Mantra NIFTY 5352 5449 SENSEX

					NIFTY 5352/5449   SENSEX 17833/ 18130                  1
                                              DOW 10198/ 0424   FTSE 5132/5312    NIKKEI 9585/9430                CRUDE 7542 /7722
                                                                                                                          .    .


              The world of personal finance                               Volume- 20 31 August 2010              Rs 30




             MONEY                                         Mantra




       Identify These Indian

       I NVESTORS


GOLD 18578/ 18496    SILVER 29176/29294         US DOLLAR 46.67 /46.94   POUND 70.51 /72.39                                 .
                                                                                                              EURO 58.91 /601.3
                                                                                  Rates indicate fluctuation between 10th July to 24th July 2010
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                                                                                                                              EDITOR’S NOTE




                                                                    Let Subbarao
                                                                    learn from
              Year : 01              Issue : 20
           DIRECTOR & PUBLISHER
           JYOTI NARAIN

           EDITOR
                                                                    Dr Singh
           AWANISH K MISHRA                                             Which is more high profile and confidential- cabinet meeting or the
                                                                    RBI board meeting? Obviously, it is the cabinet meeting which decides
                                                                    the fate of the nation as a whole. No doubt, the deliberations of cabinet
           EDITORIAL TEAM
           Kanchan Dass, Senior Sub editor
                                                                    meetings are marked top secret, the participants refrain from divulging
           Shilpy Arora, Senior Sub editor cum correspondent        any detail and each member of the cabinet abides by and supports the
           Alok Dwivedi, Sub Editor cum correspondent               decision so taken. Of course, the minutes are prepared, but not made
           Harish Kumar, Sub Editor cum correspondent
           Renu Baliyan, Sub Editor cum correspondent
                                                                    public. Now take the case of RBI. It has the convention of maintaining
                                                                    secrecy of board meetings. Deliberations are not made public and
                                                                    board members support the decision taken in the meet. Even if some
           GRAPHIC DESIGNER                                         members don't subscribe to the decision, they don't voice their dissent
           Harikrishan Pal
           Arun Sharma
                                                                    publicly.
                                                                        But recently, there have been a few exceptions. Union Home
           PHOTO                                                    Minister P Chidambaram voiced his anguish over not being allowed to
           Ravi Girota                                              use air strikes to combat Naxal menace. He spoke of 'limited mandate'
                                                                    to curb naxalism. Pranab Miukherjee, the senior most cabinet minister,
           CIRCULATION
           Sudhir Kumar Rai                                         observed that whatever was discussed in the cabinet meets should not
                                                                    be deliberated upon publicly. But Prime Minister Manmohan Singh
                                                                    neither took any harsh action against the PC nor let any of his col-
           ADVERTISEMENT                                            leagues humiliate him. It speaks of his political maturity, statesmanship
           Kamal Sharma
           Subhash Chaudhary                                        and a love for democratic approach to reach at a consensus.
                                                                    Incidentally, Dr Singh happens to be the former RBI Governor as well.
           HEAD OFFICE                                                  Now take another incident. RBI increased repo and reverse repo
           C- 125, Sector- 19                                       rate in its monetary policy declared on July 27. One of its deputy gov-
           Noida
           Uttar Pradesh                                            ernors was of the opinion that the approach of RBI should have been
           Email: editor.moneymantra@gmail.com                      more hawkish. He commented that "(interest) rates should have come
           Phone: 0120- 4710700                                     up much higher" and that "RBI is not the real monetary policy maker"
           Fax: 0120-4710728
           www. moneymantra.co.in                                   (hinting that the Finance Ministry dictated the extent of hike). Within
                                                                    hours of airing his opinion, he was stripped of all the important port-
                                                                    folios.
                                                                        Equate this with the aforesaid incident of union cabinet. Given the
                                                                    fact that K C Chakrabarty didn't lobby for the post of deputy governor
                                                                    rather he was persuaded for the post despite his outspoken nature,
                                                                    makes the action of RBI Governor D Subbarao all the more deplorable.
           Published by Jyoti Narain for
                                                                    In the US, the members of the Federal Reserve make their dissent pub-
           Pearls News Network Pvt. Ltd.from C-125,
           Sector- 19, Noida,                                       lic and decision is taken by voting. Why can't RBI adopt a more dem-
           Uttar Pradesh and Printed at MP Printers,                ocratic approach on the pattern of US Fed. Dr Chakrabarty is the only
           B- 220, Phase- II, Noida- 201305                         deputy governor with the RBI who has deep insight into commercial
           Disclaimer: Money Mantra is a personal finance           banking and who has been working tirelessly to bring some method to
           magazine and the financial solutions provided by         adminstrative madness prevailing in the regulatory body. He is a man
           different experts in this magazine are only sug-
           gestive in nature. Readers should take advice
                                                                    of unquestionable integrity and impeccable
           from their financial advisors before taking a final      sincerity. By trimming his portfolio,
           call. In no case, Money Mantra team or manage-           Subbarao has brought disgrace to his stature
           ment can be held responsible for financial loss
           caused to readers.
                                                                    once again.
                                                                        With best wishes,
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1
                  CONTENTS                                                     News Track
                  August 31, 2010                                              08 SEBI proposes new norms to
                                                                                                                               Investment
                                                                                  help MF investors
                   Volume 20                                                   08 More M-banking in future                   Stock & Commodity Banking
                                                                               09 Bank with India Post                       20 Demand for yellow                         46 Does your bank charge
                                                                               09 UTI MF on cell
                        ON THE COVER                                                                                         metal softens                                for it?
                                                                                                                                                                          In speed clearing, banks are not per-
                                                                                                                             As concerns over financial market sta-
                                                                                                                                                                          mitted to charge anything for the

                        IDENTIFY THESE
                                                                                                                             bility have receded, the price of gold
                                                                                                                             has shown signs of softening.                cheques of value up to one lakh
                                                                                                                                                                          rupees.
                                                                                                                             24 The upward move likely
                                                                                                                                                                          48 Key is caution
                                                                                                                             to sustain                                                                                 Special Report
                        INDIAN INVESTORS
                                                                                                                                                                          ECS has an edge over traditional
                                                                                                                             Investors are suggested to remain            cheque-centric processing systems
                                                                                                                             invested as the risk-reward ratio is still   which are comparatively expensive.            14 The friday effect
                                                                                                                             looking favourable.                                                                        There is a myth among investors and
                         India has been a nation of savers. Profligacy has                                                                                                                                              traders that major indices of stock mar-
                        been looked down upon and the saving habit has                                                                                                    Mutual fund                                   kets often get supported on the last
                                                                                                                                                                          52 Think before quitting                      trading day of the week.
                        been lauded as a virtue through most of our
                                                                                                                                                                          An exit load can have significant
                        fables and stories. In recent years, as the
                        Indian economy has grown rapidly and new
                                                                         36    10 Cashless facility available
                                                                                  for trauma
                                                                                                                                                                          impact on the final returns from a debt
                                                                                                                                                                          fund; hence one should be aware of
                                                                                                                                                                                                                        Insurance
                        employment opportunities have risen, saving pat-       10 PNB to offer life cover                                                                 this.
                                                                                                                                                                                                                        54 No reason to say no
                        tern has undergone a sea change. New avenues of        11 Time limit for solving                                                                                                                Life insurance comes with a few obvi-
                        investment have propped up and changes have               insurance grievances                                                                                                                  ous advantages. But people have a num-
                                                                                                                                                                                                                        ber of reasons for not buying it.
                        been observed in spending style. This report           11 Database to check
                        threadbares the changing profile of Indian investor.      insurance fraud                            Scrips on Radar                                                                            58 No gain in switchover
                                                                               12 Policy rates hiked by RBI                                                                                                             A disease developed after buying poli-
                                                                               12 Maruti Suzuki India planning               26 Greenply Industries                                                                     cy may not be covered if one shifts to
                                                                                  for general insurance                      The company has a wide variety of                                                          another insurance company.
                                                                               13 Now public float 10% for                   product brands and strong presence in
                                                                                  PSUs, not 25%                              over 300 cities. It exports to more than
                                                                               13 If fee goes up, give                       50 countries world over.                                                                   INTERVIEW
                                                                                  exit option: SEBI                          27 Dabur India
                                                                                                                             The company is trading at a relatively                                                     42 Mr. Rajesh Shukla is a man of sta-
                                                                               Financial Planning                            higher premium to its peers, however                                                       tisics. His survey reports have been
                                                                                                                                                                                                                        forcing financial strategists to revisit
                                                                                                                             its justified since DIL has one of the
                                                                                                                             most diversified portfolio among                                                           their strategies. He talks about his
                                                                                                                             those.                                                                                     recent book ‘How India Earns, Spends
                                                                                                                                                                                                                        and Saves: Unmasking the Real India’
                                                                                                                             28 KEC International
                                                                                                                             The company is adequately hedged
                                                                                                                             against slowdown in any particular            Consumer Law
                                                                                                                             region as it has a strong international
                                                                                                                             presence across geographies.
                                                                                                                                                                           60 Comfort or trauma
                                                                                                                             29 Omnitech Infosolutions                     Tele shopping may make you uncom-
                                                                                                                                                                           fortable if the products are not up to the
                                                                                                                             With the current bouquet of services,         mark or damaged.
                                                                                                                             Omnitech is posting one of the best
                                                                                                                             margins amongst mid and small IT

                                                                               66 Dr. Menon’s Clinic
                                                                                                                             services companies.
                                                                                                                                                                          Taxation
                                                                                                                             30 Torrent Pharma                            62 Bid for big
                                                                               Vidu, a 26 years old professional, is earn-
                                                                               ing handsome amount and saves more            TPL has already initiated development        If income tax has been paid once by
                                                                               than half of the same. He visits Dr.          work at Dahej. Company’s aggressive          LLP; it is not to be payable by differ-
                                                                               Menon for a proper plan for future invest-    capex guidance offers comfort on             ent partners for share of profit from
                                                                               ments.                                        growth visibility.                           the same.
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                                                                                                                                                                                                                                                         Cartoon Mantra
              READER                    Mail



                                                                            “        India has discovered its social securi-
                                                                                     ty system in New Pension Scheme
                                                                             (NPS). NPS lite has made it all the more
                                                                             affordable. The Swablamban scheme of
                                                                             Union government is commendable.
                                                                             Impressed by your write up, I went to buy NPS
                                                                             for myself. I live in Agra. I visited so many
                                                                             banks and even the post offices, but nobody
                                                                             was aware of it. Where is it available? Why is
                                                                             this financial product not being marketised
                                                                             well? Is the government under pressure from
                                                                             private companies selling similar products or
                                                                             is it working with the motive of selling least
                                                                             number of policies in FY 10-11 to save
                                                                             swablamban subsidy?
                                                                                                                                               “
                                                                                                                         - Manoj, Agra


                        Let NPS prove its                                                             the regulator and what role is being
                        mettle                                                                        played by the government is not                                                                    SEBI summons Anil
                                                                                                      known to anybody. There are news
                             New Pension Scheme is yet to                                             reports which suggest that insur-                                                                  Ambani
                        prove its worthiness. It is only one                                          ance companies are planning to                                                                     Irrespective of big and small, every-
                        year old and the conclusion that                                              launch premium cashless facili-                                                                    body is on the radar of SEBI when
                        it's one of the best retirement ben-                                          ties at a higher rate to allow cus-                                                                it comes to transactions in stock
                        efit schemes may prove disas-                                                 tomers to take treatment at expen-                                                                 markets. SEBI has asked Anil
                        trous. There are several pension                                              sive hospitals. If this is true, it is                                                             Ambani to appear before it for a per-
                        schemes in the market with                                                    like slapping the aggrieved cus-                                                                   sonal hearing on September 3.
                        proven credential. ULIP products                                              tomers.
                                                                                                                                                                           Home loan call                Besides Ambani, other four top offi-
                        are also preferable. At least you                                                               Mutthu, Cochin                                      miffs Pranab                 cials - RInfra Vice Chairman Satish
                        have options to choose from and                                                                                                                                                  Seth and directors J.P. Chalsani, S.C.
                        there are agents to assist you.                                               It’s a privilege                                                       Mukherjee                   Gupta and Lalit Jalan have also been sum-
                        Buying an NPS policy is so dif-                                                    You have been adding some-                                                                    moned. Though neither the company nor SEBI
                        ficult. How difficult then it would                                           thing new to each and every issue                                                                  has revealed the nature of the case, there are
                        be to monitor its performance and                                             of Money Mantra. There is star-                                                                    speculations that it could be related to the alleged
                        getting its benefit. Suppose you       Hollow regulator                       tling difference between the first                                                                 share transactions involving two foreign banks
                        want to withdraw money from                 Refer to Cashless Confusion       issue and the issue dated 15                                                                       through the FII route. Last year, SEBI had banned two
                        Tier two account, how to go for        (MM dated 15 August).                  August. Let me congratulate you                                                                    FIIs from issuing participatory notes.
                        the same. Internet connectivity        Overcharging by five star hospi-       for starting an interactive column                                           Telemarketers
                        at post offices is known to every-     tals, administrative style of TPAs     on banking and insurance. Mr VK                                       have long disturbed the      John seeks to insure butt for 10 Cr
                        one. How would they assist a cus-      which has a lot of flaws, thought-     Dhingra has been a well-known                                       general public and now they    There would soon be a first to insure derriere in Bollywood
                        tomer leaving aside their princi-      less decision of insurance compa-      banker and taking his advice by              did even leave Finance Minister Pranab                with John Abraham, who enthralled audience with
                        pal responsibility? I may sound        nies and the hollowness of insur-      subscribing to a magazine @Rs.30             Mukherjee. A call offering a home loan interrupt-     a glimpse of his toned butt in 'Dostana',
                        cautiously pessimistic, but NPS        ance regulator led to chaos in cash-   is a privilege. I would request you          ed the Finance Minister while he was having a seri-   willing to do so for Rs 10 crore. Sources
                        must be given some time to shape       less medical treatment. Confusions     to start a similar column on taxa-           ous discussion with opposition leaders Sushma         reveal that the actor has decided to buy
                        itself.                                still remain; which company is         tion.                                        Swaraj and Arun Jaitely over logjam in Parliament.    a policy that covers risk to his buttocks.
                                      Anjana, Muradabad        doing what, what is being done by                        Parijat, Mumbai            A miffed Mukherhee blurted out, ""No, not now.        Despite insurance of body parts being
                                                                                                                                                   I'm in a meeting."                                    unheard of in India, some companies
                                                                 SEND YOUR LETTERS & EMAIL:                                                            "They don't even spare me," he murmured after     have come forward with such policies
                                                                                                                                                   disconnecting the call. Taking cognizance of the      for the actor. If John manages to get
                                                    Address: Editror, Money Mantra C- 125, Sector- 19 Noida
                                                                                                                                                   incident, Telecom Minister A Raja gave direc-         a policy, it would create a stir among
                                                             Email: editor.moneymantra@gmail.com
                                                                                                                                                   tions to ban unsolicited calls.                       the stars to get the body parts insured.

                    6    MONEY MANTRA      August 31, 2010                                                                                                                                                                                      August 31, 2010   MONEY MANTRA   7
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                    News Track
                    SEBI proposes new norms                                                                                                                      Bank with India
                                                                                                                                                                 Post!
                                                                                                                                                                                                                             IT’S NEW


                    to help MF investors                                                                                                                         India Post may soon get banking license from the
                                                                                                                                                                 Government. The Reserve Bank of India is soon
                                                                                                                                                                 expected to announce draft guidelines for granting
                              EBI has issued revised regu-         cent on the balance of the assets, pro-         outstanding in each financial year.           bank licenses to other institutions and India Post is


                    S         lations to mutual funds pre-
                              scribing limits to issue and sub-
                              scription period, total expens-
                    es of schemes, including redemption
                    expenses, investment management and
                                                                   vided that in respect of a scheme invest-
                                                                   ing in bonds such recurring expenses
                                                                   are lesser by at least 0.25 per cent of
                                                                   the daily or weekly average net assets
                                                                                                                       In addition, SEBI has extended the
                                                                                                                   deadline for mutual funds to implement
                                                                                                                   the ASBA facility for new fund offers
                                                                                                                   to October 1.
                                                                                                                                                                 a strong contender for banking license given its
                                                                                                                                                                 spread across the country. It is important to note
                                                                                                                                                                 that India post offers many banking facilities like
                                                                                                                                                                 savings products, postal life insurance, pension pay-
                                                                                                                                                                 ments and money transfer services already. The huge
                    advisory fees etc. The new regulations          STUDYING BRAND TATA                                                                          strength of a large branch network of 1.55 lakh would
                    would come into force with immedi-                                                                                                           help in the strategy of the government to attain finan-
                    ate effect. It has said that a scheme                                                                                                        cial inclusion. The idea was discussed recently at the
                    should be open for subscription for 15                                                                                                       inter-ministerial committee for financial inclusion
                    days instead of the 45 days as pre-                                                                                                          and the committee recommended that with its ubiq-
                    scribed earlier, while refund of money                                                                                                       uitous reach, India Post should actively position itself
                    would be made within five working                                                                                                            to offer a low-cost and light-weight bank account.
                    days against the six weeks. The asset
                    management company should issue the
                    applicant, whose application has been
                    accepted, with a statement of the num-
                                                                                                                                                                 UTI MF on cell
                    ber of units allocated within five work-                                                                                                     In an effort to enable investors to initiate payment        A model poses with the new Alto-K10 during its launch in New Delhi
                    ing days instead of thirty days.                                                                                                             instructions through mobile phone, UTI MF has
                        In the case of an index fund scheme
                    or exchange traded fund, the total
                                                                                                                                                                 launched 'UTI Mobile' along with mChek. It is built
                                                                                                                                                                 on a mechanism of an ECS mandate and allows a
                                                                                                                                                                                                                             Inhale cash with O2
                    expenses of the scheme, including the                                                                                                        customer to trigger an ECS request from a pre reg-          State Bank of India has decided to offer banking services to mass-
                    investment and advisory fees should                                                                                                          istered bank account through his mobile phone,              es by connecting directly to SBI Core Banking System by Oxigen
                    not exceed 1.5 per cent of the weekly                                                                                                        while the debit and settlement process takes place          Web retailers. Under this initiative, the existing web enabled Oxigen
                    average net assets. In case of any other                                                                                                     offline. If an investor wants to avail this facility,       Retailers have been appointed as CSPs of its BC Sahyog Micro
                    scheme, it would be 2.5 per cent of the                                                                                                      he/she has to initially fill in the registration form and   Finance. As part of the service, biometric readers will record user
                    daily or average weekly net assets on                                                                                                        submit the same to any of UTI Financial Centers             fingerprints for banking transactions which includes cash deposits
                    the first Rs.100 crore, 2.25 per cent on                                                                                                     or Karvy offices. After verification of ECS details,        and withdrawals, money transfers to other SBI accounts. The limit
                    the next Rs.300 crore of the daily or                                                                                                        the applicant will receive a confirmation subsequent        of transaction at these outlets is Rs.10,000. The maximum bal-
                    average weekly net assets, 2 per cent on                                                                                                     to which he can trigger payment instructions from           ance for the accounts opened and being operated by these outlets
                    the next Rs.300 crore of the daily or                                                                                                        his mobile phone. Currently this platform will allow        is Rs.50,000. These outlets will be opened at locations away from
                                                                    Former RBI Governor Bimal Jalan releasing a book 'Tata-The Evolution of a Corporate Brand'
                    average weekly net assets and 1.75 per          written by Morgen Witzel (L), in New Delhi.                                                  only buying of UTI MF units.                                urban branches.


                    NEWS BRIEF
                    IRDA fines SBI Life                           More M-banking in future                                        Now its LIC Nomura             Health cover for workers                        RBI fines ICICI, StanChart                     Mobile branches allowed
                    For violating the file-and-use                To ensure banking facilities at low costs, RBI may allow        LIC Mutual Fund will be        Government is considering a number of           The Reserve Bank of India has fined            To reach unbanked masses, RBI
                    guidelines, insurance regulator has           mobile operators and other corporates to offer more             renamed as LIC Nomura          welfare schemes, including health               private sector lenders- ICICI Bank and         has allowed banks to open mobile
                    slapped Rs.10 lakh fine on SBI Life,          financial services on mobile phones. If RBI gives nod to        Mutual Fund consequently       insurance, for domestic workers in the          Standard Chartered Bank- with Rs.5             branches without its approval in
                    which has been asked to pay up                the proposal, it will be possible to transfer money             to the joint venture with      country. It is mulling the                      lakh each. Standard Chartered has              areas with less than 50,000 popu-
                    within 30 days from the date of the           though mobile without utilising bank networks. And,             Nomura Asset                   recommendations made by the task                been penalized as the bank did not             lation. A van with 2-3 officials
                    receipt of the order. IRDA said that          bring in more services like Nokia Money that helps you          Management Strategic           force on domestic workers, which also           furnish information regarding a foreign        would visit these areas on specific
                    SBI Life inserted two clauses in the          pay bills, transfer money and make cashless                     Investments.                   includes a provision for providing health       currency loan facility arranged by the         days. It should be stationed in
                    policy document 'Super Suraksha'              payments. RBI would take a final decision on this issue         Subsequently, the names        insurance to the workers under the              bank. On the other hand, another               each location for a reasonable
                    after getting its clearance. The              by the end of August. In its meeting, the ministerial           of each of the schemes of      Rashtriya Swasthya Bima Yojana (RSBY).          lender ICICI Bank has been fined on            time on specified days and speci-
                    regulator had issued two notices to           panel also decided to allow all citizens to open a              the fund will then be          Currently, there are 17,280,964                 grounds of violating the Know your             fied hours. But the vans aren't
                    SBI Life, in September and                    ‘mobile linked no frills account for financial                  prefixed as LIC                RSBY smart card holders across                  Customer (KYC) norms and money                 allowed to visit the places that
                    December.                                     transactions.                                                   Nomura MF.                     the country.                                    laundering standards.                          have co-operative banks.

                    8    MONEY MANTRA      August 31, 2010                                                                                                                                                                                                            August 31, 2010   MONEY MANTRA   9
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                    News Track
                                                                                                                                                               Database to check                                Time limit for solv-
                          India this fortnight
                         GDP Growth
                                                                    Cashless facility                                                                          insurance fraud
                                                                                                                                                               Insurance regulator IRDA and
                                                                                                                                                                                                                ing grievances
                                                                                                                                                                                                                From now on, for receiving,
                                                        8.6%
                         (Last Qtr of FY10)

                     IIP Growth
                     (May 2010)                      11.5%
                                                                    available for trauma                                                                       insurance companies have started to
                                                                                                                                                               maintain and share a database of
                                                                                                                                                               hospitals involved in frauds. In
                                                                                                                                                               addition, insurers have started to
                                                                                                                                                                                                                registering and disposing grievances,
                                                                                                                                                                                                                there would be a definite system with
                                                                                                                                                                                                                insurance companies. Each type of
                                                                                                                                                                                                                grievance will be required to have a
                         Export Growth
                                                        30%                 ashless treatment facility is       like to look at the advisability and pre-      maintain an informal network of                  definite time limit within which it
                         (June 2010)

                         Import Growth
                     (June 2010)                        23%         C       likely to be restored very soon.
                                                                            On July 31, chiefs of four pub-
                                                                    lic sector general insurers met repre-
                                                                                                                scribe some standard procedure as they
                                                                                                                think appropriate.
                                                                                                                    Meanwhile, the association of pri-
                                                                                                                                                               customers going for false claims. The
                                                                                                                                                               health insurance industry paid out
                                                                                                                                                               4,087 crore in FY09 as claims, which
                                                                                                                                                                                                                needs to be solved. Insurers would
                                                                                                                                                                                                                have to ensure that a written
                                                                                                                                                                                                                acknowledgement to a complaint has
                         Inflation Rate                             sentatives of private hospitals in Delhi    vate hospitals has sought intervention         was almost double the claims paid in             to be sent within three working days
                         (June 2010)                 10.6%          to settle the latest row on withdrawal      of government to settle the ongoing            FY08. The industry, during these years,          of the receipt of the grievance. It will
                                                                    of cashless facility on mediclaim poli-     dispute with insurers. It has said that        recorded a claim ratio of more than              also have to contain the details of                                 "What
                                                                    cies. As of now, all the de-listed hos-     the demands of uniform rates (by               100%, implying that the claims paid              grievance redressal procedure and the                 do you expect me
                                                                    pitals have partially restored the cash-    insurers) for medical procedures were          exceeded the premium earned.                     time taken for resolution of disputes.
                                                                    less facility for emergency, ICU, car-      not plausible. It has said that if the gov-                                                                                                         to do? Will I remain
                                                                    diac care and trauma.                       ernment approved some nodal agency                                                                                                                  a mute spectator, if
                                                                         Meanwhile IRDA has said that it        for rating hospitals, they were will-          MEET OF ‘NOBEL’ MINDS
                                                                    will soon come out with draft norms         ing to subscribe to rates as per these                                                                                                                 they (regulators)
                             We have done                           that would define terms like critical       gradations. In addition, the                                                                                                                                 quarrel like
                                                                    illness and hospitalization cost. IRDA      Association of Hospitals in Mumbai
                             enough to                              would lay down a standard definition        has asked health insurance providers                                                                                                                 petulant children?
                         manage inflation.                          for major critical illnesses under health   to offer cashless medical insurance                                                                                                                       My concept of
                         We expect to see                           insurance, which would reduce con-          claims to patients at all hospitals till the
                         the effects in the                         fusion between TPAs, insurers and           differences between the two groups are                                                                                                                  autonomy is not
                                                                    policyholders. The draft regulation         resolved.                                                                                                                                            like that... It is not
                         second half of the                         would include standard nomenclature             In between, the Delhi HC has
                         year because policy                        and procedures for critical illness,        pulled up IRDA for its failure to sort                                                                                                                      good for the
                         actions act, or have                       standard preauthorization and claim         out the dispute. Justice S. Muralidhar
                                                                                                                                                                                                                                                                              economy."
                         an effect, with a lag.                     forms, and the standard list for exclud-    asked the regulator to take immedi-
                                                                    ed expenses in hospitalization. An          ate steps so that patients who are
                         You will see them                          expert committee constituted by             insured can get the facilities of cash-
                         manifested over the                        industry body FICCI has identified 11       less treatment. The court was hearing
                                                                                                                                                                                                                                                                     PRANAB MUKHERJEE
                         next few months.                           critical illnesses, including cancer,       a petition filed by Vishal Ahuja whose                                                                                                               Finance Minister, said in the
                                                                    stroke, kidney failure, and major organ     53-year mother, a cancer patient, was                                                                                                                   Rajya Sabha on August 9.
                         SUBIR GOKARN                               and bone transplant, among others.          refused cashless treatment in the
                         one of the four deputy governors at        The regulator has written to health         Dharamshila Cancer Hospital and
                         RBI, said in Chennai on August 8.                                                                                                     The Prime Minister, Dr. Manmohan Singh at the Lecture by the Nobel Laureate, Professor Amartya
                                                                    ministry as well that perhaps it might      other medical centers.
                                                                                                                                                               Kumar Sen on ‘Centrality of Literacy’, in New Delhi on August 03, 2010.


                    NEWS BRIEF
                    Exit load revised: Sundaram                        fund named as IDFC Fixed Maturity            HDFC to add 250 branches:                  Cash transfer from WU: Now                     for the same can't be more than Rs.               Credit card disbursal dips:
                    BNP Paribas Mutual Fund has                        Plan Yearly Series 32, close ended           HDFC Bank has planned to open 250          NRIs and account holders of SBI will           10 crore. HDFC Short Term Plan gen-               The credit card disbursals have seen
                    revised the exit load structure for its            income scheme. The duration of the           branches in the coming two years.          be able to transfer cash from                  erates regular income via making                  a dip by 27% to Rs.19,579 crore
                    fixed income schemes such as                       scheme is twelve months and shall            Now it has decided to concentrate on       Western Union directly to SBI online           investments in debt securities and                year-on-year as on 21 May, 2010.
                    Sundaram BNP Paribas Flexible Fund                 mature on August 19, 2011. The               expanding in semi urban and rural          banking-linked accounts. Consumers             money market instruments.                         Banks have refrained themselves
                    Short-Term Plan, Sundaram BNP                      scheme offers two options viz. growth        areas of the country.                      could send money from any of the                                                                 from increasing the credit card limit.
                    Paribas Income Plus, Sundaram BNP                  and dividend option.                                                                    3,70,000 global locations of WU to             Key feature revised: Edelweiss
                    Paribas Gilt Fund and Sundaram BNP                                                              PNB to offer life cover: Punjab            their SBI online account.                      MF has changed the exit load struc-               Exit load revised: Bharti AXA MF
                    Paribas Select Debt - Short Term                   Vehicle finance deal: Hyundai                National Bank has planned to offer                                                        ture of Edelweiss Diversified Growth              has revised the exit load structure for
                    Asset Plan.                                        Motors and United Bank of India              life insurance in next three months.       Limit for HDFC scheme: The                     Equity Top 100 (E.D.G.E Top 100)                  Bharti AXA Treasury Advantage Fund
                                                                       have joined their hands to facilitate        Earlier, the bank made an attempt to       maximum amount for HDFC Short                  Fund, Edelweiss Nifty Enhancer Fund               with effect from August 05, 2010.
                    IDFC MF unveils FMP: IDFC                          the customers with better vehicle            foray the sector with a foreign compa-     Term Plan has been revised from July           and Edelweiss Absolute Return Equity              Exit load of 0.25% would be charged
                    Mutual Fund has launched a new                     financing options.                           ny but later decided to part ways.         23 and now the application amount              Fund from July 21.                                if units are redeemed within 15 days.

                    10      MONEY MANTRA         August 31, 2010                                                                                                                                                                                                       August 31, 2010   MONEY MANTRA   11
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                    Farm Fresh
                     Policy rates hiked by RBI                                                                                                                    MARKET PERFORMANCE
                                                                                                                                                                   Best Performers in group ‘A’ vs Nifty
                         t seems the government and the Reserve Bank of India


                    I    (RBI) is losing the battle with inflation. All measures
                         and steps by them have not been able to ease down the
                         inflationary pressure. Even the Finance Minister, Pranab
                    Mukharjee was seen helpless on the subject when he stated
                    that "with high growth there has to be inflationary pres-             2010-11, the central bank has increased the short term lend-
                                                                                                                                                                                  (from 23-07-2010 to 09-08-2010)



                    sure". Well in the latest step, the RBI has once again increased      ing rate for banks i.e. repo rate by 0.25%, making it to 5.75%.
                    the policy rates to suck the liquidity for bringing down the          Also, the deposit rates, (from banks to RBI) i.e. reverse
                    inflation rate. With the monetary review of first quarter for         repo, is hiked by 0.50% making it to 4.50%. This is the fifth
                                                                                          time in the calendar year when the policy rates have been
                                            Fixed Deposit rates
                                                                                          increased.                                                                                                                                                                   The
                         Bank                         Increased by
                                                                                               New projections: The projection of growth rate of the                                                                                                  problem was made
                         Kotak Mahindra Bank                 0.25% to 1.00%               nation for the current fiscal has been increased by 0.5%.                                                                                                   more serious by the
                                                                                          The RBI projects that the India's GDP rate will be 8.5% in
                         Union Bank of India                 0.25% to 1.00%
                                                                                          2010-11 instead of 8.0% projected earlier. The projection                                                                                                     drought last year.
                         Syndicate Bank                      0.50% to 0.75%               of annual inflation rate has also been increased by 0.5%.                                                                                                  (Price) Expectations
                         HDFC Bank                           0.25% to 0.75%               The new projection for 2010-11 is 6.0%.                                                                                                                          generated by a
                         ICICI Bank                          0.25% to 0.75%
                                                                                               Impact on common man: The deposit rates of the banks
                                                                                          specially the short term will increase. Subsequently, the lend-                                                                                              drought persist till
                         IDBI Bank                           0.25% to 0.75%               ing rates will also increase. With the increase in BPLR, the                                                                                                 the next monsoon.
                         Corporation Bank                    0.25% to 0.50%               cost of buying (with loans) will also increase. The loans                                                                                                     The monsoon had
                         Laxmi Niwas Bank                    0.25% to 0.50%
                                                                                          for industries will also become costlier which could result         Public float 10% for PSUs, not 25%                                                           been good and
                                                                                          in increase of prices of the products.                                  To provide comfort to listed public sector undertakings, Union Finance Ministry
                         Central Bank of India               0.25% to 0.50%                    Impact on economy: The increase in policy rates could                                                                                                           inflation in
                                                                                                                                                              has diluted the minimum public shareholding guidelines. As per revised guide-
                         Bank of Baroda                      0.25% to 0.50%               negatively impact economy. The various sources have been            lines, listed PSUs would require maintaining minimum public shareholding of 10         wholesale prices will
                                                                                          projecting India to grow by 8.5 % to 9.0 % in current fis-          per cent within a period of three years. On the other hand, it shall be 25 per cent
                         Allahabad Bank                      0.25% to 0.50%
                                                                                          cal, which could now bear a hit. The step by RBI will impact        over a period of three years for private sector companies. In addition, the clause
                                                                                                                                                                                                                                                       be well into single
                         Dhanlakshmi Bank                    0.25%                        sectors like real estate and automobiles most. It can also          of issuing at least 5 per cent equity every year for meeting the minimum public          digit by December
                                           Lending Rates (BPLR)
                                                                                          impact the operations of industries, specially the small and        float norms has been done away.After revision, only 15 PSUs will be subjected to                   this year.
                                                                                          medium scale. This could result in bad output. However,             the requirement of FPOs as against 35 estimated under the 25 per cent public float
                         Bank                                Increased from               the central bank has said that it will be monitoring the situ-      norm. The money coming out would be just Rs.20000 crore against Rs.125000 crore           MONTEK SINGH AHLUWALIA
                         Union Bank of India                 11.75% to 12.25%             ation in every six weeks.                                           estimated earlier. The PSUs, which would still need to come with FPOs include
                                                                                               Impact on banks: With such a high reverse repo the                                                                                                            Deputy Chairman of the
                         Punjab National Bank                11.00% to 11.75%                                                                                 Hindustan Copper, MMTC, Neyveli Lignite and National Fertilizers. Before this
                                                                                          banks may like it better to park their fund with RBI instead                                                                                                  Planning Commission, said in
                         Corporation Bank                    12.00% to 12.50%                                                                                 revision, the listed PSUs were required to achieve minimum public shareholding                   Bangalore on July 31.
                                                                                          of lending it on a high risk. This will suck the excess liquidity   of 25 per cent. The PSUs were upset about this norm as it would have affected the
                         IDBI Bank                           12.75% to 13.25%             in the system. The step of RBI has already forced banks to          valuations.
                                                                                          increase the fixed deposit and lending rates.

                    NEWS BRIEF
                                                                                                                                                              Give exit option: SEBI has said          dations, HDFC Ergo has enabled the           Offer document filed: To
                    Rates lowered: Dena Bank has                     all investments including SIP/Micro         Foray in insurance:        Maruti
                                                                                                                                                              that fund houses should inform unit      E-claim facility for health and person-      launch Religare Nifty ETF, an open
                    reduced interest rates on its non resi-          SIP/STP shall be 1% of the NAV if           Suzuki India is planning to have a                                                    al accident policies too. Initially the
                                                                                                                                                              holders about the expense structure                                                   ended exchange traded fund,
                    dent external (NRE) and foreign cur-             investors redeem/ switch out such           general insurance firm for its cus-                                                   company provided the tracking facili-
                                                                                                                                                              that they would adopt going forward                                                   Religare MF has filed offer document
                    rency non resident (FCNR (B)) dollar             investments within 60 months from           tomers. It may tie up with an Indian                                                  ty for motor insurance.
                                                                                                                                                              (post 29 July). It has stipulated that                                                with SEBI. It would be benchmarked
                    denominated deposits. New rates are              the date of allotment.                      company to do so.
                                                                                                                                                              AMCs, in case the fund administra-                                                    with S&P CNX Nifty.
                    applicable from August 1, 2010.                                                                                                                                                    Trade credit cover: Bharti AXA
                                                                                                                                                              tion fee goes up as a result of new
                                                                     Exit opportunity: LIC unit holders          No for bank license: Looking                 rules, should give investors the         General Insurance has planned to             Minimum amount revised:
                    Exit load revised: IDFC Mutual                   has been given exit opportunity with-       forward to set its feet in the infra-
                                                                                                                                                              option to cash out before implement-     launch a trade credit insurance prod-        DSPBR MF has revised the minimum
                    Fund has announced the revision of               out any exit load after its deal with       structure finance segment, IndiaBulls                                                 uct for the Indian market. The prod-
                                                                                                                                                              ing the new expense structure.                                                        investment amount under the institu-
                    exit load structure from August 9 for            Japan’s Nomura. But the exit option         has decided to stop the race for bank                                                 uct will cater to both domestic and          tional Plan of DSPBR World Energy
                    IDFC Money Manager Fund-                         is not to applicable to unit-holders for    license. It will quit the release of the                                              overseas trade credit requirements of
                    Investment Plan - Plan A, Plan B and             LIC MF Tax Plan and LIC MF Unit             discussion paper regarding guide-
                                                                                                                                                              E-claim for health: Owing to the                                                      and DSPBR World Mining from
                                                                                                                                                              customer feedback and recommen-          enterprises.                                 August 1. Now, it will be Rs.1 crore.
                    Plan F. Accordingly, the exit load for           Linked Insurance Scheme.                    lines for fresh bank licenses by RBI.

                    12   MONEY MANTRA      August 31, 2010                                                                                                                                                                                                 August 31, 2010   MONEY MANTRA   13
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                       Special Report




                                                                                                                                                                                                            “
                                                                                                                                                               1989. Talking about Asian Pacific            There is a myth among                     offered positive returns. Year 2009



                     The Friday Effect
                                                                                                                                                               region, Wong and Ho had examined                                                       was even better with 59.57 per cent
                                                                                                                                                               the day-of-the-week effect on the            traders that market indices               Fridays showing affirmative returns.
                                                                                                                                                               Singapore stock market and found a           often get supported on the                There have been 31 Fridays in year
                                                                                                                                                               strong seasonal pattern of a low neg-                                                  2010 till July and markets have been
                                                                                                                                                               ative mean Monday return and a high          last trading day of week.                 closed on 3 occasions out of those 31.
                                                                                                                                                               positive mean Friday return.                                                           Leaving those 3 instances, on 14 occa-
                             ridays are last trading day of   try to complete the trades on Friday           that the mean Monday return was also                  In this write up, we have tried to                                                 sions Fridays have offered positive


                    F        the week normally. Market
                             participants don't want to
                             leave the trades incomplete on
                    the last days. In other words, traders
                                                              and don't want to carry those in next
                                                              week. There is a myth among traders
                                                              and investors that the major stock mar-
                                                              ket indices often get supported or
                                                              defended on the last trading day. This
                                                                                                             abnormally low and, at times, nega-
                                                                                                             tive. To examine the weekend effect in
                                                                                                             the US market, Keim and Stambaugh
                                                                                                             used the data of S&P Composite Index
                                                                                                             over a longer period 1928-1982. They
                                                                                                                                                               understand the Fridays in context of
                                                                                                                                                               Indian stock markets. We haven't done
                                                                                                                                                               statistical research like these gentle-
                                                                                                                                                               men. The data used in our study are the
                                                                                                                                                               daily closing values of Sensex, the
                                                                                                                                                                                                           ative returns on the day. Looking at the
                                                                                                                                                                                                           year 2004, on 60 per cent instances
                                                                                                                                                                                                           Fridays gave affirmative results. Year
                                                                                                                                                                                                           2005 was even better with 63.27 per
                                                                                                                                                                                                           cent positive returns on Fridays. In
                                                                                                                                                                                                                                                      returns. Means Fridays offered posi-
                                                                                                                                                                                                                                                      tive returns on 50 per cent occasions
                                                                                                                                                                                                                                                      till now.
                                                                                                                                                                                                                                                           Thus, a clear trend is vis-
                                                                                                                                                                                                                                                      ible on Fridays. Above
                                                              phenomenon is called the 'Friday               as well found the existence of a strong           major index of Bombay Stock                 year 2006, there were 54.9 per cent        mentioned data sug-
                                                              effect'. In this article, we tried to under-   negative mean Monday return.                      Exchange, over the period of 1 January      occasions when Fridays offered affir-      gests that major stock
                                                              stand the significance of this effect on       Rogalski had as well obtained a neg-              2002 to 30 July 2010. We have sim-          mative returns. On the other hand, in      market       indices
                                                              the Indian equity markets.                     ative mean Monday return using the                ply tried to look that how the Fridays      45.1 per cent instances it gave nega-      often get support-
                                                                   In the last 30-40 years, a number         Dow Jones Industrial Averages and the             have behaved as far as Sensex in con-       tive returns.                              ed or defended
                                                               of studies have been done for the pur-        S&P 500 Composite Index.                          cerned. In this study, we have left those       But year 2007 showed a different       on Fridays.
                                                               pose of examining seasonal anom-                  If we talk about weekend effect,              Fridays when stock market was               result with 47.92 per cent Fridays
                                                                alies in stock market returns. These         Jaffe and Westerfield had examined                closed.                                     showing positive returns and 52.08 per
                                                                studies have been done in various            the weekend effect in UK, Japan,                      In year 2002, there were 60 per         cent Fridays with negative returns.
                                                                 developed countries like UK, US             Canada and Australia. They had found              cent occasions when Fridays offered         Though year 2008 continued the for-
                                                                 and Japan to developing countries           that these stock markets show a sig-              positive returns. On the other hand,        mer trend and on 51.02 per
                                                                  like      Philippines,       Malaysia,     nificantly negative mean Monday                   in 40 per cent instances it gave nega-      cent occasions
                                                                   Singapore and Taiwan. Using the           return and positive mean Friday or                tive returns. Next year was better with     Fridays
                                                                   daily returns of the S&P 500              Saturday return. There study showed               63.27 per cent positive returns on
                                                                    Composite Index for the period           that the mean Saturday return was sig-            Fridays leaving the 36.73 per cent neg-
                                                                    1953-1977, French had found that         nificantly high and positive in com-
                                                                    the mean Monday return was sig-          parison to the mean Friday return. In
                                                                     nificantly negative. Gibbons and        fact, in Japan, there was trading on                                                          36.7%
                                                                     Hess had tried to understand the        some Saturdays until
                                                                      US market by using S&P 500             January
                                                                       Composite Index for the period
                                                                                                                                                                                                                   63.3%
                                                                                                                                                               40%
                                                                       1962-1978. They
                                                                        found                                                                                             60%
                                                                                                                                      36.7%

                                                                                                                                               63.3%
                                                                                                                                                                                                              2005
                                                                                            40%

                                                                                                         60%
                                                                                                                                                                   2004
                                                                                                                                           2003
                                                                                                  2002


                                                                                                                                                                                                           40.4%
                                                                                                                                                                49%                                                       59.6%
                                                                                                      45.1%                                                                     51%
                                                                                                                                              52.1%    47.9%
                                                                                                                    54.9%

                                                                                                                                                                                                                 2009
                                                                                                                                                                      2008
                14     MONEY MANTRA     August 31, 2010
                                                                                                             2006                               2007
                                                                                                                                                                                                                                                            August 31, 2010   MONEY MANTRA   15
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                           VIEW POINT




                                                                                                                                                                                                                                                                                                            Bill replaces the ordinance
                                                                                                                                                                                                                                                    On August 2, Lok Sabha passed the Securities
                    Securities And Insurance Laws Bill
                                                                                                                                                              REGULATORS MAY                                                                        and Insurance Laws (Amendment and
                                                                                                                                                                                                                                                    Validation) Bill, 2010 that seeks to replace the


                    Tightening Noose                                                                                                                          DANCE TO FM TUNE!
                                                                                                                                                                                                                                                    ULIPs Ordinance. The bill provides that ULIP
                                                                                                                                                                                                                                                    is an insurance product and therefore it would be
                                                                                                                                                                                                                                                    regulated by IRDA.
                                                                                                                                                                                                                                                    The ordinance paved way for constitution of a


                    Over Regulators?                                                                                                                          SEBI-IRDA fight The ULIP ordinance
                                                                                                                                                              over ULIP          To clear the confusion over ULIP, the
                                                                                                                                                                              President of India promulgated an ordinance
                                                                                                                                                                   SEBI had been of the view       on June 18, 2010 and made it clear that
                                                                                                                                                                                                                                                    joint committee for resolving disputes over hybrid
                                                                                                                                                                                                                                                    products with some significant changes as envis-
                                                                                                                                                                                                                                                    aged in the related ordinance. Finance secretary
                                                                                                                                                                                                                                                    has been replaced by secretary, department of
                                                                                                                                                                                                                                                    economic affairs. RBI Governor has been made
                                                                                                                                                              that ULIP is an investment prod-     ULIP is an insurance product. The                vice chairman of the committee. The commit-
                          D C Gupta                              The argument that the FM is answerable        within which they are to operate and in        uct. IRDA didn't buy this opinion    Ordinance provided for a Joint Committee         tee headed by Union Finance Minister will com-
                                                                 to Parliament does not justify him to be      case of any violation or intransigence of      and insisted that it was an insur-   to resolve the disputes on jurisdiction over     prise of Governor RBI (Vice Chairman) and 5
                              he way the tussle between SEBI     the chairman of the Financial Stability       the caveats the entities invite penalties      ance product. Since insurance                                                         members- Secretary, Department of economic



                    T
                                                                                                                                                                                                   hybrid products among financial regulators-
                              and IRDA was sought to be          and Development Council (FSDC). After         under the Act. We have appellate arrange-      companies didn't register the        the RBI, SEBI, the IRDA and the PFRDA.           affairs; Secretary, Department of Financial
                              resolved by issuing an             all the Finance Secretary is represented      ments and even those orders can be chal-       product with SEBI, the market        The six member committee headed by               Services and the chairmen of SEBI, IRDA and
                                                                                                                                                              regulator banned the same.           Union Finance Minister Pranab Mukherjee          PFRDA.
                              Ordinance in June 2010 by con-     in the body and the Government can            lenged in the courts under the law of the      Ministry of finance asked IRDA       had Finance Secretary; Secretary,                Bill has changed the earlier position in the
                    stituting a statutory body of the regula-    always intervene when the need arises.        land. The regulators supervise the oper-       and SEBI to move court for a         Department of Financial Services and chiefs
                    tors, headed by the Finance Minister,        Finance Minister can command any reg-         ation of these market entities and issue       binding judgment. In the mean-                                                        Ordinance of allowing the Finance Ministry to
                                                                                                                                                                                                   of RBI, IRDA, SEBI and PFRDA as its mem-         refer matters to the committee. Now only the
                    which has now been passed by the Lok         ulator to explain the position, seek clar-    further directions as and when the need        time, government issued the ordi-    bers.
                                                                                                                                                              nance.                                                                                financial sector regulators can refer matters to
                    Sabha a few days back with some amend-       ifications and issue directions.              arises. Let us also remember that the reg-                                                                                           joint committee. This reference could happen
                    ments is rather intriguing. I had argued                                                   ulators have to also respect the autonomy                                                                                            when the high-level committee on capital mar-
                    in my earlier article for making some        Independence for regulators                   of various institutions under their con-                       “It was true there were lots of apprehensions whether we are          kets (HLCCM) process fails for hybrid products.
                    statutory arrangements considering that          The various Acts which are proposed       trol and do not interfere in their work-                       going to dilute the regulators' independence or autonomy. It          The proposed law will not interfere in the auton-
                                                                                                                                                                              will only be in the case of jurisdiction disputes between the         omy of financial regulators.
                    all regulators exercise their powers under   to be amended could be amended to             ing unless some violation of the regula-                       regulators that the joint mechanism will be used.”
                    some Acts of Parliament and that such        incorporate the powers to the                 tions is noticed. International best prac-                                                Pranab Mukherjee, Union Finance Minister
                    contingencies like ULIPS may arise in        Government to resolve the inter-regula-       tices are also sought to be enshrined in the                                                        in the Lok Sabha on August 2.
                    future given the complex nature of vari-     tory disputes on case to case basis. There    regulations so as to generate confidence
                    ous financial products which may emerge      was no need to create a statutory Council,    in the independence of the regulatory
                    later as our markets become more sophis-     headed by the FM, as a standing arrange-      mechanism in the market which is one
                    ticated.                                     ment. This sends a wrong signal to the        of our important assets from the point
                                                                 world outside about the independence          of view of the global players.
                    How fair?                                    of our regulatory mechanism which is a             Prescribing that the FM will preside
                         Administrative arrangements like        very important edifice of our financial       over such a body, which will sit on judg-
                    HLCC (a high level coordination com-         architecture internationally. Finance         ment on various inter-regulatory issues,
                    mittee, headed by the Governor RBI, in       Ministry should keep a respectable dis-       will not only erode that confidence in
                    which Finance Secretary is also repre-       tance from the regulators to impart them      popular perception but also make the
                    sented) may not succeed because the reg-     objectivity and impartiality. It is a com-    Finance Ministry involved in such dis-
                    ulators are entitled to take a view within   mon experience that this might result in      putes right in the beginning. Let us not
                    the meaning of the relevant Act in which     ministerial bureaucracy making inroads        forget that such a body is not the final
                    they operate and their orders are justifi-   in the territory of the regulators as the     adjudicator of such matters and such mat-
                    able and can be challenged in the court      time passes and this may happen with          ters could be agitated in the courts of the
                    of law as it happened in this case. At the   or without the FM wanting to do that.         law. From this angle also, present
                    same time it was pointed out that an arm's       Similar trend may emerge in other         arrangements proposed do not offer any
                    length distance has to be maintained by      sectors like commodities market regu-         distinct advantage, rather there may be
                    the Government as far as regulators are      lation and such other emerging sectors        allegations of lobbying by interested
                    concerned. This has been the accepted        which might need independent regulation       parties in arriving at a decision on a
                    policy since long and paid rich dividends    like real estate. That will be a disturbing   given matter. Besides the nature of the
                    and matured our regulatory mechanism         development and until we reach a stage        financial matters particularly issues like
                    and the market. There is no question of      to establish a comprehensive regulatory       ULIPS and other such market products
                    abandoning this shibboleth of the eco-       body like that in the UK as and when we       is such that it will not be appropriate
                    nomic policy. What has happened is just      are ready, we should zealously guard the      for the Finance Ministry to dabble at          with statutory powers to resolve dis-         hensive advice of this larger body while     the UK and other countries with stiff
                    what was feared and the statutory body       independence of the regulators in the         the outset without eyebrows being              putes among the regulators and a pro-         arriving at a decision on a complex          penalties to the violators. But the
                    by whatever name it is called is headed      overall interest of the economy and the       raised.                                        vision can be made that in case of any        issue. It essentially means that the         important consideration should be to
                    by the Finance Minister in which all reg-    consumers and other stakeholders.                                                            tangled issue, the matter could be            HLCC should be clothed with statuto-         avoid a perception that the autonomy
                    ulators are to participate. The amend-                                                     Need for UK-like regulatory                    referred to the higher advisory body          ry powers. Let us not imagine devils         and independence of the regulators is
                                                                 Serves the purpose?
                    ments such as RBI Governor heading one                                                         Therefore, the most appropriate            which can be headed by the FM. In             in this arrangement. After all the reg-      being eroded by such a mechanism which
                    of the sub-committees are not enough.            In this connection we should also         course of action appears to be that the        this advisory body, the representation        ulators are appointed by the                 is, however, being worked out in the gen-
                    The arrangements proposed will defi-         remember the way the regulators oper-         Council should be headed by the sen-           could be more broad-based, including          Government with due diligence and we         uine interest of the effective regulations
                    nitely compromise the independence of        ate and supervise various entities in their   ior most regulator, be it Governor RBI         eminent economists, financial experts,        must respect their experience and matu-      of the markets in the country.
                    the regulator, particularly the RBI, which   domain. Regulators lay down the rules         or anyone else, with representation of the     stakeholders etc. The statutory coun-         rities. The ultimate solution should lie             (The writer is former finance secretary,
                    is not desirable at the current juncture.    and regulations on the market players         Finance Ministry and may be clothed            cil will be benefitted by the compre-         in the unified regulatory set up like in                               Government of India)


                    16    MONEY MANTRA      August 31, 2010                                                                                                                                                                                                       August 31, 2010   MONEY MANTRA     17
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                    Tata’s Successor




                    Search Is                                                                                                                           C
                    I
                        n an atmosphere where brothers are often seen bat-
                        tling with each other for stakes, Tatas are keeping it
                        smooth. Tatas are perhaps the only big Indian group
                    where a formal process exists across levels for succes-
                    sion. The group has an official policy of retirement at 75
                    and maintaining the tradition, Ratan Tata will vacate the
                    office in 2012 when he turns 75 on December 28. Tata
                    Sons is the promoter of the group and majority stake of pro-
                    moters is not with a person but with trusts. Tata trusts have
                                  65.8 per cent of the shares of Tata Sons. Over
                                         half of the shares in Tata Sons are held
                                          by two trusts, Sir Dorabji Tata and
                                            Sir Ratan Tata Trust.
                                                  The big question- Who would
                                               lead the Tata Group after Ratan
                                                Tata? This question has been in
                                                the air from many years, but
                                                 Ratan Tata has always refused
                                                to answer this. Now a five-mem-
                                                ber committee has been formed to
                                               search for the successor of Ratan
                                                Tata and the answer of this ques-
                                                 tion would be out in February-
                                                 March next year. The announce-
                                                                                           On
                                                                                        Why?: Ratan Tata is all set to hang his boots in December
                                                                                        2012. The group wants a successor well before he calls
                                                                                        it a day. The successor would be given an opportunity to
                                                                                        work with the legend.
                                                                                        The criteria: The person should be follower of the val-
                                                                                        ues and ethics of Tata Group and should be in his 50's.
                                                                                        The panel would seek someone with experience and expo-
                                                                                        sure to direct the group's growth amidst the challenges
                                                                                        of the global economy. But he would be judged for entre-
                                                                                        preneurial attributes and not mere management skills.
                                                                                                                                                        JUNCTION

                                                                                                                                                        D   STREET

                                                  ment of the name of the suc-          The committee: Cyrus Mistry, NA Soonawala, RK Krishna
                                                 cessor in the year 2011 would          Kumar, Shirin Bharucha and Lord Bhattacharyya will shoul-
                                                 mean that before taking things in      der the responsibility of choosing the successor.
                                                control, he would get opportuni-        Committee will be screening candidates from three talent
                                              ty to look at things from perspec-        pools- executives within the group, Indian professionals
                                                                                        and global managers.
                                                    tive of Ratan Tata.
                                                        Not an easy task- But the       The contenders: Noel Tata has emerged as a main con-
                                                    task would not be easy for the      tender within the group. Cyrus Mistry, a member of the
                                                    successor. Though the group         panel, is the son of Pallonji Mistry (who holds 18 per cent
                                                    is big, it has not yet estab-       stake in Tata Sons) and brother-in-law of Noel Tata.
                                                    lished itself as a global brand.    The challenges: With almost 65 per cent revenues from
                                                    Though almost 65 per cent           outside India, the company is still not known as a global
                    revenues of the group are generated from outside India,             company. The successor would have a tough task of devel-
                    the company is still not known as a global company. The             oping the group as a global brand. The $71 billion group,
                    successor would have to face this challenge. If we go by            with 98 companies, would seek direction from him. The fate
                    with the hints, the ideal candidate would be one, who is            of Tata Sons companies, of which 28 are listed, would
                                                                                        depend on the approach of the future leader.
                    in his 50's, holds values dearly and is a visionary-cum-
                    fire fighter.                                                      stated and that the person should become known for fill-
                        Tata's expectations- Earlier this year, Ratan Tata had         ing up the position and not just waiting in the wings. I
                    told reporters, "I had said that after (launching small-car)       know what happened in my case." Noel Tata has been
                    Nano, it will be a good time to step down. I still have a dead-    constantly mentioned in the media as a likely successor. But
                    line for my retirement. I do have the responsibility to have       he was not given big responsibilities in the group. This rais-
                    a successor and both these things will take place." The            es a question whether the group is grooming him as the suc-
                    legend has been known for his extraordinary decisions.             cessor or not, though a few days back Noel moved to Tata
                    Since taking over the group as chairman in 1991, he has            International as managing director from Trent. There are
                    shown that he is not afraid of bold moves. And once he             several other names which are doing the rounds. But with
                    had also said that he may consider handing over the reigns         the process of search gathering momentum, Ratan Tata is
                    to a non-family member, non-group member and even to               all set to keep his words (about retirement) as always.
                    a non-Indian. On yet another occasion, drawing a picture           Once he had said, "I do not want to go out on a wheel-
                    of the future chairman, Ratan Tata had said, "It should be         chair."

                18     MONEY MANTRA      August 31, 2010
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                         C JUNCTION
                                                                                                                                                                       Later in the fortnight gold fall was                                   Silver MCX continuous

                    Demand for yellow metal                                                                                                                       arrested after China's central bank
                                                                                                                                                                  released a statement allowing traders to
                                                                                                                                                                  import and export gold, in addition,

                    softens, may rise again                                                                                                                       allowing overseas companies more
                                                                                                                                                                  access to gold trading. The banks stat-
                                                                                                                                                                  ed that increase foreign members on the
                          Anjani Sinha                              rency rallied more than +2% against the          Most European banks passed stress tests      Shanghai Gold Exchange and will also
                                                                    dollar while the yellow metal plum-              designed to show their ability to with-      study ways to allow foreign qualified
                                                                    meted. As Eurozone' crisis eases fur-            stand a financial crisis, helping to push    bullion suppliers to deliver to the
                             GOLD & SILVER                          ther, gold should remain under pressure          the euro to an 11-week high against the      exchange. China's plans to relax rules
                                   Market Review                    in the near-term. Moreover, ECB's lat-           dollar. Also the decline in holdings of      on trading and weaker equities will
                            (21st July to 5th Aug 2010)             est weekly financial statement shows             the world's biggest gold ETF, SPDR           increase demand. Recently China's cen-
                         The fortnight was mixed for bullion        that it bought just 176M euro of                 Gold Trust, suggests the investment          tral bank said in a statement it will allow
                    with gold posted net loss and silver            Eurozone government bonds in the                 demand that drove prices earlier in the      its banks to import and export more gold
                    posted net gain. Gold price slumped             week ended July 23. This was the low-            year is waning. Investments in precious      as part of a program to push forward the
                    on as the result of the stress test was 'bet-   est amount bought on weekly basis                metal ETFs generally diminished. Rise        development of the country's market
                    ter-than-expected'. This is reasonable as       since the program began. Reduction in            in risk appetite continued to shrink         in the precious metal. This is part of
                    gold's rally in 2Q10 was driven by safe-        bond purchases on one hand signals               investment demand and gold ETFs              the on-going effort to further liberal-
                    haven demand amid concerns over safe-           increased stability in the Eurozone. On          recorded net redemption for the sec-         ize the gold market broaden gold's
                    haven assets. At COMEX, Gold                    the other hand, it reduced the risks of          ond consecutive week as led by sharp         appeal throughout China. China has            softened as concerns over financial          continued to be boosted by China's
                    December contract gained by USD                 high inflation as excessive liquidity was        decline in holdings in SPDR Gold Trust.      long been unable to fully explore gold        market stability have receded. Gold          deregulation in gold market. Since
                    6.8/Toz, while COMEX Silver                     pumped to the market. These outcomes             The world's largest gold ETF declined        demand. This is another step along that       prices are caught between those              China is one of the largest holders of
                    September contract gained by 65.80              were negative for gold.                          -635.52K oz, or -1.52% to 41.23M oz          road.                                         investors influenced by near-term defla-     gold, this is positive development and
                    cents/Toz. MCX Gold October lost                    Bullion has slumped by around                in the week ended July 30. Holdings               Outlook: Gold's rally in May and         tionary trends and therefore take a bear-    will help gold rally. China's moves to
                    Rs.230/10 gram and Silver September             $100 since reaching a record $1,265.30           reached a peak at 42.45M oz on June          June was mainly due to worries over           ish view of gold, and those who expect       free up its gold market open the way
                    contract gained by Rs.384/Kg. At                an ounce on June 21 on an easing of              29 2010 as worries over sovereign cri-       euro zone's sovereign crisis and poten-       that weak economic activity and the          for foreign players and local banks to
                    NSEL Ahmedabad spot Gold lost                   European financial turmoil and on signs          sis in the Eurozone boosted safe-haven       tial disintegration of the euro but there     threat of falling consumer prices will       tap growing demand for the precious
                    Rs.344/10 gram and Silver gained by Rs          the global economy is rebounding.                demands.                                     worries have markedly diminished.             generate a monetary policy response          metal, offering citizens a more attrac-
                    168/Kg. NSEL Demat E-Gold lost by                                                                                                             Demand for physical gold investment           that will ultimately be bullish for gold     tive investment and promising to boost
                    Rs.28.60/gm while NSEL Demat E-                                                  Gold MCX continuous                                          products- like ETFs, coins and bars has       prices. On the other hand, Gold price        the country's clout over global prices.
                    Silver gained by Rs.28.50/100 gm.
                         Gold headed for the biggest month-
                    ly drop in the month of July this year                                                                                                              REFINED SOY OIL                                                       Refined Soy oil MCX
                    after recording a historic high.                                                                                                                            Market Review
                    Confidence among investors continued                                                                                                                (21st July to 5th Aug 2010)
                    on supporting risk appetite thus, traders                                                                                                         Soybean oil prices have experi-
                    targeted more high yielding assets and                                                                                                        enced an impressive rally over the fort-
                    stocks, while discarding trades in low                                                                                                        night and risen to their highest level
                    yielding assets and commodities, as                                                                                                           since April in overnight trade, under-
                    both are considered a safe investment.                                                                                                        pinned by strong demand and linger-
                    Gold lost both on weekly and monthly                                                                                                          ing concerns about erratic weather in
                    basis as demand for safe-haven assets                                                                                                         soybean growing areas in the U.S.
                    diminished after Euro zone's sovereign                                                                                                        MCX near month contract closed at
                    crisis woes stabilized. Gold slumped                                                                                                          492.40/10 kg.
                    to a near 3-month low in the fortnight                                                                                                            The big news to ignite a fire under
                    due to capital outflow from ETFs and                                                                                                          markets was out of Russia stated that
                    liquidation of long positions before                                                                                                          it will halt grain exports from August 15
                    recovering. Although physical demand                                                                                                          to December 31. Russia, and for that
                    in India had shown signs of improve-                                        SPOT MARKET PRICES                                                matter the Ukraine, are not large oilseed     Market    Contract       Open       High      Low      close          Prev.    Net
                    ment as price dropped and upcoming              Commodity Market                  Price           Open      Close       Prev. Net             importers. On the export side, the                                                                                  close    change
                    wedding seasons boosted buying inter-                                             Quote                                 Close Change          Ukraine exports sunflowers and prod-          MCX       Aug' 10        466.00     493.20    466.00   492.40         464.90   +27.50
                    ests, price remained weak as risk               Gold           NSEL Amd           Rs. /10 gm. 18339         17980       18324 -344            ucts, and weather has had some impact         than expected domestic inventories of        the international CPO prices during
                    appetite improved.                              Silver         NSEL Amd           Rs./kg.     28360         28961       28793 +168            on prospects. Russian exports may fall        soybeans. USDAannounced that China           July month. Same is true for the soy
                         Gold tumbled as concerns for glob-                                                                                                       to 11 or 12 million tonnes for the mar-       had bought another 223,000 tonnes of         oil also.
                    al economic slowdown triggered broad-                                     FUTURES MARKET PRICES                                               keting year begun July 1 this year com-       soybeans for 2010/11. This is often seen          CIF prices at the Indian Ports have
                                                                    Market   Commodity-       Unit         Open      High      Low       Close   Prev.   Chg
                    based decline in commodities.                                                                                                                 pared to 22 million tonnes last year.         as bullish news, these new-crop sales,       increased significantly during current
                                                                             Contract                                                            Close
                    Historical direct correlation between                                                                                                         This price increase helped to pull other      although frankly, China needs to buy         month which has supported the domes-
                    gold and euro dissipated since elevation        MCX      Gold-Aug-10      Rs/10 gm.    18412     18480     17756     18109 18339 -230         agriculture commodity prices upward           about 1 million tonnes every week if         tic market prices. Stockiest demand has
                                                                    COMEX    Gold-Aug-10      $ / Troz     1194.60   1207.50   1159.40   1197.40 1190.90 -6.8
                    of sovereign crisis in the Eurozone in                                                                                                        including soybeans.                           it is to fulfill the USDAforecast of about   also increased. China which is one of
                    May. Breakdown of the relationship              MCX      Silver-Sep-10    Rs/kg.       28626     29394     28026     29014 28630 -384             The increase in prices was triggered      50 million tonnes or more in 2010/11.        the biggest buyers of soy oil continues
                    was obvious last week as the single cur-        COMEX    Silver- Sep-10   Cents/Troz   1770.30   1869.80   1733.00   1835.80 1770.00 -65.80   by the USDA reports showing smaller           On the other hand sharp rise is seen in      its buying aggressively from the major

                    20    MONEY MANTRA      August 31, 2010                                                                                                                                                                                                         August 31, 2010     MONEY MANTRA    21
EP 3-35- alok.qxd        8/10/2010       8:39 PM     Page 22




                    suppliers like US. In India, domestic         toward their critical August growth peri-      Stocks of soybean oil are near all-time
                    supply situation is although comfort-         od kept a bid under prices as well. As per     highs and the high temperatures this
                    able however demand has increased             Soybean Processors Association of              summer are usually associated with
                    considerably. Further, rainy season usu-      India (SOPA), domestic soybean pro-            above average soybean oil yields. Since
                    ally    witness       good       demand.      duction may decline this year to 85 lakh       soybean oil constitutes roughly 40% of
                    Nevertheless, solid underlying support,       tones as compared to last year's 95 lakh       the value of a bushel of soybeans, its
                    with the threat of a dry spell in the U.S.    tones, which is in favour of bulls.            strength is bullish for beans. Strong
                    Delta raising fears of near-term supply           Outlook:The catalyst for gains was         export demand and ongoing concerns
                    tightness extending into the fall kept        the advance once again in the soybean          about potentially yield robbing heat
                    floor beneath prices. The uncertainty         oil market. Fundamentals are seeming-          stress in the U.S. Delta added support to
                    of weather for Midwest crops heading          ly not all that great for soybean oil.         buoy prices.

                                                                                               Cotton futures (ICE)
                                 COTTON
                                Market Review
                        (21st July to 5th Aug 2010)
                     The international cotton prices rose
                during the fortnight as export sales data
                indicated continued strong demand for
                the developing U.S. cotton crop is tak-
                ing the earliest available supplies off
                of the market. Support came from
                renewed speculative fund interest in
                commodities and the weaker dollar. The
                US dollar slid on weaker than expect-
                ed U.S. GDP data. The ICE future cot-
                ton prices October delivery settled
                increased 6.08 cents, or by 7.81%, at
                83.94 cents a pound.
                     The cotton prices have risen more
                than 7% in the last week as nearby sup-
                plies continue to dwindle. World sup-             Market           Contract     Open      High      Low     close    Prev.     Net
                plies are tight as textile demand rebound-                                                                           close     change
                ed with the world economy in the last             ICE (Cents/lb) Oct 10         84.15     86.00     83.94   83.94    77.86     +6.08
                year. A bumper crop up 50% from last
                year is expected from the U.S. in the            increased by 5.9 million tons. World          ning capacity in the country, is the
                fall, but talk about the earliest portion        cotton mill use is projected to contin-       largest purchaser of Gujarat cotton.
                of the harvest is already contracted to          ue to recover in 2010-11, growing by          The agro climatic condition in most of
                mills has supported prices. The com-             2% to 24.9 million tons, pushed by con-       the cotton growing areas is reported
                mercial traders are particularly interest-       tinued improvement in global eco-             satisfactory.
                ed in the spread. The spread is invert-          nomic growth but limited by high cot-             Outlook: The Global cotton price
                ed, which means traders are willing to           ton prices and a slowing "restocking          is bullish near term due to world sup-
                pay more to get the cotton sooner.               effect." China and India are expected to      plies is low after demand rebounded
                     The consumers put off buying socks          account for 80% of the increase in glob-      with the microeconomic conditions.
                and sheets when budgets are tight. But           al cotton mill use in 2010-11. Their          The speculators and investors are buy-
                resurgence in demand has drawn down              combined share of world cotton mill use       ing many agricultural commodities as
                available stocks. Merchants have sold            will increase by one percentage point to      grain prices soar. Ideal weather has
                a good portion of the earliest-harvest-          57%. In India, cotton prices firmed with      fostered US crop growth throughout
                ed cotton, leaving a lag in availability         moderate demand. Cotton prices have           the season. The quantum of raw cot-
                through the rest of the year. At this            surged in the range of Rs 300 to Rs 450       ton arrivals in various upcountry mar-
                point, merchants could usually rely on           per candy in the last week. The               kets has reduced ranging around 3000
                certified exchange stocks for a back-            Shankar-6 prices in Gujarat were              to 4000 bales per day comprising of
                up, but those bales are being quickly            quoted Rs 29,600-30,000 per candy.            around 3000 bales in Gujarat and
                drawn down. The world cotton area is             New textile firms have come up in             around 1000 bales in Karnataka.
                expected to rebound by 10% to 32.90              Andhra Pradesh state, resulting in            Looking to the demand in quality cot-
                million hectares in 2010-11. Assuming            increased demand for cotton. The              ton vis-à-vis lower ending stocks, some
                a small increase in the average yield,           Gujarat government, on the other              recovery has started in mill demand and
                to 766 kg/ha, global cotton production           hand, has levied a cess on cotton that        the mills have started brisk buying. It
                is forecast at 25.2 million tons, up by          is sold out of State, owing to which          is felt that the domestic cotton prices
                15% from 2009-10. This gain of 3.4               cotton prices have surged by around           in coming weeks may remain firm.
                million tones would be the largest expe-         2 %. Tamil Nadu, which accounts for                         (Author is MD, National Spot
                rienced since 2004-05, when output               nearly 45 per cent of the overall spin-                          Exchange of India Ltd.)

                    22    MONEY MANTRA      August 31, 2010
EP 3-35- alok.qxd        8/10/2010       8:39 PM     Page 24




                D STREET

                    The upward move likely to                                                                                                                              PUT CALL CONCENTRATION (July)                                             OPTION STRATEGIES
                                                                                                                                                                                                                                                 Sell 5 lots 5200 Put @ Rs 18, buy
                                                                                                                                                                                                                                                 1 lot 5300 Put @ Rs 33 and buy 1

                    sustain in coming days                                                                                                                                                                                                       lot 5600 Call @ Rs 15.
                                                                                                                                                                                                                                                     For traders who believe the Nifty
                                                                                                                                                                                                                                                 will keep inching towards new highs
                         Ashish Kapur                                                                         phase in our markets.                                                                                                              but confining itself in range may ini-
                                                                We retain our positive




                                                                “
                                                                                                                  Our advice to the traders would be                                                                                             tiate this strategy. This strategy will
                     In the past one month, our markets have    outlook about the markets                     to focus on the mid caps which are like-                                                                                           give an inflow of Rs 42 and a fixed
                    shown tremendous resilience and                                                           ly to continue outperforming for some                                                                                              return of ~3% between 5300 and
                    strength. Even on days when global          in the medium to long term                    more time. For investors though we rec-                                                                                            5600. Above 5600, the 5600 call will
                    markets were weak, our markets              and expect the October                        ommend a gradual profit booking in the                                                                                             start escalating the gains. Between
                    refused to give way to any significant                                                    mid cap space and buying large cap                                                                                                 5200 and 5700, the maximum gain
                    selling pressure. Keeping this in mind,     results to be the trigger                     counters on declines.                                                                                                              is 10% at 5200 and 5700 levels.
                    we expected the markets to move up          that pushes the indices                           For investment purposes we retain                                                                                              Below 5165 the strategy will incur
                    on some positive trigger which could                                                      our      positive       bias    towards                                                                                            losses.
                    have come in the form of better than        higher. So, we advise                         Infrastructure, Metals and Banking sec-                                                                                            Buy 1 lot 5500 Call @ 102, buy 1
                    expected corporate numbers.                 investors to remain                           tors. Also certain stocks in the auto-                                                                                             lot 5400 Put @ 101, sell 5 lots 5000
                         However Q1FY11 results failed to                                                     mobile, oil and gas and FMCG space                                                                                                 Put @ Rs 6 and sell 5 lots 5800 Put
                    deliver the necessary punch which the       invested as the risk to                       too are good investment ideas.                                                                                                     @ Rs 2.
                    markets were waiting for. Margin            reward ratio, especially for                      With some caution in the near term,                                                                                                Traders who think that markets
                    pressures due to rising raw material                                                      markets look poised for a lucrative                                                                                                are likely to witness sharp movement
                    costs dampened the otherwise robust         a long term investor, is still                break out in the not too distant future.                                                                                           on either side in August month can
                    topline growth of many corporates.          favourable.                                       Nifty continues to ride the wave of                                                                                            trade this strategy. This strategy will
                    Rising inflation and its unlikely                                                         higher highs and higher lows signify-                                                                                              provide loss below 4920 levels and
                    reprieve in the short run turned out to                                                   ing uptrend. The upward move will sus-                                                                                             above 5850 levels. However in the
                    be the party pooper.                        be the trigger that pushes the indices        tain as suggested by positive diver-                                                                                               given range (4920-5850) if the mar-
                         Going ahead, we might see some         higher. So, we advise investors to            gence in accumulation levels since                                                                                                 ket closes between 5320-5550 the
                    short term marginal negativity as val-      remain invested as the risk to reward         May. Nifty touched a high of 5477.10                                                                                               strategy will incur loss (maximum
                    uations, at least in the large cap space,   ratio, especially for a long term investor,   and fell to the levels of 5236.10 in July                                                                                          ~2.3%). In the range of 5000-5300
                    are on the higher side and profit book-     is still favourable. Encouraging eco-         month. Moreover, daily volumes are                                                                                                 and 5550-5800, the maximum gain is
                    ing on the back of a lackluster earnings    nomic and corporate growth forecast,          also catching up with the pace of index.                                                                                           ~11.5% at 5000 level. The strategy
                    session and inflation concerns is immi-     a good monsoon so far and viable              Aseries of bullish candles in the month-                                                                                           also provides decent returns of 8%
                    nent. This downside though, would be        measures to check inflation should            ly chart seems to be signifying bull-                                                                                              at 5100 and 5800 levels.
                    restricted and we do not see a major cor-   help sustain the secular bullish              ishness in the near future.
                    rection happening anytime soon. There                                                                                                                                                                                       standing respectively in the August
                    is no major retail participation; a sig-                                       NIFTY INDEX                                                                                                                                  series.
                    nificant feature before any meaningful                                                                                                                                                                                           On the puts front we can see that
                    downturn starts is missing. Moreover                                                                                                                                                                                        5300 and 5400 put options are the most
                    there is a continuous inflow of funds                                                                                                                                                                                       active and have the highest amount of
                    from overseas investors whereas, the                                                                                                                                                                                        open interest with ~ 100 lakh and 81
                    domestic retail segment is using every                                                                                                                                                                                      lakh shares outstanding in August
                    rise as an opportunity to sell and cre-                                                                                                   A channel has been formed due to      over bought zone has cooled off and is      series. The active participation of 5000,
                    ate liquidity in their portfolios. The                                                                                                the formation of both higher lows and     now seen moving sideways.                   5100 and 5200 puts in the trade suggests
                    market is thus moving from weak to                                                                                                    higher highs on daily charts. This for-        The Put-Call Ratio for index options   that there are many crucial support lev-
                    strong hands. This expected short term                                                                                                mation can be seen from past 11 months.   increased to 1.53, giving a contrarian      els between 5000 and 5300.
                    downtrend is a good opportunity to add                                                                                                Nifty is moving toward north to touch     perspective of market, which is most-            Looking at the above concentration
                    on some large caps, which have cor-                                                                                                   the upper trend line.                     ly bullish.                                 the likely range for the next few trad-
                    rected in the recent past, with a long                                                                                                    NSE's volatility index India VIX,          Nifty ended the last week of July      ing sessions is expected to be
                    term perspective.                                                                                                                     which gauges traders' perception of       with a loss of 82 points at 5,367. The      5200 to 5600. 5600 strike calls has the
                          Indices, however, are likely to                                                                                                 near-term risks in the market based on    index is presently trading at 5440-5460     highest interest signifying selling and
                    remain range bound for another two to                                                                                                 options prices, closed at 18.33 points,   levels and a good resistance comes in       on the down side 5300 strike put is
                    three months. Stock specific action is                                                                                                remaining mostly in the range of 18-      at 5487.15 while it gets its support at     active which may be because of good
                    likely to continue to be the major avenue                                                                                             25 points contributing to the optimism    5349.20. A breakout above 5,500 or          amount of hedge created in the markets.
                    of profit generation. Mid caps and sec-                                                                                               wave in the market.                       below 5,330 might trigger the next               On the whole, we reiterate, it is bet-
                    tors like banking, infrastructure and                                                                                                     Analyzing the indicators, OBV (On     move in the index.                          ter to sell deep out of money calls and
                    capital goods are likely to be the seg-                                                                                               Balance Volumes) significantly                 Analyzing the put call concentration   puts as markets though bullish are not
                    ments that generate profits in the short                                                                                              bounced in the month of June and since    we can see that 5600 call has the high-     likely to break past and move signifi-
                    run. We retain our positive outlook                                                                                                   then it has managed to swing upwards,     est amount of open interest with over 86    cantly higher very soon.
                    about the markets in the medium to long                                                                                               with few dips in between. RSI (Relative   lakh shares, followed by 5500 and 5400                     (Author is CEO, Investshoppe
                    term and expect the October results to                                                                                                Strength Index) after scaling up near     with 75 lakh and 48 lakh shares out-                                         India Ltd.)


                    24    MONEY MANTRA      August 31, 2010                                                                                                                                                                                            August 31, 2010   MONEY MANTRA   25
EP 3-35- alok.qxd        8/10/2010       8:39 PM     Page 26




                    BROKER’S PICKS                                                                                                                                                                                                               BROKER’S PICKS
                    Greenply Industries                                 BUY CMP: Rs.195 TARGET: Rs.330                                               Dabur India                BUY       CMP: Rs. 198 TARGET: Rs. 224 (1-2 Quarters)


                    All set to witness a solid                                                                                                       Premium valuation justified
                                                                                                                                                        Mehernosh K. Panthaki                                   Dabur India : 3 months performance
                    growth due to product range                                                                                                      DIL is one of India's largest FMCG
                                                                                                                                                     companies positioned as an ayurvedic
                         Ashish Kapur                                                                                                                and herbal specialist with interests in
                                                                          Greenply Industries: 3 months performance                                  health care, personal care & food prod-
                    It is an interior infrastructure compa-                                                                                          ucts. It operates through four SBUs-
                    ny set up in the year 1984 and is also                                                                                           Consumer Care Division (CCD),
                    the leading producer of laminates and                                                                                            Consumer Healthcare Division (CHD),
                    plywood in India. The company has                                                                                                International business division (IBD) &
                    six state of the art manufacturing facil-                                                                                        Others. CCD is a major contributor to
                    ities across the country manufacturing                                                                                           DIL's revenue, which accounts for
                    products of global standards. It has 32                                                                                          68.1% to the total consolidated revenue.
                    branches across India with a strong                                                                                              Recently, it also acquired 100 per cent
                    dealer/distributor/sub-dealer/retailer                                                                                           stake in Turkish personal care prod-
                    network of over 11000, presence in over                                                                                          ucts company 'Hobi Kozmetik Group'.
                    300 cities and it exports to more than 50                                                                                            CCD would continue to remain a
                    countries world over. Its product ranges                                                                                         major growth driver. The division is
                    to flush doors, plyboard, plywood, dec-                                                                                          expected to grow by 15% in FY11. With
                    orative laminates, decorative veneers,                                                                                           the integration of Fem, CCD's revenue
                    particleboard and pre-laminated parti-                                                                                           contribution would stand at 69.9%, but                      Financial Estimations (Consolidated)
                    cleboards. It has wide variety of prod-                                                                                          would be slightly lower than in FY09                                                                               Rs. In Million
                    ucts brands like Green Club Premium                                                                                              (71.5%), mainly due to higher propor-      YE March                          FY07       FY08        FY09          FY10         FY11
                    Ply with the guarantee of a lifetime,                                                                                            tion of sales expected from IBD. CHD       Net Sales                        20431      23611       28054         33914       39952
                    Green Decowood, Greenply Plywood,            Key Indicators (As on Aug 07, 2010)         to Rs.1600cr in 2011-12                 is expected to grow by 15%, likely to be   Other Income                       259        340         468           394          453
                                                                Closing Price (Rs.)     195.6                                                                                                   Total Income                     20691      23951       28523         34308       40406
                    Greenlam          Laminates,       Green                                                 The Indian interior infrastructure      driven by launch of new OTC prod-
                    Lamieboard, MDF, etc.                       EPS (Rs.)               22.19                industry (plywood 60%) is poised        ucts in H2FY11. OPM is expected to         Total Operating Expenses         16934      19517       23350         27614       32461
                                                                P/E                     8.83                 to grow 10 percent over the foresee-    improve on the back of better-cost man-    EBITDA (incl. other inc)          3757       4433        5173          6695         7944
                    Investment Arguments                        BV per Share (Rs.)      123.3                able future.                            agement, operating leverage & inte-        EBITDA (excl. other inc)          3497       4093        4705          6300         7491
                        Greenply Industries has reported a      PB                      1.59                 Indian Real estate sector is expect-    gration benefits. High food inflation is   Interest                           154        168         232           123          145
                    sales turnover of Rs 262.37 crore and       Market Cap (Rs. Crore) 432.7                 ed to grow from USD 14 billion to       unlikely to impact the company's mar-      Depreciation                       408        421         492           562          682
                    a net profit of Rs 10.39 crore for the      Beta                     1.26                around UDS 50 billion by 2020.          gins to a large extent, since only ~17%    Profit Before Tax                 3195       3844        4448          6009         7117
                    quarter ended Jun 2010.For the quar-        Shares outstanding       2,20,96,680         Particle board & MDF segment is         of input costs (sugar & vegetable oil)     Tax (including FBT & DT)           387        516         540           985         1416
                    ter ended Jun 2009 the sales turnover                                                    growing at a rate of 25% where          are dependant on agro-commodities.         Reported PAT                      2808       3328        3908          5024         5701
                    was Rs 177.61 crore and net profit was      of the country's MDF requirements are        imports having a share of around            DIL, like other FMGC players, has      Minority Interest                   -9         -1          -4             -8           0
                    Rs 10.92 crore. The actual net profit       met currently by imports. The compa-         70%.                                    a good track record of paying dividends    PAT (pre exceptional items)       2817       3329        3912          5032         5701
                    for the quarter would be more, exclud-      ny has received the FSC chain of cus-         In 2009-10, the Indian economy         consistently. The company is cash rich,                                                   Source : Company, HDFC Sec Estimates
                    ing the expenditure on MDF Plant. The       tody certification for its units at       grew 7.4%, primarily driven by the         thus enabling it to carry out all its
                    overall growth in revenues and net prof-    Kriparampur, West Bengal and Rajkot,      manufacturing sector and the construc-     expansion plans (organic & inorganic)      almost debt free (D/E: 0.2), which pro-     which has been witnessing a consis-
                    it would be substantial once the revenue    Gujarat.                                  tion sector. The eleventh five year plan   through internal accruals. Also it is      vides margin of safety during high inter-   tent deterioration in market share of its
                    from MDF plant is in place.                     It's a highly fragmented industry     predicts a shortage of more than 25mn                                                 est rate scenario.                          major segment Soaps & Detergents).
                                                                                                                                                      Stock Details
                        Good Quality and wide range of          with share of unorganized sector being    housing units in middle and low income                                                                                            Further, DIL's input basket (including
                                                                                                                                                      Equity Capital (Rs Mn)          870.0     Outlook & Valuation
                    products have increased the demand          approx. 80% in plywood and around         groups. In this high demand expecta-                                                                                              herbs & chemicals which are less
                                                                                                                                                      Face Value (Rs)                    1.0
                    strongly. The capacity enhancement in       50% in laminates while the growth of      tion, the company enjoys 30% of the         Eq. Shares O/s (mn)             870.0         At CMP of Rs. 198.4, DIL trades         volatile) is different from other FMCG
                    Laminate and MDF divisions of the           the organized sector is 15-20% in com-    organized plywood market and 18% of         Market Cap (Rs Mn.)        1,72.647.7     at 30.3xFY11E EPS, which is at a pre-       companies (like HUL, which has large
                    company and strong demand of Interior       parison to overall industry growth of     the organized laminates market in the       Book Value (Rs)                  10.8     mium to its peers like Colgate, HUL         presence in soaps category which
                    Infrastructure goods led by growing per     5%, indicating the shift of customer      country. And with the wide range of         Avg. Volume (52 Week)        1,58,444     & Marico (quoting at 27.4x, 25.6x &         exhibits high commodity linkage),
                    capita consumption of wood based fur-       preferences.                              products, from value to volume, the         52 wk H/L                 219.0/119.0     25.9x FY11E EPS). However this pre-         which enables it to manage the infla-
                    niture products in India, it is expected                                              foreseeable future of the company is                                                  mium valuation is justified, since DIL      tionary pressure better. Other FMCG
                    that the company will record a very         Outlook & Valuation                       very promising.                              Shareholding Pattern
                                                                                                                                                                                                has one of the most diversified portfo-     companies like Nestle & GSK
                                                                                                                                                       (As on June 30, 2010)
                    good Operating and Financial per-             Gross revenue for GIL has moved up          At the current market price of                                                    lio amongst its FMGC peers (Colgate         Consumer are quoting at 32.8x & 27.3x
                                                                                                                                                       Domestic Institutions          10.0
                    formance over the next few years. So,         at a CAGR (compound annual              Rs.195, the stock is trading at 7.1x and     Non Promoter Corp               0.6
                                                                                                                                                                                                has a large presence in Oral Care, while    CY10E EPS. We feel that DIL could
                    Greenply is expected to witness a solid       growth rate) of 35% in the last five    5.9x for the earnings of FY11E and           FIIs                           14.8      Marico has a large presence in Hair         trade at 34xFY11E EPS, which gives
                    growth despite an increasing trend in         years.                                  FY12E respectively and the EPS for the       Promoters                      68.9      Care) and has been steadily gaining its     a price target of Rs. 224.
                    the raw material of the company.              Greenply is expecting a growth in the   earning FY11E and FY12E is Rs.27.7           Public & Others                 5.7      market share over the years across most                             (Writer is associated
                        It is venturing into MDF where 70%        revenues from Rs.980cr in 2009-10       and Rs.33 respectively.                      Total                         100.0      of its product categories (unlike HUL,                            with HDFC Securities)


                    26    MONEY MANTRA      August 31, 2010                                                                                                                                                                                         August 31, 2010    MONEY MANTRA   27
EP 3-35- alok.qxd        8/10/2010       8:39 PM     Page 28




                     BROKER’S PICKS                                                                                                                                                                                                                         BROKER’S PICKS
                     KEC International                                                                                                                            Omnitech Infosolutions                      BUY CMP: Rs. 207 TARGET: Rs. 250
                                       BUY CMP: Rs.488 TARGET: Rs.648 (12 months)

                    Adequately hedged against slowdown                                                                                                            Superior margin to remain resilient
                         Hemang Thaker                                                                                                                               Aniruddha Mehta                                         Omnitech: 3 months performance
                                                                                  KEC International: 3 months performance
                    KEC International is a leading trans-                                                                                                         Omintech Infosolutions is country's
                    mission line EPC Company in the                                                                                                               leading business continuity and disas-
                    world. The company has global foot-                                                                                                           ter recovery services provider. Turnkey
                    print with client base spread over 43                                                                                                         IT solutions like Server & Storage
                    countries. KEC's 1QFY2011 perform-                                                                                                            Consolidation, Virtualization, Network
                    ance was significantly impacted by the                                                                                                        Integration Solutions and Data Center
                    inclusion of erstwhile RPG Cables                                                                                                             Management Solutions are covered by
                    operations. Notably, the numbers are                                                                                                          Omnitech. Company’s business is
                    not directly comparable on account of                                                                                                         spread across the US, Canada, UK,
                    the merger of RPG cables with KEC                                                                                                             Belgium, Bahrain and Japan. The client
                    during March 2010. Post the merger, the                                                                                                       base encompasses sectors like BFSI
                    company reported 16.4% yoy increase                                                                                                           (Banking, Financial Services and
                    in revenues, while EBIDTA margins                                                                                                             Insurance), Manufacturing, Utilities,
                    dipped to 10% and PAT dropped by                                                                                                              Services and IT & ITES. The technol-
                    32.6% for 1QFY2011.                                                                                                                           ogy service provider specializes in
                         KEC intends to spend ~ Rs100cr                                                                                                           Business Availability Services (BAS -                           Key Financials (Consolidated)
                    on its tower business in the current fis-                                                                                                     IMS & Application Management) and          Y/E 31 March (Rs m)           FY09        FY10E           FY11E             FY12E
                    cal. Capex planned for the cable plant                                                                                                        Business Continuity Services (BCS -        Revenues                     1,717         2,615           2,972             3,568
                    at Vadodara is ~Rs.120cr over the next                                                                                                        Disaster Recovery, etc). Revenues from     you growth (%)                 30.1         26.1            37.3              20.0
                    two years. Management expects the                                       Key Financials (Consolidated)                                         these services are estimated to witness    Operating profit               514           693             974             1,176
                    Vadodara facility to commence pro-                 Y/E March (Rs cr)          FY09              FY10        FY11E             FY12E           a CAGR of 32% and 41% respectively         OPM (%)                        29.9         32.0            32.8              32.9
                    duction from FY2012E generating                    Net Sales                 3,427              3,877        4,563             5,223          over FY10-12 and drive the overall         Reported PAT                    331          394             540               624
                    ~Rs400cr in revenues with EBIDTA                   % chg                       21.8              13.1         17.7              14.5          company growth. Within BAS and             yoy growth (%)                 30.0         18.8            37.0              15.6
                    margins of ~7-8%. The government has               Net Profit                   116               171          216               256          BCS, we see Remote Infra Management        EPS (Rs)                       25.2         28.4            38.9              45.0
                    envisaged investment of Rs140,000cr                % chg                     (32.5)              47.0         26.1              18.8          (RIM) services, Disaster Recovery and      P/E (×)                          8.2          7.3             5.3               4.6
                    in the transmission segment during the             EBITDA (%)                   8.8                9.9        10.0              10.0          Workplace Recovery services to record      Price/Book (×)                   2.1          1.6             1.2               1.0
                    Eleventh plan. This had opened up a                EPS (Rs)                    22.6              33.3         41.9              49.8          robust growth making the revenue mix       EV/EBITDA (×)                    5.9          4.7             3.3               2.7
                    potential US $14-15bn opportunity for              P/E (×)                     21.8              14.8         11.6                9.8         sweeter in terms of profitability.         Debt/Equity ()                   0.2          0.2             0.2               0.2
                    the transmission EPC players during the            P/BV(×)                      4.5                3.6          2.9               2.3         Management also targets to increase the    RoE (%)                        30.1         25.7            26.5              24.1
                    Eleventh Plan period alone.                        ROE (%)                     22.3              27.3         27.6              26.2          international revenue share from 20%       RoCE (%)                       33.4         28.4            29.8              29.5
                         KEC has a Strong international                ROCE (%)                    16.1              17.0         18.5              18.9          currently to 50% by 2013. Company has      Source : Company, India Infoline Research
                    presence across geographies compared               EV/Sales (×)                 1.0                0.9          0.8               0.7
                    to its domestic peers. Notably, it has             EV/EBITDA ( ×)              11.2                9.3          7.8               6.7          Sector : Information Technology          guided for a strong revenue growth of      Centers (in Mahape and Hyderabad),
                    executed large number of T&D projects              Source: Company, Angel Research                                                             Sensex                      18,081       30-35% for FY11. The Q1 FY11 per-          revenue scalability would not be an
                    in over forty countries. Therefore KEC                                                                                                         CMP (Rs) :                     207       formance (7.7% qoq growth) instills        issue for next couple of years. However,
                    is adequately hedged against slowdown              hand, any delay or deferment in the        reporting geographies of International           Target price (Rs):             250       confidence that Omnitech would com-        company may invest heavily in H2
                    in any particular region. On the other             release of domestic T&D orders would       and South Asia. Of the total order back-         Upside (%)                      21       fortably achieve its guidance.             FY12 towards building capacity to
                                                                       adversely impact the revenue projec-       log, transmission accounted for 76%,             52 Week H/l (Rs):           211/72           With the current bouquet of serv-      serve growth beyond FY12. Capex is
                     Sector Info                                       tions of many domestic EPC compa-          distribution & substation 18%, railways          Market cap (Rscr):             272       ices, Omnitech earns one of the best       estimated to be Rs1bn over FY10-12
                     Sector                     Capital Goods          nies. Amidst such a scenario, we believe   4% and cables 2%.                                6m Avg. Vol (‘000Nos):         229       margins (32%) amongst mid and small        and which would be mainly funded by
                     Market Cap (Rs cr)                  2,510         that KEC would be the least impacted                                                        No of o/s shares (mn):          13       IT services companies. Even factoring      internal accruals. So the risk of equity
                     Beta                                   0.5        owing to its high exposure to interna-     Outlook & Valuation                              FV (Rs)                         10       intensifying competition and resulting     dilution and leverage is minimal.
                     52 Week High/Low                 640/416          tional orders.                                 The transmission EPC companies                                                        pricing pressure, the margin is likely
                                                                                                                                                                   Shareholding Pattern (%)
                     Avg. Daily Volume                  12,895             Although telecom and railway divi-     have been riding high on back of the             June’10                         (%)      to sustain near current levels aided by    Outlook and Valuation
                     Face Value (Rs)                        10         sions currently account for small por-     ongoing investments in the domestic              Promoters                      54.9      increasing revenue contribution from           We expect Omnitech to deliver 28%
                         Shareholding Pattern (%)                      tion of the company's total revenues,      power sector. Improving order visibil-           Institutions                    0.6      IMS (margin at 43%) and BCP servic-        earnings CAGR over FY10-12 on the
                         Promoters                            41.7     future prospects of the segments are       ity from PGCIL and other state utili-            Non promoter corp hold         14.8      es (margin at 44%) and also due to high-   back of 31% revenue CAGR and mar-
                         MF/ Banks/ Indian Fls                41.3     very bright. KEC also plans to enter       ties is expected to help KEC boost its           Public & others                29.7      er share of international clients. We      ginal improvement in margin. At 4.6x
                         Fii/NRIs/ OCBs                        6.0     tracking, signaling and platform con-      existing Rs5,650cr order book. At the            Performance rel. to sensex               expect Omnitech margin to be resilient     FY12 P/E, valuation is at more than
                         Indian Public/Others                 11.0     struction works in the railway segment.    CMP, the stock trades at 11.6x and 9.8x          (%)             1m      3m       1yr     in the medium term improving by ~50-       50% discount to the median for mid-cap
                     Performance rel. to sensex                        The company's order intake for the         FY2011E and FY2012E EPS,                         Omnitech       17.7     8.0    130.7     100bps over FY10-12E.                      IT companies. We expect a significant
                     Abs.(%)        3m      1yr                  3yr   quarter was ~Rs1,000cr. Order back-        respectively.                                    Glodyne         5.1   10.8     146.8         With headroom for significant uti-     re-rating of the stock in the near term.
                     Sensex         6.3    15.1                 20.3   log at the end of 1QFY2011 stood at                                (Writer is associated    Allied Digital  2.2   (7.0)      7.8     lization improvement of Remote IMS                                  (Writer is associated
                     KEC          (8.4)     2.4               (20.0)   Rs5,650cr equally split across the                                  with Angel Broking)     KPIT Cummins 7.4      18.0     164.5     facility (NOC) and Disaster Recovery                                 with India Infoline)


                    28    MONEY MANTRA      August 31, 2010                                                                                                                                                                                                   August 31, 2010    MONEY MANTRA      29
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                    Torrent Pharma OUTPERFORMER CMP: Rs. 556 TARGET: Rs.660 (12 months)                                                                State Bank of India                          BUY CMP: Rs.2620                   TARGET: Rs.2700+

                    Growth momentum likely to sustain                                                                                                  Moving up with a big lead
                         Nitin Agarwal
                                                                              Torrent Pharma: 3 months performance                                            Rajesh Jain                                      State Bank of India: 3 months performance
                    Torrent Pharmaceuticals produces bulk
                    drugs and compounds in the therapeu-                                                                                               The stock market around the world is
                    tic areas of cardiovascular and central                                                                                            going up on the back of liquidity driv-
                    nervous system. Torrent Pharma has                                                                                                 en rally along with changing positive
                    also entered areas like gastro-intestinal,                                                                                         sentiments. In India, the banking sec-
                    diabetology, anti-infective and pain                                                                                               tor was at forefront of the rally where-
                    management systems. Torrent Pharma's                                                                                               as the sugar sector took quite a beat-
                    (TPL) Q1FY11 revenues grew by                                                                                                      ing. Since the markets look slightly
                    13%yoy to Rs5.2bn ahead of our esti-                                                                                               overbought, we have identified two
                    mates (at Rs5.1bn). EBITDA margins                                                                                                 stocks which can be bought at correc-
                    at 18.4% were marginally ahead of our                                                                                              tion.
                    estimates (at 18%). Reflecting higher                                                                                                  State Bank of India (SBI) is the
                    revenue growth and improved margins,                                                                                               largest commercial bank in India by
                    EBITDA came at Rs965m (we saw at                                                                                                   almost every parameter - revenues,
                    Rs920m). Lower other operating                                                                                                     profits, assets and market capitalization,
                    income (at Rs156m) saw PBT (at                                                                                                     deposits and advances. In the year
                    Rs977m) track our estimates. Higher                                                                                                1955, the Government of India nation-
                    tax rates (at 24%) dragged profits below                                                                                           alized the Imperial Bank along with
                    our estimates. Net profits grew by                                     Key consolidated financials                                 the Reserve Bank of India. Ever since        cerely to adhere to the efforts of pro-      Bank has a lot of support between the
                    391%yoy to Rs742m (we saw at                                          FY08      FY09        FY10         FY11E        FY12E        that time, the bank acquired its pres-       viding utmost customer satisfaction to       levels of 2400-2450 where one can look
                    Rs805m). Adjusted for MAT write offs         Net sales (Rs m)         13,123    15,865      18,239       21,179       25,668       ent name that is SBI. SBI provides a         the best possible extent.                    to buy the stock keeping a stop loss of
                    in Q1FY10, net profits grew by 9%yoy.        Net Profit (Rsm)         1,347     1,844       2,310        3,155        3,988        range of banking products through its            The stock is at all time high and with   2250 for much higher levels of 2700+
                         Domestic sales and export con-          EPS (Rs)                 15.9      21.8        27.3         37.3         47.1         vast network of branches in India and        banking sector taking a big lead, it         in coming months. The stock made 52
                    tributed equally (50%) to its consoli-       %growth                  44        37          105          22           21           overseas, including products aimed at        seems that banking sector would always       weeks high of 2663 on 05.08.10 and
                    dated sales in Q1FY11. Domestic sales            TPL remains committed and con-         formance in Q1FY11 furthers over           NRIs. The bank has been striving sin-        see an inflow at any correction. State       low of 1670 on 19.08.09.
                    grew by 8%yoy to Rs2.7bn in line with        tinues to invest towards building up a     confidence in TPL's growth outlook.
                    estimates with branded business grow-        strong product pipeline and build-up       Further, narrowing losses at interna-                                                                                                  and ethanol are additional sources of
                    ing by 13%yoy to Rs2.2bn. Torrent Do
                    Brazil, Torrent's largest overseas sub-
                                                                 of US, European and Brazilian opera-
                                                                 tions. TPL has substantially scaled up
                                                                                                            tional subsidiaries, robust balance
                                                                                                            sheet health (net cash of Rs300m) and
                                                                                                                                                       Shree Renuka Sugars                                                                         revenue, besides sugar. The compa-
                                                                                                                                                                                                                                                   ny possesses India's largest sugar
                    sidiary grew by 33%yoy to Rs887m.            its expansion plans. TPL has already       strong business fundamentals are               BUY CMP: Rs.67 TARGET: Rs.85                                                            refining capacity (4000 tons) per day
                    Torrent has commercialized 26products        initiated development work at Dahej        steadily adding to TPL's competi-                                                                                                      across two integrated refineries at
                    in Brazilian markets and expects to          wherein the company is setting up an       tiveness. We derive confidence in sus-        Shree Renuka Sugars, promoted by           members, is a fully integrated sugar com-     Munoli and Athani with a port based
                    launch 4-5more products over next 9          API and formulations facility specifi-     tainability of TPL's growth momen-         Narendra Murukumbi and his family             pany. Co-products like power generation       refinery in Haldia that enhanced
                    months. TPL's Mexican operations             cally to cater to International markets.   tum from the fact that TPL has sub-                                                                                                    value-addition and export focus. It
                    clocked Rs20m of sales in Q1FY11.                More importantly, we see TPL's         stantially scaled up its expansion                   Shree Renuka Sugars: 3 months performance                                         produces EC II grade refined sugar.
                    TPL has commercialized 6 products in         aggressive capex guidance offering         plans which is clearly reflective of                                                                                                   Its phosphorisation process pro-
                    the Mexican markets till now. TPL's          comfort on growth visibility particulars   management's high comfort on                                                                                                           duces sulphurless sugar for direct
                    German subsidiary (Heumann opera-            business emanating from partnership        growth visibility especially on the                                                                                                    consumption and industrial usage
                    tions) posted flat yoy growth to             deals with MNC Pharma. In addition,        exports business. TPL now plans to                                                                                                     in Africa and Europe. Shri Renuka
                    Rs690m. German operations con-               construction activities at TPL's           incur a capex of Rs10bn over the next                                                                                                  Sugars has a track record of acquir-
                    tributed 26% of exports for the quar-        Sikkim formulation plant were pro-         five years against earlier guidance of                                                                                                 ing units, either on ownership or on
                    ter. TPL's European (Ex-Germany) and         gressing on schedule and company           Rs6bn over 3years. We remain posi-                                                                                                     lease to spur growth.
                    RoW business grew by 8%yoy to                expects commissioning of this facil-       tive on TPL's ability to significantly                                                                                                     Renuka Sugars is one of the
                    Rs710m for the quarter. US operations        ity by Q3FY11. TPL's capacity expan-       scale-up its parenting deals with                                                                                                      finest stocks in the sugar sector and
                    grew by 42% yoy to Rs270m for the            sion at bulk drug and formulations         MNCs like Astra Zeneca. Any likely                                                                                                     has multiple supports between the
                    quarter on back of a lower base. TPL         facility at Chattral is also progress-     announcements on expansion of current                                                                                                  levels of 55-60 where one can accu-
                    management indicated US business             ing on schedule. Torrent's gross debt      deals / signing of new deals will be key                                                                                               mulate the stock keeping a stop loss
                    may face some capacity constraints.          and cash position end June 2010            triggers to watch out for. We maintain                                                                                                 closing below 55 for much higher
                    However, management remains con-             stands at Rs6.4bn and Rs6.7bn respec-      estimates and expect 31% CAGR in                                                                                                       targets of near 85 in coming months.
                    fident to address this issue by              tively.                                    TPL's earnings over FY10-12. We                                                                                                        The stock made 52 weeks high of
                    December 2010. TPL has filed                                                            retain our Outperformer rating on the                                                                                                  124 on 07.01.10 and low of 52 on
                    48ANDAs and 19DMFs with USFDA                Outlook and Valuation                      stock with a 12-month price target of                                                                                                  12.05.10.
                    till date and has already secured               TPL's strong growth across geog-        Rs660 (14x FY12E earnings).                                                                                                                    (Writer is Vice President & Head-
                    approvals for 20ANDAs.                       raphies and superior operational per-         (Writer is associated with IDFC-SSKI)                                                                                                             Research with SMC Global)

                    30    MONEY MANTRA      August 31, 2010                                                                                                                                                                                             August 31, 2010   MONEY MANTRA   31
EP 3-35- alok.qxd        8/10/2010    8:39 PM      Page 32




                    CLASSROOM
                                                                                                                                                                                     Technical Report
                    Participants in Commodity derivatives                                                                                                                                         PIVOT
                                                                  asset. Hedging is an insurance used to        of transactions. Speculation is the oppo-    Stocks         Close           S2           S1      Pivot                  R1              R2
                         Anjani Sinha                             avoid or reduce price risks associated        site of hedging. A speculator holds no
                                                                  with any kind of futures transaction.         offsetting cash market position and          SENSEX       18173.00     18069.00     18121.00   18208.00          18260.00          18347.00
                    Commodity market has different set            Hedging allows a market participant           deliberately incurs price risk in order      NIFTY         5447.00      5415.00      5431.00    5459.00           5475.00           5503.00
                    of market participants who has got            to lock in prices and margins in advance      to benefit from price movements. A           ABB            787.00       773.00       780.00     787.00            795.00            802.00
                    buying and selling interest in the trade      and reduce the potential for unantici-        speculator is an additional buyer of         ACC            815.00       805.00       810.00     817.00            822.00            830.00
                    based      on    their    requirement.        pated loss or competitive disadvantage.       commodities whenever it seems that           AMBUJACEM      114.00       111.00       112.00     115.00            117.00            120.00
                    Terminology of the participants varies        A hedge involves establishing a posi-         market prices are lower than the actu-       AXISBANK      1317.00      1292.00      1304.00    1324.00           1336.00           1356.00
                    in derivative market from that of             tion in the futures market that is equal      al price.
                                                                                                                                                             BHARTIARTL     325.00       320.00       322.00     326.00            328.00            331.00
                    physical market. In physical market           and opposite to a position in the phys-            Individual speculators tend to trade
                                                                                                                                                             BHEL          2525.00      2487.00      2506.00    2525.00           2545.00           2564.00
                    the participants are categorized broad-       ical market. The principle behind estab-      a smaller number of contracts than
                    ly under: 1. End buyer, 2. Primary            lishing equal and opposite positions in       hedgers and hold market positions for        BPCL           651.00       633.00       642.00     652.00            661.00            671.00
                    seller,     3.Commission        Agents,       the cash and futures markets is that a        a shorter time, so several of them may       CAIRN          347.00       340.00       343.00     346.00            349.00            352.00
                    4.Brokers, 5.Stockiest, 6.Importers,          loss in one market should be offset by        be needed to offset one large hedge          CIPLA          321.00       317.00       319.00     322.00            324.00            327.00
                    7.Exporters. While in the derivatives         a gain in the other market. Hedging           order. The maximum number of con-            DLF            311.00       303.00       307.00     314.00            318.00            325.00
                    market, participants are categorized          works because cash prices and futures         tracts that can be held by any one spec-     GAIL           430.00       421.00       425.00     434.00            439.00            448.00
                    as: 1.Hedgers, 2. Arbitragers, 3.             prices tend to move in tandem, con-           ulator is limited by exchange rules. The     HCL TECH       414.00       400.00       407.00     412.00            419.00            424.00
                    Speculators.                                  verging as the futures contract reaches       small amount of capital needed makes         HDFC          3029.00      2992.00      3011.00    3040.00           3059.00           3088.00
                                                                  expiration. The degree of effectiveness       speculating in futures contracts very        HDFC BANK     2100.00      2035.00      2068.00    2098.00           2130.00           2160.00
                    Hedgers                                       of a hedge is determined by the per-          attractive. If the total value of the con-
                                                                                                                                                             HEROHONDA     1863.00      1834.00      1848.00    1868.00           1882.00           1901.00
                        Any person who has got the physi-         centage of the actual gain or loss            tract had to be paid, the rate of return
                                                                                                                                                             HINDALCO       165.00       163.00       164.00     166.00            167.00            169.00
                    cal exposure of the commodity as a            incurred in a futures transaction.            on most commodities would be
                    buyer or seller is categorized as hedger      Though most hedges reduce risks relat-        extremely small. The small margin pro-       HINDUNILVR     255.00       251.00       253.00     256.00            258.00            261.00
                    in derivative market. Hedgers are inter-      ed to price variations, they do not elim-     vides speculators with the necessary         ICICI BANK     955.00       940.00       948.00     960.00            968.00            981.00
                    ested in transferring risk associated with    inate them altogether.                        leverage to generate a substantial rate      IDEA            71.00        67.00        69.00      72.00             74.00             77.00
                    the physical asset. They use commod-               Commodity futures markets pro-           of return. On the other side it also gen-    IDFC           184.00       178.00       181.00     185.00            188.00            192.00
                    ity futures to reduce or limit the price      vide insurance opportunities to com-          erates substantial risk                      INFOSYSTCH    2869.00      2834.00      2852.00    2879.00           2897.00           2924.00
                                           risk of the physical   mercials, merchants, producers and                                                         ITC            156.00       153.00       154.00     156.00            157.00            159.00
                                                                  processors, against the risk of price fluc-   Arbitragers                                  JINDALSTEL     618.00       610.00       614.00     619.00            623.00            629.00
                                                                  tuation. In the case of a trader, an               Arbitragers are interested in making    JPASSCIAT      118.00       116.00       117.00     118.00            119.00            120.00
                                                                  adverse price change brought about by         purchases and sales in different markets     KOTAK BANK     825.00       809.00       817.00     828.00            836.00            847.00
                                                                  either supply or demand change, affects       at the same time to profit from price dis-
                                                                                                                                                             LT            1809.00      1793.00      1801.00    1812.00           1820.00           1831.00
                                                                  the total value of his commitments.           crepancy between the two markets. So
                                                                                                                                                             M&M            645.00       633.00       639.00     649.00            656.00            666.00
                                                                  Larger the value of his inventory, larg-      arbitragers are interested in locking in
                                                                  er the risk to which he is exposed. The       a risk free minimum profit by simulta-       MARUTI        1226.00      1205.00      1215.00    1228.00           1239.00           1252.00
                                                                  futures market provides a mechanism           neously entering into transactions in        NTPC           198.00       196.00       197.00     199.00            200.00            202.00
                                                                  for the trader to lower the inventory risk    two or more markets. An arbitrager           ONGC          1242.00      1205.00      1224.00    1247.00           1265.00           1288.00
                                                                  and his commitments in the cash mar-          knows the minimum profit potential at        PNB           1106.00      1072.00      1089.00    1102.00           1119.00           1131.00
                                                                  ket (where actual physical delivery of        the time of entering into transactions.      POWERGRID       99.00        97.00        98.00      99.00            100.00            102.00
                                                                  the commodity must eventually be              Arbitragers lock in profits when they        RANBAXY        447.00       442.00       445.00     449.00            451.00            455.00
                                                                  made) through hedging.                        spot cash and carry arbitrage opportu-       RCOM           173.00       170.00       172.00     174.00            176.00            179.00
                                                                                                                nity or reverse cash and carry arbitrage     RELCAPITAL     786.00       776.00       781.00     789.00            794.00            802.00
                                                                  Speculators                                   opportunity. Traders who continually
                                                                                                                                                             RELIANCE      1007.00       993.00      1000.00    1012.00           1019.00           1031.00
                                                                       Speculators are those set of market      watch the markets can see inconsisten-
                                                                                                                                                             RELINFRA      1117.00      1093.00      1105.00    1125.00           1137.00           1157.00
                                                                   participants in the derivative market        cies in pricing and can make relatively
                                                                   which takes the call on price trend          low-risk profits by arbitraging those        RPOWER         158.00       155.00       157.00     159.00            161.00            163.00
                                                                  without having any interest in physi-         inconsistencies. In today's financial        SAIL           198.00       195.00       196.00     199.00            201.00            203.00
                                                                  cal commodity. These people based on          markets, most arbitrage opportunities        SBIN          2646.00      2560.00      2603.00    2633.00           2676.00           2706.00
                                                                  the fundamentals of the commodity or          occur either between regions, delivery       SIEMENS        708.00       694.00       701.00     711.00            718.00            728.00
                                                                  otherwise build the position in the           periods, types of instruments (such as       STER           177.00       174.00       175.00     177.00            179.00            181.00
                                                                  derivative market. Commodity futures          options to futures) or across a combi-       SUNPHARMA     1763.00      1733.00      1748.00    1769.00           1784.00           1805.00
                                                                  allow speculators to create high lever-       nation of these conditions. In addition      SUZLON          56.00        56.00        56.00      57.00             57.00             57.00
                                                                  aged positions. Aspeculator accepts the       to providing a low-risk benefit to trad-     TATAMOTORS     861.00       833.00       847.00     857.00            871.00            881.00
                                                                  risk that hedgers seek to avoid, giving       ing companies, arbitrage helps the mar-      TATAPOWER     1326.00      1311.00      1319.00    1331.00           1339.00           1351.00
                                                                  the market the liquidity required to serv-    ket in two ways: It provides pressure
                                                                                                                                                             TATASTEEL      538.00       531.00       535.00     541.00            544.00            551.00
                                                                  ice hedge participants effectively by         on prices to move to rational or nor-
                                                                                                                                                             TCS            878.00       859.00       868.00     875.00            885.00            892.00
                                                                  providing the market with the necessary       mal levels and maintains liquidity in the
                                                                  bids and offers for a continuous flow         markets.                                     UNITECH         85.00        81.00        83.00      84.00             86.00             87.00
                                                                                                                                                             WIPRO          431.00       421.00       426.00     431.00            436.00            440.00
                    32      MONEY MANTRA     August 31, 2010                                                                                                                                                              August 31, 2010    MONEY MANTRA   33
EP 3-35- alok.qxd        8/10/2010       8:39 PM         Page 34




        ASTROSPEAK


                                                    Market to perform better
                                                         going ahead
                                                Kundli 16 Aug 2010, Time: 9:00 am, Place: Mumbai
                                                        Moon                    Mercury
                                                             7                            5         4
                                                                         Venus                    Sun
                                                    8                  Mars, Saturn

                                                                             6          Ketu
                                                             9
                                                           Rahu                           3

                                                    10                    Jupiter                  2
                                                                            12
                                                                                          1
                                                              11
                                                                                                                                               Pt. Jai Govind Shashtri
                                                                                                                                          e mail : jaigovindshastri@yahoo.co.in




                                                                                                   Better       Better                    Good
                                                                                                   for intra-   day for                   buying
                                           Better                                                  day oper-    commod-                   expected
                                           for intra-                                              ators.       ity sector.               in after-
                                           day                                                     Auto,        Sugar,                    noon.
                                           opera-                                                  fertiliz-    fertiliz-                 Bank,
                                           tors.                                                   ers, avia-   ers, jew-                 insurance,              Markets       Day of
                                           Bank,                                                   tion,        ellery,                   heavy                   are likely    normal
                                           insur-                                                  shipping,    shipping                  industry,               to be dull    trade.
                                           ance,                                                   jewellery    and enter-                education               before 11     Higher
                                           auto,         Dull start,                               and          tainment       A day of   and phar-               AM.
                                                                        Rumours                                                                                                 volatility
                                           pharma        volatility                                FMCG         sectors       normal      ma scrips               Better
                                                                        or gov-                                                                                                 expected.
                                           and IT        expected                                  scrips to    may ben-      trade.      to perform   A better   buying
                                                                        ernment                                                                                                 Realty,
                                           scrips to     after an                                  perform      efit the                  well. But    day for    expected
                                                                                      It may be                               Profit                                            engineer-
                                           perform       hour.          announce                   well.        investors.                trade cau-   markets.   after this.
                                                                        ment may     a day of                                 booking                                           ing, fer-
                                           well.         Trade                                                                            tiously.
                                                                        affect the   confusion.                               expected                                          tilizers,
                                                         cautious-                   Don't                                    in after                                          textiles
                                                         ly             move-
                                                                        ments of     expect too                               noon                                              scrips to
                                                                        market.      much.                                    between                                           perform
                                                                                                                              rumours                                           better.
                                                                                                                              and con-
                                                                                                                              fusions.




                                           16 Aug        17 Aug        18 Aug        19 Aug       20 Aug        23 Aug        25 Aug      26 Aug       27 Aug     30 Aug        31 Aug



                    34    MONEY MANTRA       August 31, 2010
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                      COVER STORY
                                                                                                             "confident". Traditionally, the extend-
                                                                                                                                                                                                 Average Household income
                  Literacy,
                                                                                                             ed family and children have pitched in
                                                                                                             during times of financial difficulty and
                                                                                                             this mindset is perhaps one of the main                                                                (Rs. per annum, 2004-05 prices)
                                                                                                             reasons for the optimistic outlook.
                                                                                                             While half of those in rural India are                                  The average increase in Household
                                                                                                             either very confident or confident of the                               income will be about Rs.60000.                                                       Source of rural income: 2015
                                                                                                                                                            4,00,000                 There will be no discernable gain                                                    Over 42% rural
                                                                                                             stability of their income, the figure is                                                                                                                     HHs draw
                                                                                                                                                                                     for bottom 20%.




                  the D-Street
                                                                                                             higher at 63 per cent for urban India.                                  Hardly 13% HHs have a graduate                                                       income from         Modern       Industry
                                                                                                                  'I will recover loss within a year':      3,50,000                 and above as a chief earner,                                                         non-farm            Services     6%
                                                                                                                                                                                                                                                                                              9%
                                                                                                             Households sustain themselves on their                                  accounting for over 28% total                                                        sources.
                                                                                                             savings during a financial crisis. The                                  income.                                                                              9% HH engaged in Traditional
                                                                                                                                                                                                                                                                                                              Agriculture 58%
                                                                                                             perception that it will take them a cer-       3,00,000                 Education attainment levels corre-                                                   modern services,    Services 27%
                                                                                                                                                                                                                                              %
                                                                                                             tain time period to recover from a loss                                 spond directly with growth in                       40                               with highest income
                                                                                                                                                                                     income.                                                                              increase (200%).
                                                                                                             of income, as opposed to their level of                                 Consumer profile impacted more by
                                                                                                                                                            2,50,000




                  Dampener
                                                                                                             confidence about the stability of their                                 education than other indicators.
                                                                                                             income is a clear indicator of the kind
                                                                                                             of financial planning most families            2,00,000                                                                                                                             37%
                                                                                                             undertake. Interestingly, 34 per cent of
                                                                                                             Indian households believe it will take
                                                                                                             them less than six months to be able to        1,50,000                         27%
                                                                                                             replace their current incomes in the case
                   Is education a dampener for stock market? Contrary to                                     of a disruption and another 21 per cent
                                                                                                             feel it will take a year. Therefore, around    1,00,000
                   popular belief, people tend to shy away from stocks with a rise




                                                                                                                                                                                                                                                                                                               2,19,000
                                                                                                                                                                                                                                                                                      1,60,000
                                                                                                             55 per cent of Indian households feel




                                                                                                                                                                                                    1,56,000




                                                                                                                                                                                                                           2,50,000




                                                                                                                                                                                                                                                     3,50,000
                   in their educational level. Sounds strange? Okay, answer




                                                                                                                                                                          1,23,000
                                                                                                             it will take 6-12 months to recover from        50,000
                   which age group invests more into stock markets? Believe me                               a loss of income, a figure that is rela-
                   this is a tough nut to crack. Anyhow, it is not the 25-45 age                             tively equal to the number that feel very
                   group but the 56-65 age group which prefers pouring its                                   confident/confident about their future.
                   money into D-Street. Wondering from where I got these                                          Since the interest income on finan-                                2009-10                   2015-16                2009-10                   2015-16            2009-10                  2015-16
                   inputs. In his report 'How India Earns, Spends and Saves:                                 cial savings are not enough to sustain
                   Unmasking the Real India', Rajesh Shukla, Director, NCAER-                                a household for a whole year without                                                                                                 Urban                                          All India
                                                                                                             any source of income, this implies that                                          Rural
                   CMCR has dwelled upon the changing profile of Indian                                      a large number of households that claim
                   investor. The findings are so astonishing, that wealth                                    to be "very confident/confident" about
                   managers and consumer experts may need to revisit their                                   the stability of their income plan to draw    81% HHs save for the future. 50%+ HHs are confident about stability of their earning source. 96% can’t survive
                                                                                                                                                           on savings beyond a year if they loose income source.
                   strategies.                                                                               on their savings leave less for their post-
                                                                                                             retirement life. While the figures vary
                              raditionally, India has been     An overwhelming 96 per cent of house-         across different socio-economic               What motivates Indians to save? They                    cent households save for old age finan-                   urban households (74 per cent) than



                  T           a nation of savers.
                              Profligacy has been looked
                              down upon and the saving
                              habit has been lauded as a
                  virtue through most of our fables and
                  stories. Not surprisingly, India boasts of
                  one of the highest rates of national sav-
                                                               holds feel that they cannot survive,
                                                               beyond one year, on their current sav-
                                                               ings in case of loss of a major source
                                                               of household income and yet 54 per cent
                                                               households claim that they are finan-
                                                               cially secure. Urban Indians appear to
                                                               be even more optimistic than their rural
                                                                                                             groups, the broad trend is the same -
                                                                                                             the majority believes they can restore
                                                                                                             their current levels of income within a
                                                                                                             year of loss of income.
                                                                                                                  'I can sustain it': During times of
                                                                                                             financial crisis, due to the death of the
                                                                                                             chief earner, illness in the family or job
                                                                                                                                                           save for future exigencies, for old age
                                                                                                                                                           security or for social ceremonies? To
                                                                                                                                                           the surprise of all, children are the
                                                                                                                                                           greatest motivator for savings. Indian
                                                                                                                                                           households rely more on their children
                                                                                                                                                           for social security than any other mode
                                                                                                                                                           of savings. They spend on children's
                                                                                                                                                                                                                   cial security. Future exigencies moti-
                                                                                                                                                                                                                   vate almost 83% of the people to save.
                                                                                                                                                                                                                       Village saves for ceremonies, city
                                                                                                                                                                                                                   for exigencies & old age: Village India
                                                                                                                                                                                                                   is more optimistic of its future than its
                                                                                                                                                                                                                   urban counterpart. When it comes to
                                                                                                                                                                                                                   saving for the revelries of life, villagers
                                                                                                                                                                                                                                                                             rural ones (68 per cent) save for old age.
                                                                                                                                                                                                                                                                             The Quantity Game
                                                                                                                                                                                                                                                                                 Urbanites are ahead in savings:
                                                                                                                                                                                                                                                                             Nearly 81.4 per cent of households at
                                                                                                                                                                                                                                                                             the all-India level save a part of their
                                                                                                                                                                                                                                                                             earnings. But urbanites (88 percent)
                  ings at 28 per cent. In recent years, as     counterparts. This clearly indicates that     loss, a majority of Indian households         education, save for their marriage and                  are ahead of urbanites. Not surprising-                   save more than their rural counterparts
                  the Indian economy has grown rapidly         Indians do not take a long-term view          draw on their personal savings. Nearly        other ceremonies and buy insurance                      ly, while 64 per cent rural people save                   (78.5 per cent). It may be due to rural
                  and new employment opportunities             of their financial security and hence         58 per cent urban households and 54 per       cover to help their children in case of                 for ceremonies, with urbanites the fig-                   folks having less income and more
                  have risen, saving pattern has under-        their optimism is misplaced and there is      cent rural households dig into their per-     any eventuality. Look at these figures.                 ure is just 60 per cent. Lavish life has                  optimism. This may be due to differ-
                  gone a sea change. New avenues of            a pressing need for financial literacy for    sonal savings during times of econom-         Children's education emerges as a key                   different meanings for the rural and                      ence in the income of rural and urban
                  investment have propped up and               better understanding of their financial       ic hardship. The fact that households         priority with 81 per cent households                    urban India. Urban India finds solace in                  households. The average income of
                  changes have been observed in spend-         risks.                                        draw on current savings to meet rou-          saving to meet this requirement. Given                  modern consumer durables and                              rural households is Rs 51,922 compared
                  ing style.                                       'I have saved enough': Most               tine expenditure in case of a sudden          the fact that about 63% household save                  gazettes while rural India enjoys social                  to Rs 95,827 for urban households.
                                                               Indians are confident of living on their      drop in income levels is borne out by the     to meet the expenses on social cere-                    function and togetherness. And there-                         Salaried save more: Salaried class
                  The Great Indian Optimism                    savings after retirement. They are also       fact that about 4 per cent of households      monies like marriage, birth and other                   fore saving for purchasing large con-                     constitutes only 18 per cent of the
                       India is a country of optimists when    sure of finding employment in case of         claim that they can sustain themselves        social functions, it makes children the                 sumer durable items is observed among                     households in the country, but account
                  it comes to financial security. More than    a job loss. As a result, saving for old age   for more than a year if they lost their       greatest motivator for savings. Saving                  29 per cent urban households as against                   for the highest amount of savings. Out
                  half the Indian households (54 per cent)     is not a priority. At the all-India level,    major source of household income.             for old age, for buying house/car, con-                 20 per cent rural households. While 87                    of an average annual income of Rs
                  are confident about their current and        12.8 per cent of households feel "very                                                      sumer durables etc., for meeting the                    per cent urban households put away                        110,344, the salary earning household
                  future stability. Unfortunately, this        confident" about the stability of their       The Motivators                                expenses of gifting, donation and pil-                  some money for emergencies, only 81                       saves nearly 35 per cent. The next high
                  financial optimism is not based on facts.    income, and another 41 per cent are               Beta hamara bada naam karega:             grimage takes a back seat. Only 69 per                  per cent of rural households do so. More                  income earning group (those who are

                 36   MONEY MANTRA      August 31, 2010                                                                                                                                                                                                                                August 31, 2010    MONEY MANTRA      37
EP-36-45.qxd   8/10/2010                                          8:44 PM                        Page 40




                       COVER STORY


                                                                                                                                                                       High-end products in demand                                        Food accounts for the maximum                             Housing comes second
                                                                                                                 The growing village market
                                                                                                                                                                    Product ownership among rural house-                                 An average Indian household spends                        Urban households spend much
                                                                                                           Marketers are increasingly looking
                                                                                                                                                               holds too is undergoing significant change.                          about three fourths of its income on rou-                 more than rural households on housing
                                                                                                         towards rural consumers in a bid to grow
                                                                                                                                                               Nearly 73.6% of all black and white televi-                        tine (food, housing, health etc) and unusual              (5.9% versus 3.8%) and education (8.7%
                                                                                                         sales of their products. Given that rural
                                                                                                                                                               sions are owned by rural households.                               expenditure (ceremonies, medical, higher                  versus 6.4%) while the difference is mar-
                                                                                                         India today contributes 56% to total nation-
                                                                                                                                                               Ownership of high end consumer products                            education, leisure etc) for financial year                ginal in case of transport and almost at par
                                                                                                         al income, 57% to total expenditure and
                                                                                                                                                               such as color televisions (regular and                             2004-05. Rural households spend a little                  in case of health, clothing and consumer
                                                                                                         33% to surplus income, marketers are
                                                                                                                                                               small), cars, mobiles, refrigerators, credit                       more than a third of their income on food,                durables.
                                                                                                         more than justified in reaching out to rural
                                                                                                                                                               cards, and so on is growing in rural areas.                        whereas for urban households it's slightly
                                                                                                         households.
                                                                                                                                                                                                                                  more than a quarter of their income.
                   SPENDING


                                                                                        100.0
                              Ownership of Goods: (% of Households that own products)




                                                                                         80.0




                                                                                         60.0




                                                                                         40.0




                                                                                         20.0

                                                                                                              24          67                  27           55                   8            44               7   36         13           40                      3             14                   1             5                       1           4
                                                                                          0.0




                  self-employed in non-agricultural                                                                     the average household income is Rs          Investment priorities for rural and                India invests in financial assets.             their surplus incomes in cash, mostly in    their cash savings kept at home and only
                  activities) saves 32 per cent (Rs                                                                     65,041, annual expenditure is Rs            urban households are different.                        Insurance is imminent: Salaried            banks (68%) and 20 per cent as cash         32 per cent is deposited in banks. It is
                  95,020). For the next two groups - agri-                                                              48,558 and surplus income is Rs             Looking at specific investment types,              households allocate a fourth of their          on hand. Households engaged in non-         interesting to note that the proportions
                  culture and labour dependent house-                                                                   16,483. A major portion of the surplus      life insurance policies and stock hold-            total savings to paying insurance pre-         agricultural activities also have more or   allocated to the three forms viz. cash,
                  holds - the saving rate drops to 20 per                                                               income (15-19%) is saved as cash,           ings are more popular among urban                  mium but only 6.7 per cent towards             less similar savings pattern as regular     financial investments and physical
                  cent and 8 per cent respectively.                                                                     while about 6 per cent is saved in phys-    households while jewellery and con-                shares and debentures. Financial invest-       salary earning households. But in the       investments are almost identical in the
                                                                                                                        ical assets, such as consumer goods,        sumer durables are preferred options               ments form only a minuscule percent-           'self-employed in agriculture' category,    two top categories - 65 per cent cash
                  The Deployment                                                                                        jewellery etc. and only 2-3 per cent goes   in rural households. Rural households              age of savings for these households as         the situation is quite different. These     savings and 23 per cent physical invest-
                       Cash is king: At the all-India level,                                                            towards      financial     investments.     invest in physical assets while urban              they prefer to keep the major chunk of         households have nearly 55 per cent of       ments.

                  38   MONEY MANTRA                                                             August 31, 2010                                                                                                                                                                                                          August 31, 2010       MONEY MANTRA   39
EP-36-45.qxd   8/10/2010             8:44 PM         Page 42




                  COVER STORY                                                                                                                               Financial
                                                                                                                                                            Investment             Physical




                                                                                                                                                                                                       Rural household go for physical investment
                                                                                                                                         Saving in cash                            investment

                                                                             Saving                                                                                10.33%
                                                                                                                                                                                                                                                                                                                                                 56-65 AGE GROUPS LEADS IN STOCK MARKET




                                                                                                                                                                                                           and urban for financial investment
                                                                                                                                                                                                                                                                                                                                                    INVESTMENT (PERCENT OF INVETMENT)




                                                                                                                                                                                                                                                                                                                                                                                                          Investment
                               Children                                                                                                                                          24.46%                                                                                ILLITERATES INVEST MORE
                                                                                                                                                   65.21%                                                                                                                                            INTO STOCKS
                         motivate for saving:                                                                                                                                                                                                                                 (Percent of total investment)
                     Nearly 83 per cent of Indian
                    households save for emergen-
                   cies, 81 per cent for child's edu-                                                               100%
                                                                                               Others        7.6                               Saving of surplus income (Rural)
                    cation and 69 per cent for rea-                                      9.7
                           sons of old age.                                                                  5.4                                                Financial
                                                                                         4.2   Postoffice
                                                                                                                                                                Investment                Physical
                                                                                                                                             Saving in cash                               investment
                                                                                                                    80%                                                  14.3%
                    Gifts, donations and pil-                                                                                                                                    21.51%
                                   grimages                                                                                                     64.19%


                                                                                                            45.3    60%
                 Buy Large consumer goods




                                                                                                                           Cash Saving
                                                                                               Banks                                            Saving of surplus income (Urban)                                                                                                          100%
                                                                                                                                                                                                                                                                                                                                                                            Age
                                                                                                                                                                                                                                                                                                          14.6     Others           15.4                            gives the experi-
                         Improve or enlarge                                             62.6                                                                                                                                                                                                                                                                    ence to take risk: The 36-
                                  business
                                                                                                                    40%
                                                                                                                                                                                                                                                                                                                                                                45 year olds invest more in
                                                                                                                                                                                                                                                                                                                                                              debentures (10%), as do 56-65
                                                                                                                                                                                                                                                                                                80%                                                           year olds. The 66+ age group
                         Buy or build house                                                                                                                                                                                                                                                                                                                  invests the largest share in con-
                                                                                                            41.7    20%                                                                                                                                                                                                                                     sumer goods (52%) at the cost of
                                                                                                                                                                                                                                                                                                                                                               shares and debentures and
                                                                                        23.4   Keeping at                                                                                                                                                                                                                           32.3                                  jewelry.




                                                                                                                                                                                                                                                                                   Investment
                         Social ceremonies                                                     home                                                                                                                                                                                             60%                Consumer
                                                                                                                                                                                                                                                                                                           39.1    goods

                                                                                                                    0%
                                     Old age                                             Urban              Rural                                                                                                                                                                                                                   12.8
                                                                                                                                                                                                                                                                                                40%        16.6    Jewellery

                                                                                                               Rural
                              Education of
                                                                                                        keep cash, urban                                                                                                                                                                                                                              Education
                                  children                                                                                                                                                                                                                                                                                                      repells from jewelry :
                                                                                                   prefer bank: Urban house-
                                                                                                  holds put nearly 63 per cent of                                                                                                                                                                                                            The levels of investment in
                                                                                                                                                                                                                                                                                                                   Life Insurance   26.6
                                                                                                their cash in bank accounts, while                                                                                                                                                              20%        16.7                             jewelry bear an inverse rela-
                              Emergencies                                                      rural households put 45 per cent. A                                                                                                                                                                                                            tionship with the levels of
                                                                                               much higher share of the savings is                                                                                                                                                                                                                education.
                                                                                                                                                                                                                                                                                                           6.7     Small savings     5.4
                                                                                                    kept as liquid cash by rural
                                                                                                   households (41.7%) than by                                                                                                                                                                             6.3      Stock Market     7.5
                                                0                40   60         80      100
                                                    20                                                 urban ones (23.4%).                                                                                                                                                                      0%
                                                                                                                                                                                                                                                                                                          Rural                     Urban



                      Home safe home: Where are the                        declines considerably (from 45 per cent        keeps 60%.                                                                                                                levels of education of the chief earner              segment. The savings of the 66 plus is            more in debentures (10%), as do 56-
                  people keeping their savings? At home,                   for the youngest group to 29 per cent for          Illiterates vie for shares, gradu-                                                                                    - while 23 per cent 'illiterate' house-              only marginally higher.                           65 year olds. The 66-age group invests
                  in their bank accounts or somewhere                      the 56-65 year old age group).                 ates for insurance: It's interesting to                                                                                   holds invest in jewellery, only 11 per                   Dependence on insurance                       the largest share in consumer goods
                  else? Bank deposits and keeping money                         Education & ageing makes bank             note that educated feel secure with                                                                                       cent of the graduate households do so.               decreases with age: All the groups                (52%) at the cost of shares and deben-
                  at home have emerged as the two most                     a favourite destination: Owning an             insurance while illiterates take risk and                                                                                                                                      except the 56-65 years age group invest           tures and jewellery to some extent.
                  preferred modes for Indian households.                   account in a financial institution             opt for stocks (debentures). The edu-                                                                                     The Game Changer                                     22-23 per cent of their savings in life                They save for the next birth:
                  Rural households (41.7%) prefer to pre-                  depends as much on the source of               cated households invest 21-25% in                                                                                             As the chief earner gets older, two              insurance policies. The 56-65 years age           Households whose chief earners are in
                  serve cash than their urban counterpart                  income as on age and education of the          insurance and 36-37% on consumer                                                                                          trends are observed. One, the motiva-                group invests only 13 per cent of its sav-        the 36-45 years age group form the
                  (23.4%). On an all India basis, half of                  chief earner. Predictably, fewer rural         durables as compared to the 'illiterate'                                                                                  tion to save tends to change.                        ings in life insurance but this is com-           major bulk of households in the coun-
                  all households keep more than half of                    Indians hold accounts in any financial         households (14 per cent and 29 per cent                                                                                   Increasingly, the household feels the                pensated by its higher investment                 try (35 per cent) followed by those in
                  their savings (51 per cent) in bank                      institution as opposed to urban Indians.       respectively). While illiterate house-                                                                                    need to save for old age. Two, in                    (16%) in shares and debentures.                   the 26-35 years age group are the next
                  deposits, 36 per cent prefer to keep cash                At the all-India level, 66 per cent house-     holds invest a higher share on deben-                                                                                     absolute as well as relative terms, the                  Consumer goods gets priority:                 biggest group (22 per cent).
                  at hand and 5 per cent opt for post-office               holds own accounts in a financial insti-       tures (10.2%), the shares of graduate                                                                                     saving level increases.                              Consumer durable goods are a pre-                 Households with chief earners in the
                  deposits. Cooperative society deposits,                  tution - the figures for rural and urban       and 'up to higher secondary' categories                                                                                       It has a cyclical trend: Savings,                ferred mode of investment for the                 age group of 66 years and above con-
                  chit funds, purchasing bonds are some                    India are 59 per cent and 82 per cent          are 5.3% and 8.3% respectively.                                                                                           both absolute and proportionate, steadi-             youngest earners (less than 25 years) as          stitute just 3 per cent of the population
                  of the other modes of saving. Only 2 per                 respectively. With increase in age, peo-           Jewellery, a favourite of jacks:                                                                                      ly increases up to the age of 36-45 and              well as the 26-35 year old and 36-45              but they make the highest level of sav-
                  cent households opt for purchasing                       ple tend to become more dependent on           The levels of investment in jewellery                                                                                     then there is a sharp decline in the 46-             year ones; investment in this mode                ings ( Rs 21,196 per annum which is
                  insurance policies. With an increase in                  bank. While youngest group keeps just          among different household categories                                                                                      55 years age group which is followed                 ranges between 32-39 per cent. People             25 per cent of their annual income) as
                  age, the tendency to keep cash at home                   41% of its savings in bank, old age class      bear an inverse relationship with the                                                                                     by a sharp rise in the 56-65 years age               in the age group of 36-45 year invest             if saving for their next birth.

                  40     MONEY MANTRA               August 31, 2010                                                                                                                                                                                                                                                                                                 August 31, 2010   MONEY MANTRA   41
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                              INTERVIEW

                                                                                                                                       'Education is panacea
                                                                                                                                       for all the financial ills'                                       ple are saving for their child's education. Education has
                                                                                                                                                                                                         become the greatest motivator of saving. People are real-
                                                                                                                                                                                                         ising that if their child is educated, he will be better equipped
                                                                                                                                                                                                         to encash the opportunities. They invest into insurance so
                                                                                                                                                                                                         that their child's education continues even in case of any
                                                                                                                                                                                                         eventuality. See the difference. Once the majority of peo-
                                                                                                                                                                                                         ple used to save for old age, but now they are saving for
                                                                                                                                                                                                         child's education because they feel that an educated child
                                                                                                                                                                                                         will take care of their old age.

                                                                                                                                                                                                         Where do they spend?
                                                                                                                                                                                                         It depends. Occupation profile, educational qualifications
                                                                                                                                                                                                         and age of chief earners have a strong bearing on the man-
                                                                                                                                                                                                         ner in which households spend their income. For lower
                                                                                                                                                                                                         income households, emphasis is on basic food items but
                                                                                                                                                                                                         as their disposable income grows, purchase of durables,
                                                                                                                                                                                                         expenditure on health and education and investment-relat-
                                                                                                                                                                                                         ed expenses come into play. Perhaps one common feature
                                                                                                                                                                                                         among Indian households is the preponderance of 'unusu-
                                                                                                                                                                                                         al expenditure' (social ceremonies, medical, education
                                                                                                                                                                                                         and travel). Rural India spends more on social ceremonies
                                                                                                                                                                                                         (55%) than urban ones (45%), while urban families have
                                                                                                                                                                                                         a much higher spend on education (13%) than their rural
                                                                                                                                                                                                         counterparts (4.7%).

                                                                                                                                                                                                         Is there any shift in the mode of investment as well?
                                                                                                                                                                                                         There has been a considerable change in the investment pat-
                                                                                                                                                                                                         tern. Half of all the households keep more than half of
                                                                                                                                                                                                         their money (51%) in bank deposits, 36% prefer to keep
                                                                                                                                                                                                         cash at hand and 5% opt for post office deposits. As far as
                                                                                                                                                                                                         mode of investment is concerned, life insurance and invest-
                                                                                                                                                                                                         ment into consumer goods are the two most preferred
                                                                              ave you observed any shift in the income profile         So, you mean to say, that reservation in job is                   options of financial investment for salary earning house-
                  Mr. Rajesh Shukla, Director NCAER-Centre for
                  Macro Economic Research, is a widely
                  acclaimed statistician, an accomplished pshep-
                                                                      H       of Indian mass?

                                                                      Yes, it is changing. Average income of an Indian has increased
                                                                                                                                       not working…
                                                                                                                                       What I mean to say is that educate the people. That is the
                                                                                                                                       only way to improve their life style. In fact, the life style
                                                                                                                                                                                                         holds. Such households allocate a fourth of their savings
                                                                                                                                                                                                         to paying insurance premium but only 6.7% towards shares
                                                                                                                                                                                                         and debentures.
                                                                      and as our study suggests, there will be an increase of -----    of their coming generations will change if you educate them.
                  hologist and a visionary economist. He has been     % in annual income by the year 2015. But this increase will                                                                        Any marked difference in investment behaviour based
                  a technical advisor to several international bod-   be city centric. There will be an increase in the income of      As you said, there will be an average upsurge of 37%              on rural/urban divide?
                  ies, including the United Nations Committee on      rural India, but at a slower pace. The irony of post-liberali-   in the income of Indian household. This may result                    Yes, there is. The share of physical investment of sur-
                                                                      sation richness is that it has widened the gap between two       into more inflation in the coming days?                           plus income is relatively more in rural household than in
                  Tourism Statistics, WTO, Spain. He has authored     ends of financial pyramid. The share in GDP of those at the      Clearly, there is a demand-supply mismatch in India.              urban ones while reverse is true in case of financial invest-
                  seven books and several research papers. All        bottom of the pyramid is not changing.                           Inflation is a natural outcome of this mismatch. Given the        ments. Life insurance policies and stock holdings are more
                  his works reflect deep understanding of the sub-                                                                     fact that the scarcity of food is going to remain due to pauci-   popular among urban households while jewellery and con-
                                                                      Have you identified the reason behind that?                      ty of agri-produce, increase in consumption, mismanage-           sumer durables are preferred options of rural households.
                  jects and speak of authenticity. His book The       In my opinion, education is the main culprit. Even if you pro-   ment of PDS and illegal hoarding of grain, inflation is going     To our surprise, illiterates are more into stock market invest-
                  Great Indian Middle Class received rave reviews     vide people with opportunities, they can't take benefit due      to remain, in fact going to increase in the coming years.         ment than their graduate counterparts.
                  and forced marketing heads to revisit their         to lack of skill. An educated person can take tuitions; per-     There must be a price control mechanism to contain infla-
                  strategies. His recent work 'How India Earns,       form DTP work, but an uneducated person can't. Even under        tion. It's noteworthy that rich states like Punjab and Haryana         Why so?
                                                                      MNREGA scheme, government is not able to give 100 days           are least affected by inflation.                                       It is because they are not educated. India will have to
                  Spends and Saves: Unmasking the Real India'         job to everyone because the type of work they can do is                                                                            invest heavily into education. It is panacea for all the ills,
                  has won laurels from every quarter. He spoke        limited. The roads built under MNREGA are poor in quali-         In an environment of inflation, is there any change in            all the sufferings. And people have understood its value;
                  to Awanish K Mishra about his book and its          ty because these have been built with the help of unskilled      the saving pattern of Indians?                                    therefore children's education has emerged as one of the
                                                                      people.                                                          Yes. And the crux of this change is that most of the peo-         strongest motivator for savings.
                  inherent message. Here are the excerpts:
                  42   MONEY MANTRA   August 31, 2010                                                                                                                                                                                  August 31, 2010   MONEY MANTRA   43
EP-36-45.qxd   8/10/2010    8:44 PM     Page 46




                                                                                                       Difference among 2D,
                                           5D movie brings                                             3D, 4D and 5D

                                        Disneyland to Delhi                                                     refers to a figure that has
                                                                                                                length     and     breadth.
                                                                                                                Bollywood has been screen-
                                                                                                                ing 2D movies for years.
                       Shilpy Arora                         instead of amusement parks. So we
                                                            have brought something adventurous                  refers to a figure that has
                         ubbles and butterflies sur-        in theatres," says he.

                 B
                                                                                                                length, breadth and depth,
                         rounding you, rats crawling on     Viewers are given special 3D glasses                3D movies add to the illu-
                         your legs, a ride through an       to watch the movies. And you feel that              sion of depth.
                 underground tunnel… what if you get        objects in movie are flaking off the                 As this world is 3D, we can
                 to experience all this in a theatre?       screen right at you.                                 only feel the fourth dimen-
                 India's first 5D cinema theatre brings     When asked about the response of                     sion. So 4D movies create
                 a multi-sensory experience. You not        Delhiites, Rachit said over 40,000                   a feel with live environ-
                 only feel the characters coming off the    people have been to Bonzai. "We are                  mental effects in synchro-
                                                                                                                 nisation with movie.
                 screen as shown in 3D movies and live      planning to expand our chain in other
                 effects like 4D movies but also expe-      parts of Delhi as well," Rachit                      Is gravity i.e. a pull that
                 rience a full spectrum of visual effects   revealed.                                            attracts things downwards.
                 and motion seats which together cre-       This is not all. Bonzai also presents                So, effects in 5D movie
                 ate a five-dimensional experience.         three unique mazes in 'The Lost                      could be gravitational
                 "I've never seen anything like this        World'. Once you enter the maze, you                 waves, super-high-energy
                                                                                                                 particle collision, ultra-
                 before. I was amazed at the way they       get lost in mirror maze, then horror                           powerful gamma-
                 have created visual effects in theatre.    maze and finally a spinning tunnel                                ray burst etc.
                 Almost all effects seemed real here,"      maze which leaves an everlasting
                 says Puneet Malhotra, a viewer.            experience.
                 Indian audience has seen 3D and 4D         With a capacity of 32 seats, the theatre
                 effects in cinema. Now, with the tech-     runs short films of about 15 minutes
                 nology boom, Indians see the first 5D      in West Gate Mall of Rajouri Garden,
                 theatre, Bonzai. As one of the partners    New Delhi. Currently,
                 Rachit Seksaria puts it, in 5D, you        it is screening two ani-
                 watch a 3D movie and also feel what        mated movies, Haunted
                 characters are feeling in form of pul-     House and SOS Planet.
                 sating sound, rain, motion seats, wind     Haunted Moon and Fly me in the
                 and thunder effects. "In cities like       moon will be released in next week.
                 Delhi where there is extreme weath-                   While movie tickets are
                                     er, people prefer to                worth Rs.125, you can
                                         go to malls                       enjoy 'The Lost World' in
                                                                             just Rs.75.




                  44   MONEY MANTRA    August 31, 2010
EP-46-90.qxd   8/10/2010     8:49 PM     Page 46




         FINANCIAL PLANNING                                TAXATION                          STOCK MARKET                               COMMODITIES    MUTUAL FUND                           INSURANCE                                  BANKING                               INDIA POST

                  Speed Clearing                                                                                                                                                                                                                 LIST OF MICR CENTRES WHERE
                                                                                                                                                         clearing requires the involvement of clearing houses. The source bank needs to        SPEED CLEARING HAS BEEN IMPLE-
                                                                                                                                                         send the cheque to a clearing house. The clearing house first uses MICR tech-

                  Does your bank charge                                                                                                                  nique and then sends the details to the receiving bank. The receiving bank cred-
                                                                                                                                                         its the account of receiver as soon as it gets the details required for processing
                                                                                                                                                         the cheque. The major disadvantage of local clearing over speed clearing is it
                                                                                                                                                         requires the physical movement of cheque that takes time.
                                                                                                                                                                                                                                              MENTED(AS ON NOVEMBER 30, 2009)
                                                                                                                                                                                                                                              1.AHMEDABAD
                                                                                                                                                                                                                                              2. ANAND
                                                                                                                                                                                                                                              3. BARODA
                                                                                                                                                                                                                                                                       33 GUWAHATI
                                                                                                                                                                                                                                                                       34 HYDERABAD
                                                                                                                                                                                                                                                                       35 VIJAYAWADA


                  for it? It's illegal                                                                                                                   Instruments processed through speed clearing
                                                                                                                                                           Cheques with transaction codes 10, 11 and 13
                                                                                                                                                           Only MICR cheques are processed through speed clearing
                                                                                                                                                                                                                                              4BHAVNAGAR
                                                                                                                                                                                                                                              5 JAMNAGAR
                                                                                                                                                                                                                                              6 RAJKOT
                                                                                                                                                                                                                                              7 SURAT
                                                                                                                                                                                                                                                                       36 VISAKHAPATNAM
                                                                                                                                                                                                                                                                       37 BHILWARA
                                                                                                                                                                                                                                                                       38 JAIPUR
                                                                                                                                                                                                                                                                       39 JODHPUR
                                                                                                            one to know some basic facts about             Only bank branches where core banking system is enabled can facilitate speed       8 BANGALORE              40 KOTA
                       Shilpy Arora                                   What is speed                         speed clearing.                                clearing                                                                           9 BELGAUM                41 UDAIPUR
                                                                                                                                                           Demand drafts can't be processed under speed clearing.                             10 HUBLI                 42 JAMMU
                             r. Sahoo makes payment of his             clearing?                            Features of speed clearing                                                                                                        11MANGALORE              43 DEHRADUN

                  M          mutual fund via a cheque. In
                             April, when he sent a cheque
                  of UCO bank (from Orissa) to his AMC,
                                                                     Usually, a bank collects cheques
                                                                which can be drawn in any bank
                                                                branch. The cheques that are drawn
                                                                in non-local branches are called out-
                                                                                                              One can get an outstation cheque
                                                                                                              cleared like a local cheque at the
                                                                                                              receiving branch
                                                                                                                                                         How to know if a cheque is cleared via speed clearing?
                                                                                                                                                              Customers must ask for the CBS status of a branch. Many banks print CBS on
                                                                                                                                                         the cheque leaves. The best way to know the CBS status of your branch is to count
                                                                                                                                                                                                                                              12 MYSORE
                                                                                                                                                                                                                                              13 RAIPUR
                                                                                                                                                                                                                                              14 BHOPAL
                                                                                                                                                                                                                                                                       44 AGRA
                                                                                                                                                                                                                                                                       45 ALLAHABAD
                                                                                                                                                                                                                                                                       46 GORAKHPUR
                  it got cleared through speed clearing                                                       Speed clearing doesn't involve phys-       the number of digits of your bank account number. If the number of digits of an      15 GWALIOR               47 KANPUR
                                                                station cheques. Speed clearing
                  at Hyderabad. The bank debited Rs.55          refers to fast clearing of outstation         ical movement of cheques from the          account number (which is printed on cheque) is more than 10, it indicates the        16 INDORE                48 LUCKNOW
                  from his account in the name of speed         cheques. For instance, if a person            source branch to the receiving branch      cheque is from CBS-enabled bank branch. The customers can also check the web-        17 JABALPUR              49 VARANASI
                  clearance charges.                            living in Mumbai wants to send a              Speed clearing facilitates cheque          site of RBI. List of speed clearing-enabled bank branches is given on the website.   18BHUBANESWAR            50 KOLKATA
                      Like Mr. Sahoo, many people have          cheque of Canara Bank to a branch of          clearance in just two-three days as                                                                                             19 CUTTACK               51 PANAJI
                  been paying speed clearance charges           Canara bank in Gujarat, he can get            against the previous process that used     Time required for transfer of money                                                  20 CHANDIGARH            52 KOLHAPUR
                  without knowing that no bank is autho-        the cheque cleared in just 48 hours           to take more than 15 days                       Usually, the transfer of funds takes around a week to three weeks. It, howev-   21 AMRITSAR              53 MUMBAI
                  rised to charge a penny if your cheque        through speed clearing. Earlier, the                                                     er, depends on the location of the bank in the receiver's area.                      22 JALLANDHAR            54 NASHIK
                  amount is less than one lakh.                 process used to take one to three           Advantages of speed                                                                                                               23 LUDHIANA              55 PUNE
                                                                weeks' time depending on the situa-         clearing over local clearing                 Fee for speed clearing
                      Speed clearing is introduced by the                                                                                                                                                                                     24 CHENNAI               56 SHOLAPUR
                                                                tion of branch in the area of receiver.
                  Reserve Bank of India (RBI) for imme-              RBI facilitates faster collection of       Like speed clearing, the clearance          RBI has made it clear that banks are not permitted to charge anything for the     25 COIMBATORE            57 AURANGABAD
                  diate clearance of outstation cheques         the outstation cheques through speed        of cheques is done through MICR sys-         cheques of value up to one lakh rupees. The banks can, however, charge Rs.150        26 ERODE                 58 NAGPUR
                  at no cost. Earlier, customers used to pay    clearing. The speed clearing is facil-      tem in local clearing but                                                                     per cheque if the amount of         27 MADURAI               59 NEW DELHI
                  for the clearing of cheques under col-        itated via core banking solutions. The      local                                                                                           cheque is Rs. 1 lakh or more.     28 PUDUCHERRY            60 PATNA
                  lection basis. The whole purpose of           core banking is facilitated to create                                                                                                                                         29 SALEM                 61JAMSHEDPUR
                  introducing speed clearing gets               a network of all branches of a bank                                                                                                                                           30 TIRUNELVELI           62 RANCHI
                  defeated if banks charge a clear-                                                                                                                                                                                           31 TIRUPUR               63 CALICUT
                  ance fee. Hence, it is                                                                                                                                                                                                      32 TRICHY                64 ERNAKULAM
                  imperative for every-                                                                                                                                                                                                                                65 TIRVANDRUM
                                                                                                                                                                                                                                                                       66 TRICHUR
                   SpeedClearing




                                                                                                                                                                                                                     Step      4
                                                                                                                                                                                                                    The receiving bank credits the account of
                   Process of




                                                                                                                                                                                                                    receiver. The process that earlier used to take
                                                                                                                                                                                                                    more than 15 days, now takes just two-three
                                                                                                                                                                                                                    days. The time, however, depends on the loca-

                                            Step           1                      Step       2                                                                Step      3                                           tion of reciever’s bank.



                                            An individual deposits an
                                           outstation cheque with
                                           his bank branch. This
                                                                                 The source branch uses Magnetic Ink Character
                                                                                 Recognition (MICR) system and sends details to the
                                                                                 bank where that cheque is payable (receiving branch).
                                                                                                                                                         The magnetic characters provide important details i.e.
                                                                                                                                                         the account number, cheque number, bank routing
                                                                                                                                                         code and amount of the cheque required to process
                                                                                                                                                                                                                    Step       5
                                                                                                                                                                                                                    Receiver gets the amount free of cost i.e. no fee
                                                                                 For instance, if a person living in Delhi sends a cheque
                                           bank branch is called                                                                                         the cheque. The source branch sends the information        will be charged. But banks are permitted to charge
                                                                                 of HDFC bank in favour of someone living in Lucknow,
                                           source branch. The                                                                                            to the receiving bank through core banking system.         Rs.150 for cheques of over 1 lakh rupees.
                                                                                 the Delhi branch of HDFC will use MICR technique and
                                           source bank sends the                                                                                         The movement of information takes very less time if
                                                                                 send the details to its branch in Lucknow. MICR charac-
                                           cheque to a clearing                                                                                          compared to local clearing.
                                                                                 ters, printed at the bottom of cheque, can be read by
                                           house.                                computers.

                  46    MONEY MANTRA     August 31, 2010                                                                                                                                                                                             August 31, 2010     MONEY MANTRA   47
EP-46-90.qxd   8/10/2010    8:49 PM      Page 48




         FINANCIAL PLANNING                              TAXATION                          STOCK MARKET                                 COMMODITIES     MUTUAL FUND                             INSURANCE                                   BANKING                           INDIA POST

                                                                 Electronic Clearing Services                                                             provided by the Reserve Bank of India         rights of the users of these payment       costs and reduced clearing costs.
                                                                                                                                                          (RBI). Some of these bills could be           systems, enhancing efficiency and          Payments are automatically made
                                                                                                                                                          monthly EMIs, electricity bill, water         competition, and ensuring a safe,          on time, at the designated date,



                                                                  Key Is Caution
                                                                                                                                                          bill, municipal taxes, telephone bill,        secure and sound payments system.          reducing dependency on the
                                                                                                                                                          insurance premium, MF premium                 The facility is still not available with   human element. For banks, there's
                                                                                                                                                          (SIP), credit card payments etc. For          every banking branch.                      that much less paperwork. There
                                                                                                                                                          availing this all you need to do is to                                                   is no room for losing the instrument
                                                                                                                                                          register for EMIs/bill payments with         Advantage of ECS                            of payment in the post.
                                                                                                                                                          your service provider by providing            ECS is a convenient, safe and eco-         They no longer need to encode the
                                                                  found that around Rs. 15,000 was         that he needs not go to the bank again         details such as name, account number,         nomical way of collecting regular          instruments, present them in clear-
                                                                   missing from her account. It was the    and again for any periodic                     name of the bank /branch, MICR code,          periodic payments from a large num-        ing, monitor their return and fol-
                                                                    same holiday company which was         payments/receipts. Suppose, if you             etc. A cancelled cheque is a must to be       ber of consumers, the process for          low up with the customer. There
                                                                     taking it on monthly Rs 5000          have to pay your monthly SIP of mutu-          given to the provider along with this.        which might take between 5 to 10           is also no value limit on the num-
                                                                      basis. Jaya was confused how         al fund, through ECS, your account will            Similarly, various payments can           working days.                              ber of individual transactions
                                                                       this was possible that without      be arranged with the MF provider in            also be credited to your account auto-        With ECS, there is improved fraud          allowed.
                                                                        giving any post-dated cheques,     such a manner that the payments will be        matically through the ECS way. This           detection, reduction in expenses on        To protect your account from
                                                                        the company got away with the      automatically transferred on the due           is called ECS Credit. Some of these           a per item basis, removal of geo-          excess debits, you can select the
                                                                     money. She complained to the          date. With this, one need not have to          could be payments of salary, refund           graphical boundaries to deposito-          top-limit for your account. If your
                                                                company managers who told that with        go bank every month and make pay-              orders for IPOs, interest warrants, div-      ry relationships, no dual workflows        bill amount exceeds the limit, the
                                                                 the ECS, the company had the advan-       ment. This reduces effort, time and cost.      idend warrants etc. and periodical            for paper and electronic deposits,         payment will be cleared by the bank
                                                                               tage of taking                                                             receipts for/on their investments made        lower transportation and courier           only after obtaining your approval.
                                                                                                           Why is ECS needed?                             in the fixed deposits/shares, tax refund
                                                                                                                    ECS has an edge over the tra-         etc. The user intending to effect pay-
                                                                                                                  ditional cheque-centric process-        ments through ECS Credit has to sub-
                                                                                                                   ing systems, which are compar-         mit       details       like      name,
                                                                                                              atively inflexible, expensive and           bank/branch/account number of the
                                                                                                           increasingly difficult to maintain. It
                                                                                                           benefits both the banks and the con-
                                                                                                                                                          beneficiary, MICR code of the desti-
                                                                                                                                                          nation bank branch etc. to the paying
                                                                                                                                                                                                          CHARGES
                                                                                                           sumers by way of savings on adminis-           institution. The institution will then              Individuals are not charged for
                                                                                              money        trative costs, printing, dispatch and rec-     credit money in the beneficiary's               the ECS facility, but institutions
                                                                                          from clients'    onciliation. Somak Ghosh, group pres-          account.                                        are. The Reserve Bank of India has
                                                                                     account without       ident (corporate finance & developing                                                          deregulated the charges to be levied
                                                                                 their prior consent. In   banking), YES Bank says, "ECS is basi-         NECS                                            by sponsor banks from user insti-
                                                                             fact, the form which she      cally a retail payment system which can            In October 2008, a centralised ver-         tutions. The sponsor banks are,
                                                                         signed and submitted, gave        be used to make bulk payments or               sion of ECS Credit known as National-           however, required to disclose the
                                                                     the company an authority of tak-      receipts. It serves as an alternate and        ECS (NECS) was launched. Before                 charges in a transparent manner. No
                                                                ing money. When Jaya asked why the         cost-effective method of effecting bulk,       this, the system was not centralised and        processing charges are levied by
                                                               ECS system was not explained to her         low value and recurring payment trans-         was limited to a few cities and branch-         the ECS centers; the same has been
                                                               before, the managers told that everyone     actions." The ECS facility, introduced         es. Now, NECS has no restriction of             waived till March 31, 2010. Bank
                      Harish Kumar                             today knew about it and it's her fault if   in early nineties, is more useful to com-      centre or of any geographical area              branches do not generally levy pro-
                        aya Mishra, a doctor with a reput-     she didn't know or had not gone through     panies and government departments in           inside the country. The system takes            cessing/service charges for debit-


                  J     ed hospital in New Delhi, never
                        would have dreamt of how painful
                        her television buying could be.
                  Six months back she bought a television
                  which had an offer of paying first three
                                                               the fine prints of documents. The Rs
                                                               15000 television finally cost her Rs.
                                                               30,000 and that too without any holiday.
                                                               Had Jaya known about ECS before, she
                                                               could have saved the money.
                                                                                                           making/receiving large volumes of pay-
                                                                                                           ments rather than for funds transfers
                                                                                                           by individuals. But now, according to
                                                                                                           Ghosh, ECS is also applied to improv-
                                                                                                           ing retail customer service by ensur-
                                                                                                                                                          advantage of the centralised accounting
                                                                                                                                                          system in banks. The branches partici-
                                                                                                                                                          pating in NECS can, however, be locat-
                                                                                                                                                          ed anywhere across the length and
                                                                                                                                                          breadth of the country. Banks are free to
                                                                                                                                                                                                          ing the accounts of customers
                                                                                                                                                                                                          maintained with them.
                                                                                                                                                                                                          ECS Charges for Debit
                                                                                                                                                                                                          Clearing
                  monthly installments for membership                                                      ing timely and safe interest/dividend          add any of their core-banking-enabled              Debit Clearing: Re. 1 per trans-
                  of a renowned holiday provider. Each         What is ECS?                                payments to the beneficiaries.                 branches in NECS irrespective of their             action + RBI or Destination Bank Charges if any, Minimum Rs. 2,750
                  installment was of Rs 5000. Jaya                 Electronic Clearing Service (ECS)                                                      location. Presently, around 32,000                 Returning Charges on account of insufficient funds: Rs. 40 per entry
                  thought she will go for a couple of hol-     is a system which allows the service        ECS -Debit & Credit                            branches of various banks have joined              Full waiver in respect of Income Tax Refund Orders: Nil
                  idays for the first three months and quit    provider for an automatic transfer of            With ECS Debit facility, automat-         in NECS.
                  from the scheme afterwards when she          fund from/into the client's account sub-    ic payments of utility and routine                                                             ECS Charges for Credit Clearing
                  will have to start paying. The compa-        ject to his prior one time approval. ECS    monthly bills/installments are done            Concerns in ECS                                    Up to 10,000 entries: Rs. 3 per entry + RBI or Destination Bank Charges
                  ny asked her to fill the form and a can-     is used for making regular                  from individual's savings/current                There is also the risk that participants         if any.
                  celled cheque of Rs. 5000. Till next         payments/receipts to/from a defined         account. Once you schedule payment               are unable to meet their full finan-             Above 10,000 up to 1 lakh entries: Rs 2 per entry + RBI or Destination
                  three months she tried thrice, asking for    location. The idea behind the service       through the bank, it has to be credited to       cial obligations as expected.                    Bank Charges if any. Minimum Rs. 30,000.
                  holiday trips to various locations but the   is to reduce the efforts of either party    your service provider. The bill amount           All electronic systems have to fac-              Above 1 lakh entries: Re. 1 per entry + RBI or Destination Bank Charges
                  company denied saying, their                 so that they could reach at a quick set-    is then debited automatically from your          tor in operational risks such as sys-            if any. Minimum Rs. 2,00,000.
                  resorts/hotels are not empty.                tlement. In this system, the client's       bank account and transferred to your             tem downtime or operational errors.
                      Jaya met with a shocker when she         account is arranged in such a manner        service provider via the ECS service             There is the question of protecting the

                 48   MONEY MANTRA     August 31, 2010                                                                                                                                                                                                 August 31, 2010   MONEY MANTRA   49
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                                                                                                                                                                                                                                       Home Loan Junction
                                                        Banking the                                                                                                                                      Home Loan EMI/Rs 100,000 for a loan amount of Rs 30 Lakh as on August 06, 2010



                                                                                                                                                                                                Allahabad Bank
                                                                                                                                                                                                                             5 years           10 years        15 years        20 years
                                                                                                                                                                                                                             FIXED FLOATING FIXED FLOATING FIXED FLOATING FIXED FLOATING
                                                                                                                                                                                                                             2212 2076         1449 1294       1233 1059       1119 965




                                                        VK way
                                                                                                                                                                                                Andhra Bank                  DP 2125           DP 1335         DP 1105         DP 998
                                                                                                                                                                                                Axis Bank                    2327 2064         1553 1253       1332 999        1244 884
                                                                                                                                                                                                Bank of Baroda               DP 2052           DP 1253         DP 999          DP 900
                                                                                                                                                                                                Bank of India                DP 2076           DP 1280         DP 1044         DP 965
                                                                                                                                                                                                Bank of Maharasthra          2100 2052         1322 1253       DP 1014         DP 900
                                                                                                                                                                                                Bank of Rajasthan*           2100 2028         1294 1213       1044 956        932 836
                                                                                                                                                                                                Canara Bank                  DP 2076           DP 1280         DP 1044         DP 932
                                                                                                                                                                                                Central Bank of India        2125 2052         DP 1253         DP 1014         DP 900
                                                                                                                                                                                                Corporation Bank             2174 2064         1378 1294       1137 1044       1032 949
                                                        Virendra Kumar Dhingra is a post-graduate in Commerce with                                                                              HDFC                         2340 2040         1568 1227       1349 970        1262 852
                                                        over forty years of experience in banking. He retired as                                                                                ICICI Bank                   2432 2040         1675 1227       1469 970        1391 852
                                                        Executive Director, UCO Bank. Currently, he is Director,                                                                                IDBI Bank                    2174 2064         1378 1253       1137 999        1032 884
                                                        Industrial Investment Bank of India Ltd.                                                                                                Indian Overseas Bank         2076 2040         1294 1240       DP 999          DP 884
                                                                                                                                                                                                Indian Bank                  2125 2088         1335 1294       1105 1059       1015 965
                                                                                                                                                                                                Jammu & Kashmir Bank         2174 2137         1420 1363       DP 1168         DP 1119
                                                                                                                                                                                                LIC Housing Finance          DP 2088           DP 1280         DP 1029         DP 916
                                       Sir, is there any harm if I am not using my cheaque   tion of the customer.                                  Dear Amit,                                  Oriental Bank of Commerce 2137 2088            1335 1280       1105 1044       998 932
                                       leafs (for a longer period) and operating my          Sir, I had a credit card of HDFC bank. Despite         Sometimes customers come across             Punjab National Bank         2125 2100         1335 1294       1121 1059       1015 949
                                       account through ATM only? I am afraid that the        paying all the dues, my name has been put in           such problems either due to mechan-         SBI Easy Home Loan**         2028 2028         1213 1213       956 956         836 836
                                       bank may declare my account inoperative.              defaulter's list in CIBIL. I have all the records of   ical fault or if ATM card is not insert-    Syndicate Bank               2199 2064         1435 1280       DP 1044         DP 932
                                                                          -H Kumar, Patna    timely payments. What should I do for the removal      ed properly but machine captures the        UCO Bank                     2162 2088         1378 1294       1152 1059       1066 965
                                       Dear Mr. Kumar,                                       of my name from the list?                              transaction without delivering the          Union Bank of India          2112 2076         DP 1280         DP 1044         DP 932
                                       All the developed countries across the globe                                              -Puja, Kolkata     cash. In such a situation, if ATM is        *Bank of Rajasthan (Fixed) offers 9.5% for the 1st year, 10.5% for the 2nd and 3rd year, thereafter
                                                                                                                                                                                                11.75%. (Floating) offers 8% fixed for the 1st year, 9% fixed for the 2nd and 3rd year, thereafter 9.25%
                                       adopted paperless banking practices long              Madam Puja,                                            off site, you must find out which is        for loans upto Rs 30 Lakh. **SBI Easy Home Loan offers 8% fixed for the first year, 9% pa fixed for
                                       back. In our country, though the practices were       Generally, the name of the borrower is report-         the link branch of SBI and immedi-          second and third years, from fourth year for fixed interest rates 3.5% above base rate and for floating
                                       introduced more than a decade back, it has            ed to CIBIL only on continuous default and             ately submit an application there giv-      interest rate 1.75% above base rate, SBI Base Rate currently it is 7.5%. Scheme available upto - 30th
                                                                                                                                                                                                September 2010. SBI Fixed Interest Rates are subject to reset every five years.
                                       yet to take roots. As long as you are operating       that too after giving reasonable time and              ing the details of the transaction and      PN: The home loan rates are indicative rates, which may change according to the credit profile of the
                                       your account either through ATM or by mak-            opportunity to regularise the account. In your         also enclose the copy of transaction        customer. DP: Do not provide
                                       ing use of cheque leaves, the account contin-         case it appears that either payments made by           sheet. A copy of application should             Fixed Deposit Interest Rates (upto - Rs. 15 lakhs as on 6th August 2010)
                                       ues to be an operative account.                       you have not been credited to the account for          be sent to your bank Union Bank of          BANKS                           6mths - < 1        1–<2        2 – < 3 Year       3 – < 5 5 Years &
                                                                                             not following the prescribed procedure for             India also. This step should be taken                                       Year               Year                           Year    above
                                       Sir, I have my bank account with HDFC bank in         depositing your dues, or there may be inordi-          immediately because cash has been           Bank of Baroda                  6.00%              7.00%       7.25%              7.25% 7.25%
                                       Delhi. A few days back, I visited my branch office    nate delay in a few transactions, which could          delivered to you from SBI and unless        Bank of India                   5.50% - 5.75%      6.50%       6.75%              7.00% 7.00% - 7.50%
                                       and tried to deposit Rs. 25,000 in my relative's      be unintentional. The amount deposited by you          SBI confirms to Union Bank that one         Bank of Maharashtra             5.50%              6.50%       6.50%              7.00% 7.00%
                                       account in HDFC Patna branch. But the offi-           could be credited to some other account due            transaction was fake and cash has           Canara Bank                     5.50% - 5.75%      6.75%       7.00%              7.00% 7.25% - 7.50%
                                       cials at HDFC Delhi refused to accept deposit         to some mistake while making the payment.              been delivered to customer only for         Central Bank of India           5.75% - 6.25%      6.75%       7.00%              7.25% 7.50%
                                       for HDFC Patna branch. I met Branch Manager           However, you should immediately send a com-            one transaction, you may not get cred-      Corporation Bank                5.75% - 6.00%      6.50%       6.75% - 7.25% 7.00% 7.25% - 7.50%
                                       as well, but he was of no help. What should I do?     munication to the Bank along with copies of            it for the fake transaction.                Dena Bank                       5.50%              6.50%       6.75%         7.25% 7.25%
                                       Is there any guideline from RBI not to accept         all the documents for timely deposit of your                                                       Indian Oversea Bank             5.50% - 6.00%      7.00%       7.25%         7.50% 7.50%
                                       cash deposit into third party account from dis-       dues seeking their response that how could             Sir, I work in sector 19, Noida and stay    Oriental Bank of Commerce 6.00%                    7.00%       7.00% - 7.50% 7.25% 7.50%
                                       tant branch?                                          your name appear in the defaulters' list of            in sector 50. For convenience, I want-      State Bank of India       5.25%                    6.00%       6.50%         6.50% 7.25% - 7.50%
                                                                -KN Mishra, New Delhi        CIBIL and seek their intervention to get your          ed to open my bank account with SBI,        Syndicate Bank                  5.50%              6.75%       6.75%              7.00% - 7.25% - 7.50%
                                       Dear Mr. Mishra,                                      name deleted from there. The bank will defi-           sector 19, Noida. But the branch man-                                                                                         7.10%
                                       After economic reforms and liberalisation in          nitely and quickly respond to your request to          ager is insisting that I should go to the   Union Bank of India             5.00% - 5.75%      6.75%       7.00%              7.25% 7.50%
                                       the banking sector in early nineties private sec-     address your problem.                                  branch located near sector 50. Is there     Vijaya Bank                     6.00% - 6.25%      7.00%       7.25%              7.25% 7.25%
                                       tor banks came into existence with the latest                                                                any such rule”                              Axis Bank                       6.25% - 6.50%      7.10%       7.35%              7.00% 7.00%
                                       technology and the concept of 'any time any           Sir, I have a bank account with Union Bank of                          -Niranjan Pandit, Noida     Development Credit Bank         6.50%              7.00% -     7.75%              7.75% 7.50%
                                       where' banking. The concept reflects that the         India, Varanasi. One month ago I tried to with-                                                                                                       7.25%
                                       customer does not belong to any specific              draw Rs.5000 from the account using SBI ATM            Dear Mr. Pandit,
                                                                                                                                                                                                HDFC Bank                       5.75% - 6.50%      6.50% -     7.00% -            7.50% 7.50%
                                       branch but belongs to the bank. Accordingly,          in Delhi. In the first attempt, the transaction did-   There is no restriction for opening of                                                         7.00%       7.50%




                                                                                                                                                                                                                                                                                                           Source: Apnapaisa Research Bureau
                                       there should be no hesitation to any of the           n't take place. When I made a second attempt, it       bank account anywhere. But bank is
                                                                                                                                                                                                ICICI Bank                      5.50% - 6.50%      6.50% -     7.25% -            7.75% 7.75%
                                       branches of the bank to transact any business         worked and I collected Rs.5,000. But the statement     definitely responsible for proper iden-                                                        7.00%       7.50%
                                       on behalf of any customer. However,                   slip generated by ATM showed that Rs.10,000 had        tification of its prospective customers.    ING Vysya                       5.25% - 6.25%      6.75% -     7.00%              7.00% 7.00%
                                       Government of India and Central Bank of the           been debited from my account. I visited the adjoin-    They are under obligation to comply                                                            7.00%
                                       country i.e. Reserve Bank of India has taken          ing SBI branch. They suggested me to register          with Know Your Customer norms as




                                                                                                                                                                                                                                                                                                           www.apnapaisa.com
                                                                                                                                                                                                IDBI Bank                       6.50%              7.25%-      7.50%              7.75% 7.75
                                       various measures to check money laundering.           an complaint regarding the problem in the branch       prescribed by RBI. If you are able to                                                          7.50%
                                       In view of these measures, cash transaction           where my account is (i.e Union Bank, Varanasi).        comply with all the required formal-        The Federal Bank                6.25%              7.50%       7.25%              7.25% 8.00%
                                       for Rs 50,000 and above needs to be support-          What should I do now?                                  ities of KYC, there should not be any
                                                                                                                                                                                                Kotak Mahindra Bank             5.75% - 6.50%      6.75% -     7.25%              7.50% 7.50%
                                       ed with PAN card and necessary identifica-                                       -Amit Sahoo, New Delhi      hesitation to the branch for opening
                                                                                                                                                                                                                                                   7.25%
                                                                                                                                                    of your a/c with Sector 19-Noida.
                 50   MONEY MANTRA    August 31, 2010                                                                                                                                                                                                           August 31, 2010       MONEY MANTRA    51
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         FINANCIAL PLANNING                                TAXATION                             STOCK MARKET                                   COMMODITIES     INSURANCE                                  BANKING                                 MUTUAL FUND                                INDIA POST
                  Exit Load                                                                                                                                     a short term debt fund imposes such a
                                                                                                                                                                                                                                                            One year
                                                                                                                                                                load. When it comes to various debt

                  Think Before Quitting
                  When it comes to various debt funds, the time horizon of the investor has to be
                                                                                                                                                                funds, the time horizon of the investor
                                                                                                                                                                has to be matched with the nature of
                                                                                                                                                                the funds available in the market. A
                                                                                                                                                                mismatch here can suddenly change the
                                                                                                                                                                                                                                                                 Avery popular way that has emerged
                                                                                                                                                                                                                                                            for equity funds is to have an exit load
                                                                                                                                                                                                                                                            for investments for a period up to one
                                                                                                                                                                                                                                                            year. This means that investments into
                                                                                                                                                                risk as well as have an impact on the exit                                                  equity funds if they are redeemed with-
                  matched with the nature of the funds available in the market. A mismatch here                                                                 load front.                                                                                 in a period of a year (365 days) will have
                  can suddenly change the risk as well as have an impact on the exit load front.                                                                     For example, very short term funds                                                     an exit load levied on them. Here the
                                                                                                                                                                like liquid schemes and money market                                                        strategy could change for the investor
                                                                                                                                                                funds will not have an exit load as this                                                    because there is a double benefit of
                       Arnav Pandya                               scheme when they sell their investment.         keep track of the changes in the exit load    is meant for investors who want to park                                                     avoiding the exit load. The first is the fact
                                                                  Since this is a cost, it will ensure that the   structure for all the schemes held by         their money for a very short period of                                                      that holding the fund for a period of more
                         here is a new twist to the mutu-         amount that comes to the investor after         an investor. In such a situation it would     time like a few days. However, there                                                        than a year will avoid the exit load but

                  T      al fund investment process with
                         the exit load re-emerging as a
                  common feature across different types
                                                                  the load is applied is lesser than the
                                                                  value at which the transaction is under-
                                                                  taken. The Net Asset Value (NAV) of
                                                                                                                  be better for investors to check the exit
                                                                                                                  load situation before they sell any mutu-
                                                                                                                  al fund units so that they know the exact
                                                                                                                                                                might be investors who are looking to
                                                                                                                                                                invest say for a 3-month period. In their
                                                                                                                                                                search for a higher return such investors
                                                                                                                                                                                                                                                            at the same time it will convert their
                                                                                                                                                                                                                                                            gains to long term capital gains where
                                                                                                                                                                                                                                                            there will be a zero rate of tax.
                  of funds. This has now come to occu-            the fund is the price at which the              position.                                     might go towards a short term fund but                                                           There are also situations where the
                  py such a position that it can impact           investor transacts but the exit load will            The exit load is mainly used for the     if this fund has an exit load if the invest-                                                investor will not be able to wait for a year
                  the investment position in various ways.        reduce the figure. So for example if the        purpose of ensuring that there are no         ment is redeemed before 6 months then          Exit load is a cost that has to be           for the purpose of selling the investment
                  For a long period of time all that the          NAV of a scheme is Rs 40 and there is           regular entry and exits at short time         they will end up bearing a cost in their       paid by the investor in a mutual             either because the funds are required
                  investor worried about was the entry            a 1 per cent exit load that is levied, then     intervals by the investors. This kind of      search for higher returns. The investor        fund scheme when they sell their             urgently or due to the fact that the gains
                  load but now that this has been abol-           the net figure at which an investor will        behaviour causes a disruption in the          might have to search and invest in a fund      investment.                                  might not sustain. In such a situation they
                  ished it is the exit load that is often trip-   redeem the money will be Rs 39.6.               entire investment pattern as the fund         that does not impose a load if they want                                                    would need to ensure that they do not
                  ping them up. There are several details         Accordingly, the investor will end up           manager has to scramble to redeem the         to exit anytime after one month but            Investors should check the exit              lose the gains that they have garnered. In
                  here that are impacting the investment          with a slightly lower amount than what          investments. There are different aspects      before three months of the investment.         load situation before they sell              case of equity-oriented schemes there
                  and the investor needs to be aware of           they would have got had the exit load           that need to be known when the entire         The investors would thus need to do            any mutual fund units.                       is nothing that is certain; so in several
                  how this actually works out. Here is a          not been applicable.                            issue of exit loads has to be analysed        their homework and maybe make a sac-                                                        cases it might be better for the investor
                  look at the entire issue and how                                                                as no investor would like to pay a load       rifice somewhere while completing              In debt funds, the time horizon              to pay the exit load in case the returns
                  investors can cope with the situation.          Change                                          when they exit their investment.              their investments.                             should be matched with the                   have shot up significantly. In equity-
                                                                       There are times when the exit load                                                                                                      nature of the funds.                         oriented schemes a 30-50 per cent return
                  Exit load                                       is suddenly changed by the mutual fund          Short term debt funds                         Debt funds and                                                                              is not uncommon and in such a situa-
                     An exit load is a cost that has to be        and this can cause quite a bit of problem           One of the ways in which investors        percentages                                    In some schemes, load that has               tion paying a 1 per cent exit load will
                  paid by the investor in a mutual fund           for the investor. It is very difficult to       can be caught on the wrong foot is when            There is a very significant impact        to be paid; so the investor                  not be a significant thing so the investor
                                                                                                                                                                that an exit load can have on the final        should only try to reduce it.                would have to take the decision keep-
                                                                                                                                                                returns from a debt fund and hence                                                          ing the situation and the context in mind.
                                                                                                                                                                it is very important for a person to           Exit load can have significant
                                                                                                                                                                be aware of this. The returns from             impact on the final returns from a           Be aware
                                                                                                                                                                debt funds are quite low and this can          debt fund. Ivestor should mind                    The investor has to be alert at all
                                                                                                                                                                range from anywhere between an                 that at all times.                           times because they want to avoid a sit-
                                                                                                                                                                average of 4 to 8 per cent depending                                                        uation where they are levied with an
                                                                                                                                                                upon the type and nature of the                                                             exit load under all circumstances. Even
                                                                                                                                                                scheme that has been chosen for                investment is very significant. An           this is possible and some schemes have
                                                                                                                                                                investment. In such a situation the            investor might have remained in a            a position whereby no matter when you
                                                                                                                                                                percentage of the exit load that a             scheme for a period of say 3 months          exit, there is some load that you would
                                                                                                                                                                scheme is proposing to charge has to           and if the scheme has generated an           end up paying. This could involve a sit-
                                                                                                                                                                be considered very carefully because           annual return of say 8 per cent, then        uation where the load is very high say
                                                                                                                                                                this can take a large bite out of the          this might look good. For the investor,      2-3 per cent if the exit is till a year and
                                                                                                                                                                total returns that are generated by the        however, the absolute return that has        this would then drop to 1-1.5 per cent
                                                                                                                                                                scheme. This is important because it           been earned comes to 2 per cent              if the exit is between 1-3 years and even
                                                                                                                                                                makes no sense to earn 5 per cent              because of the time period for which         after that there is a 0.5 per cent load.
                                                                                                                                                                and then have 1 per cent being taken           the investor was with the scheme (8          In such a situation no matter what the
                                                                                                                                                                away by the exit load. This would              per cent for 12 months is an absolute        investor does there is no way they can
                                                                                                                                                                mean around one fifth of the total fig-        2 per cent for 3 months) and now if          escape the load and all that they can
                                                                                                                                                                ure being taken away from the                  the exit load is considered then this        actually do is to reduce the load that they
                                                                                                                                                                investor. The net impact has to be con-        could be significant. So if the exit load    end up paying. So unless the investment
                                                                                                                                                                sidered because this is the figure that        here is 0.5 per cent then around 25 per      option is special or very good the
                                                                                                                                                                the investor will take home at the end         cent of the returns are being given away     investor should look at such angles too.
                                                                                                                                                                of the day.                                    to the load and this significantly impacts          (The writer is Chief Coach at FinCare
                                                                                                                                                                     In other cases the nature of the          the final return that the investor earns.                                     Consulting)

                  52    MONEY MANTRA     August 31, 2010                                                                                                                                                                                                            August 31, 2010   MONEY MANTRA   53
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                    Insurance Policies                                                                                                                                                                                                                                                              “Term     insur-
                                                                                                                                                                                                                                                This is not true at all. The cheapest 'risk         ance is ALWAYS
                     “I don't                                                                                                                                                                                           “I am not               premium' is normally in case of a 'ris-             the cheapest”
                    believe in                                                          ife insurance is one of those sim-                                               Well if your wife cannot handle this           sure which              ing-term insurance cover', not 'level-
                        life
                   insurance!”
                                             It's not a matter of belief. Life
                                             insurance isn't a religion or
                                             political philosophy. It is a
                                             financial tool with a proven
                                                                                 L      ple products like the door to a
                                                                                        house. It comes with some obvi-
                                                                                 ous advantages and nowadays reason-
                                                                                                                                                           “I have
                                                                                                                                                           invested
                                                                                                                                                           very well”
                                                                                                                                                                        investment portfolio of yours, the invest-
                                                                                                                                                                        ment returns cannot be as good. So,
                                                                                                                                                                        your wife should know (you need to
                                                                                                                                                                        teach?) how to liquidate all the invest-
                                                                                                                                                                                                                        insurance
                                                                                                                                                                                                                        to take”
                                                                                                                                                                                                                                                term' insurance. However, in India there
                                                                                                                                                                                                                                                is no 'rising-term insurance plan' avail-
                                                                                                                                                                                                                                                able, so we end up saying 'term is the
                                                                                                                                                                                                                                                cheapest'. Actually, in terms of 'risk
                                             track record for protecting         ably priced too! In fact this product has
                                                                                                                                                                        ments and keep it in a bank fixed deposit                               charges' there are many unit linked plans
                                             loved ones and ensuring             almost no 'disadvantages'. Of course                                                   and/or an index fund. Keep it simple if                                 which are actually cheaper.
                                             their financial security.           human beings are not always rational.                                                  she is not interested in investing.
                                             People who believe in pro-          There are many die-hards who can offer
                                             viding for their families                                                                                                                                                                               "To get the
                                                                                 interesting arguments and reasons for                                                                                                                               benefit I have
                                             believe in life insurance.          why they will NOT buy life insurance.                                                                                                                               to die!"
                                                                                 Here are just some of the things many                                                    Frankly, start with a term insurance. As
                                                                                                                                                                         time goes by if you get more knowledge-             In the event of your death, you
                                                                                 of us have heard over the years - some serious, some tongue-
                                                                                                                                                                         able try to understand unit linked (called         lose either ways. However,                        Oh My God!
                                                                                 in-cheek - along with my own reactions in some cases:                                   variable in some parts of the world),              would it not be better to make                                               “I have
                                                                                                                                                                                                                                                                              People still give
                                       Well not a bad argument. However, "My planner tells         Again nonsense. This product ties you to the plan                     whole-life (makes no sense if there is no          sure that your dependants will be                                            exhausted my
                   “I am single                                                                                                                                                                                                                                               this excuse. You
                                       if you are staying with somebody me buy 'Return of          till the end of the plan. Meanwhile if a cheaper term                 Estate Duty), classic endowment etc.               financially      provided     for?                                           tax benefits”
                   and have no                                                                                                                                                                                                                                                take life insur-
                                       who has to take care of you the premium' term               insurance plan were to be introduced, you will                        Being uninsured is not the right reaction.         Besides, if you are fortunate                     ance because
                   dependants”         amount of insurance can be like a        insur-             NEVER be able to migrate. Anything which reduces                      Learning about insurance is easy - but first       enough to live to a ripe old age,                 you have risk to
                                       'reimbursement' of expenses - final        ance"            your choices is bad, so is this. Buy the cheapest                     take term insurance to start with.                 it makes little sense to complain                 cover,           not
                                       stages      medication,       funeral                       term insurance from a company that you trust.                                                                            that you didn't get to use your life              because you get
                                       expenses, etc. Sure if you are in                                                                                                                                                    insurance. Also, with endow-                      some tax benefit.
                                       a position to leave cash for all these                                                                                                                                               ment life insurance, your policy                  Even if all the tax
                                       expenses then you may not need                                                                                                                                                       can accumulate cash value that                    benefits of own-
                                       life insurance. However, you will                                                                                                                                                    you can use for any purpose.                      ing a house are
                                       still need critical care insurance,                                                                                                                                                                                                    taken away, you
                                       medical insurance, etc.                                                                                                                                                                                                                will still stay in a
                                                                                                                                                                                                              I do not need insurance.
                                                                                                                                                                                                                                                   "I am a                    house. Will you
                                                                                                                                                                                                              Complete nonsense. If
                                                                                                                                                                                                                                                   housewife"                 not?
                                                                                                                                                                                                              your parents, uncles,
                                                       Don't we all? However, wouldn't                                                                                                                        aunts, anybody is depen-
                       “I want them to
                       miss me when
                       I'm gone!”
                                                       it be nice if they remembered us
                                                       fondly for having provided the
                                                       funds to help pay off the mortgage
                                                                                                               No Reason to                                                                                   dant on you, you need life
                                                                                                                                                                                                              insurance. Can you imag-
                                                                                                                                                                                                              ine a situation where your
                                                                                                                                                                                                              parents have to ask their                                             “I need only
                                                       on the house. It is easier to cre-
                                                       ate hatred than to create love. Stop                                                                                                                   son-in-law for help? Think                                            2      years
                                                       being so full of ego, and get your                                                                                                                     hard do not go by what you                                            salary as life
                                                                                                                                                                                                              hear. Each situation is dif-                                          cover”




                                                                                                                     SAY
                                                       simple term insurance.
                                                                                                                                                                                                              ferent.
                                                                                                                                                                                                                                                 The life insurance industry surely exag-
                                                                                                                                                                                                                                                gerates the need for life insurance.
                                                                                                                                                                                                                                                However, how much life insurance you
                                                                                                                                                                                                                                                need is a function of your life-style, bor-
                                                                                                                                                                                                                                                rowings, income, number of dependants
                “Why should I make                  Good point. That's just one reason some people                                                                                                                                              etc. Thumb rules do not work - they work
                her next husband                    select a structured payout of proceeds. That's also                                                                                                                                         only for the thumb! Take trouble to find
                (his next wife) rich?”              why many people protect their spouse with life insur-                                                                                                                                       out how much of life insurance you need.
                                                    ance. Life insurance helps create viable choices for                                                                                                                                        It is much better to be slightly over-
                                                    loved ones. There is at least one insurance scheme                                                                                                                                          insured (I have never heard a dependant
                                                    in India which pays a lump-sum and a monthly annu-                                                                                                                                          claim 'my parent was over-insured'!!)
                                                    ity - your spouse will meet the day to day needs, not
                                                                                                                                                                                                                                                                                                Let the kids work
                                                    lead a life of luxury thanks to inflation. Do you expect
                                                                                                                                                                                                                                                                                                through college,
                                                    a 34-year-old 'widow' to close all options?
                                                                                                                                                                                                                                                                                                just like I did


                                                                                                                                                                                                                                     We devote ourselves to helping our children get
                 “My company                                                                                                                                                                                                    a good start in life. That means helping them to get a
                 gives me                                Completely wrong! Whether it is med-                                                                                                                                   good education. Most of us cannot get to even charge
                 enough life                           ical insurance or life insurance cover,                                                                                                                                  rent from our working children if they stay with us. If
                 (group) cover”                        the company provided group insurance                                                                                                                                     we die prematurely, our children's lifestyle and dreams
                                                       is not enough. Companies are rarely                                                                                                                                      could be threatened, along with their college dreams.
                                                       rational in their behaviour! What hap-                                                                                                                                   Life insurance, however, can help provide the funds
                                                       pens if you are between jobs or the com-                                                                                                                                 to make sure your children get a good education and
                                                       pany suddenly decides to yank away the                                                                                                                                   a strong start in life. Even parents who are giving all
                                                       life/medical cover? You are always bet-                                                                                                                                  their money to charity ensure that they spend on the
                                                       ter off with your own contract with the                                                                                                                                  children's education. Jokes apart, education is one
                                                       insurance company.                                                                                                                                                       expense that should be treated like an investment,
                                                                                                                                                                                                                                not like an expense.

                  54    MONEY MANTRA     August 31, 2010                                                                                                                                                                                                                          August 31, 2010     MONEY MANTRA   55
EP-46-90.qxd   8/10/2010     8:49 PM    Page 56




         FINANCIAL PLANNING                              TAXATION                            STOCK MARKET                                     COMMODITIES     INSURANCE                                   BANKING                                  STOCK MARKET                              INDIA POST
                  Trading Softwares                                                                                                                            that indicator. Spider Iris provides Event                                                     facility. It has the ability to place any
                                                                                                                                                               Tracker which has a built-in library of             Analysis/Trading                           number of stocks to include in the Market
                                                                                                                                                               over 30 market events predefined for                   softwares                               Watch list and gets the Mark-to-Market

                  Take Guidance, Make Profit                                                                                                                   clients. Event tracking can be done on
                                                                                                                                                               all scrips or on a particular group of scrips
                                                                                                                                                               chosen by the trader. The end of the day
                                                                                                                                                                                                                Metastock Pro
                                                                                                                                                                                                                   Offers RMO Trading system.
                                                                                                                                                                                                                   Provides Fibonacci Projections.
                                                                                                                                                                                                                                                              profit and loss calculations online. It
                                                                                                                                                                                                                                                              facilitates Order and Trade book func-
                                                                                                                                                                                                                                                              tions with fully customisable views at
                                                                                                                                                               (EOD) data is offered for BSE, NSE,                                                            all levels.
                                                              Alok Dwivedi                                                                                     Futures, MCX, NCDEX, major world                 Spider Iris                                        Brokerages which are using ODIN
                                                                                                                                                               indices and major world currencies. It              Offers advanced charting with              Diet include- Angel Broking, Karvy
                                                                      echnology is playing a vital role in every sphere of our lives and stock                 has BSE historical data from 1990 and               over 50 indicators.                        Securities, Kotak Securities, Reliance


                                                             T        market trading is no exception. Technology not only helps in choosing the
                                                                      right stock, but also assists in taking a call on scrips. Software developers
                                                                      are offering a number of softwares which can be helpful for technical
                                                              analysis. Also, there are particular softwares which help in fast and timely and fast
                                                               execution of calls.
                                                                                                                                                               NSE historical data from 1994 onwards.
                                                                                                                                                               The data update service is functional
                                                                                                                                                               round the clock.
                                                                                                                                                                    The cost of this software is Rs 56000
                                                                                                                                                               per annum which includes price of soft-
                                                                                                                                                                                                                   Provides round-the-clock data
                                                                                                                                                                                                                   update service.
                                                                                                                                                                                                                ODIN Diet
                                                                                                                                                                                                                   Facilitates higher accessibility and
                                                                                                                                                                                                                   availability.
                                                                                                                                                                                                                                                              Securities, Religare Securities and
                                                                                                                                                                                                                                                              Sharekhan etc. Besides their simple trad-
                                                                                                                                                                                                                                                              ing platforms, brokers are offering
                                                                                                                                                                                                                                                              advanced trading platforms to their
                                                                                                                                                                                                                                                              active clients and HNIs.
                                                                                                                                                               ware, data, installation, training and sem-         Facilitates inclusion of any number             Power Indiabulls: PIB is the
                                                                Charting Softwares                                                                             inars. Renewal fee is Rs 48000 per                  of stocks in Market Watch list.            advanced online trading platform from
                                                                      Market participants are now using various types of technical charting analy-             annum. According to the company, the                                                           Indiabulls Securities Limited. PIB pro-
                                                                                                                                                                                                                Power Indiabulls
                                                                   sis software for guidance. These provide more than 200 basic indicators of                  traders who work on the formula with                                                           vides various popular technical analy-
                                                                    technical analysis and the system is becoming more advanced day by day.                    dedication achieve the strike rate of 75-           Provides various trading reports           sis indicators like Simple Moving
                                                                     Market participants are taking their call on the basis of buy and sell recom-             90%. The company has 12,000 clients                 to cater to the distinct needs of          Average, Stochastic and Relative
                                                                         mendations of these softwares. Let us have a look on a few technical                  at present.                                         customers.                                 Strength Index etc. Besides, one can look
                                                                               charting analysis softwares.                                                         Falcon-Equities, Derivatives: The              Customer can access Net Portfolio          at Market Statistics section to view the
                                                                                          Metastock Pro: MetaStock Pro offers the popular Rahul                software is offered by Reliable Software.           Report to view a list of stocks in         day's top gainers/losers, most active and
                                                                                           Mohindar Oscillator (RMO) Trading system. According                 It offers live data for NSE. Besides it pro-        his portfolio.                             most volatile scrips etc. For day traders,
                                                                                                  to the company, the RMO model not only increases             vides EOD data for BSE, NSE, Futures,                                                          it provides several trading features like
                                                                                                   the trading accuracy but also significantly auto-           Options, NCDEX and major world                  can be added, moved, resized and               Intraday Charting, Hourly Tick List and
                                                                                                    mates the analysis process. It provides Fibonacci          indices.                                        removed. Besides, IGS supports more            Alerts to help them track the movement
                                                                                                     Projections. With this, traders can detect and mark            With the help of this software, cus-       than 20 technical indicators which             of underlying scrip/index during the day.
                                                                                                     key levels of support and resistance and at the same      tomers are able to choose from over 40          include SMA, MMA, WMA, EMA,                    Besides, one can also create multiple
                                                                                                time set price targets. Quadrant Lines, Cycle Lines,           built in indicators to apply on their           Bollinger bands, RSI, Volume Oscillator        Market Watch windows to view the lat-
                                                                                         Ellipse, Standard Deviation Channel and Standard Error                desired scrips and monitor those in real        and Money Flow Index. IGS offers intra-        est market price of the stocks they want
                                                                                    Channel are among the list of inbuilt line studies offered by              time. The list of indicators includes most      day charts for all NSE listed stocks. User     to track. In addition, it offers an inte-
                                                                                            MetaStock Pro.                                                     of the popular studies such as moving           can switch on intraday mode any time           grated online trading platform for invest-
                                                                                                          MetaStock Pro 11, which has more than 200            averages, RSI's, Stochastics, MACD,             on any stock by clicking on intraday icon      ment in equity, F&O and IPOs. It also
                                                                                                            basic indicators, provides new features            Bollinger Bands and Swing Index. With           on the graph. The advanced version of the      provides various kinds of trading reports
                                                                                                           including six new alerts for the RMO trade          its help, one can switch between line           software is free for 15 days. After that one   to cater to the distinct needs of internet
                                                                                                          model. It is offering a couple of new sys-           chart, bar chart, and Japanese candle-          has to pay Rs 6600 per annum.                  trading users. For instance, a person can
                                                                                                         tems like: Stochastic Pops, Conners RSI,              sticks chart instantly. Besides, it offers                                                     access Net Portfolio Report to view a list
                                                                                                        Darvas Box and Turtle Trader (Hybrid).                 various features including Tick Watch,          Trading software                               of stocks which are available in his port-
                                                                                                            Metastock Pro is available at Rs 75,000 for        Action Watch, Market Watch, Market                   After choosing a good share, one          folio.
                                                                                                      lifetime. Additional fee for cash-related data is        Summary, Pivot Report, Alerts, Action           needs to take a call on that. Brokers pro-
                                                                                                     Rs 45,000 per annum and for commodities-relat-            Replay and DDE. Cost for cash, F&O,             vide online trading platform to their cus-     KEAT Pro
                                                                                                    ed data, it is Rs 48,000. The company is offering          commodities is nearly Rs 68,000 inclu-          tomers. With the help of this trading plat-         KEAT Pro, a trading platform
                                                                                                   data for both the segments at the price of Rs 60,000.       sive of taxes. Online support and train-        form, traders are able to execute their        offered by Kotak Securities, allows
                                                                                                  Training session is free. Besides, clients of compa-         ing for product use is offered by the com-      orders themselves.                             online trading customers to trade in equi-
                                                                                                 ny are offered support from 8.30 AM to 5 PM on                pany. Renewal cost for the software is Rs            ODIN Diet: ODIN Diet is such a            ty, derivatives and currency derivatives.
                                                                                                market days (Monday to Friday). The support sys-               66,000 per year.                                type of trading platform with various fea-     With KEAT Pro, one can monitor the
                                                                                               tem is offered from 9.30 AM to 1 PM on Saturday. For                  IGS: It is not necessary to pay for       tures. ODIN Diet is application-based          market in real time and check live mar-
                                                                                             MetaStock Pro, company claims the strike rate of 80%.             technical analysis software. A number           front-end trading software for clients of      ket rates of scrips/contracts in NSE and
                                                                                          Spider Iris: The software is offered by Spider Software              of companies are offering technical             the brokers. ODIN Diet is a product of         BSE. One can also create multiple watch
                                                                              India. The network of company delivers live data of BSE and NSE                  charting        software        for     free.   Financial Technologies Limited. It offers      lists and simultaneously place orders,
                                                                      from its real-time servers directly to the internet to provide streaming real-           iGuideStocks.com is such a company              appealing features needed by active            view order reports, view positions and
                                                              time data to subscribers. It offers over 120 trading days of intraday data with the              which offers two versions of its soft-          clients and can be connected to broker's       view order confirmations etc. KEAT Pro
                                                            advanced charting features. It offers various facilities including Price Watch, Volume             ware IGS. The simple version of the soft-       servers through the internet. It provides      allows creating personalised view of the
                                                            Scanner (which is called tech query) and Support and Resistance levels. It offers                  ware is free and one can download it on         streaming quotes on a real-time basis and      market so one can watch the data he/she
                                                            advanced charting with over 50 indicators that can be tailored to fit individual strate-           their machines. The simple version sup-         has the ability to transmit buy/sell order     wants. The trader can create multiple
                                                            gies, plus line tools in addition to basic charts. Besides, it provides tick charts, tick bars,    ports 10 drawing components including           requests directly to the exchange. It facil-   watch lists that can have up to 50 scrips
                                                            seconds bars and tick volume bars. The software automatically calculates the indica-               line, vertical line, horizontal line, Gann      itates higher accessibility and availabil-     in each of them. These watch lists can
                                                            tor, updates the screen and alerts the trader when market moves trigger an alert for               angle and Fibonacci retracement, which          ity ensuring 'Anywhere Anytime' trading        be set in tabs.

                  56   MONEY MANTRA    August 31, 2010                                                                                                                                                                                                               August 31, 2010   MONEY MANTRA   57
EP-46-90.qxd   8/10/2010     8:49 PM     Page 58




         FINANCIAL PLANNING                              TAXATION                         STOCK MARKET                                COMMODITIES     INSURANCE                                                             Medical Insurance
                                                                                                                                                                                                                          Compare your Health Insurance Policy
                  Expert Advice
                                                                                                                                                                                                      Name of   Name of     Premium for age Pre Existing Sub Limts
                                                                                                                                                                                                      the       the Policy 30 years and     disease
                                                                                                                                                                                                      Companies             Sum Assured of Covered



                  No Gain in                                                                                                                                                                          Bharati
                                                                                                                                                                                                      AXA
                                                                                                                                                                                                                Smart
                                                                                                                                                                                                                Health Plan
                                                                                                                                                                                                                Premium
                                                                                                                                                                                                                            Rs. 300,000 *
                                                                                                                                                                                                                            2,729/-         After 4 con- Room rent of 1% of Sum
                                                                                                                                                                                                                                            tinuous policy Insured per day
                                                                                                                                                                                                                                            year




                  Switchover
                                                                                                                                                                                                      ICICI     Comprehen 3,046/-                  After 4 con- No Limit
                                                                                                                                                                                                      Lombard   sive Health                        tinuous policy
                                                                                                                                                                                                                Insurance                          year
                                                                                                                                                                                                      United    Mediclaim 3,609/-                  Covered from Room rent 1% of Sum
                                                                                                                                                                                                      India     Policy                             day one        Insured per day or the actu-
                                                                                                                                                                                                      Insurance Platinum                           (Congenital al amount whichever is
                                                                                                                                                                                                                                                   diseases not less. I.C.U expenses :
                                                               able. Also the kind of confusion you                                                                                                                                                covered)       Room rent 2% of Sum
                                                               have seen lately is in case of Public                                                                                                                                                              Insured per day or actual
                                                                                                                                                                                                                                                                  amount whichever is less.
                                                               Sector Companies only. The private
                                                               insurance companies are still offering                                                                                                 Apollo      Easy          3,626/-            After 3 con- No Limit
                                                               cashless as earlier. Also, the issue of                                                                                                Munich      Health                           tinuous policy
                                                               cashless of PSUs would be resolved                                                                                                                 Individual                       year
                                                               very soon. Following are a few com-                                                                                                                Standard
                                                               panies that have quite good network                                                                                                    Star Health Medi          3,640/-            After 4 con- Room rent of 2% of Sum
                                                               in Delhi region along with some                                                                                                                    Classic                          tinuous policy Insured per day maximum
                                                               details:-                                                                                                                                                                           year           to Rs 4,000/-
                                                                                                                                                                                                      HDFC        Health        3,653/-            After 4 con- No Limit
                                                                                       Yearly Premium (in                                                                                             Ergo        Suraksha                         tinuous policy
                                                                                                           Renewable till     No. of hospitals with
                                                                                       Rs.) of Sum Assured
                                                                                                           what age           cahsless facility*       Given the confusion over cashless ben-                                                      year
                                                                                       of Rs. 300,000 each
                                                                                                                                                       efit, should we go for another one from        Future      Health        3,932/-            After 4 con- Room rent 1% of Sum
                                                               ICICI Lombard -
                                                                                       11,857/-            70                 3500                     some private company?                          Generali    Suraksha                         tinuous policy Insured per day and I.C.U
                                                               Health Insurance
                  1) Sir, I was in a mood to buy a med-                                                                                                                    - Sarita Mallik, Agra                  Golden                           year           expenses :Room rent 2% of
                  ical insurance cover. Since I stay in                                Co pay              No Limit                                         In case of health insurance, medical                                                                  Sum Insured per day to a
                  Delhi, I was looking for a cashless                                                                                                  history is very important. You have been                                                                   maximum of 35%. Surgeon
                                                                                       Sub Limits          No Limit
                  one, which could cover me (41), my                                                                                                   associated with one health insurance                                                                       fees up to 35% of the Sum
                  wife (36) and two kids (12 & 8 years).                                                   After 4 continu-                            company and have a track record of no                                                                      Insured per claim. OTC :
                                                                                       PED Coverage
                  The confusion over cashless medical                                                      ous policy years                            claim with them and this will help when                                                                    Up to 40% of the Sum
                  insurance has left me totally con-           Apollo Munich - Easy                                                                    you have to file a claim in case of any                                                                    Insured per claim.
                  fused. Please tell me, whether I             Health Individual    12,905/-               Life Time          4200                     hospitalisation in the future. The new
                                                               Standard                                                                                                                               National  Mediclaim       3,988/-            After 4 claim Room rent 1% of Sum
                  should buy a medical insurance                                                                                                       company you buy a health insurance             Insurance Policy                             free policy   Insured Per day to a maxi-
                  cover or not? If yes, which one will be                              Co pay              No Limit                                    from wouldn't have your medical his-                                                        year          mum of Rs 5000.I.C.U
                  better? Cashless is my only choice.                                                                                                  tory. It is possible that you (or your cov-                                                               expenses :Room rent 2% of
                                                                                       Sub Limits          No Limit
                  Which company is the best as far as                                                                                                  ered family members) may have devel-                                                                      Sum Insured per day to a
                  medical insurance is concerned? I                                                        After 3 continu-                            oped a disease after you took the poli-                                                                   maximum of Rs.10,000.
                  want to take the facility of OPD as                                  PED Coverage                                                    cy from the existing insurer. In that case,                                                               Surgeon fees : Maximum
                                                                                                           ous policy years
                  well? Is it possible?                                                                                                                it will be covered by your existing insur-                                                                limits per illness- 25% of
                                                               IFFCO Tokio -
                                       -Chintan Pathaik,                               14,948/-            70                 2800                     er if you renew the policy and may not                                                                    Sum Insured. OTC :
                                                               Individual Medishield
                                     Mayur Vihar, Delhi                                                                                                be covered if you shift to another insur-                                                                 Maximum limits per illness-




                                                                                                                                                                                                                                                                                                  Source: Apnapaisa Research Bureau
                        Medical insurance is a must for                                Co pay              No Limit                                    er. So we would advise you to shift your                                                                  50% of Sum Insured
                  every individual as medical emergency                                                                                                insurer only in case you are absolutely        IFFCO       Individual 3,990/-               Not covered Room rent 1% of Sum
                  related to disease or/and accident can                                                   Room rent - 1%                              sure that neither you nor any of your          Tokio       Medishield                                   Insured Per day I.C.U
                  happen anytime. Cashless is a bene-                                  Sub Limits          of SA, ICU -                                family members are suffering from any                                                                   expenses :Room rent 2.5%
                                                                                                           2.5% of SA




                                                                                                                                                                                                                                                                                                  www.apnapaisa.com
                  fit, which is offered by the health insur-                                                                                           disease as on the date of shift of                                                                      of Sum Insured per day.
                  ance companies, and whilst very                                      PED Coverage        Not Covered                                 mediclaim insurance. The issue of cash-        Cholaman Individual       4,377/-            After 3 con- No Limit
                  important, it should not be the only                                                                                                 less facility may get resolved very soon,      dalam MS Health                              tinuous policy
                  parameter on which you decide to buy            OPD facilities are available in a few   2) Sir, I had bought a medical insur-        so do not shift your health insurance          General                                      year
                  a health insurance scheme. You can           health insurance policies but they are     ance cover from a public sector gen-         just for this reason.                          Insurance
                  also file a reimbursement from a             very few in number which are signifi-      eral insurance company? I have
                  mediclaim policy for all kinds of            cantly costlier than the regular           taken the option of cashless facility.            Harsh Roongta is CEO, Apnapaisa.com
                  approved hospitalisations in cases           mediclaim policies and cover OPD           So far, we have not availed any med-                a search comparison engine for loans,   All policies come with cashless facility
                                                                                                                                                              insurance and investments. He can be    * Premium is inclusive of service tax
                  where cashless facility is not avail-        expenses to a limited extent.              ical facility with the insurance cover.                                                     ** No claim discount of 5 per cent for every claim free year to a maximum of 25 per cent
                                                                                                                                                          reached at moneymantra@apnapaisa.com

                  58   MONEY MANTRA    August 31, 2010                                                                                                                                                                                                      August 31, 2010   MONEY MANTRA   59
EP-46-90.qxd   8/10/2010     8:49 PM    Page 60




         FINANCIAL PLANNING                              TAXATION                         STOCK MARKET                            COMMODITIES         MUTUAL FUND                             CONSUMER LAW                                      BANKING                                  INDIA POST

                  Teleshopping                                                                                                                           you have a complaint vis-à-vis such            the day of the hearing, none appeared
                                                                                                                                                         teleshops and it is not redressed, you         for the opposite party.
                                                                                                                                                         have a recourse to the consumer courts

                  Comfort Or Trauma
                  If you don't want to step out and want to shop too, teleshopping is one choice for
                                                                                                                                                         constituted under the Consumer
                                                                                                                                                         Protection Act. Let me quote a case
                                                                                                                                                         decided by the Apex Consumer court
                                                                                                                                                         that highlights the kind of problems
                                                                                                                                                                                                        Liable to pay
                                                                                                                                                                                                             The District Forum, after perusing
                                                                                                                                                                                                        the points raised by the opposite party
                                                                                                                                                                                                        in its reply and the complaint, held the
                  you. But this comfort may make you uncomfortable if the products delivered to                                                          one can face and also the redress avail-       Asian Sky shop liable. It pointed out that
                  you are not up to the mark or damaged or if they are not delivered to you at all.                                                      able through the consumer courts.              the consumer, on seeing the advertise-
                                                                                                                                                              The case dates back to 1995 when          ment on television had sent a demand
                                                                                                                                                         Mr L.K.Pandya , in response to an              draft for Rs 8,200 to the opposite party,
                       Pushpa Girimaji                        ing transit? Will the shop take respon-                                                    advertisement on television, placed an         which, on receipt of it, had sent a letter                  Find out




                                                                                                                     Ad
                                                              sibility for it? You also need to check                                                    order for jewellery with the Asian Sky         dated November 20, 1995, stating that the




                                                                                                                        va
                           rom cosmetics and health           whether the prices quoted on the tel-                                                                           Shop and sent a           delivery would be made only after clear-          About the return and


                  F                                                                                                                                                                                                                                       exchange policies of the




                                                                                                                           n
                           products to slimming gadg-         evision is the final price or is it exclu-                                                                       demand draft for Rs      ance of the draft. The letter, signed by the




                                                                                                                                                              ge
                                                                                                             Customers




                                                                                                                            ta
                           ets and electronic appliances,     sive of delivery charges and tax?                                                                                  8,200 towards it.      senior manager of the shop had also               teleshop.




                                                                                                                                                           ta
                                                                                                                                  ge
                                                                                                            buy    products
                           you can buy a variety of           What about complaint redress? Does                                                                                   However,             stated that if the consumer wanted more           Whether the order can be




                                                                                                                                                       an
                                                                                                           without     actually
                  goods today through 'television             the shop have a system of redress-                                                                                      when         he   than one item, it was likely to be deliv-         cancelled if the product does




                                                                                                                                                     dv
                                                                                                           going to the shop.                                    Customers
                  shops' or 'teleshops'. The advantage        ing consumer complaints? If so, how                                                                                       received        ered on separate days as manufacturers            not reach on time.




                                                                                                                                                  sa
                                                                                                                                                              buy goods
                  here is that you can buy a wide range       does it work? You need to get all this       Customers have                                                                the three      were different for different products.




                                                                                                                                                Di
                                                                                                                                                           without                                                                                        Will the shop take responsi-
                  of products without actually going          information before making a final             wide range of products                                                        parcels             The letter had also urged the con-
                                                                                                                                                        personally                                                                                        bility for damaged/ different
                  to the shop. In other words, sitting        choice and ordering the goods.                 to buy.                                                                      dis-          sumer not to hesitate to contact the shop
                                                                                                                                                     examining them.                                                                                      product?
                  in the comfort of your home, you can                                                                                                                                    patched       for any queries or clarifications. In view
                  order goods and get them home-               Seek recourse                                                                      Customers don't                        through        of this, the opposite party cannot take           Does the shop have a system
                  delivered.                                                   I must tell you that if                                          take delivery of the                    post,      he   the plea that there was no contract of serv-      of redressing consumer
                      The disadvantage, however, is                                                                                                goods personally                    was              ice with the complainant and that it had          complaints?
                  that you are buying goods without                                                                                                   from the shop.                  shocked to        not received any consideration or pay-            Whether the prices quoted
                  personally examining them. Nor are                                                                                                                                 find that the      ment for the service, the District Forum          on the television is the final
                  you personally taking delivery of the                                                                                                                           first packet con-     said.                                             price.
                  goods from the shop. So there is every                                                                                                                    tained very tiny ear              The District Forum also observed
                  possibility of the product delivered to                                                                                                            rings worth Rs 601 and a sil-      that through its advertisement, the oppo-
                  you turning out to be different from                                                                                                   ver coin. The second parcel contained          site party had shown its ability to provide    the consumer, on finding the empty box,
                  what was shown on the television or                                                                                                    an empty jewel box with two coins of           the jewellery on receipt of certain amount     had immediately contacted the jeweller.
                  ordered by you. Or, there could be a                                                                                                   rupee one and 50 paise denominations           and on the basis of this, the consumer had     He, however, did not bother to respond.
                  delay in delivery. There is also a pos-                                                                                                and a bill of M/S C.M.Jewellers.               booked the order from his home in              Since it was the appellant (the sky shop)
                  sibility of the product getting dam-                                                                                                        On seeing this, Mr Pandya did not         Chandrapur and this amounted to an             which had acted for and on behalf of the
                  aged or destroyed during transit or not                                                                                                open the third parcel and immediate-           agreement and this agreement was               jeweller and offered the product through
                  reaching you at all.                                                                                                                   ly sent a fax to the jewelers, bringing        accepted by the opposite party when it         its advertisement on television, the
                                                                                                                                                         this to their notice. He also wrote to         sent a letter to the consumer about deliv-     District Forum was justified in direct-
                   Garner all information                                                                                                                Asian Sky Shop and on failing to get           ery of the article. However, the oppo-         ing the shop to compensate the consumer,
                      It's for this reason that one needs                                                                                                any response from either of them,              site party had failed to act as per the        the State Commission said.
                  to be extra careful while shopping                                                                                                     sought the help of the District                agreement of service with the com-                   The apex consumer court or the
                  through such teleshops. First and                                                                                                      Consumer Disputes Redressal Forum              plainant and ensure the delivery of the        National Consumer Disputes Redressal
                  foremost, you need to find out about                                                                                                   for refund of Rs 8,200 paid by him.            promised jewellery. The opposite party         Commission, before which the Asian
                  the return and exchange policies of                                                                                                    He also asked for Rs 26,000 towards            was thus guilty of deficiency in service       Sky Shop filed a revision petition, also
                  the teleshop. If the product turns out                                                                                                 compensation and Rs 1,500 towards              and unfair trade practice, the District        expressed the same sentiments while dis-
                  to be different from what you ordered                                                                                                  legal expenses.                                Forum said and directed it to pay Rs           missing it. The Commission also
                  or if you are not satisfied with the                                                                                                        In response to the notice sent by the     34,700 along with interest at the rate of      observed that the shop should have
                  product, are they willing to take it                                                                                                   District Forum, the Asian Sky Shop (the        18 per cent per anum , calculated from         immediately acted on the consumer's
                  back? If so, who will pay for the                                                                                                      opposite party) said in its written rejoin-    November 10, 1995 till the date of pay-        complaint about non receipt of the goods.
                  return delivery? When will your                                                                                                        der that it could not be held liable for the   ment. It also said in its order that the       However, despite the insurance cover,
                  money be returned? Will you get the                                                                                                    non-receipt of goods as it was neither         amount should be paid within a month           it had failed to provide any remedy, forc-
                  full refund including the delivery                                                                                                     the supplier nor the manufacturer of           of the date of the order.                      ing the customer to approach the
                  charges? You need to check all these                                                                                                   the goods (or jewellery as in this case)            Aggrieved by it, the opposite party       Consumer Forum for justice. This not
                  facts.                                                                                                                                 and there was no contract of service           filed an appeal before the State               only amounted to deficiency in service,
                      You also need to find out whether                                                                                                  between the sky shop and Mr Pandya             Commission, which dismissed it. While          but also an unfair trade practice, the
                  you can cancel the order if the prod-                                                                                                  as no payment or consideration had             doing so, it agreed with the view of the       Commission said. (Asian Sky shop vs
                  uct does not reach within the prom-                                                                                                    been received by it. In other words, it        District Forum that the sky shop cannot        L.K.Pandya, R.P.No 986 of 2002, decid-
                  ised time. What if the product does                                                                                                    refused to take any responsibility for the     escape liability for non receipt of goods.     ed on 15-7-2002)
                  not reach you at all or is damaged dur-                                                                                                goods sold through its shop. And on            The State Commission pointed out that              (The author is a leading consumer activist)

                  60   MONEY MANTRA    August 31, 2010                                                                                                                                                                                                         August 31, 2010   MONEY MANTRA     61
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                                                                                                               Real Estate Consortium
                                                                                                                                                      separate tax entity. This entity can be                                                  the said section 67A further provides
                                                                                                                                                      either a name of a private limited com-                                                  that any interest paid by any member
                                                                                                                                                      pany or it could even be a partnership                                                   of the AOP on capital borrowed for the
                                                                                                                                                      firm or it could even be in the form of                                                  purpose of investment in the
                                                                                                                                                      a Limited Liability Partnership.                                                         Association of Persons shall be
                                                                                                                                                      Similarly, it is also possible to prepare                                                deducted in computing his income
                                                                                                                                                      the consortium as a separate tax entity                                                  chargeable under the head profits and
                                                                                                                                                      by having the status of the Special                                                      gains of business or profession.
                                                                                                                                                      Purpose Vehicle as an AOP i.e.                                                           b)Section 86
                                                                                                                                                      Association of Persons or body of indi-                                                      It is also worthwhile to refer to sec-
                                                                                                                                                      viduals.                                                                                 tion 86 of the said Income-tax Act,
                                                                                                                                                                                                                                               1961 which throws more light in
                                                                                                                                                      Partnership firm,                                                                        respect of the shares of member of an




                  Bid For
                                                                                                                                                      LLP or AOP?                                    Real estate consortium is                 Association of Persons or body of
                                                                                                                                                           I would like to recommend that one        formed basically to participate in        Individuals in the income of the asso-
                                                                                                                                                      of the best mode of creating and oper-         a big bidding or to obtain a big          ciation etc. It is provided clearly in this
                                                                                                                                                      ating SPV would be either through a            contract.                                 section that where the association or
                                                                                                                                                      partnership firm or an Association of                                                    body is chargeable to tax on its total
                                                                                                                                                      Persons. However, the latest recom-            Real estate consortium pre-               income at the maximum marginal rate
                                                                                                                                                      mendation from our side could be to            pared by different developers is          or any higher rate under any of the pro-
                                                                                                                                                      form a Limited Liability Partnership           implemented through the                   visions of the Income-tax Act, 1961,
                                                                                                                                                                                                     Special Purpose Vehicle (SPV).




                                                          BIG
                                                                                                                                                      (LLP). In case consortium is prepared                                                    then the share of member computed
                                                                                                                                                      in the form of a partnership firm or in                                                  shall not be included in his total
                                                                                                                                                      the form of Limited Liability                  SPV has to be a separate tax              income. While in other cases the share
                                                                                                                                                      Partnership (LLP), the big advantage           entity.                                   of a member computed as above shall
                                                                                                                                                      is that once income-tax has been paid                                                    form part of his total income. Finally,
                                                                                                                                                      by the partnership firm or the Limited         Best mode of creating and oper-           the last proviso to the said section 86
                                                                                                                                                      Liability Partnership (LLP), the tax has       ating SPV is either through a             clearly states that where no income-
                                                                                                                                                      not to be payable by different partners        partnership    firm    or   an            tax is chargeable on the total income
                                                                                                                                                      in respect of share of profit from the         Association of Persons                    of the Association of Persons, then the
                                                                                                                                                      partnership firm. When it comes to                                                       share of member computed as per
                                                                                                                                                      computation of member share in the           and apportioned among the members in        above norms shall be chargeable to tax
                                                                                                                                                      income of Association of Persons or          the proportions in which they are enti-     as part of the total income of the
                                                                                                                                                      body of individuals which has been pre-      tled to share in the income of the asso-    assessee.
                                                                                                                                                      pared for the purposes of creating           ciation or body;
                                                                                                                                                      Special Purpose Vehicle or a                 b) where the amount apportioned to a        Mind the tax implication
                                                                                                                                                      Consortium, then it will have to be          member under clause (a) is a profit, any        Finally, it should be noted that tak-
                                                                                                                                                      looked in as per the provisions con-         interest, salary, bonus, commission or      ing advantage of the concept of con-
                                                                                                                                                      tained in the Income-tax Act, 1961.          remuneration aforesaid paid to the          sortium for real estate development or
                                                                                                                                                                                                   member by the association or body in        for execution of big project in real
                                                                                                                                                      AOP and the Income                           respect of the previous year shall be       estate sector, infrastructure sector or
                                                In case consortium is prepared in the form of a partnership firm or                                   Tax Act                                      added to that amount, and the result        any other sector is the shape of things
                                                                                                                                                      a) Section 67A: Section 67A of the           shall be treated as the member's share      to grow big and to make money big.
                                                in the form of Limited Liability Partnership (LLP), the big advantage                                 Income-tax Act, 1961 contains a clear-       in the income of the association or body;   However, whenever consortium is
                                                is that once income-tax has been paid by the partnership firm or                                      cut provision which gives guidelines         c) where the amount apportioned to a        being planned, it is worthwhile to dis-
                                                the LLP, the tax has not to be payable by different partners in                                       and clearly states the method of com-        member under clause (a) is a loss, any      cuss in advance the tax implications
                                                                                                                                                      putation of a member's share in the          interest, salary, bonus, commission or      of such a consortium. In the end, we
                                                respect of share of profit from the partnership firm.                                                 income of Association of Persons.            remuneration aforesaid paid to the          would like to recommend that for the
                                                                                                                                                          The net profit or loss of the Special    member by the association or body in        purpose of creating of consortium or
                       Subhash Lakhotia                        a successful bidder. Further in the said    contracts awarded by the Government.       Purpose Vehicle in the form of               respect of the previous year shall be       preparing a Special Purpose Vehicle
                                                               advertisement was also clear that for       In this article we will examine some       Association of Persons shall be first cal-   adjusted against that amount, and the       (SPV) the best from our view point,
                           ome time back there was an          aggregate, tangible net worth for a firm    of the basic important aspects connect-    culated and the share of the members         result shall be treated as the member's     especially keeping in view the tax tan-


                  S        advertisement by the Ministry
                           of Railways. The advertise-
                           ment provided a great big
                  opportunity to real estate developers for
                  commercial development of ten sites
                                                               or a consortium of firms taken togeth-
                                                               er will also be considered.
                                                               Real estate and
                                                               consortium
                                                                                                           ed with real estate consortium which
                                                                                                           is formed basically to participate in a
                                                                                                           big bidding or to obtain a big contract
                                                                                                           whether in real estate or any other seg-
                                                                                                           ment of trade and industry.
                                                                                                                                                      of the said Association of Persons or
                                                                                                                                                      body of individuals in terms of the said
                                                                                                                                                      section 67A will be computed in the fol-
                                                                                                                                                      lowing manner:-
                                                                                                                                                      a) any interest, salary, bonus, commis-
                                                                                                                                                                                                   share in the income of the associa-
                                                                                                                                                                                                   tion or body;
                                                                                                                                                                                                        The above-mentioned section fur-
                                                                                                                                                                                                   ther states that the shares of members
                                                                                                                                                                                                   in the income or loss of the said AOP
                                                                                                                                                                                                                                               gle, would be to set up the consor-
                                                                                                                                                                                                                                               tium in the form of either a partnership
                                                                                                                                                                                                                                               firm, a Limited Liability Partnership
                                                                                                                                                                                                                                               (LLP) or an Association of Persons.

                  which had been identified by Railways            The concept of forming a consor-            Generally, the real estate consor-     sion or remuneration by whatever name        for the purpose of tax assessment shall     The author is tax & investment consultant at
                  in different locations in India. One of      tium specially to participate in the bid-   tium so prepared by different develop-     called, paid to any member in respect of     be apportioned under various heads of       New Delhi for last over 40 years. He is also
                                                                                                                                                                                                                                               Director of M/s R.N. Lakhotia & Associates
                  the eligibility criteria is with reference   ding process of the projects of this type   ers is implemented through the Special     the previous years shall be deducted         income in the same manner in which          & The Strategy Group. E-mail:
                  to financial net worth of the bidder         is really very common now-a-days in         Purpose Vehicle (SPV). This Special        from the total income of the associa-        its income or loss has been determined      slakhotia@satyam.net.in M. 9810001665
                  which was also to be fulfilled to become     the real estate segment even in other big   Purpose Vehicle has to be formed as a      tion or body and the balance ascertained     under each head of income. Likewise,

                  62    MONEY MANTRA    August 31, 2010                                                                                                                                                                                               August 31, 2010   MONEY MANTRA   63
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                                                                                                                                                            Notice the colour of smoke from                Examine car engine                          car is, therefore, unsafe to drive.
                  How to examine                                                                                                                            engine: If a car blows out blue smoke
                                                                                                                                                            at start-up, it indicates problems in         Check the oil:
                                                                                                                                                                                                                                                       Moreover, colour of the fluid should not
                                                                                                                                                                                                                                                       be darker than the colour of iced tea

                  a second hand                                                                                                                             engine. If smoke is black, it indicates
                                                                                                                                                            the engine is consuming a lot of fuel
                                                                                                                                                            or there may be problem with fuel injec-
                                                                                                                                                                                                          Step 1:
                                                                                                                                                                                                          Locate the car at
                                                                                                                                                                                                          the level spot. Turn
                                                                                                                                                                                                                                                       or apple juice.
                                                                                                                                                                                                                                                       Moreover, check if the car groans or
                                                                                                                                                                                                                                                       vibrates when you apply brakes, it tells
                                                                                                                                                            tion. Ideally, car shouldn't blow out         off the engine and                           that the brake pads are worn out. The
                                                                                                                                                            smoke at all. However, it also depends        set the hand brake.                          brake pedal shouldn't be too soft or too
                                                                                                                                                            on the kind of fuel used in the car.          Put a dipstick in                            hard. And, it shouldn’t go too far while
                                                                                                                                                            Generally, diesel engine blows out            engine oil.                                  pressing.
                                                                                                                                                            slight black smoke at start-up. Blow out      Step 2:
                                                                                                                                                            of white steam at start-up is also                                   Clean the dip-        Check the mileage
                                                                                                                                                            normal.                                                              stick with a                Fill your tank to the full level. Drive
                                                                                                                                                                                                                                 piece of cloth        till the gauge comes on. Usually, a gal-
                                                                                                                                                            Examine tyres                                                        and insert it         lon is left even when the gauge comes
                                                                                                                                                            Check treads of tyre: Tread is a thick                               back.                 on. Now, divide the number of miles




                                                  Car
                                                                                                                                                            rubber spread all across the outer cir-       Step 3:                                      you've driven by the capacity of your
                                                                                                                                                            cumference of tyre. There are small           Now, pull the dip-                           tank. This will give you a rough idea
                                                                                                                                                            groove on the circumference that helps        stick again and                              about mileage.
                                                                                                                                                            the tyre to grip the road. Check if           check the oil level.
                                                                                                                                                            grooves are even on all parts of the tyre.    Oil should touch                             Ask the dealer
                                                                                                                                                            More tread depth means perfect grip.          the full level or a
                                                                                                                                                            So grooves should be even on all parts        bit below the oil                               Where did you buy the car from?
                                                                                                                                                            of the tyre. Special gauges are available     level. If the stick                             When did you buy the car?
                                                                                                                                                            in the market to scan the actual depth        shows a slight-brown colour, it's all           Why do you want to sell the car?
                                                                                                                                                            of grooves. Drive down to any nearby          right. If the colour is black, it's time        What is the mileage of the car?
                                                                                                                                                            garage and get the grooves depth              to change it. If it's slightly-milky,           Have you made any investments on
                                                                                                                                                            checked with the help of a gauge.             there's a problem with engine.                  car i.e. insurance or accessories?
                                                                                                                                                                                                                                                          Do you provide any warranty?
                                                                                                                                                            Examine the interior of car                  the driver's side, close to the back of the       Buying a second-hand car may
                                                                                                                                                                 Besides the general appearance,         engine).The container, generally,             seem a cheaper deal but, sometimes,
                                                                                                                                                            check if driver’s seat has excessive         shows minimum (MIN) and maximum               people end up spending more money on
                                                                                                                                                            tears. Also check the condition of seat      (MAX) marks. Ensure the level of fluid        its maintenance. So a proper inspec-
                                                                                                               accident while the car shown in Figure       belts, the floor under the carpet, uphol-    is above MIN mark and below MAX               tion helps in overcoming the mainte-
                                                                                                               2 has been in serious accident/s.            stery, windows, locks and mirrors.           mark. If the brake fluid is below MIN         nance issues. Moreover, it is recom-
                      Shilpy Arora                                                                             Look for body filler: A magnet is            Don't forget to test wipers and wind-        marks, it shows the brakes are either         mended to get the car inspected by a
                                                                                                               required to check if the car body has any    shield washer.                               worn out or there's a leak in system. The     professional mechanic.
                                  ita bought a second-hand                                                     filler. Run the magnet along the length           Check car's AC: Start the car and



                  R               car that seemed to be in
                                  good condition. But a few
                                  weeks later she noticed
                                  blue smoke while starting
                  the car. Later on, she discovered that
                  no oil is left in engine and finally got the
                  car towed to garage.
                                                                                                               of the car body. If the magnet doesn't
                                                                                                               stick to any part of the body, it means
                                                                                                               the part under the paint is either dam-
                                                                                                               aged or consists of a plastic pannel.
                                                                                                               Look for paint over coating: While
                                                                                                               opening the doors of car, see if unnec-
                                                                                                               essary parts have been painted i.e. if
                                                                                                                                                            turn on the AC. Look at the AC's com-
                                                                                                                                                            pressor. Situated under the hood, AC’s
                                                                                                                                                            compressor has a pump-like structure
                                                                                                                                                            with a large rubber at one side and steel
                                                                                                                                                            pipes coming out of it with pulleys. An
                                                                                                                                                            outer pulley is on the front of the com-
                                                                                                                                                            pressor while an inner hub turns when
                                                                                                                                                                                                           Go for a test drive
                                                                                                                                                                                                           Before taking a test drive, drive at least two-
                                                                                                                                                                                                           three cars of the same model. Say, if you
                                                                                                                                                                                                           are going to buy a Mercedes, take a test drive
                                                                                                                                                                                                           of the same model of Mercedes before you
                                                                                                                                                                                                           actually visit the dealer. Driving on a high-
                      There are many second-hand car                                                           rubber swatches and plastic plugs are        an electric clutch is engaged. Turn on         way is the best way to check the car.
                  buyers like Rita who come across such                                                        coated. Over spray on these parts clear-     the AC and blower of the car and check         Accelerate, decelerate and check if the engine
                  issues. Buying a second-hand car                                                             ly show the car has been painted.            if the center of the pulley is turning. If     indicate any problem i.e. any noise, vibration or
                  always involves some risk as people are                                                      Look for gaps: Check all the gaps in         it is not turning, electric clutch is not      smoke. Also,
                  not aware of the right techniques to                                                         the pannel of the car body. Make sure        engaged. It shows AC is not working               Make sure the car starts easily even if it's cold.
                  examine the car.                                                                             all gaps are of same size. If you find any   properly.                                         It shouldn't make any noise or cry over speed
                                                                                                               part wider or narrower, look at the other                                                      breakers.
                  What needs to be checked?                                                                    side of the car body. In case the size of    Examine brakes                                    Its brakes should be effective and stop the car
                  Examine car body: Look at the gen-             Look at lines of the car: The lines of        gap is not similar, the car has been in         You must check car brakes as a                 as soon as brakes are applied.
                  eral appearance of car: It tells you how       the car should be straight. The easiest       accident.                                    minor default in the brake system                 Ensure brake warning lights turn on as soon as
                  well a car owner has taken care of his         way to do so is to observe reflection         Notice the noise: No matter if engine        makes your drive unsafe. If a car is              you apply the brakes.
                  car. If you find any crack, dent, scratch,     of an object in the car body. Look at         is hot or close, if there is any kind of     parked for a long time, get it checked            Check the indicator lights.
                  corrosion mark, ask the dealer to fix          the following figures. The reflection         noise, vibration or shimmer, it shows        from a professional mechanic. Or, you             Listen how quietly the doors and windows are opened and closed.
                  the problems. In case, you are buying          of white car in Figure 1 is straight. The     the poor maintenance of the car.             can examine it yourself, like this:               Sit in the back and front seat, and check if there's enough leg room.
                  from owner, it is the responsibility of        reflection of white car in Figure 2 is rip-   Moreover, it shows the excessive wear        Check the brake fluid: Look at the                Turn on the music system and insert CDs. Play all the levels and notice
                  the car owner to fix or you can negoti-        pled. The figures show that the car           and tear of the engine. Never buy a car      brake fluid container carefully. It is            the difference. Check if you are able to hear the music over speed break-
                  ate to bring down the prices.                  shown in figure 1 hasn't been in any          if the engine is noisy.                      located under the hood of the car (at             ers.

                 64   MONEY MANTRA      August 31, 2010                                                                                                                                                                                                        August 31, 2010   MONEY MANTRA    65
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               DR MENON'S CLINIC                                                                                              GOALS
                                                                                                                                                                                   REACH
                                                                                                                                                                      HOW TO

                                                                                                                      House                             Initial Observations:
                                                                                                                                                            The propensity to save is the highest in the first decade

                                                                                                                      Rs 70 Lakh                             of your working life as generally one has lesser or no
                                                                                                                                                             liabilities / responsibilities - You are in this stage.
                                                                                                                                                             The current stage of your life provides you a golden
                                                                                                                      YEAR                                   opportunity to save the maximum as expenses and
                                                                                                                                                             responsibilities tend to soar once we get married and
                                                                                                                      2015                                   have a family.
                                                                                                                                                        Beware - Misconceptions about investing :
                                                                                                                                                             At your age one tends to receive myriad advices on
                                                                                                                                                             how to manage one's investments and savings. After
                                                                                                                                                             hearing to all the suggestions and advices one does            today's cost.
                                                                                                                                                             get bewildered and investing becomes a convoluted
                                                                                                                      Car                                    exercise.
                                                                                                                                                                                                                            Let's assume the retirement age to be 55 years.
                                                                                                                                                                                                                            At 55, you would need a monthly income (pre tax) of
                                                                                                                                                            It is important to clear the labyrinth of advices and have      Rs. 3.38 lacs to maintain the current standard of liv-
                                                                                                                      Rs 15 lakh                             a proper roadmap when it comes to investing.
                                                                                                                                                             Below are some misconceptions which should be
                                                                                                                                                                                                                            ing. We assume tax rate to at 20%
                                                                                                                                                                                                                            To generate this monthly payout, you need to amass
                                                                                                                                                             nipped in the bud to become wealthy.                           a retirement kitty of Rs. 8.7 crores.
                                                                                                                      YEAR                                   Increase in bank balance is perceived as increase in
                                                                                                                                                             real wealth.
                                                                                                                                                                                                                             This kitty should grow @ 8% p.a. to provide the
                                                                                                                                                                                                                            monthly payout of Rs. 3.38 lacs increasing @ of 6%
                                                                                                                      2015                                  Life insurance policies are the best bet as it meets both
                                                                                                                                                             investment and insurance needs.
                                                                                                                                                                                                                            p.a. to counter inflation. This corpus will get com-
                                                                                                                                                                                                                            pletely exhausted when you turn 85 years.
                                                                                                                                                            Pension plans takes care of Retirement life.                    Now, to create this kitty you need to put aside right


                 Life cover                                                                                           Retirement
                                                                                                                                                            Dabble with stocks to make quick bucks.
                                                                                                                                                              Let me elicit a better perspective towards managing
                                                                                                                                                             finances.
                                                                                                                                                        House - 2015:
                                                                                                                                                                                                                            away Rs. 18,000 per month growing @ of 14% p.a.
                                                                                                                                                                                                                            for the next 29 years.


                                                                                                                                                                                                                                            S
                                                                                                                                                             You wish to buy a home worth Rs. 70 lacs (In today's                      PHOLE
                 NOT FOR YOU
                Dear Dr. Menon,                                   girl, the combined income after marriage
                                                                                                                      Rs 8.7 Cr.
                                                                                                                      YEAR
                                                                                                                                                             cost) five years hence.
                                                                                                                                                              Home prices are spiraling year by year and if we
                                                                                                                                                             assume a 6% p.a increase in home prices, then by
                                                                                                                                                             2015 the price would be around Rs. 93 lakhs.
                                                                                                                                                                                                                           PLUGG
                                                                                                                                                                                                                                ING LOO

                                                                                                                                                                                                                            You need not buy life insurance right now. Going
                                                                                                                                                                                                                            ahead when you have family then review life insur-
                     I have been reading your column for the      may increase and savings may remain                                                       Housing finance companies and banks tend to finance
                                                                                                                                                                                                                            ance requirements. Stick to term assurance plans.
                last five months. To my surprise, none of
                the male readers have addressed their queries
                                                                  steady. Until my marriage, I will be able to
                                                                  save the way I want to. You may assume
                                                                                                                      2040                                   up to 80% to 85% of the home value and the balance
                                                                                                                                                             has to be self financed.
                                                                                                                                                                                                                            NPS is still at a nascent stage and can be looked at
                                                                                                                                                                                                                            a later stage.
                to you. There may be an editorial policy to       that I will get a minimum salary hike of                                                  You need to put aside Rs. 25,000 per month growing @
                                                                                                                                                                                                                            Further, you need to opt for Health Floater plans with
                pick and choose the queries of only female        15% per annum.                                                                             12% p.a. for the next 5 years to fund the initial down
                                                                                                                                                                                                                            a medical cover up to Rs. 5 lakhs to shield from
                readers, but it has made male readers shy.             I wish to buy a house in Mumbai before                                                payment of approximately Rs. 20 lakhs and the rest
                                                                                                                                                                                                                            abrupt medical emergencies.
                Anyway, I have tried to break the ice, let        marriage (may be by 2015). Of course, it will                                              can be availed through a home loan.
                me see whether my query reaches you or not.       improve my marriage prospects. I have fixed                                               Further, a home loan of Rs. 70 - 75 lakhs at 9.5 % p.a.
                     I'm 26, just finished my MBA from a          a budget of Rs 70 lakh for the purpose. I have                                             for 15 years will entail an EMI of about Rs. 73,000 - Rs.
                                                                                                                                                             78,000. This means you need to have a monthly
                reputed management institute and got a job        to buy a car as well. Since office has provided
                                                                                                                                OSI          S                                                                                         HOT
                                                                                                                                                                                                                           SNAPS
                                                                                                                          DIAGN
                in a Mumbai-based firm through campus             me a car, I'm not in a hurry to buy a vehi-                                                income of around Rs. 2 lakhs by 2015.
                recruitment. I received my first salary three     cle. I will buy it at the time of marriage, prob-                                     Marriage Funding -2015
                months back. I have been able to save 60%         ably a SKODA. If I receive it as a marriage                                               This goal is five years down the line and there is noth-     You have just started your career and the mantra for you
                of my salary from day one. I have no lia-         gift, then there must be an alternate plan to                                              ing like funding one's own marriage.                          is to save as much as possible.
                bilities, no loan. My parents are well off.       deploy the money saved for buying a car. I                                                Let me give you estimation - Put aside every month Rs.         Invest in diversified and midcap mutual funds.
                They don't need my contribution at all.           need to plan for my retirement days also.             Mr. Vidu, 26, is a young pro-        10,000 growing @ 12% p.a. for the next 5 years.               Follow the plan, review it periodically and above all be
                     To be more specific, I am earning a salary   What about the New Pension Scheme of                 fessional and is earning             You should garner about Rs. 8 lacs in five years time.         meticulous.
                of Rs.75,000 per month. I spend almost 30         PFRDA? My firm has provided me with                  handsomely. He does not               The same money can also be diverted towards buying
                thousand per month on my personal chores          group linked life insurance cover and unlim-                                               a car.
                                                                                                                       have any liabilities and his                                                                      Satish Menon is a Financial Planner & con-
                and easily save Rs. 45,000 a month. In the        ited medical expense. Should I buy an insur-                                          Retirement:                                                               sultant with Transcend Consulting
                last three months, I have saved Rs. 1.35 lakh.    ance cover apart from these?                         parents are not financially          Your retirement has a long way to go - That said saving                                      (I) Pvt. Ltd.
                This amount is still lying idle in my sav-             I'll remain grateful to you, I mean more        dependent on him. He is               right away can be beneficial as you can even think of                     If like Vidu, you would also
                ings bank account.                                grateful than your female fans.                      saving 60% of income and              retiring early if you could build a sizeable corpus.          like to share your financial story with
                     I plan to marry after 5 years (in 2015-           Regards,                                        wishes to have roadmap for            Going by the current estimation you need Rs. 30,000              us and have a plan made by Satish
                                                                                                                                                             for your personal chores. This amount will forge once        Menon, do write to us at editor.money-
                16) or so. Since I plan to marry a profes-                                                             future investments.                                                                                                      mantra@gmail.com
                sionally qualified and suitably employed          Vidu Ramnathan                                                                             you have a family, say that amount is Rs. 50,000 in

                 66   MONEY MANTRA     August 31, 2010                                                                                                                                                                                                 August 31, 2010   MONEY MANTRA   67
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                                                                                                                                                              This
                                                                                                                                                        is the maturi-
                  KNOW YOUR INSTRUMENT                                                                                                                     ty period                                                                                                    Value
                                                                                                                                                      The current peri-                                                                                          of the certificate




                  Double Your
                                                                                                                                                       od is 8 years 7                                                                                            bought by the
                                                                                                                                                            months                                                                                                    investor

                                                                                                                                                                                                                                       Certificate
                                                                                                                                                                                                                                       number




                  Investment                                                                                                                                                                                                             Date of
                                                                                                                                                                                                                                         Purchase




                                                                                                                                                                                                                                            Nominee
                                                                                                                                                                                                                                            number
                       Renu Baliyan

                        f you are keen to double your
                                                              Features of KVP

                  I     investment, Kisan Vikas Patra
                        (KVP) is an ideal investment.
                        KVP is one of fixed income finan-
                  cial products offered by the post office.
                  With low interest rate regime, such sav-
                                                              KVP is available in the denomi-
                                                              nations of Rs 100, Rs 500, Rs
                                                              1000, Rs 5000, Rs 10,000 and
                                                              Rs 50,000. There is no upper
                                                              limit laid down and therefore a
                                                                                                                                                                                                                                       The date
                                                                                                                                                                                                                                       nominated
                                                                                                                                                                                                                                       nominee
                                                                                                                                                                                                                                                        we
                                                                                                                                                                                                                                                       the

                  ing instruments are in limelight again.     person can purchase any num-
                  "These schemes are beneficial for those     ber of certificates.
                  who don't come under the tax ambit,"                                                                                                                                                                                 saving schemes, because the post-tax
                  says RD Sharma, a postman. You              KVP can be sold at the face                                                                                                                                              yield of PPF is substantially higher than
                  should not invest in KVP, if you want to    value; the maturity value is                                                                                                                                             all other debt instruments. PPF is the only
                  save tax. This scheme is also not good      always printed on the certifi-                                                                                                                                           debt instrument (other than the EPF),
                  for the wealthier and businessman as        cate.                                                                                                                                                                    where your interest income is complete-
                  well, he says. Its name may give an                                                                                                                                                                                  ly exempt from tax. And, the tax-free inter-
                                                              There is facility to reinvest the
                  impression that it's meant for kisan                                                                                                                                                                                 est of 8 per cent from PPF is much better
                                                              amount on maturity.
                  (farmers) only. But, an individual, joint                                                                                                                                                                            than the 8.41 per cent taxable interest from
                  holder or minor through a guardian can      KVPs can be pledged as a                                                                                                                                                 KVP. However, if your total income is either
                  purchase the Kisan Vikas Patra.             security against a loan to           cheque or DD. KVP can be pledged as                                                                                                 nil or less than basic exemption limit, then
                       Since it has a backing of govern-      banks/government institutions.       security against a loan to banks/govern-      How to buy KVP?                                                                       KVP will score over PPF.
                  ment, KVP is considered a safe invest-                                           ment institutions. Further, they are trans-   KVPs can be purchased from any head post offices and authorised post offices.              Even after implementation of direct tax
                  ment tool. They are available in the        KVP is transferrable: It can be      ferable from one person to another per-       One can buy through cash, demand draft, or local cheques.                             code (DTC) which will make the PPF with-
                  denominations of Rs 100, Rs 500, Rs         transferred from one person to       son before maturity.                          Eligibility: Individuals are eligible to buy Kisan Vikas Patra in their own name      drawals taxable, post-tax returns of PPF
                  1000, Rs 5,000, Rs 10,000 and Rs            another person before maturity           KVP is considered one of the safest       or on behalf of a minor. Two individuals can jointly open a KVP account. There        will be better than KVP.
                  50,000. There is no upward limit for        (on consent in writing of an         investments. It offers considerable liq-      is a further classification if the certificate is issued to Joint holders:
                  making investment in Kisan Vikas            application to the officer of the    uidity to the investor. Although, it does     Type A: Maturity is payable to both the holders or the survivor.                      KVP vs NSC
                  Patra. The investment will be doubled       post office).                        not give tax benefits, investment in KVP      Type B: Maturity is payable to either of the holders or the survivor.                      The yield from KVP is 8.41 per cent
                  in 8 years and 7 months. If you invest                                           is better than parking money in banks'        Who cannot buy: NRIs and Hindu Undivided Families (HUFs) cannot invest in             and that of NSC is 8.16 per cent. Yet the
                                                              KVPs can be encashed at the
                  Rs 1 lakh, you would earn Rs 2 lakhs        issuing post office. In the event    savings account because the interest rates    KVP. The Kisan Vikas Patra cannot be purchased by the Karta on behalf of              latter is better as it is exempted from tax.
                  after eight years and seven months. The     of the certificate being present-    on bank deposits are low. However, one        the Hindu Undivided Family as there is no such provision. The Non Resident            NSC is one of the eligible instruments
                  lock-in period of the scheme is two and     ed for encashment at any other       must invest as per one's risk appetite and    Indians are also ineligible to purchase Kisan Vikas Patra as there is no such         under section 80 C i.e., your investment in
                  a half years. If you encash it after two    post office, the paying post         investment horizon and should not be car-     provision laid down in the rules. "After December 2005, institutions, trusts, Hindu   NSC gets exempted from tax. However,
                  and half years, interest amount will be     office will demand for the identi-   ried away by the percentage of returns        Undivided Family, NRI were barred to invest in this scheme," Sharma said.             returns of both the instruments are charge-
                  forfeited. "You cannot encash it before     ty slip issued to the holder at      offered.                                      Tax benefit: There is no tax benefit at all in respect of either making invest-       able to tax. But unlike KVP, NSC inter-
                  2 and half years. Two and half year is      the time of purchase which                                                         ment in Kisan Vikas Patra or the interest income from Kisan Vikas Patra, as           est is again eligible for deduction under
                  the lock-in period for this scheme," says   should be provided.                  Comparison with PPF & NSC                     the interest income is fully taxable. For persons having an income below the          section 80C. But, if you have already
                  Sharma. If you invest Rs 1000 in this                                                 Undoubtedly, PPF, NSC and tax-sav-       taxable limit of income, this is a good investment.                                   crossed the section 80C limit, then this tax
                  scheme, you will get 1171 after two and     KVP is held physically in the        ing bank FDs have an edge over KVPs                                                                                                 benefit offered on NSC is of no good.
                  a half years, he said. Rate of interest     form of a certificate that is        due to the tax benefits associated with                                                                                                  Considering the tax benefits, NSC is
                  for KVP is 8.4 per cent. The interest       issued to the investors by the       them. But, once you exhaust your section      Drawbacks of investing in KVP                                                         undoubtedly better than KVP. However, if
                                                              post office.
                  on KVP is compounded half-yearly.                                                80C limit & PPF investment limit, invest-     1) Premature encashment is possible in KVP. But, it is after 2.5 years and turns      tax is not a criterion, KVP returns are bet-
                  There is more earning in KVP than           Duplicate can be issued for
                                                                                                   ing in KVP becomes an attractive propo-         out to be a costly affair as the yield would be lower.                              ter than NSC.
                  fixed deposits.                             lost, stolen, destroyed, mutilat-    sition.                                       2) No tax benefit is provided as compared to PPF and NSC.                                  Make sure you remain invested till the
                       One need not open any account. Just    ed and defaced patras.                                                                                                                                                   maturity because if you make a prema-
                  a form is to be filled and the certifi-                                          KVP vs PPF                                    3) Interest income is taxable but no TDS.                                             ture exit, your effective yield will be con-
                  cates can be purchased by paying cash,                                               PPF is better than the available small-   4) Deposits are exempt from wealth tax.                                               siderably lower.

                  68    MONEY MANTRA   August 31, 2010                                                                                                                                                                                         August 31, 2010      MONEY MANTRA      69
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                 70   MONEY MANTRA   August 31, 2010   August 31, 2010   MONEY MANTRA   71
EP-46-90.qxd   8/10/2010     8:50 PM      Page 72




                                                                                                     Rs.1,500 laptop

                                                                                               A Smart
                                                                                              Buy Or                                                  STOCK MARKET
                                                                                              A Silly
                                                                                              Move
                                                                                                                                                      & Mutual Fund
                                                                                    through technolo-
                                                                                  gy. The device
                                                                                 would help widen the
                                                                                horizon of education
                                                                            across the country.
                                                                          Teh laptop is designed by a
                                                                     research team of IITians from
                                                                                                             in tremendous efforts to bring down
                                                                                                             the prices and enhance capacity that
                                                                                                             would require a constant endeavour on
                                                                                                             the part of research and development.


                                                                                                              Accolades
                                                                                                                                                          DATA
                                                                  Kharagpur, Kanpur, Chennai and
                                                                                                                  World's cheapest computer
                                                                 Mumbai and the Indian Institute of               Widen the horizon of education
                                                                 Science, Bangalore. I                            across India
                                                                 Features                                         Spread awareness through tech-               Inside
                                                                                                                  nology
                               ouch screen, video confer-               Touch-screen display

                        T      encing, 2 GB memory, Wi-
                               Fi connectivity, it has it all.
                  Yes, you got it right, just in Rs.1, 500.
                                                                    2 GB RAM
                                                                    Wi-Fi and USB connectivity
                                                                    Linux based system
                                                                                                                  Over 25,500 educational institu-
                                                                                                                  tions to get the laptops

                                                                                                              Criticism
                                                                                                                                                               Dividends or scrip quot-
                                                                                                                                                               ing cum dividend
                                                                                                                                                               Bonus or scrip quoting
                  In fact, the prices are expected to go           Atwo-watt system to function in low
                                                                                                                 No hard disk
                  down to Rs.500 in future. Recently             power supply areas
                                                                                                                 Distribution process would involve            cum bonus
                  launched by the HRD Minister Kapil                                                             huge transportation and connectiv-
                  Sibal, Rs.1,500 laptop is a low cost           How to buy?                                                                                   Rights or scrip quoting
                                                                                                                 ity cost
                  access-cum-computing device made                   Initially, the laptops will be dis-         Need Wi-Fi infrastructure across              cum rights
                  specifically for students.                     tributed by the HRD ministry. As a part         institutions
                  This revolutionary laptop is a single unit     of National Mission for Education,              Make sure no harmful site is                  IPO in 2009-2010
                  system with compressed file feature,           Information and Communication                   browsed by students
                  SciLab, OpenOffice, multimedia con-            Technology (NMEICT), over 25,500                Need to address plagiarism issue
                                                                                                                                                               Indices Performance
                  tent viewer like pdf, jpeg, zip and            education institutions will receive these
                  Internet browsing with flash plug-in,          laptops.
                                                                                                                                                               Bulk Deals
                  JavaScript. One can also access social                                                                                                       Sensex based compa-
                  networking sites like Facebook and             Criticism
                  Myspace.                                           Though government claims that
                                                                                                                                                               nies P/E
                      Claiming it to be the world's cheap-       the device has all features a normal                                                          World Market Indices
                  est computer, Sibal said the price of the      computer has, it doesn't have a hard
                  computer is likely to be around Rs.            disk. But the problem can be resolved
                                                                                                                                                               Performance
                  1,500. It could further drop to Rs.950         by using external memory. Moreover,                                                           The Best & The Worst
                  and ultimately Rs.500. "If more com-           the government is yet to work out the
                  panies design a similar device, prices         distribution process that would
                                                                                                                                                               Performance A,B & S
                  will automatically come down," he              involve huge transportation and con-                                                          group
                  added.                                         nectivity cost.
                      The laptop will be available to stu-           Also, government needs to address
                                                                                                                                                               Volume gainers
                  dents across educational institutions by       the issues of plagiarism, ensure Wi-Fi                                                        India's top 50 compa-
                  2011. The government will provide as           connectivity in all educational institu-
                  much as 50% subsidy for each laptop.           tions and make sure that harmful sites
                                                                                                                                                               nies based on market
                  The objective is to spread literacy and        are not browsed by the students.                                                              cap
                  create awareness among masses                      The government has, however, put
                                                                                                                                                               BSE 500 Companies
                  72   MONEY MANTRA     August 31, 2010                                                                                                        MF Gallery

				
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