You have got to pay more for your MF investments

SEBI has approved a hike in Expense Ratio ceiling by 25 basis points. Expense ratio is annual fee which is charged by AMC from MF schemes which it manages. This decision will make Big Fund houses smile as there income will increase at the cost of small investors' pocket. So called objective of this change is to help fund houses to tread during these turbulent times. 


Can't understand how an inefficient, distributor friendly and investor unfriendly industry will thrive by charging more to investors. The basic reason for woes of MF industry is its inefficiency which culminates into high expense ratios. India still does not have a good low expense ratio Index fund. And Now SEBI by allowing more charges is only making industry more inefficient...nothing else... 


However, One Good thing which SEBI has done is to make rule of clawing back Exit Loads charged to respective schemes which was earlier going into pockets of MF companies.

Tax Free Bonds - IRFC and Hudco - should you invest?

2012 has brought back season of tax free bonds again in indian markets. there are two issues which are upcoming.

1) IRFC tax free bonds : IRFC is dedicated financing arm of Indian Railways Its sole objective is to raise money from market to part finance the plan outlay of Indian Railways. Company's performance has been rated has excellent for eleven years in row the Department of Public Enterprises.

Interest rates :-

 For Retail/HUF (investment below Rs. 5 Lacs) - 8.15% and 8.30% p.a. for tenure of 10 and 15 years respectively

For HNI/QIP - 8% and 8.20% p.a. for tenure of 10 and 15 years respectively



Credit Rating :-  AAA by Crisil and ICRA
 
Can NRI invest? :- Yes
 
2) HUDCO tax free bonds
 

Housing & Urban Development Corporation Ltd. (HUDCO) is a public sector company fully owned by Govt. of India for financing of housing and urban infrastructure activities in India. HUDCO was incorporated on April 25, 1970 under the Companies Act 1956. The cardinal objective of HUDCO is to undertake housing and urban infrastructure development programmes in the country, provide long-term finance for construction of houses for residential purposes in urban & rural areas

Interest rates :-

For Retail/HUF (investment below Rs. 5 Lacs) - 8.22% and 8.35% p.a. for tenure of 10 and 15 years respectively

For HNI/QIP - 8.10% and 8.20% p.a. for tenure of 10 and 15 years respectively

Credit Rating :- AA+ by Crisil

Can NRI invest? :- No


 Interest rates are expected to fall in future. thus above instruments are providing good returns because interest earned is tax free. Investment is advisable based upon risk profile of investor. 

Rupee got a new symbol

Finally, Rupee also has symbol like other major global currencies. Rupee is fifth currency in the world to have its own unique symbol. Other currencies are US Dollar, British Pound, Japanese Yen and Euro. This symbol is designed by Mr. D Uday Kumar who is an IIT post graduate. Lets have a look at the symbol.

According to Mr. Kumar, its first two horizontal lines with a white space in between give impression of Tricolor national flag. Further, 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.

Objective of having a unique symbol is to recognize the growing importance of indian economy in global space and to have a distict identity from currencies of neighbouring like pakistan and bangladesh who also use same symbol "Rs." to represent their currencies.

How to identify multi bagger stocks -Graham number

Frankly speaking, there is no sure shot formula to identify multi bagger stocks. Reason, very simple, because it all lies in future. One can never say with certainty which company is going to perform greatly in future. But in this world of uncertainty, we have few tools available with us which can guide us. Graham number is one of them.

Actually, Graham number cannot tell which company is going to perform in future, instead of this, it basically helps to identify undervalued stocks which may provide great returns when their true value is recognized by market. Graham number is basically is the price at which a stock is a value buy.

Graham number = Sqr. root [ 22.5 x Book Value per share x Earnings per share]

If any stock is available below graham number, it is a good buy.

Book value per share = (Assets - external liabilities)/ no. of outstanding shares

Earnings per share = PAT / no. of outstanding shares

Disclaimer :- Graham number should only be used in context. There may be other reasons for a share  trading below graham number. thus, a buy decision cannot be made just on the basis of graham number, other surrounding facts and things are equally important.

New Base Rate system - Trying to bring Transparancy in lending Rates

Ever wondered how banks decide interest rates to be charged on different loan products they offer? There has always been a widespread feeling that Indian banks do not have any transparent system to price their different loan products and they try to cross subsidize one business vertical to other and it is not linked to actual risk factors associated with that. In simple terms Mr. X will pay higher interest so that Mr. Y can pay lessor. To address this, In November, 2003, RBI brought in the concept of BPLR which stands for Benchmark prime lending rate. Every bank is free to fix its BPLR depending upon its cost of funds and various other factors. This was supposed to play a role of reference rate which would be used to price the lonas. Banks were supposed to price their Loans on BPLR plus some margin depending upon the risk characteristics of particular product.

Why BPLR system replaced by Base rate system?

very simple, it failed to serve the purpose it was brought in. Most of the banks still lent money at a sub BPLR rates. calculation procedure was also very vague thus every banker had their own methods of calculating BPLR

New Base Rate system


while the objective of RBI was same this time also. emphasis was to address all those issues because of which BPLR system failed to play its supposed roles. Main Difference is how to calculate base rate. unlike BPLR system which was not transparent, calculation of Base rates all those cost elements which can be directly identified and are common across all borrowers. Essentially, New calculated Base rate will represent the bare minimum rate below which lending will be clearly inviable for banks.

Implication of New Base Rate System

• Bringing Transparency: Displaying Base rate will be mandatory at all branches of bank. Any changes in base rates need to be communicated to common public immediately.
• Big "No" to cross -subsidization: Banks generally tend to cross subsidize Big corporate loans at the expense of retail borrower. This practice will stop now.
• Loan against FD: Generally Banks provide Loans against FDR issued by them by charging just 1 or 2 % more than the FDR interest. But once Base Rate system in place, this practice will stop. So it will be big impact on small businessman who usually draw temporary loans against their FD.
• No More Teaser Rate Loans: New Base Rate system shall effectively stop the practice existing in home loan segment i.e issuing Loans at Teaser rates. Home Loans which have very artificially low rates for initial years.

To sum up, We can expect a positive change will happen in Indian Banking system if this new system is applied in its true spirit.

Choosing Mobile Broadband

Easiest and probably fastest way to access internet, now a days, is to use mobile broadband. With the revolution of telecommunication sector in India, a number of telecom operators are providing mobile broadband services. BSNL, Reliance, TATA Tele, Airtel are major players.

Among above also, Reliance and TATA Tele are the most preferred choice and Telecom sector in India is witnessing big war among two leading brands Reliance Net connect and TATA photon+.

I have made an honest attempt to compare the two, and tried to find out which one is better for an average user like me.

Particulars	Reliance Net Connect	TATA Photon +
Cost of Modem	2299/-	2299/-
Tariff Plan - Prepaid	Rs. Data Validity	Rs. Data Validity
	250/- 300 MB 30 Days	200/- 250 MB 20 Days
	500/- 700 MB 30 Days	450/- 512 MB 30 Days
	715/- 1 GB 30 Days	650/- 1 GB 30 Days
	935/- 3GB 30 Days	1000/- 4 GB 30 Days
	1210/- 5GB 30 Days	1250/- 10 GB 30 Days
	1379/- 10GB 30 Days	1500/- 15 GB 30 Days
	1500/- 6 GB 3 months	2000/- 20 GB 60 Days
	1925/- 15 GB 30 Days	3050/- 30 GB 90 Days
	3000/- 18 GB 6 months
	330/- 2 GB 15 Days
	200/- 1 GB 1 Week
Tariff Plan - Postpaid	Rental Data Addl Usage	Rental Data Addl Usage
	299/- NIL 1/- Per MB	299/- NIL 0.5/- Per MB
	499/- 512 MB 0.5/- Per MB	400/- 400MB 0.5/- Per MB
	650/- 1 GB 0.5/- Per MB	650/- 1GB 0.5/- Per MB
	750/- 2 GB 0.5/- Per MB	800/- 2.5 GB 0.5/- Per MB
	850/- 3 GB 0.5/- Per MB	950/- 5 GB 0.5/- Per MB
	1099/- 5 GB 0.5/- Per MB	1250/- 10 GB 0.5/- Per MB
	1250/- 10 GB 0.5/- Per MB	1650/- 15 GB 0.5/- Per MB
	1750/- 15 GB 0.5/- Per MB	2000/- 20 GB 0.5/- Per MB
Special Night usage Plans Postpaid
Plan -1	1298/- 10GB day and 10 GB night 0.5/- Per MB
Plan-2	499/- 10 GB night 0.5/- Per MB
Add on Pack	199/- 10 GB night (for plans of 650/- and more)

I decided in favor of Reliance Netconnect because of following plus points:

· Prepaid tariff structure of Reliance net connect is more rational. If somebody has low usage requirement, he can have only a voucher of Rs. 250 and can have a full month access to internet. Further you have few high data but short validity plan vouchers also in Reliance which are not there in TATA photon+

· In case of Postpaid tariff also, Reliance presents you more flexible structure. I specially liked night plan offered by Reliance which gives you download capacity of 10GB at merely 499/- monthly rental. I find it useful because of my office, I can use net only in night. You have amazing add on pack also where you get 10GB addl. Data capacity on payment of only 199/-

Thus, one can plan according to his specific needs

· So far as connectivity is concerned, when it comes to roaming, reliance network is far vast than TATA and it has reach to distant rural areas also.

Having said above, I would like to state few negative points also about reliance net connect. First of all, there is no availability of prepaid connection in Reliance web world as the time of posting this blog and nobody is committing when the fresh stock will come. Few dealers are charging excess amount for prepaid connection because of non availability in market. In addition, KYC norms of reliance are harder to comply with. I, myself have experienced it. Since I am not local, I live in rented house. But even after producing rent agreement, reliance web world people refused to issue a postpaid connection to me.

Life Insurance -Term Plan - What, Why and How

In india, life insurance has always been sold as investment product. From the days when LIC was the only player in life insurance player, emphasis was on endowment policies only. Thus importance of Term life insurance was always undermined.
As a result today also term plans form very small proportion of sales mix of any life insurance company. And in consequence, Indian public remain underinsured.
For protection point of view, you should have insurance cover of at least 10 to 12 times of your present earnings. Then only your family will be able to sustain current lifestyle in the absence of breadwinner of the family. This much amount of insurance, if you try to buy through endowment policy, 99% chances are you cannot afford premium. Here comes the role of term plan which offers you adequate insurance at very reasonable costs. Then what is the catch? The catch is unlike endowment policy at the end of policy term you get nothing. But the importance of adequate insurance can never be overstated. Term insurance is the absolutely basic and unadulterated form of insurance. The entire premium you pay goes towards covering the risk of death over a certain period of time.

Few points to remember when buying Term Insurance Plan
• The younger you are when you take out a term policy, the cheaper the premiums.
• Term Insurance Plans offer Tax benefits described in section 80C and section 10 (10 D) of the Income Tax Act.
• Term Insurance Premiums will not increase over the term, the longer the term the more money you save.


Selecting Best Term Plan
After opening up of insurance sector by government, now number of life insurers are available in the market. I have made small comparison table below so as to compare various options.
Below comparison is mainly on cost front and other qualitative factors such as claim service, claim ratio of particular life insurer have not been taken into account. (premiums are assuming applicant is 25 year old and buys 30 year term plan for a cover of Rs. 50,00,000 unless otherwise stated)
Life Insurer /Scheme Annual Premium
LIC OF INDIA – Amulya Jeevan 13650/-
HDFC Standard - 9603/-
Religare Agon-level term plan 10479/-
SBI Life - Shield 10647/- (25 yrs.)
Metlife -Suraksha 12464/- (25 yrs.)
TATA AIG Life – Life Assure life line 18900/- (25 yrs.)

If you see above list, we can conclude HDFC Standard life provides the term plan at very reasonable costs. But we cannot simply conclude in favour of HDFC, as all products are not same. Many insurers are providing different innovative options like SBI life, where while taking term plan you have option that sum assured can remain same throughout policy term, it may increase 5% each year or it may increase 50% each 5 yrs. Claim settlement ratio also a very important factor where LIC beats all other players. So final decision should be taken while keeping in view all factors.