Sunday, June 29, 2014


A government that tries to protect your day to day spends with regulations, just ignores you when it comes to the biggest and most likely, one single buy you make in your life, pledging all and forgoing all. This is my piece in the Deccan Chronicle on how the Builder Lobby has NO regulations and how we have to wake up by making enough noise.
Please go through and give a push by writing to the PM and the PMO on this, if you share my views

Thursday, June 26, 2014

Insiders, Banksters and other frauds

Th e air is thick with hush hush talks of buying the stock before the corporate action is announced to the world. And the banksters and others are secure in the knowledge that the regulators will smell but will find it a herculean challenge to prove anything. And of course, if many people are in it together, at worst one or two may get caught.
So why not have a group insurance ? If any one is caught, then the monetary loss either due to penalty or some such action can be shared by the others. And as far as legal help is concerned, unless the fine is huge, no point in attending a hearing.
Ban? Hardly matters. If I am banned, I can always have a demat account in my dog's name . And there are so many investment companies which can never be linked to me.
Let the games begin.

Sunday, June 15, 2014

Fitness Test - For Investors -

My piece in Deccan Chronicle today- About aptitude and attitude to Investing- A fitness test ..

Tuesday, June 3, 2014

LIFE INSURANCE- Do you need it? And when to buy? When to stop-


Two advertisements I saw on television, recently, set me thinking. The first one is an ad featuring the cricketer Yuvraj Singh. It was (to my observation) not selling life insurance but a wealth plan / product linked to insurance.
The second one was one offering a “life” cover of a crore of rupees at an annual premium of a mere Rs.8,600/- ! And you had to do everything yourself. No agents. Of course, an asterisk after the amount means that you have to read the fine print etc but the message was clear. Here was a life insurance company, inviting you to bypass the agent and take a life insurance cover for a nice round sum of a crore of rupees. It clearly sent home the message that should something happen to you, your nominee would get the sum.
Life insurance has been a much abused concept in India. Most insurers have been selling investment products with a dash of insurance thrown in. In most cases, the amount for investment would form bulk of the payments and no where would the customer know about how much the commission payout to the agent would be. The amount that gets invested is after the agent’s commission gets deducted. The commission can range between 2.5% to 40% of the amount you pay as premium. 
Now, the insurance company that is airing the ad, has dared to sell pure insurance. Use that as a comparison to evaluate when some agent comes and offers you a ULIP or some such product. Take the premium for the life cover and then see what is left. If that amount is put in to a mutual fund (where the total expenses are typically capped at 2.25 to 2.5%  of the  investment value) you will get a better return. For, in an insurance investment product like ULIP, in addition to the agent commission, there are also other expenses that are charged. Assuming that the fund management skills are not vastly different, you end up being a winner when you opt for a pure insurance product and mutual fund for investment.
Coming back to the first advertisement with the sportsman, my first thought was that he is facing a huge medical expenditure. No life insurance policy is going to give that. For that, you need medical insurance. It is possible that when you are in employment, you may have a benevolent employer who picks the tab or has a corporate medical insurance that takes care of the damages. However, if you are not lucky enough to have a corporate cover, the only option is to have your own medical insurance (or mediclaim as it is popularly known). This is an expensive proposition, but we still go for it. And the amount we pay every year is an expenditure that we undertake willingly. Yes, we do get a tax break, but it is very likely that even if the tax break is withdrawn, we will go for it. It is for the uncertainties in the state of health. To my mind, the advertisement is more a wake-up call for people who still do not have medical insurance.
Coming back to the other advertisement, just pause and analyse. The paltry sum of Rs.8600/- (I understand it is for a normal person of 25 years of age) can provide a crore of rupees to your family should you die before you have provided for them. I think that is precisely what life insurance is all about. The insurance company has managed to slash the premium by approaching the customer directly and the savings on the agent commission is passed on to you.
Life insurance is important if you have blood relatives who are financially dependent on you. Of course, if you do not have anyone who is going to be financially distressed should you cease to exist, you do not need life insurance. And the beauty of a term plan like the one advertised is that you can stop the cover when you want it. Let us say that by age fifty you have managed to provide for your family, got over all financial obligations towards your children etc then you can just stop paying the premium.
The key to keeping a low annual premium is to go for a policy early in life. Do not wait till you get married or have kids. By then, the annual premium amount would go up. The younger you are, the lower the premium.  Of course, if you have inherited wealth, you have no need for insurance cover. I exclude here, those who feel insecure with any number in their bank.
The key thing is to remember that insurance premium is a small payment for an event that can be financially demanding. If you mix it with investment, you end up a loser on all counts. Your insurance cover gets smaller and you do not maximise your investment returns. Think of medical insurance and life insurance premiums as expenditure. Both are discretionary spends, but sensible spends. Get smart with your money.

R. Balakrishnan
February 7th, 2012.



As of 27th May 27th, 2014 these were the five year returns in a few select categories as classified by a leading mutual fund data analytics company:
  Category                                                                                            Best             Worst
 (Returns are in annualised percentages)
The Sensex Return for the corresponding period was 11.71% p.a. and for Nifty it was 11.34% p.a..
So, unless you were in Pharma or Technology, there is a fair chance that you could have got returns that were poorer than the index. I cannot simply understand the divergence in returns that ranges between 2.84% p.a. and 21.09% p.a when the index was delivering nearly 12% returns.
So, there is no guarantee that the savings your plan will deliver the way your financial planner has promised. If he has chosen the fund that was the worst, you would have been better off choosing a bank fixed deposit or a tax free bond.
So mutual funds per se are not great things that can give you returns that are in line with the stock market returns. A few manage to beat the index and there is no guarantee that the fund which delivered the best in the last five years will be the best in the next five years.
For example, from the above, if I take a category ‘Large and Midcap’ (which is perhaps the ideal bucket) the 20.43 return was given by Quantum Long Term Equity Fund” and the return of 3.18% was from JM Core 11 Fund. HDFC Growth/ HDFC Equity that have large investor moneys gave a return of 15.17 /18.90 percent per annum.  So whilst most money got an above average return, less than 2% got anywhere near the best return.
However, it is interesting to note that more than half the funds got above market returns. But a significant quantum got below market returns.
Thus, choosing a mutual fund is a matter of chance. People, who say skill or science, are going on the basis of past record to a large extent. And the portfolio disclosure, the churning is not transparent enough to take a call on the future. No one is giving a view on a mutual fund scheme based on its likely performance. Surely, that is what we need. Not rankings based on past. You say it is not possible? It is possible. No one does it because no one wants to antagonise someone else.
Mutual funds have to disclose their entire portfolio at anytime on a real time basis or a lag of say, a week or so. Only then can someone take a view on a fund. The quarterly or monthly disclosure is not great, but even with that data some forward looking analyses can be made. No one seems to be interested in doing it.
So, in the absence of a forward looking tool, the only way to choose a fund is to look at some common sense lines:
i)     reputation of the Fund House- trust, longevity and reputation;
ii)   Continuity of Fund Manager- How long has the same fund manager been the scheme manager? The longer the better;
iii) Size- A decent size, say at least 1000 crores is good. Very small sizes create track records  with portfolios that cannot be scaled up;
iv)                 A past ranking of the scheme ( take one year, three years, five years and ten years) within the top ten ;
v)                  Have a look at expense ratios- the lower the better.

One thing that bothers me is that some fund managers names appear across multiple schemes with different objectives. It seems that there is a dearth of fund managers and if one guy is managing too many schemes, there will be some stock bias which creeps in.

And the best route to be in mutual fund is through the SIP route. Do not time and put in lumpsum monies in one go. SIP returns tend to be generally higher than the point to point return over time.