11

HDFC

15 May-09

72%

Hindalco Industries

23 Jul-10

Power Grid Corp

07 Jul-11

-7%

Punjab National Bank

22 Jun-11

-8%

Return*

-3%

Return*

Titan Industries

16 Apr-10

108%

M&M

28 Apr-11

-15%

Sadbhav Engineering

28 Apr-11

-1%

Shriram Transport

18 Feb-11

-19%

Yes Bank

22 Jun-11

-8%

Bank of India

21 Jan-11

-21%

Orchid Chemicals

28 Apr-11

-43%

Sesa Goa

21 Jan-11

-26%

Bank of Baroda

29 Apr-09

164%

Cadila Healthcare

12 Nov-10

11%

HDFC Bank

04 Mar-11

EID-Parry

12 Nov-10

-7%

Sintex Industries

01 Apr-11

-1%

Shree Renuka Sugars

06 Aug-10

-9%

Siemens

22 Jun-11

-4%

Federal Bank

13 May-11

-11%

*Non-annualised

Methodology: Momentum Stockgrader is a fortnightly ranking of stocks, based on two key factors that drive stocks—one, market-related or quantitative and, two, fundamental. The quantitative factor is the relative strength (RS), which is a stock’s relative outperformance during the past 10 weeks over select companies. For arriving at fundamental grades, we have used only operating profit growth and sales growth over three quarters. For momentum stocks, RS carries a higher weightage. Focus only on stocks with final grade A. When we include a stock in the grader, it is based on the fortnightly closing price of the scrip that coincides with our issue and that would be the entry price. Similarly, when we drop a stock from the grader, it is based on the closing price on Friday, as we go to print.

43 | 25 August 2011 | MONEYLIFE

Momentum.indd 2

8/5/2011 9:59:57 PM

STOCKGRADER MEDIUM TERM

Shop Stop

46%

Compounded Annual Return

Lupin rose 1%, while Shoppers Stop dived 13% and Petronet fell by 4% Gainers: Lupin is planning to acquire a large Latin American pharmaceutical company to enter a region where cheaper generic drugs outsell medicines sold by patent holders. The company, which aims to more than double its sales to Rs12,000 crore by March 2013, has already looked at a few companies including some in Brazil. Lupin, however, hasn’t finalised its target as it needs to scrutinise the companies on product synergies and economies of scale. The stock rose by 1% in the fortnight. Orient Paper & Industries posted 47% operating profit growth to Rs116.47 crore in the quarter ended 30 June 2011 from Rs79.40 crore in the previous corresponding quarter. During the quarter under review, the company had net sales of Rs546.97 crore, a 22% increase from the Rs449.23 crore posted in the year-ago period. The stock climbed 3%. Losers: Shoppers Stop declared that it will make an investment of around Rs400 crore to strengthen its presence in the Indian market by launching novel stores across formats by 2015. The stock dived 13%. Dabur

Company

RS Grade

Funda Grade

Final Grade

Entry Date

Petronet LNG

29 Apr-09

Return* 228%

has reportedly introduced its ‘Burrst Fizz’ brand of aerated fruit-flavoured drinks in the carbonated drinks segment. The stock fell by 7%. HCL Technologies and Vivimed Labs plunged 7% and 8%, respectively. Petronet LNG is keen to set up a Rs4,000Rs5,000-crore LNG (liquefied natural gas) terminal on the Orissa coast. The company is yet to finalise the site for the proposed terminal. However, Dhamara, Gopalpur and Paradip have come up as possible locations. The stock fell by 4%. Pharma major Ranbaxy Laboratories and parent firm Daiichi Sankyo are expanding their business in Mexico. The two companies will launch in Mexico Daiichi Sankyo’s Olmesartan Medoxomil, used to treat high blood pressure, before the end of 2011. The scrip fell 2% during the fortnight. Changes: We are exiting from HCL Technologies. Note: Please read our changed methodology for grading stocks (given below). We have also added a column showing returns since the stock’s appearance in the table. Returns from new stocks added are counted after one issue.

Company

RS Grade

Funda Grade

Final Grade

Entry Date

Nestlé India

29 Apr-09

Return* 152%

Kajaria Ceramics

26 May-11

29%

Amara Raja Batteries

28 Apr-11

28%

Munjal Auto Inds

26 May-11

13%

Supreme Industries

26 May-11

22%

Praj Industries

21 Jun-11

Vivimed Labs

26 May-11

-6%

Titan Industries

01 Apr-10

HDFC Bank

Supreme Petrochem

3M India

23 Jun-11

12%

Akzo Nobel India

23 Jun-11

138%

Asian Paints

23 Jun-11

29 Apr-09

117%

Shoppers Stop

23 Jun-11

-4%

27 May-10

72%

Sun Pharma

29 Apr-09

102%

Siemens

27 May-10

28%

Cadila Healthcare

20 Jan-11

Time Technoplast

26 May-11

11%

Apollo Tyres

23 Jun-11

-2%

Motherson Sumi Sys

23 Jun-11

Ranbaxy Lab

20 Jan-11

-5%

Ipca Laboratories

20 Jan-11

TCS

10 Jun-10

46%

Orient Paper

26 May-11

-2%

Dabur India

01 Apr-10

31%

Lupin

29 Apr-09

219%

Linc Pen & Plas cs

26 May-11

-3%

CRISIL

29 Apr-09

176%

—

*Non-annualised

Methodology: Medium Term Stockgrader is a fortnightly ranking of stocks, based on two key factors that drive stocks – one, market-related or quantitative and, two, fundamental. The quantitative factor is the relative strength (RS), which is a stock’s relative outperformance during the past 26 weeks over select companies. Our grading methodology of fundamental factors includes two key scores, growth score (GS) and value score (VS), carrying equal weightage. We then combine the RS grade and fundamental grades. Focus only on stocks with final grade A. When we include a stock in the grader, it is based on the fortnightly closing price of the scrip that coincides with our issue and that would be the entry price. Similarly, when we drop a stock from the grader, it is based on the closing price on Friday, as we go to print.

MONEYLIFE | 25 August 2011 | 44

Medium Term.indd 2

8/5/2011 10:01:26 PM

STOCKGRADER LONG TERM

Nobel Prize

43%

Compounded Annual Return

Wyeth surged 3% and Castrol India ended flat, while Adani Enterprises plunged 11% Gainers: Akzo Nobel India, the Indian arm of Amsterdambased international paint and coatings manufacturer Akzo Nobel, has planned to become a dominant player in the premium segment and occupy a large share in the mid-tier segment. It is planning a new product in the mid-range segment, to be launched by end-August. Promise, launched in February, was an exterior paint; it will become an interior paint in August. The stock rose by 1% during the fortnight. Castrol India is closing its plant in Tamil Nadu. The company cited steep increase in its manufacturing cost per litre over the past several months. The scrip ended flat. Wyeth and CRISIL surged by 3% and 4%, respectively. Losers: Hindustan Unilever (HUL), the Indian unit of Anglo-Dutch Unilever Plc, slashed its advertising spend for the first quarter by 15.74%, signalling a possible slowdown in the economy. The largest Indian household products and consumer goods maker spent Rs633 crore in the quarter ended 30 June 2011, down from

Company

RS Grade

Funda Grade

Final Grade

Entry Date

Ador Fontech

29 Apr-09

Return* 527%

Rs751 crore a year ago. The stock fell by 4%. Motherson Sumi Systems reported a 40% jump in its standalone operating profit growth for the quarter ended 30th June to Rs101.15 crore on the back of robust domestic sales. The company had posted an operating profit of Rs72.36 crore for the corresponding period last year. Consolidated total income also increased by 20.75% during the first quarter to Rs2,300.17 crore from Rs1,904.89 crore in the year-ago period. The stock fell by 4%. Sun Pharmaceutical Industries chairman Dilip Shanghvi will pick up an 11% stake in an Israeli investment company, Bio-Light Life Science Investments which specialises in the life sciences sector. The stock fell 2%. Ador Fontech and Adani Enterprises plunged 19% and 11%, respectively. Note: Please read our changed methodology for grading stocks (given below). We have also added a column showing returns since the stock’s appearance in the table. Returns from new stocks added are counted after one issue.

Company

RS Grade

Funda Grade

Final Grade

Entry Date

CRISIL

29 Apr-09

176%

Return*

Petronet LNG

26 May-11

27%

HDFC Bank

29 Apr-09

117%

Titan Industries

03 Feb-11

24%

ITC

27 May-10

45%

Wyeth

23 Jun-11

10%

Amara Raja Batteries

23 Jun-11

15%

Motherson Sumi Sys

23 Jun-11

Marico

26 May-11

13%

Nestlé India

29 Apr-09

152%

Hindustan Unilever

25 Nov-10

Asian Paints

27 May-10

47%

Power Grid Corp

03 Feb-11

Supreme Industries

23 Jun-11

19%

Akzo Nobel India

23 Jun-11

Emami

26 May-11

17%

Cadila Healthcare

20 Jan-11

Castrol India

28 Apr-11

13%

Apollo Tyres

23 Jun-11

-2%

Godrej Consumer

26 May-11

10%

Adani Enterprises

29 Apr-09

212%

Shoppers Stop

26 May-11

Sun Pharma

29 Apr-09

102%

Ipca Laboratories

20 Jan-11

GSK Pharma

29 Apr-09

94%

-2%

Ranbaxy Lab

20 Jan-11

-5%

TCS

29 Apr-09

252%

Berger Paints India

26 May-11

Lupin

29 Apr-09

219%

*Non-annualised

Methodology: Long Term Stockgrader is a fortnightly ranking of stocks, based on two key factors that drive stocks: one, market-related or quantitative and, two, fundamental. The quantitative factor is the relative strength (RS), which is a stock’s relative outperformance during the past 26 weeks over select companies. The fundamental factor includes growth score (GS) and value score (VS). GS is based on operating profit growth and sales growth. VS is calculated considering market-cap as a multiple of five quarters of average sales and operating profit, as well as latest Return on Net Worth (RoNW). The long-term list carries more large-cap stocks. Focus only on stocks with final grade A. When we include a stock in the grader, it is based on the fortnightly closing price of the scrip that coincides with our issue and that would be the entry price. Similarly, when we drop a stock from the grader, it is based on the closing price on Friday, as we go to print.

45 | 25 August 2011 | MONEYLIFE

Long Term.indd 2

8/5/2011 10:02:17 PM

“You Can’t Time the Market.” Maybe.

21,100

18-31 Jan ‘08

12-25 Oct ‘07

It is easy to describe market moves. It is hard to predict them which is why fund managers tell you that you “The huge over-speculation... cannot time the market. You will get vivid descriptions should now lead to some painful correction...” of the past everyday from business channels and the 6 -19 Jun ‘08 next day from newspapers. You will get sensible and “Time for a Break?” occasional predictions from only one source. You know 2-16 Aug ‘07 what’s more valuable 9-22 Nov ‘07

17-31 Jul ‘08

15 Feb-1 Mar ‘07

17,325

“Time to Go Neutral” “The market may correct “We don’t have a forecast” 10%-15% before the next move up” “If the government moves to slay the monster of inflation, stocks will suffer collateral damage”

23 Apr-7 May ‘06

“A new downleg may start soon”

28 Mar-10 Apr ‘08 31 Aug-13 Sept ‘07

13,550

“Is the market due for a fall?”

2-15 Jan ‘0

“A short-term bottom may be very near”

16-29 Mar ‘07

“A Rally Now?”

“Weakness has res 4-17 August ‘06

“The panic looks done for now”

9,775

Sensex

“Might the markets be ready to surprise us on the upside?” “Expect another leg of stock market rally” “A 6,000 Apr-06

Aug-07

Dec-08

We have no compulsion to issue breathless market calls like TV channels or brokers, who make money by getting you to trade frequently. We are a fortnightly magazine. But we don’t issue market calls every fortnight. Moneylife market calls are infrequent. But they have been reasonably accurate so far. But, of course, the past is no guide to the future.

Sensex.indd 2

8/5/2011 9:56:22 PM

13-26 Aug'10 18-31 Dec‘09

23 Apr-6 May'10

The Coming Decline

Short-term Top?

4-17 Dec‘09

Time To Sell? 19 Jun-2 July ‘09

15-28 July ‘11

Headed Down?

“Is the market about to crack?”

Signal Yellow? 6 Nov-19 Nov ‘09

11-25 March '10

“We have no Forecast”

A Buyers’ Market

31 July-13 Aug ‘09

15 Jan ‘09 27 Feb-12 Mar ‘09

“Buy the dip”

ss has resurfaced” “A Breakdown?”

30 Jan-12 Feb ‘09

“A weak rally now”

Dec-08

13-26 Mar ‘09

“Another weak rally”

Apr-10

Aug-11

Moneylife Stock Analysis

KNOW WHAT’S COMING

Sensex.indd 3

8/5/2011 9:58:35 PM

Insurance Trends New products, regulations, features and options, interpreted from your perspective

boosters (non-guaranteed) and GTB (guaranteed terminal benefit). The minimum and maximum age at entry is 25-65 years for a 6-year PT and 25 to 60 years for an 11-year PT. The maximum age at maturity is 71 years. The payout period is 10 years after PT. The minimum monthly income is Rs2,000pa and thereafter in multiples of Rs500.

PENSION ULIP T R A DI T I O NAL P L AN

Low Returns, Decent Death Benefit Will the lure of monthly income work?

ax New York Life Insurance has launched a traditional non-participating money back insurance plan, called ‘Guaranteed Monthly Income Plan’ which promises regular income flow. Consumers can choose either a 6-year or 11-year policy term (PT), depending on their financial goals. It comes with a low guarantee of less than 2%pa even after including the guaranteed terminal benefit (GTB) of 200% of premium for the 11-year variant. The 6-year PT option pays 150% of premium as GTB. The brochure does give an example with non-guaranteed monthly income boosters which may enhance the return to 5.5%pa. But the actual performance will only unfold in the future. The product may offer low returns from an investment angle, but there is an insurance benefit in case of death, which has to be borne in mind. It offers comprehensive death benefit to ensure that the policy objectives are fulfilled. In case of death before the PT, all the

premiums paid by the policyholder prior to death are immediately paid to the nominee in full. Starting from the next policy anniversary after intimation of death, the chosen guaranteed monthly income starts and continues till the end of the PT. The full payout period of 10 years will pay the nominee guaranteed monthly income, monthly income boosters (non-guaranteed) and guaranteed terminal benefit. In case of death after completion of PT, the nominee gets in the payout period the outstanding guaranteed monthly income, monthly income

New Avatar IRDA changes tack

he Insurance Regulatory and Development Authority (IRDA) had earlier mandated all pension products to ensure a guaranteed rate of 4.5%pa which was also indexed to the reverse repo rate of the Reserve Bank of India (RBI). Most insurers stayed away. LIC (Life Insurance Corporation of India) was the only insurer offering a regular pension ULIP (unit-linked insurance ``

INT ERVIEW

“We want to retain our record of low claim rejection” Rituraj Bhattacharya, head–market management & product development, Bajaj Allianz Life Insurance, speaks to Raj Pradhan of Moneylife ML: What is the typical customer attitude towards insurance? RB: The Indian customer is less aware of the risk of dying early. Term insurance is yet to interest them. In tier-II and tier-III cities, if I try to tell them that for Rs2,500 you will get a large cover in a term policy, the response is: What do I get when the policy ends? The customer is looking for returns—life cover is a by-product. People are becoming aware of ‘human life value’ and are beginning to get more interested in term life insurance. Today, in open forums people do ask— how much insurance should I buy? ML: Will you come up with a low premium term plan? RB: We will launch a new term life product, but one should not judge it solely

MONEYLIFE | 25 August 2011 | 48

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INSURANCE TRENDS

` plan) while a few others offered

a single-premium pension ULIP. Growth in sales of pension products nosedived after September 2010 from over 30% to less than 5%. We were intrigued about why there would be a problem for insurers in guaranteeing a return as low as 4.5%.

IRDA has since reviewed the position and proposes to expand the option of pension products. It is examining the possibility of allowing insurers the flexibility to fix the guarantee on maturity of such products. A pension product will have an assured benefit disclosed at the time of sale. The assured benefit is an amount in

absolute terms which becomes payable on the vesting date. On the date of vesting, the balance amount remaining after commutation of one-third of the fund value will be utilised to purchase the pension, guaranteed for life, at the then prevailing annuity rate. It is unclear whether the changes introduced will make it attractive for buyers or whether it remains a dud. This is because insurers still have to offer some guarantee and IRDA mandates annuitisation of two-thirds of the fund on maturity or surrender. The guarantee offered by insurers may be less than 4.5% and, hence, the customer may be worse-off than today. Insurers will offer guarantee on invested capital, but it will ensure that insurers will continue to invest their corpus heavily in debt funds. It may not be enough for customers who can easily get a high interest rate of close to 9% annually today even for a long-term fixed deposit of 10 years.

` on the price point. General insurance products are one-year contracts; auto

insurance can be especially price sensitive. Life insurance is a long-term contract. Some insurers have very aggressive premium pricing for term insurance. It will impact the way claims are treated. Low premium will lead to stringent claims processing, else it will result losses for insurers. ML: Are you saying that insurers may cross the line and reject genuine claims? RB: No. How does an insurer evaluate claims? What is their tolerance to disclosure? Is it no tolerance or reasonable tolerance to customer disclosure at the time of taking the policy? Nothing comes free. There is a price to be paid. It will reflect in the price at which you offer a product. ML: How will you differentiate term insurance offers? RB: We don’t want to be aggressive providers of term insurance. It should be a reasonably priced product— to manage claims as well as be commercially viable for the company. ML: Online term plans are cheap because educated people are net-savvy and they are expected to live longer… RB: These are all assumptions. Only when insurers do claims analysis, will we know. We want to do what is fair for customers and retain our record of low claims repudiation.

Fine Print Aviva Dynamic P/E Fund

he Fund has been launched for providing protection and creating wealth over the long term for investors. It is based on the mantra of selling when the markets are high and buying when the markets are low. If only markets behaved that way! All products based on such fixed rules end up making little money.

Ownership Changes Don’t Matter for Auto Insurance

“C

ompulsory insurance of the vehicle is meant for the benefit of third parties. The liability of the owner to have compulsory insurance is only in regard to third party and not to the property,” the Supreme Court has said in a recent judgement. This means that insurance companies are bound to pay even if the offending vehicle’s ownership has changed. The law does not say that the new owner has to go for a fresh insurance policy.

Future Generali Simplifies Motor Insurance Claims

uture Xpress+ is targeted at those who wish to get their loss assessed and claim finalised on the spot with an option to get their vehicle repaired at a workshop of their convenience. And Future Xpress is targeted at those who wish to get their vehicle repaired on priority, at lower costs coupled with personalised service from the insurer. Future Xpress and Future Xpress+ simplify the process through segregation of smaller claims that can be treated differently at multiple touch points.

49 | 25 August 2011 | MONEYLIFE

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PERSONAL BUSINESS AUTO

Improved public transport is making more people park their cars at home, while local fuel-efficient small autos are gaining traction globally, says Veeresh Malik

AU TO SAL ES

Exports Up, Local Sales Splutter

he past few weeks have been interesting for the Indian auto industry. On one side, the expected boom in exports of fuel-efficient cars, bikes and commercial vehicles seems to be zooming, if advance information from friends in the shipping and car carrier ship industry is to be believed. However, domestic sales of private vehicles appear to have nosedived—especially in metros—caused by better public transport in some and rising fuel costs and lower resale values in others. Most important, the government has banned purchase of new vehicles, apart from essential services. Here is some anecdotal evidence: 1) The low-key inauguration of the extension of the Delhi Metro line from Anand Vihar (East Delhi) to Vaishali (Ghaziabad, Uttar Pradesh) has visibly reduced the traffic jams at what used to be called ‘UP Gate’ on the Delhi-UP border. It appears to have brought over a hundred thousand people, who were previously entering and leaving Delhi by road, on to the Metro. Friends also tell me that in Hyderabad, the blue-coloured Metro trains appear to be taking people off the roads. Reports of better public transport have come my way from almost everywhere lately, even from Patna—except Mumbai. Not too long ago, Mumbai had the best public transport in India; I lived and worked there for years without ever feeling the need to own a car or a bike. 2) Another low-key announcement by Mercedes-Benz,

saying that you can join the ranks of the WaBenzi in India by leasing a brand new Merc for three years at 50% of its value, has not been analysed the way it should have. What it says, effectively, is that the resale value of your high-end luxury car will not be more than 50% after three years. The VW Phaeton, made famous by Amar Singh using one when heading for Delhi Police’s Crime Branch, reportedly sells at a Rs25-lakh discount on its sticker price of Rs75 lakh—and this car shares a platform with the much costlier Audi A8 and Bentley Continental, so what that will do to resale values, can only be imagined. 3) On the upside, exports of quality small cars are going through the roof. A few analysts feel that between VW, Hyundai, Nissan, GM and some others, this export boom will help some manufacturers push a price war in the domestic market to an extent where exports will partly subsidise domestic sales. This is likely to happen most of all in the small diesel hatchback segment—and the launch of the GM Chevrolet Beat diesel at an opening price of Rs4.29 lakh ex-Delhi is sure to impact the market. The main target will be Maruti, whose new Swift is round the corner and is expected to cost more than the present Swift/Ritz combo. Tata Motors is expected to be the unpredictable factor here, too, as it has managed to be in the luxury car segment.

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PERSONAL BUSINESS AUTO

THE CHEV R O L ET BEAT

Tough To Beat It’s got all the newfangled bells & whistles and is not a guzzler

he new diesel Chevrolet Beat from General Motors looks like it will create more than a flutter. The Beat is what many consider to be a ‘new generation’ design, appealing to the youth looking for all the gadgets possible and with some interesting functional elements which make driving it a pleasure. Agreed, it is slightly tight in the boot space department and the radical design does not appeal to many. But the three-cylinder, 936cc diesel engine appears to be a winner, with an additional benefit—lower maintenance & operational costs compared with the traditional four-cylinder package that we find in some other popular diesel hatchbacks. There also is a school of thought that three-cylinder engines are not properly ‘balanced’, causing higher noise and vibration—a legacy of the Skoda Fabia misadventure. Fair enough, but, as times move on, so does technology; and the VW Punto is a valid example. A quick short drive revealed that this was not a factor that would impact my ‘buy/no-buy’ decision if I were in the market for a new small diesel hatch. The car was smooth enough and, at that price, what more do you want along with fuel economy and reasonably peppy

the extra power provided while, in reality, a good turbocharger boosts fuel economy tremendously). On the very day that General Motors killed the Hummer Brand, after trying hard to find a buyer, it probably launched the smallest diesel car in the world, certainly its smallest diesel car, the Chevrolet Beat. Says something.

T H E N E W FO R D FI E S T A

Pricey Ford seems to be planning to use India as an export hub

he launch of the new Ford Fiesta, by contrast, was a bit of a disappointment. It was timed more or less with the global launch—but that is not a favour anybody is doing to the Indian customer any more. Across product lines, we expect to be right up there, with the world—so Ford India, stop pushing that angle. The car is priced way above other cars in its category— Honda City, Hyundai Verna, VW Verna, Maruti SX4, etc. Here one school of thought is that Ford plans to use India more as a production base for exports of the new

THE GM DIESEL CHEVROLET BEAT Good fuel economy, peppy drive

THE ‘NEW’ FORD FIESTA This vehicle is priced above other cars in its category

power? In addition, unlike the turbo kicking in at 2,000rpm (revolutions per minute) in the Maruti Swift diesel which admittedly does give a breathtaking ‘kick’, the turbo in the Beat diesel appears to unspool more gently at a lower rpm—which is going to be brilliant for fuel economy. (The turbo charger’s technical name is ‘economiser’ in other industries; but, in the automobile industry, the focus has traditionally been on hyping up

Fiesta—a strategy which Nissan appears to be following, too. Ford apparently has a very interesting skill-sets development programme, to build up a bank of welltrained Indian engineers who will do what the Japanese and South Koreans did decades ago—send engineers abroad to newly emerging countries along with their vehicles. Now, this is a rather interesting approach.

Veeresh Malik started and sold a couple of companies, is now back to his first love—writing. He is also involved actively in helping small and midsize family-run businesses re-invent themselves.

51 | 25 August 2011 | MONEYLIFE

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LEGALLY SPEAKING SD ISRANI

S E C U R E D DEBE NT URE S

How Secure Are Secured Debentures? A ‘secured’ debenture does not necessarily imply that your investment is secure

any small investors have burnt their fingers in the stock market and would like to keep a safe distance from equity. Experts advise them to opt for investment in corporate debt instruments. There is a belief that debt instruments are safer than investment in equity and that these offer assured and regular returns. In theory, there cannot be any argument with the fact that an investment in a debt instrument would be safer compared with investment in equity. Besides, investors can also look forward to regular receipt of interest on the investment. Debentures are one of the most widely used debt instruments by companies. There are several types of debentures but, basically, there are two kinds of debentures, viz, secured and unsecured. A company is permitted to issue secured debentures in accordance with the provisions of the Companies Act. A listed company has to follow SEBI’s (the Securities and Exchange Board of India) regulations. The term ‘secured debenture’ tends to raise visions of an instrument in which the amount invested would not be lost as it is ‘secured’. In other words, investors tend to believe that investment in secured debentures is safe, as the company creates a charge on its assets, thereby assuring the investors that their moneys are safe. Is that the reality? Are secured debentures really secure? First of all, every investor needs to realise that there is nothing like a totally safe investment. Every investment entails a degree of risk which would vary, depending on the nature, terms & conditions of the instrument, background of the promoters, etc. Even assuming that secured debentures are issued by the best of companies in the country, there is no guarantee that the debentures will be redeemed on their due date or will be redeemed at all. Regulators are aware of the pitfalls of these so-called ‘secured debentures’ and have been taking steps to strengthen the law. Provisions have been made more stringent for companies intending to issue debentures. For example, a listed company cannot make a public or rights issue of debt instruments without obtaining a credit rating which has to be disclosed prominently in the offer document. A trust deed has to be executed by the issuer company in favour of the debenture trustees (who also

have to ensure the creation of the mandatory debenture redemption reserve) within six months of the closure of the issue. The trustees are also sought to be made more accountable to ensure that they protect the interests of investors. Similarly, the merchant banker is required to file with SEBI, along with the draft offer document, a certificate from the company’s bankers that the assets on which security is to be created are free from any encumbrances. Alternatively, a ‘no-objection certificate’ (NOC) has to be obtained from the financial institutions or banks for a second or pari passu charge in case the assets are encumbered. The trustees have been assigned certain duties under the Companies Act. A debenture trustee has to ensure that: (a) The lead financial institution monitors the correct utilisation of funds raised through debentures. (b) The lead bank for the company monitors the debentures raised for working capital funds. In addition, the trustee is required to obtain a certificate from the company’s auditors: (i) In respect of utilisation of funds during the implementation period of projects. (ii) In the case of debentures for working capital, the certificate has to be obtained at the end of each accounting year. In fact, the law also requires debenture trustees to supervise implementation of the conditions regarding creation of security for debentures and the debenture redemption reserve. An investor should not be misled by the fact that when a debenture is secured, it means it is a foolproof investment. Even reputed managements can let investors down, as has happened in several cases, over the years. A secured debenture only offers you parity with other secured creditors at the time of liquidation of the company. So remember, unless you are cautious, even secured debentures can fail to protect your investment.

SD Israni is a corporate lawyer. Email: sdisrani@vsnl.com

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Learn the basics of saving and investing

Earning Curve

MU T U A L F U N D INVE S T ING

How Many Schemes Should You Have? After all, most large-cap diversified funds go for the same blue-chip stocks

iversification is a risk management strategy where an investor spreads investments across a wide range of companies and sectors. He diversifies his risk if a firm or sector fails. One of the easiest ways to diversify is through ownership of mutual funds rather than stocks. But investing in many funds, without knowing the objective of each, can cause ‘diworsification’. Peter Lynch, legendary stockpicker, coined ‘diworsification’ to describe a company that expanded into businesses beyond its core competencies. The same can be said for an investor who overdiversifies his investment portfolio by investing in too many funds. One reason why having a portfolio with more schemes does not mean better returns, is because large equity diversified schemes often invest in the same stocks or sectors. Continued investment in multiple schemes with similar objectives, investment style and market-cap segments may lead to having the

same underlying stocks, sectors or assets in a portfolio and lead to risk addition. If the underlying stocks or sectors start witnessing a dip, overdiversification would not help the investor’s portfolio. So what is the ideal number of schemes one should invest in? Morningstar, a Chicago-based independent investment research company constructed hypothetical portfolios ranging from 1 to 30

American mutual funds in all possible combinations. It then calculated the five-year standard deviation for each of those portfolios to estimate the risk and volatility. Single fund portfolios had the highest standard deviation and, hence, greater risk. A few funds delivered either the biggest gains or heaviest losses. Adding a fund to the portfolio reduced standard deviation considerably. Returns were lower, but downside was lower too. However, after four funds, the effect of adding another fund diminished. Investors should diversify within the combination of

three to five equity funds covering a range of stocks belonging to different segments and market-cap as per their investment objective. The Morningstar report stated, “The more funds you own, the more likely you are to own at least a couple that do practically the same thing. That could be a drag on your returns because if you have multiple funds doing the same thing, one is likely to be better than the others. Focus on the superior fund and you’ll get better returns.” This was a research on US funds, but the Indian scenario is not very different. Analysing the top 10 holdings of 215 equity diversified mutual fund schemes, we find that 316 stocks are the most preferred for the schemes that have disclosed the names of their invested stocks. Ten or more schemes had top 10 of their picks in just 47 companies. A total of 10 firms are present in 50 and more schemes. These schemes invest nearly half their assets in the top 10 holdings. Most schemes have similar portfolios with overlapping firms; take note before investing. One of the ways schemes keep getting added to portfolios is when investors chase funds that have become star performers. This may be very risky as most funds do well when markets are on a bull run. Many funds would have overlapping stocks or sectors. Investors buying multiple investments run by the same fund manager also run the risk of having the same investment style—with no benefit. Another drawback: managers never change strategies. Even if there is no stock overlap, one may still be overexposed to one or two market sectors. Make sure about the total exposure to each market sector. Two funds may own different tech stocks, but sector-wise movement may be similar, yielding similar results for the investor.

53 | 25 August 2011 | MONEYLIFE

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8/5/2011 9:15:47 PM

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BOOKS

T H E F I LT E R BUBBL E

Big Bother How the Internet flow controls you

f you have not heard about a company called ‘Acxiom’, read this: “Acxiom knows about 96% of American households and half a billion people worldwide; the names of their family members, their current and past addresses, how often they pay their credit card bills, whether they own a dog or a cat (and what breed it is), whether they are right-handed or left-handed, what kind of medication they use (based on pharmacy records)... the list of data points is about 1,500 items long.” And Acxiom knew more than the US authorities about the details of the 9/11 conspirators— and their friends. That’s the frightening power of Internet today. It has already become easy for totalitarian regimes around the world to police their people. The next time you rattle off your ‘Status Update’ on Facebook, keep these lines in mind from Eli Pariser’s What the Internet is Hiding from You: “In exchange for the service of filtering, you hand large companies an enormous amount of data about your daily life—much

T H E J O U R NE Y OF INDIAN M IC RO-F INANC E

Lender Benders The journey of an industry that lost its way

fter the spate of suicides that hit rural Andhra Pradesh, forcing the state government to promulgate an ordinance, most people have been taking fairly rigid positions on the microfinance sector. It was shocking for most people, that micro-financiers, who had basked in the halo of Muhammad Yunus, and who were perceived as saviours and benefactors of the rural poor were, at best, only a shade less usurious than moneylenders. Microfinance has quickly turned into the Indian equivalent of rapacious subprime lending, where the easy availability of funds (under priority sector advances and private equity funding) saw the sector increasing rural indebtedness and driving people to suicide. The Andhra Pradesh (AP) legislation stopped the industry in its tracks. Eventually, a Reserve Bank of India subcommittee (Malegam sub-committee) was set up to create a regulatory framework for this sector—its

of which you might not trust friends with.” Leave alone friends, break-ins have been reported in the US where a person updates his ‘status’ with some such entry like: “Going to LA for a summer break. Will sure miss NY, but not a lot.” “Imagine a future,” the author quotes Nicholas Negroponte, whose brainchild was the MIT Media Lab, “in which your interface agent can read every newswire and newspaper and catch every TV and radio broadcast on the planet, and construct a personalized summary. This kind of newspaper is printed in an edition of one... Call it the Daily Me.” Of course, Google News is the Daily Me. But is it really You? Do you really want your search THE FILTER algorithm to keep a tab on BUBBLE every click you make and dish ELI PARISER out what it feels will be most Penguin Viking suitable to the surfer? Pages 294; Rs550 This is one book that ``

effectiveness is yet to be seen. The Journey of Indian Micro-Finance: Lessons for the Future by Prof Ramesh S Arunachalam is a timely addition to the current international debate on the subject. The author is a self-confessed supporter of this industry; but he takes a close, unbiased look at all its aspects in this comprehensive book. Although it has the design, size and layout of an academic tome, the tone of the book is journalistic, making it an easy and engrossing read for academics and practitioners as well as students. It takes a critical look at dubious practices in microfinance, but is also appreciative of the industry’s contribution. ``

THE JOURNEY OF INDIAN MICROFINANCE RAMESH S ARUNACHALAM AAPTI Publications Pages 612; Rs960

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BOOKS

` packs all of what the Internet is. Right from dumbing

down of news content—a few newspapers are actually working backwards... they look at which terms pull in the maximum search results, and carry “items with the most-popular lists (which) get a bit more crass.” Pariser recounts how the Los Angeles Times’ most read story in 2007 was about the world’s ugliest dog. If traffic ends up dictating coverage, who decides what is a ‘hot’ story? A famine in Africa or Lady Gaga’s latest single that sold (millions) over the Internet for a cent? Should the highest common factor or the lowest common denominator decide? The author touches upon numerous concepts— confirmation bias, the tendency to believe things that reinforce our existing views, to see what we want to see. That’s where the ‘filter bubble’ effect kicks in. As Pariser says, “the proportion of content that validates what you know goes way up (in search rankings, and the algorithms only reinforce this basic human fallacy.” General knowledge, the ability to co-habit, creativity, innovation and, what the author calls, the ‘solution horizon’ are all affected by the ‘filter bubble’. Simply put, this is one of the best books on the Internet so far—and it will be a very tough act to follow. — Devarajan Mahadevan

` Prof Arunachalam goes into the history of microfinance

in India, through the ignored warning bells, to the events of 2010—the turning point was the successful initial public offering of SKS Microfinance. The book is in two parts. The first part is the story of Indian microfinance, from the growth of the industry, the ‘Krishna crisis’ and other warnings, to the rogue AP micro-financiers and the SKS success story, to the contagion, AP’s move and the Malegam report and the implications of all these for the industry. The next half is an academic discussion on various aspects of the business, covering corporate governance, management systems, internal controls & audits, issues and lessons of multiple lending, and how loan officers work towards client acquisition. It ends by suggesting practical steps that could help the industry regain credibility and become the prime mover in inclusive growth. The writer is not a rabid critic. His voice is that of a supporter anguished over an industry affected by the “pressures of commercialisation and incentives gone terribly wrong, the lack of sufficiently regulatory/ supervisory attention and the rigid stand of some state governments.” — Sucheta Dalal

super trader

Trade off An excellent work for beginners as well as advanced traders

ne of the most difficult things in the world is successful short-term trading. Over the short term, market moves are random, and stocks have a nasty way of inflicting losses when you are least prepared. Worse, our normal psychological traits (hope, greed, confidence, etc.) are all inimical to successful trading. To be a good trader one has to have a certain mindset which has to be developed from scratch—we are not born with it. The trouble is, it usually takes a while to even understand this, by which time you could have suffered large losses. We don’t know if coaching helps but Van K Tharp has made quite a career out of teaching people how to trade well, focusing on the psychological aspects of trading. Naturally, it starts with a section on working on yourself. Tharp wants you to do an honest self-appraisal, define what kind of trading type you are and take personal responsibility for your profits and losses. He has several useful tips such as writing down SUPER TRADER your beliefs, learning to dissociate VAN K THARP from market action and the Tata McGraw-Hill discipline needed in meeting your Pages 285; Rs695 goals. After this, Tharp takes you through the process of developing a plan for your trading which comes from understanding the ‘big picture’, fixing tactical trading strategies and setting down daily procedures. He covers all the critical things that novice traders tend to miss such as worst-case contingency plan and the need to mentally rehearse your disaster plan. A plan is followed by a trading system that suits you and fine-tuning stock selection, entries and exits. Tharp then devotes a whole chapter to the crucial aspect of ‘position-sizing’. Making money is not just about choosing the right stocks at the right time. It is also about how much to put behind each idea. It is a science without which you may be largely ‘right’ but still end up making losses. This is an excellent work for beginners and advanced traders alike. — Debashis Basu

57 | 25 August 2011 | MONEYLIFE

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SPENDING TRAVEL

MCLEOD GANJ & DHARAMSHALA

Little

Lhasa India

Jaideep Mukerji discovers this Himalayan paradise with its elegant mixture of British heritage and Tibetan Buddhist tradition MCLEOD GANJ: VIEW FROM THE TOP NAMED AFTER SIR DONALD MCLEOD, WHO WAS LIEUTENANT-GO VERNOR OF PUNJAB FROM 1865 TO 1870 AND ONE OF THE FOUNDERS OF THE PUNJAB UNIVERSITY

he north Indian state of Himachal Pradesh is a colourful tapestry of different ethnic groups, religions and landscape, which vary from the rice-growing plains of Palampur to the snow-covered peaks of Lahaul and Spiti. It takes several trips to Himachal to see some of this incredible diversity. One of the fascinating corners of this mountain state, which can easily be reached, is McLeod Ganj. Named after Sir Donald McLeod, lieutenantgovernor of Punjab from 1865 to 1870 and one of the founders of the Punjab University, McLeod Ganj

is the headquarters of the exiled Tibetan government and home of His Holiness the Dalai Lama. The town is divided into two distinct parts. The lower town, called Dharamshala, has civil offices and business establishments with courts and the main market, while the upper part, 9km away, comprises McLeod Ganj and Forsyth Ganj. Since 1960, when it became the headquarters of the Dalai Lama, Dharamshala has risen to international fame as â&#x20AC;&#x2DC;The Little Lhasa in Indiaâ&#x20AC;&#x2122;. With the backdrop of the snow-clad Dhauladhar Mountains

of the Lower Himalaya, McLeod Ganj is set amidst forests of pine, Himalayan oak and deodar. The tallest peak of the Dhauladhar Range, Hanuman Tibba, about 18,500feet (5,639metre) high, lies immediately behind it. Originally home of the semi-nomadic Gaddi tribe, the settlement developed as a British garrison in the mid19th century and continued to grow steadily in the coming years. By 1904, McLeod Ganj and Dharamshala had become important centres of trade, commerce and administration for the entire Kangra district and the town developed as ``

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SPENDING TRAVEL

` a hill station where the British spent

the hot summers. Lord Elgin, viceroy of British India (1861–63), liked the area so much that he even suggested at one point, that it be made the summer capital of India instead of Shimla. The British heritage of McLeod Ganj, overlaid by the strong Tibetan influence acquired since 1960 when the Dalai Lama settled here following his escape from Tibet, is what gives the town its interesting character and unique mix of cultural sites to explore. At the end of a pleasant drive on a narrow road through forested slopes lies the part of town called Forsyth Ganj. The Anglican Church of Saint John in the Wilderness was built here in 1852. Set amidst a deodar forest, and built in neoGothic architectural style, the church is known for its Belgian stained-glass windows donated by Lady Elgin (Mary Lambton), wife of Lord Elgin, whose grave is located in the churchyard. The final resting place of Lord Elgin is located in the yard of the church. Bruce Elgin, Earl of Kincardine, served as governorgeneral of Canada and later became governor-general and viceroy of India in 1861. He died of a heart attack in November 1863, and was buried here. Numerous Elgin Roads and Elgin Streets in Canada, India and Hong Kong are named after him, as is the Lord Elgin Hotel in Ottawa. Lord Elgin’s summer residence, called Mortimer House, was acquired by the government of India to become the official residence of the Dalai Lama. Though the main church structure survived a 1905 Kangra earthquake, the church spire and bell tower were destroyed. The earthquake killed close to 20,000 people and destroyed most buildings in Kangra, McLeod Ganj and Dharamshala. Later, a new bell, built in 1915 by Mears and Stainbank,

was brought from England and installed outside in the compound of the church but the bell tower and spire were never rebuilt. From a piece of British India, I went on to visit the colourful, lively legacy of Tibetan presence in McLeod Ganj. An important example of the Tibetan architecture in the town is the Tsuglakhang or the Dalai Lama’s temple. The magnificent images of the Shakyamuni Buddha,

Since 1960, when it became the headquarters of the Dalai Lama, Dharamshala has risen to international fame as ‘The Little Lhasa in India’

Avalokitesvara, the Tibetan deity of compassion, and that of Padmasambhava, who brought tantric teachings to Tibet in the eighth century, are located here. The temple also has a collection of sacred Buddhists texts called the Khagyur based on the teachings of the Buddha and a collection of works on Tibetan art, philosophy, literature, astrology and medicine. For reasons of security, photography is restricted in this area. Within easy walking distance is the Tibetan Museum, established with the aim of presenting Tibet’s history and vision for the future through texts, photographs and videos. The Chonor House is the best place to stay, conveniently located near the main Tibetan temple adjacent to the Dalai Lama’s residence in the heart of McLeod Ganj. Set amidst tall deodar trees, the Chonor House is removed from the hustle and bustle of the town. It was designed and built by British architect David Porter in a style intended to blend with the natural environment of the hills overlooking the Kangra valley. Each of the 11 rooms is beautifully decorated according to a unique Tibetan theme. `` PEACE & TRANQUILLITY A WALK DOWN ONE OF MCLEOD GANJ’S LEAFY LANES

59 | 25 August 2011 | MONEYLIFE

Travel.indd 3

8/5/2011 9:22:43 PM

SPENDING TRAVEL

ESSENTIAL NTIAL FACTS Why Go There: Spring and autumn are the best seasons to visit McLeod Ganj as you can get the clearest views and pleasant temperatures. It can be wet during the monsoon months. In winter, you can enjoy better views of snow-capped mountains and clear blue skies.

THE NORBULINGKA THE SUMMER HOME OF HIS HOLINESS THE DALAI LAMA

Not far from the lower town of Dharamshala, in a place known as Sidhpur, is located the magnificent complex of buildings known as the Norbulingka, set amidst beautiful gardens, surrounded by green fields, standing against a backdrop of the snow-capped Dhauladhar Mountains. The original Norbulingka, located in the outskirts of Lhasa, was the summer palace of the Dalai Lamas who spent part of the year there amidst the gardens and fountains well removed from the austere surroundings of the Potala Palace. Founded by the Department of Religion and Culture of the Central Tibetan Administration, the present Norbulingka Institute contains the Centre for Arts, the Academy of Tibetan Culture, the Literary and Cultural Research Centre and the library and

publications department. The Norbulingka Foundation was established in 1995 for preservation of the ancient art practices of Tibet, especially crafts. Built according to a traditional Tibetan style, the Centre for Arts offers training in Tibetan statuemaking, thangka painting, printing, appliqué and tailoring, wood carving, wood and metal craft. The Academy of Tibetan Culture, established in 1997, offers a sixyear course of higher education in educat traditional Tibetan studies. The T Norbulingka Institute also has h the two-storied ‘Seat of Happiness Happin Temple’ built in 1985 and set se amidst the Japanese-inspired Norbulingka Norbu gardens. It is known for its 1,173 murals of the Buddha, frescoes fresco of all the Dalai Lamas and drawings dra chronicling the life of the 14th Dalai stands the Lama. In the main hall stand statue of 12-feet high gilded copper st made by the Buddha Shakyamuni ma statue-maker, the Institute’s master statuethe largest Pemba Dorje, and one of th such statues outside Tibet. Around the temple are workshops of artisans and various apprentices who produce va Norbulingka gift crafts sold at the Norbulin Tibetan shop for the benefit of Ti refugees. The landscapers have made use of the existing rocks, and the trees, flowing water an terracing of the land, tto create

Getting There: By air from Delhi to Gaggal airport and then by road to Dharamshala. By train to Pathankot and then a two-hour drive by taxi to Dharamshala. Where To Stay: Travel arrangements in McLeod Ganj can be made through the Himachal Tourism Development Corporation’s website or directly through the hotels. The Chonor House can be contacted by phone or e-mail to request booking on 01892/22-1468, 01892/22-1006, or e-mail chonorhs@norbulingka.org.

a semblance of a Japanese garden around the Institute buildings where nature flourishes and tranquillity prevails. Also within the premises is the Losel Doll Museum with a unique collection of 150 costumed dolls depicting the regional, official and monastic costumes of Tibet. In the nearby Tibetan Children’s Village school, children who have escaped from Tibet are provided with a Tibetan-orientated education, clothes, food and healthcare. For a quick getaway to an easily accessible corner of the Himalayas where you can experience a variety of cultures and cuisines, McLeod Ganj is without parallel. — With Veeresh Malik

THE FINAL RESTING PLAC PLACE OF LORD ELGIN MONEYLIFE | 25 August 2011 | 60

Travel.indd 4

THE EARL OF KINCARDINE SER SERVED AS GOVERNOR-GE NERAL OF CANADA AND LATER ENERAL AND VICEROY OF INDIA IN 1861 BECAME GOVERNOR-GGENERA

8/5/2011 9:23:20 PM

Living

Lifestyle

Leisure

Wellness

Indian Magsaysay Winners

mer’s Exercise. Stall Alzheimer’s

ccording to the Alzheimer’s Association ation of America, seven lifestyle behaviours ours contribute to three million cases. Thesee include: physical inactivity, depression,, smoking, mid-life hypertension, mid-life fe obesity, low education and diabetes. “About About one third of the US population is sedentary; ntary; a large number of Alzheimer’s cases are re related to physical inactivity,” said researcher earcher Deborah Barnes, associate professor off psychiatry at the University of California. ia. “Simple lifestyle changes like quitting smoking could have a dramatic impact on the number of Alzheimer’s cases over time,” she said. aid.

On the Block

Hobbies

People

WELLNESS

VINTAGE CARS

People

lifestyle

Blues & Lows

wo Indians, Nileema Mishra, a social activist from Maharashtra and engineer Harish Hande, were awarded the Ramon Magsaysay award for 2011. They are among the six persons in Asia given the award. Ms Mishra has worked for empowerment of women in Maharashtra and formed self-help groups of over 2,000 women in 15 villages. Harish Hande’s solar electric light company SELCO has lit up over 120,000 households in Karnataka, to emerge as India’s leading solar technology firm.

Food & Wine

Goa: Port ort No More

ome men like their denim to sag. But they have to hang on to their waist, or they can end up looking wasted. A New Jersey online retail firm has the answer—with jeans that can snap into boxer shorts. Longer jerseys might have been a better bet!

“

They are living like parasites off the global economy and their monopoly of the dollar” — Vladimir Putin Russian Prime Minister

Edited & Compiled by: Devarajan Mahadevan & Shukti Sarma

Your Life2_142.indd 1

our wine shop may not stock urite cheap Goan port your favourite ituto dos Vinhos do anymore. Instituto Douro e Porto (IVDP) of Portugal, the international regulatory body for Port gal action against Indian wine, plans legal rtified wines produced in Ports. Only fortified the Porto and Douro region conforming to IVDP rules can be called Port wine. IVDP’s legal department says it filed n two years ago with an application international trade bodies to register Porto for protection in pect action soon. India, and expect South Africa, Australia and Chile have already bowed before ut 250,000 cases the IVDP. About oduced in Goa of Port are produced hich is 25% of the and Nashik which e production. domestic wine

61 | 25 August 2011 | MONEYLIFE

8/6/2011 7:51:44 PM

ML FOUNDATION EVENTS

PYRAMID SCHEMES & MLM s

Spotting Pyramid Schemes and MLMs At a Moneylife FoundaƟon workshop, Sucheta Dalal warned of any scheme that asks you to introduce more members to get extraordinary returns

n 23rd July, speaking at a workshop on “Understanding Pyramid Schemes” organised by Moneylife Foundation, Sucheta Dalal, trustee, explained why we should avoid pyramid schemes and multi-level marketing schemes (MLMs) and how to spot them. She gave the example of Citi Limouzine, which managed to dupe around 6,000 policemen, and a few income-tax and Reserve Bank of India (RBI) officials, as well as officials from Mantralaya (headquarters of the Maharashtra government). She also cited the example of a Jaipur-based scheme—a firm called PACL—that claimed to have collected a huge Rs20,000 crore and is hiring top lawyers to turn its fraudulent business into a legitimate one. On Speak Asia, the Ponzi scheme that has been in focus, with promises of returns of 500%, Ms Dalal regretted that the government and the RBI had not taken strict action so far, despite banks reporting suspicious transactions to the finance ministry. Quoting the US Securities and Exchange Commission, Ms Dalal said, “The hallmark of pyramid schemes is the promise of sky-high returns in a short period, for doing nothing other than simply handing over your money to them, and getting others to do the same.” She also explained how various schemes like Speak Asia, Timeshare, Ad Review, JapanLife Mattresses and the recently-closed Nano Excel, managed to dupe investors. They pay the early few investors on time the promised amount which encourages more investors—mainly friends and family— to invest, and then the schemes collapse. Ms Dalal explained that MLMs claim to be less dangerous than pyramid schemes because they have an actual product to sell. However, only a few make money. The scorecard of MLMs is characterised by massive failure rates (over 99.5%) and financial losses for millions, Ms Dalal said. She attributed this to deceptive

marketing, misplaced beliefs and social & personal needs that are used as promotional tactics by MLMs, using cult-like sales techniques. Unemployed youth and housewives are the biggest target group of MLM companies. She pointed out that the Direct Selling Association was lobbying with the US, saying that they are not pyramid schemes. The Indian Direct Selling Association, (members include Amway, Oriflame and Modicare), has been trying to show that there is a distinction between pyramids and MLMs and is lobbying with the government to get them out of the Prize Chits & Money Circulation Schemes (Banning) Act which makes these activities illegal. Amway, GoldQuest and Herbalife use film stars for promotions, have political connections, and tie up with NGOs to gain popularity and legitimacy. “The problem with the Act is that the police refuse to lodge complaints until there is actual loss of money. And the companies pretend that it is not investment but sale of product/service to escape liability,” Ms Dalal said. Several countries, including the US, the UK and Singapore, where Speak Asia is registered, have banned pyramid schemes. She also explained various Supreme Court judgements relating to Ponzi and pyramid schemes. Moneylife Foundation has demanded a ban on pyramid schemes and argued that MLMs should be brought under the regulation of the RBI or the Securities and Exchange Board of India (SEBI). It has also demanded that the Act must be administered by SEBI and complaints of new schemes must be lodged with this regulator before people suffer losses. A participant commented that she is convinced that there is no harm in investing in MLMs as she is satisfied with the MLM products she buys. Ms Dalal said, “A lot of people are convinced, but will start to complain only when the company vanishes.”

MONEYLIFE | 25 August 2011 | 62

Event.indd 2

8/6/2011 4:57:04 PM

MONEY FACTS STOCKS

INDIAN MARKET TRENDS

FUND FLOWS

The Sensex and the Nifty tumbled 5% each in the fortnight. Among other indices, the ML Mega-cap Index, the ML Microcap Index and the ML Small-cap Index declined 4% each. The ML Large-cap Index and the ML Mid-cap Index fell 3% each.

Foreigners: Foreign institutional investors were net sellers of stocks (Rs97.20 crore) in the fortnight. They pulled out funds totalling Rs23,215.80 crore.

Share Prices, February 2011=100

525 259

125

-7 -273

115

FII Net Investments (Rs Crore)

-539 105

-805 25 Jul-11

4 Aug-11

Indians: Domestic institutional investors were net buyers of equities (Rs1,860.31 crore). They pumped in Rs12,480.55 crore in the fortnight.

85 Feb-11

May-11 ML Large-cap ML Mid-cap

ML Small-cap ML Mega-cap

Aug-11

DII Net Investments (Rs Crore)

320

ML Micro-cap

Nifty Sensex

425

215

Index

22 Jul

4 Aug

+/(-)

MLLarge-capIndex

120.73

116.91

- 3%

MLMi d-capIndex

109.75

106.24

- 3%

MLMega-capIndex

106.55

102.53

- 4%

MLMi cro-capIndex

97.15

93.24

- 4%

MLS mall-capIndex

104.45

99.88

- 4%

GLOBAL MARKET TRENDS

5,633.95

5,331.80

- 5%

69,300

18,722.30

17,693.18

- 5%

Nifty Sensex Mega-cap Gainers/Losers IdeaC ellular

22 Jul

4 Aug

Change

85.40

97.05

14%

869.15

685.10

- 21%

110 5 -100

25 Jul-11

4 Aug-11

66,000 62,700 59,400

JSWS teel

Bovespa 56,100

Large-cap Gainers/Losers

22 Jul

4 Aug

Change

Cox& K ings

198.60

235.45

19%

IndiabullsR ealE state

114.90

92.15

- 20%

Mid-cap Gainers/Losers

22 Jul

4 Aug

Change

Warren Tea

306.45

512.85

67%

67.90

52.60

- 23%

IVRCL Small-cap Gainers/Losers

22 Jul

4 Aug

Change

IFB AgroInds

80.60

139.35

73%

KanoriaC hemicals & Inds

54.05

40.25

- 26%

Micro-cap Gainers/Losers Cinevistaas CrewB OSP roducts (AllP ricesi nR s)

22 Jul

4 Aug

Change

3.85

5.85

52%

86.30

53.40

- 38%

52,800 Feb-11

May-11

Aug-11

All global indices settled lower. The Bovespa dived 12%, the Dow Jones Ind Avg tumbled 10%, the FTSE tanked 9% and the Nikkei declined 5%. Index

22 Jul

4 Aug

+/(-)

Hang Seng

22,445

21,885

- 2%

2,771

2,684

- 3%

Shanghai Composite Nikkei

10,132

9,659

- 5%

Taiwan Weighted

8,765

8,317

- 5%

Korean Composite

2,171

2,018

- 7%

FTSE

5,935

5,393

- 9%

Dow Jones Ind Avg

12,681

11,384

- 10%

Nasdaq Composite

2,859

2,556

- 11%

60,270

52,811

- 12%

Bovespa

63 | 25 August 2011 | MONEYLIFE

Money Fact.indd 2

8/6/2011 5:21:39 PM

MONEY FACTS STOCKS

What’s H

ML SECTORAL TRENDS

Stocks of telecom service companies were in demand in the fortnight. Idea Cellular jumped 14%, Bharti Airtel gained 3% and MTNL rose 1% while Tata Communications and Tata Teleservices fell 4% each.

ML Telecom Service Index

Companies

22 Jul

4 Aug

+/-

IdeaC ellular

85.40

97.05

14%

RCom

93.60

99.20

411.15

424.05

1,200 1,135 Bharti Airtel

1,070

MTNL

1,005

TataC ommunications

940

44.10

44.65

220.40

212.50

- 4%

Tata Teleservices

875 Feb-11

May-11

21.80

20.90

Aug-11

Stocks of real-estate companies suffered in the fortnight. BL Kashyap & Sons tumbled 21%, Indiabulls Real Estate sank 20%, Ansal Properties & Infrastructure tanked 18% and Unitech fell 14%. 22 Jul

4 Aug

BLK ashyap& S ons

19.25

15.25

-21%

ML Real Estate Index

IndiabullsR ealE st

1 14.90

92.15

-20%

2,850

AnsalP rop& Infra

44.70

36.55

-18%

156.50

129.70

-17%

HDIL

+/-

IVRCL Assets& H lds

46.15

38.85

-16%

OrbitC orporation

43.00

36.50

-15%

PuravankaraP rojects

82.15

70.15

-15%

AnantR ajInds

86.50

74.10

-14%

Unitech

35.60

30.65

-14%

KolteP atilD ev

48.05

42.75

-1 1%

2,690 2,530 2,370 2,210 2,050 Feb-11

Telecom Services

4% Airlines

Pap& P aperP roducts

2% RealE state

- 13% - 10%

Healthcare

1% Con_EPC_Infra

- 10%

Hotels

0% Steel

- 9%

Foods& B ev

0% Trading

- 8%

INSIDER TRADES

N T

Companies

ML Sectoral Trends

-4%

AllP ricesi nR s

What’s

Shares of telecom companies climbed 4%, paper & paper products advanced 2% and healthcare stocks rose 1%, while those of hotels and food & beverages sectors remained unchanged. Airline stocks plunged 13%, real estate tumbled 10% and steel companies fell 9%.

May-11

Aug-11

AllP ricesi nR s

BULK DEALS Date

Company

Buyer

Seller

Rs Cr

3 Aug-1 1

RainbowP apers

ChintanP areshB hagat

Paresh N Bhagat

9.08

1 Aug-1 1

ITP eople

EitbizIndi aP vt

Taib Bank EC

4.19

3 Aug-1 1

DalmiaB haratS ugar

StellarInvts

Dharti Invt and Hlds

3.05

25Jul -1 1

GoenkaD iamond

VPP atel

Primus Real Estates Pvt

1.41

27Jul -1 1

AsahiS ongwon

ShreeJai salE lecand Inds

Rajesh Nuwal (HUF)

0.93

3 Aug-1 1

KineticMotor

AjinkyaH oldingsP vt

Kinetic Engineering

0.35

25Jul -1 1

GujaratMedi

SunnyR Thakkar

Juhi R Vakil

0.22

D Reddy, MD, Oriental Hotels, bought 35,252 shares in the company (stake up to 3.48%). Naveen Jindal, MD, Jindal Steel & Power, bought 4,00,000 shares in the company (stake up to 0.27%). Pujit Aggarwal, MD & CEO, Orbit Corporation, bought 6,00,000 shares in the company (stake up to 21.05%). Sanjay Gupta, whole-time director of C&C Constructions, bought 30,131 shares in the company (stake up to 2.11%). Coffee Day Resorts Pvt Ltd bought 9,00,000 shares in MindTree (stake up to 7.98%). Dinesh Shahra (HUF) bought 60,000 shares in Ruchi Soya Industries (stake up to 5.55%). Heena Kalantri, director projects, Man Industries, bought 83,141 shares in the company (stake up to 2.31%). Reliance Capital Trustee bought 1,00,000 shares in Talwalkars Better Value Fitness (stake up to 9.08%) Genesis Asset Managers, LLP sold 2,00,000 shares of SKS Microfinance (stake down to 4.84%). Ashish Kapadia, MD, Delta Corp, sold 1,31,526 shares of the company (stake down to 0.09%). Darshana Thacker, ED, Hotel Rugby, sold 3,85,055 of the company (stake down to 52.67%).

MONEYLIFE | 25 August 2011 | 64

Money Fact.indd 3

8/6/2011 5:21:49 PM

MONEY FACTS COMMODITIES

INDEX TRENDS

COMMODITY TRENDS

MCX Commodity Indices

Onion

Particulars

22 Jul

5 Aug

Change

52- Week High

52- Week Low

Agri

2,791.64

2,847.59

Metal

4,714.06

4,629.56

-2%

2,989.16

2,170.21

4,926.75

Comdex

3,550.36

3,397.02

3,360.26

-4%

3,739.05

Energy

3,121.06

2,778.88

2,682.24

- 11%

3,585.96

2,434.89

COMMODITY FOCUS MCX Silver Futures (Rs/kg) 73,000 66,800

oor rains in major onion growing regions of north Maharashtra and delay in kharif sowing has resulted in higher retail prices. Reports from Maharashtra and Gujarat indicate that kharif sowing has been delayed by a month and the new onion is expected to arrive by October (instead of September); prices are expected to remain high until then. The wholesale price of onion at Nashik has increased to Rs900/quintal from Rs750/quintal in just two months. During the same period, the retail onion prices across all major cities have increased.

60,600

Coffee

54,400

48,200 42,000 Jan-11

Apr-11

Aug-11

On 4th August, silver prices for September delivery rose by 1% to Rs61,800/kg, with a business turnover of 2,914 lots on the Multi Commodity Exchange. Silver for December delivery moved up by 0.92% to Rs63,021/kg, with a turnover of 82 lots. Market analysts said reports of a firming trend in global markets, exacerbated by worries about the spreading euro zone debt crisis and slowing global growth, fuelled demand for the precious metal as an alternative investment, pushing up the prices of silver futures.

MCX PRICE TRENDS Particulars

Active Contract

19Jul2011

2 Aug2011

Change %

High

Low

Global Commodities

ndia’s coffee exports rose sharply by 38% to 145,505 tonnes until July of the current fiscal due to strong global demand and high international prices, according to the Coffee Board of India. India had shipped 105,345 tonnes during April-July in FY1011. In value terms, they have increased to Rs1,977 crore, against Rs1,031 crore during the year-ago period. Domestic exporters have been able to fulfil the global orders because of higher domestic production which stood at 302,000 tonnes in FY10-11.

SilverR s/kg

Sept-1 1

59,255

59,326

0.12

75,543

41,513

Cotton

GoldR s/10gm

Aug- 11

23,040

23,552

2.22

23,629

20,181

CrudeOi lR s/barrel

Aug- 11

4,412

4,164

- 5.62

5,346

4,114

CopperR s/kg

Aug- 11

440.45

430.75

- 2.20

461.10

391.60

LeadR s/kg

Aug-1 1

123.35

114

- 7.58

124.05

109

ZincR s/kg

Aug- 11

110.60

108.05

- 2.31

111.25

NickelR s/kg

Aug-1 1

1,081.60

1,098.90

1.60

1,113.60

984

NaturalGasR s/mmBtu

Aug- 11

202

184.60

- 8.61

227.70

184.10

MenthaOi lR s/kg

Aug- 11

1,124.80

1,115.30

- 0.84

1,158

817.50

CPOR s/10kg

Aug-1 1

481.60

488

1.33

538.80

466.10

SugarMK olR s/100kg

Aug- 11

2,771

2,681

- 3.25

2,855

2,530

Potato AgraR s/100 kg

Aug-1 1

458.30

456.20

- 0.46

480.10

415

CardamomR s/kg

Aug- 11

868.10

830.40

- 4.34

1,130

801.50

Others

he Directorate General of Foreign Trade has notified the restoration of incentives on export of cotton & cotton yarn following a sharp decline in prices of the commodities. The restoration of duty entitlement pass book scheme on cotton yarn is on a retrospective basis from April 2011 and on cotton from October 2010. The government had withdrawn the tax refund benefit on cotton & cotton yarn in April 2010. Under the scheme, exporters are given a refund of the tax on the import content of their export products. 65 | 25 August 2011 | MONEYLIFE

Money Fact.indd 4

8/6/2011 5:22:00 PM

BEYOND MONEY

learning with A DIFFERENCE Disha Shah learns about the working of ChildRaise Trust which is committed to the empowerment of children with special needs and adults with disabilities

CHILDRAISE TRUST B/9, Jaldevi Niwas, New Karnatak Buildings, Mogul Lane, Mahim, Mumbai 400 016 Helpline: 18002 21203 www.childraise.com childraisetrust@gmail.com

n 1984, Kavita Shanbhag, a Reserve Bank of India (RBI) employee, suffered a fit of epilepsy on the delivery table. Two years later, when she conceived her second child, it happened again. With a third attack in 1992, she enrolled with an epilepsy support group called Sanman. Meanwhile, she realised that her son had a muscle motor coordination problem. Wanting to help him, she took a year’s leave and studied for a BEd in special education. The experience opened up a new world altogether. She had to run from pillar to post to find information on epilepsy and dysgraphia. But her efforts paid off, enabling her to help her son at the initial stage. This hardship motivated her to start an NGO, ChildRaise Trust (CRT). On 3 December 2001, the International Day of Persons with Disabilities, she launched CRT’s website with funding from Unity Infraprojects Pvt Ltd. Running its operations from home, the information she had collected over the years on cross disability was uploaded on this portal. To reach housewives, she compiled and published a book Journey to Empowerment: A Roadmap for Special Children in 2004, with the help of English Edition Publishers. Today, CRT provides information on epilepsy, cerebral palsy, autism and physical disabilities. It is a roadmap committed to the empowerment of children with special needs, adults with disabilities and parents. “My focus is on providing information to parents for early intervention,” says Ms Shanbhag, who is also a managing trustee of CRT. She says, “Many children who come to me are in class one or two and they have such acute problems of cross disability that they can’t decode alphabets or even three-letter words.” Making parents aware that there is a website on multiple disabilities was a task because the usage of the Internet was limited back then. Ms Shanbhag took voluntary retirement from RBI in 2007 to

devote her time to CRT. Since therapists can’t provide life-long support and the cost of treatment is high, CRT aims at providing subsidised help. Liaising with other NGOs as its knowledge partners, CRT provides remedial education. “When we feel a child needs advanced help, we guide the parents to our knowledge partners since being independent in daily activities is important,” Ms Shanbhag says. CRT provides an areawise list of schools and therapists and informs parents about workshops. Funding is a still a problem for CRT; people donate money, books, toys and craft materials. Ms Shanbhag wants to reach out to more schools to provide training to parents and teachers on effective learning skills. To deal with special needs and disability issues for children and elders, she conducts a one-on-one session of an hour. She uses programmes like the visual auditory kinaesthetic tactile method, functional academics and life-scale training for special children. She charges parents according to their financial status. Psychology students can work as volunteers after undergoing training with Ms Shanbhag. She has a team of psychologists and para-professionals who assist her on a regular basis. To reach out to more people, CRT is registered with Just Dial, so disability queries are forwarded to them. One day, she received a call from an aged male who, while expressing his grief, started crying; this is when she realised the importance of a human voice. With this incident in mind, she has started a helpline called DISHA-Disability Helpline and Action with the corporate social responsibility centre of Unity Infraprojects. Every year, to spread knowledge, CRT organises seminars on World Autism Day, Purple Day and Disability Day. Speaking about CRT’s future plans, Ms Shanbhag says, “I want to translate and print all the material available in Marathi and other vernacular languages so that I can reach out to more people locally.” She also wants to provide facilities like daycare centres, respite homes, gymnasiums and recreational activities for children with disabilities.

MONEYLIFE | 25 August 2011 | 66

Beyond_money.indd 1

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