Wednesday, September 24, 2014


Life insurance is a much debated and discussed topic. Most people get pushed in to buying investment products (like endowment or money-back or some such name) as the agent tries to maximise his commission from the annual premium he can extract out of you. In my last column, we had discussed about an insurance company offering a “whole life” policy for a crore of rupees, at an annual premium of just Rs.8600/- for a 25 year old male (be sure to read the fine print for exclusions, inclusions etc).
This is insurance as it ought to be. We want someone to be provided should something happen to the bread winner. When a non-earning spouse or a child passes away, sure there is grief, but there is no financial distress or loss of income. So, the key thing is to ensure that the earning member has a cover that will provide for the dependants in the event of demise (of the earning member).
The policies that provide for payouts only in the event of death can be used in several ways. One is to provide an estate for your dependants. In which case, assuming you have taken the policy at a young age, you will keep changing the names of nominee a couple of times, or leave a will which clearly states that the proceeds of the policy will accrue to the person chosen by you. Remember that a nomination is a mere appointment of a kind of a trustee to collect the proceeds and hand it over to the legal heirs.
There is another fantastic thing that can be done with the whole life policies. Most such policies have payouts either on death or after a particular age (say, eighty).  Today, people may give up having to work for a living, at age sixty or thereabouts. This means that we have to survive for a couple of decades or more, on the basis of our savings and investments made in our working period. Of course, people argue that they will live off their children. This is becoming less and less possible due to changing lifestyles and changes in attitudes. Hence, all of us would like to have our financial freedom.
Here, we have a whole life policy with a payout after eighty or after death. Is there a way where we can enjoy it earlier during our lifetime? Worldwide, it is possible to do so. What we have to do is to “sell” or “assign” the policy to an investor or a lender. He buys it and takes the risk on the longevity of the insured. Let us assume that there is a whole life policy with a payout of a crore of rupees when the insured turns eighty. And let us assume that the annual premium is Rs.40,000/-. Now, the insured, who is seventy, can go and ‘sell’ the policy to the investor at a price. The person who buys the policy, will get the sum of one crore rupees, when the insured turns eighty (ten years to go) or on the death of the insured, should it happen before he turns eighty. So, the investor is betting on a sure fire crore of rupees at the end of the tenth year and his annual outgo will be the premium amount (since he has bought the policy, he will pay the premium to ensure its continuance). Assuming an interest rate of around eight or nine percent per annum, the investor might offer to buy off the policy at an amount of anything between forty and fifty lakh which he will pay the insured, ten years before his eightieth birthday.
This is fantastic for the seventy year old guy, who now has a corpus of money to help him live a better life. At the same time, the investor has virtually got a triple” A” investment. Of course, the investor returns would vary depending on when the event forcing payout happens. For example, if the insured dies at 75 and the payout was at death or 80 (whichever comes first), the investor makes a bumper return.  Here I will banish the morbid thought that the investor will be praying for the early death of the insured.
These are called “TRADED LIFE POLICIES” and are popular in the west. This is also a great investment instrument. We may need to tweek some rules here and there, but there is nothing wrong with this. Such an instrument would give a lot of relief to the insured also.
Such an instrument or a facility is absolutely required in a changing society, where parents do not want be financially dependent on their kids. This is also a great investment instrument.  Of course, today the banks can lend against insurance policies and some bank could actually launch this product. With banks like HDFC associated with life insurance companies, they can easily launch this kind of a product. To start with, they can give loans against policies that have guaranteed payouts when the insured reaches a ‘fixed age’ rather than death. The death part can be left to private enterprise. For the banks, it is risk free lending (the sole risk being the claims paying ability of the insurance company) and for the insured, a way to improve their life.

Monday, September 22, 2014

Amara Raja Batteries- Doing unto investors, what promoters normally do

Amara Raja Batteries Ltd is a listed company, making and selling automotive batteries. It is an Andhra  Pradesh based company (home to Satyam) and the Indian promoters, over time have diluted their holdings to around 20 % and there is a ‘foreign’ promoter who holds 30 %. And the FIIs hold around 17%. The general public seem to hold under 12%. So who holds the balance is anyone’s guess. In the foreign shareholding, there is “Johnson Controls” and American battery manufacturer and who is perhaps a strategic investor. 
Now, the Indian promoter is doing what every other promoter does.

As per this press report ( ) the promoter seems to first have bought some land adjacent to the factory at some point in time in the past ( visionary ) and is now palming it off to the company for a chunk of cash, with a one sided agreement. No one seems to care a damn. The share price has barely reacted and life goes on.
This stock has been in more than one scandal in the past. I recall something during Ketan Parekh scam days also   ( ).
A company with so much of issues still finds investors. It certainly speaks volumes for the importance an institutional investor gives to governance. They talk about it. Beyond that, they actually seem to love companies that live dangerously. And no one of course gives a damn.
This company, even after being named in a scandal as early as 2001, is finding favour with analysts, investors and the media!. Tells you on your face what they think about corporate governance or integrity.
Amara Raja Batteries Ltd is one of the examples.  Some fund managers I talked to said that if we use such ‘strict’ yardsticks, there will be no stock left to invest in India! So this forms the excuse to put the criteria of ‘corporate governance’ in to the dust bin.
In my career, I have seen more talks and writings on corporate governance than instances of a fund manager rejecting an investment on this ground.
It is really surprising that the stock of this company has barely moved after publication of this news!
 (p.s. I have no long or short or any other interest in this stock. This stock is amongst my ‘not to invest’ bucket list based on its geography)

Tuesday, September 16, 2014

The wheels of Life in India - Greasing the palms that turn the wheels

Every Indian should read this article.

Not because it is a breaking news story. Not because it is a scam that stands exposed. This is a mirror to each one of us. From birth to death, we cannot escape the web of graft that has been laid out for us. Whether this web is broken and totally dismantled, is up to each and every one of us. No one can fight our battles except ourselves.
Caught up in the rat race, we find it convenient to pay tips to ensure that we do not wait and that our things get done. Depending on what we can afford, the tip soon degenerates in to ‘negotiated’ bribes. It becomes far more convenient to buy our way through life than to struggle at each stage. So we ourselves use this. Not one of us can plead ignorance to this. Right from giving a Diwali ‘baksheesh’ to large bribes for school or college admissions, bribes have entered our lives.
Any act of ours that involves interaction with a government servant seems to yield results only when there is a ‘give and take’. Rare are those government servants who do their work for which they are already paid for by the taxpayers (good salaries, unreasonably high holidays, lack of accountability, regular salaries with guaranteed increments, pensions etc etc). In fact I have become so sceptical that when I see a rare honest public servant, I immediately wonder whether my work will get done. The typical government servant’s attitude was explained to me very nicely by one of the persons in a government owned financial institution in New Delhi, in 1978.
“Sirjee, the government pays me salary to come to office. However, the work I do benefits you/your company. Hence you have to remunerate me”.
And there is no shame or guilt in saying this. There is a breed of people who love these jobs that are auctioned by the politicians in power. And they have absolute harassment powers that can threaten our material livelihood. So we use the convenient option.
Legal deterrent in the form of meaningful punishment (minimum jail for ten years plus confiscation of wealth of the person plus his immediate family at the bare minimum) will not happen since the legislators will not cut their own feet.
Can we fight them? Yes and No. Yes, if you do not have a family to feed. Yes if you have so much money that you can wage a legal war. Yes if are not bothered about any of the consequences. Yes if you do not care about your safety and well being.
Is it then a NO for all of us? I think there is a mid way available. Social media is a route available to each one of us. Using that to blow our whistles is good. Let us make enough noise and shame the powers that be in to some action.
Our PM, Modi says that he won’t take bribes and won’t let anyone also take. So bring it to his attention.
Hats off to Sucheta Dalal and Debashish Basu for the fight they are engaged in and the personal sacrifices they have made along the way, to ensure that nothing will compromise their battle for good.