Saturday, July 31, 2010

A Nice debate - An SIP or One-Time Investment?

An SIP or One-Time Investment?

If I continuously invest Rs 5,000 per month in an equity fund, is it possible to build a corpus over 15 years? Would I not make much more by investing it all at one go and holding on for that long? Would I need to change funds to keep the growth going?
— Ashwin Arora

Regarding the possibility of building a corpus over 15 years, it certainly is plausible. Even if you invest just Rs 5,000/month and earn an annual return of 12 per cent, you would end up with Rs 25.20 lakh at the end of 15 years.
Alright, that's theoretical. So let's look at some actual funds to see if this thesis holds up. I have taken a 15-year time frame and looked at a Systematic Investment Plan (SIP) of Rs 5,000/month over this entire period. The diverse line up includes some superstars as well as dogs. That's deliberate. It will convey a more realistic picture. As you can see, there is no arguing with the numbers. And even though the worst performing fund made money, the difference between the best and the worst is nothing short of glaring.
Your second question is interesting, and you may even be right, but look at the table below for a reality check. If you are looking at a one-time investment, you would first of all need to be in possession of capital, in this case Rs 9 lakh, that too 15 years ago. Once you overcome this hurdle, you would end up being a hostage to market timing. What if you had invested the money at the peak of the market cycle, say January 2008 when the Sensex was at around 21,000. Can you imagine the worth of your investment by December 2008 when the Sensex dipped to an abysmally low 8,500? Psychologically, the impact of seeing your investment reduce to half can be disastrous. The good thing about a systematic investment plan (SIP) is that it helps you ride the market upheavals to your advantage. And it does what you want, which is accumulate wealth over the years in a low-cost, transparent fashion without a strain on your finances.

Friday, July 30, 2010

Bajaj Corp Limited IPO

BRLM: Kotak Mahindra Capital Company Ltd
Issue Period: August 2 – August 5, 2010
For QIB: August 2 – August 4, 2010
For Retail : August,5, 2010
Face Value: Rs.5/-

Price Band: Rs. 630/- – Rs. 660/-
Lot Size: 10 Equity Shares and Multiples of 10 Equity Shares thereafter
Registrar: Karvy Computershare P. Ltd.
Issue: 45,00,000 Equity Shares
QIB Book: 27,00,000 Equity Shares (60% of Net issue size)
HNI Book: 4,50,000 Equity Shares (10% of Net issue size)
Retail Book: 13,50,000 Equity Shares (30% of Net issue size)

Thursday, July 22, 2010

NSE launches volatility index on real time basis.

Investors would now be able to hedge their portfolios against the risk arising out of volatility in the markets, with the National Stock Exchange launching its volatility index on a real time basis today. This is for the first time in the country that volatility index is being disseminated, on a real time basis.

The volatility index called the 'India VIX' depicts the expected market volatility over the next 30 calendar days. Higher the India VIX values, higher would be the expected volatility and vice-versa.

So far, the volatility index, expressed in a percentage figure, was shown at the end of the day. But now it will be displayed on a real time basis.

Once India VIX is available for trading after regulatory approvals, it will give a lot of security to investors and traders, who face uncertainty, because the new product will empower them with better information and foresight, NSE MD and CEO Ravi Narain said in a statement.

More importantly, it will give them the ability, to use the product to hedge their portfolios against the risk arising out of volatility. NSE will also be applying to the capital market regulator Sebi for permission to start derivatives on the index, after it has been tracked for a suitable period, the exchange said.

Once the futures and options start on the index, investors whose portfolios are affected by volatility in the market can use the product to hedge their risks. India VIX is a volatility index based on the index option prices of NSE's benchmark index Nifty.

Before starting derivatives on the volatility index, the index will be disseminated on a real time basis, so that market participants can understand the behaviour of the index, before trading on it.

Volatility refers to the amount of uncertainty or risk about the size of changes in a security or index value. A higher volatility means that a scrip's value can potentially vary over a larger range of values. This means that the price of the security can change dramatically.

A lower volatility means that a security's value does not fluctuate dramatically, but changes in value at a steady pace over a period of time.



Thursday, July 15, 2010

A good news : Rupee has a symbol! IIT-ian's design selected

Finally, the Rupee has a symbol like other major global currencies! In a historic event, a five-member jury set up to finalise symbol for the rupee selected the design presented by IIT-ian D Udaya Kumar. The Union Cabinet approved the symbol on Thursday noon. Speakin...g to on Thursday, a proud D Udaya Kumar said: "My design is based on the Tricolour, with two lines at the top and white space in between. I wanted the symbol for the Rupee to represent the Indian flag.

It is a perfect blend of Indian and Roman letters: a capital 'R', and Devanagari 'ra', which represent rupiya, to appeal to international and Indian audiences." "I worked on it for few months and made numerous designs. Finally, I shortlisted 8 to 10 designs and then refined them further till I got this one," he said. "I got to know of my design having been chosen to represent the rupee from a media report. It is proud moment for me.

But I cannot rely on a media report alone as I have yet to get a confirmation from the finance ministry," he said, keeping his fingers crossed. "I will be joining the design department at IIT-Guwahati on Friday, and am looking forward to hearing the good news," he added.See

Long-term infra bonds offer additional tax relief

TO BOOST the investment in the infrastructure sector/projects, the Finance Act, 2010, had introduced a new section 80CCF under the Income Tax Act, 1961 (‘the Act’) to provide for an income tax deduction for subscription in longterm infrastructure bonds (‘bonds’), as notified by the central government. The deduction can be claimed by an individual or a Hindu Undivided Family of up to Rs 20,000 from the taxable income in respect of the amount paid or deposited as subscription for bonds during the FY 2010-11.


The central government has now notified that the bonds issued by Industrial Finance Corporation of India, the Life Insurance Corporation of India, Infrastructure Development Finance Company and a non-banking finance company classified as an infrastructure finance company by the Reserve Bank of India (RBI) would qualify as long-term infrastructure bonds. These bonds will be eligible for the purpose of claiming a deduction u/s 80CCF of the Act.


An individual or a HUF can claim a deduction of up to Rs 20,000 from the taxable income by subscribing to these bonds. It effectively means that for the taxpayer who is in the highest tax bracket of 30%, he will be able to save tax up to Rs 6,180, including applicable education cess, annually and in lowest tax bracket of 10%, he will be able to save tax up to Rs 2,060.


The deduction of Rs 20,000 in respect of subscription to the bonds is in addition to the overall deduction of Rs 1 lakh available under other provisions for claiming tax deductions. These include Section 80C wherein deduction can be claimed in respect of life insurance premium, contribution to recognised provident fund/public provident fund, repayment of principal amount of housing loan, etc. Section 80CCC deduction is in respect of contribution to certain pension funds and Section 80CCD deduction in respect of contribution to pension scheme of the central government.


The tenure of the bonds will be a minimum 10 years with a lock-in period of five years for an investor. After the lock-in period, the investor may exit either through the secondary market or through a buyback facility as specified by the issuer in the issue document. The bonds can also be pledged for obtaining loans from specified banks after the lock-in period. Furthermore, it is mandatory for the subscriber to furnish his PAN to the issuer of the bonds.


The final details in respect of the interest and other terms and conditions are to be prescribed by the issuer of the respective bonds. However, it is important to note that it has been specified by the government that the yield of the bond shall not exceed the yield of government securities of corresponding residual maturity as reported by the Fixed Income Money Market and Derivatives Association of India as on the last working day of the month immediately preceding the month of the issue of the bond.


The proceeds from these bonds shall be utilised by the issuer towards infrastructure lending as specified by the Reserve Bank of India. Furthermore, the issuer of these bonds is required to submit necessary details to the government/regulatory authority in respect of the end use of these funds.


These long-term infrastructure bonds offer an additional window for making tax saving investments of up to Rs 20,000. However, there is a long gestation period with a minimum five year lock-in and also that tax savings are not substantial due to the overall limit for claiming the tax deduction. Nevertheless, any tax-saving investment tool is always welcomed by the common tax payer!

Monday, July 12, 2010

SEBI directs MFs to have uniform exit load

The Securities and Exchange Board of India (SEBI) has directed mutual funds (MFs) to have a uniform exit load — a fee charged for early redemptions — for investments through the lumpsum route as well as systematic investment plans (SIPs). The securities market regulator communicated this to mutual funds in a briefly-worded letter without providing any reason, according to two officials at two different fund houses.

“We usually waive off the exit load for large investors, who invest a lumpsum, as the situation demands. In the case of SIP, we charge an exit load as per the period mentioned in the prospectus,” said a top official at a private mutual fund.

Prospectus of asset management companies (AMCs) says an exit load of 1% will be charged in case the investments are redeemed before a year. Most AMCs do not charge exit loads for investments over Rs 3-5 crore.

“It is the retail investors who usually tap the SIP route and a load on early exits is a deterrent against redeeming money before they can start showing returns,” the mutual fund official quoted above said. “Also, it’s a structure that suits the business,” he said.

This directive, among its various recent decisions, is seen as SEBI’s attempts to push mutual funds to shift their business focus on servicing more retail investors, drawing hushed protests from the industry.

“SEBI is getting into micro-management of the industry nowadays. It is getting all the more difficult to run the business,” said a senior official with another private mutual fund.

Last week, the market regulator reiterated its concerns over mutual funds charging higher expense fees in schemes meant for retail investors compared to the same product for institutions. Mutual funds offer two versions or plans — institutional and retail — of the same scheme. Higher expense fees could result in the institutional plan of a scheme fetching slightly higher returns than the retail version of the same scheme. 

Thursday, July 8, 2010

2-wheeler makers must give helmets

The Supreme Court has made it mandatory for two-wheeler manufacturers to supply helmets that conform to the Bureau of India Standards while selling scooters and motorbikes to customers. The helmets will be sold through the dealers. A bench headed by Justice G S Singhvi on Wednesday dismissed a petition

filed by Society of Indian Automobile Manufacturers (SIAM) that had sought reversal of a Delhi High Court judgment giving the direction.

The bench said helmets were for the safety of customers and declined to entertain the plea that the order would force customers to have a collection of helmets.

“The high court judgment obliges a customer to purchase a helmet whenever he buys a new two-wheeler. This is despite the fact whether he possesses one or not,” contended senior advocate P.S. Patwalia, appearing for SIAM. He added the direction amounted to legislation.

To this, the bench said in a lighter vein: “There is no harm in having more than one helmet. It comes handy in situations such as taking part in protests, dharnas or even defending oneself during a fight with wife.”

The court added it was improper for it to interfere in an order that was meant for a public cause.

The Delhi High Court had on July 30, 2009, directed two-wheeler manufacturers to start selling helmets along with the vehicles. The direction came on a public interest litigation that asked the court to give directions to the companies to comply with one of the provisions of Motor Vehicles Act that mandates supply of helmets.

Tuesday, July 6, 2010

repo & reverse repo rates hiked by 25 bps.

Reserve Bank of India on Friday raised its key short-term interest rates by 25 basis points each, citing worries over inflation, nearly month ahead of its next scheduled review.
Wholesale price index (WPI) inflation rose to 10.2 percent in May, from 9.6 percent in April, exceeding expectations. The Reserve Bank of India raised its main lending rate, or repo rate, to 5.50 percent from 5.25 percent, and the reverse repo rate, at which it absorbs excess cash from the banking system, to 4 percent, from 3.75 percent, it said in a statement.

"There has been some moderation in food price inflation, but the price index of food articles continues to increase," the central bank said. "More importantly, the prices of non-food manufactured goods and fuel items have accelerated in recent months," it said.

The rate hike comes soon after the Indian government raised fuel prices that it said would lift inflation by nearly one percentage point.

The central bank said that while inflation and GDP growth data had been available by mid-June, it had been inadvisable to raise policy rates then as the financial system was dealing with liquidity pressures resulting from higher than expected payments for wireless spectrum in government auctions.

"It's a welcome move but probably RBI should have moved a little more aggressively -- not now, but earlier in April or May," said Jay Shankar, economist at Religare capital. "The rate hike quantum is okay as we have a liquidity crunch scene right now. But it has come too late," he said.

Source: Economic Times.

Monday, July 5, 2010

RNRL-RPower merger at 4:1 swap

Reliance Anil Dhirubhai Ambani Group (R-ADAG) company Reliance Natural Resources (RNRL) will merge with Reliance Power (RPower), another group firm, in a 4-for-1 share swap deal. After the merger, shareholder of RNRL will get one share of RPower for every four shares of RNRL held on the record date, the R-ADAG announced on Sunday after the board meetings.

As of Friday’s close of trading, RNRL was valued at nearly Rs 10,400 crore, while RPower's market capitalisation was almost Rs 42,000 crore, so jointly the combined market capitalisation is worth over Rs 50,000 crore. A statement from the R-ADA group said that the valuations were done by consulting major KPMG. The merger is subject to approvals from the shareholders of the two companies and also other regulatory nods. The completion of the merger could take about six months.

Post the transaction, RPower will have over 60 lakh shareholders, the largest number of shareholders for any firm, a company official, told TOI. According to the official, who did not wish to be identified, shareholders of both companies would benefit. "While RNRL would become part of a larger company, RPower would get the benefits of the gas supply agreement entered between RIL and RNRL," he said. On Friday, the two companies had informed the bourses that the boards of the two companies will consider the proposal for merger.

Given the share-swap ratio, market players expect RNRL's scrip price to slide when trading resumes on Monday, while RPower shares could trade flat. On Friday, RPower stock on the BSE closed at Rs 175, up 3.3% over Thursday's close, while RNRL, after an initial spurt, had finished the session at Rs 64, down 2%.

According to market players, the merger was necessitated by a recent Supreme Court verdict, which said that RNRL could not trade in gas received from RIL, and virtually turned the company into a shell company that will only act as a pass through vehicle for RPower.

RNRL is the company which is mandated to supply gas to RPower that will run the latter's electricity generation plants. Analysts feel that post merger, the combined entity will enjoy economies of scale since the supply of gas and also its usage will be controlled by one company. In effect, the marketing margins will also remain within RPower now.

In May, other than disallowing RNRL from trading in gas obtained from RIL, the apex court had also said that the gas it buys from RIL should be priced as per the government policy and not according to the private family agreement that the two Ambani brothers — Mukesh and Anil — had signed when they split their family businesses in 2005. Subsequent to the Supreme Court order on gas supply, the two brothers had prematurely ended the no-compete agreement that they had signed in 2005.

The no-compete agreement had clearly defined the businesses each could and also could not enter. R-ADAG has been able to restructure its group companies and in some cases would be able to infuse much-needed capital, like in the case of Reliance Communications (RCOM), due to the cancellation of the non-compete agreement.

RCOM had last week raised some money by demerging its towers business and merging it with GTL Infra. RCOM since then also bought out Mumbai-based Digicable.