Readers, I was working on building some basic calculators over the last month . They are ready to use now . The calculators are very basic and have a bare minimum look and feel , but works !! .
Please use them and provide any changes you feel should happen . one important point you should note is that all the figures are approx and the numbers you get might differ a bit from other calculators on net as the formula’s used might be on yearly compounding or payments have been considered at the end of the period rather than start . So don’t put much thinking on the exact numbers , take them as a general approx figures , anyways how does it matter if your retirement corpus is 4.53 crores or 4.58 crores !! đ
Look at this page for all the calculators listed at one place . Below is the list of all the calculators
Some days back I had written about GFactor concept for choosing a Financial Product based on 4 factors and formulating it in mathematics , Recently one of the writers for Business Bhaskar has copied the original idea of GFactor and republished it with same name “GFactor” and all the other names like “Trap Factor”, “R/R Factor” etc, without any permission from me .
This is not a general republishing of a general concept like SIP or Life Insurance that one can just change the wording’s and rewrite the same concept . It’s just the translation of the original idea and hence copyright violation. I have mailed the editor of the newspaper to look at it . The article was published in the online edition (Link) as well as print media (Newspaper Link) .
Update Jun 1 , 2010 :Â Business Bhaskar has resolved this issue with me and apolosized to me for whatever happened, they will republish the article with due credit to me .
Comments , please share your views on this issue ? How appropriate is it to copy content and translate it without permission ?
Retirement Planning is one of the most important aspects of financial planning. Here is a 3 part video series on Retirement planning which gives you a good idea of how to plan for it and how to think about retirement planning . Look at how to 6 Steps of doing Retirement Planning by yourself
Part 1
Part 2
Part 3
A very good book every one should read is “Retire Rich Invest” written by P V Subramanyam . Give your comments đ
Do you read comments ? There is a huge amount of discussion doing on in comments section, however many readers do not find time or interest to dig into the comments and follow the discussions, I would say comments have more knowledge than the article itself , as there are personal experiences and knowledge from many different readers, there is a threaded discussion on some topic in comments, which are more lively and engaging. So if you are just reading articles and not comments, you are missing a lot of things . So I went through some articles comment one by one and consolidated some learning and facts for my readers . ( See Learning from Comments Part 1)
1) Partha Iyenger shares what will happen to your mutual funds units if you bought it from Demat account and Company went bankrupt
If your online distributer Financial institution and asset management companies in India are regulated by RBI and SEBI. They constantly monitor the balance sheets and other relevant data of these firms and the respective regulators have put together necessary steps to ensure that the investors are protected by taking corrective steps. For eg.. when global trust bank collapsed, it was merged with Oriental Bank of Commerce and clients/depositors who had funds/securities in dmat accounts were able to get it back or transferred to the new Oriental Bank of Commerce account.. The process takes a while but you would get it. In India, we have excellent systems and process (much better than developed world) partly due to conservative policies framed by RBI and others regulatory bodies. For more information on the GTB scam related to deposits and demat accounts, you can read the link here . Another interesting aspect is that your order verification (on equity and etf purchases/sales) is posted on the NSE site on the same day. Your can ask your broker for the unique order number for the trade executed by you. You can verify the stock, price, qty, etc through this unique order number in the nse site. The orders are archived for a period of 8 years!
If am not wrong, NSE is probably only one or very few exchanges to have this facility for investors. This is a valid documentary proof for transactions done by you, which you can use in case your broker fails to send you the contract notes or ledger statements or if there are any discrepancies. Apart from this, the clearing corporation ensures that investors are protected from defaults by members by acting as third-party and your transactions are cleared. For more information you can read the RBI circular here . Next, all asset management companies have to follow strict guidelines in terms of their financials as prescribed by SEBI. The foremost criteria is 40% of net worth of the AMC has to be brought in by the sponsor. A sponsor is a company/consortium/institution which would like to float the asset management company. It also appoints trustees who oversee the amcs. The trustees have the authority to monitor and replace the asset management company , if they fail to perform their duties effectively at any point of time.. This is apart from the regulators and government.. Of course, one needs to be more careful while choosing your broker and investment companies and constantly monitor news and events related to the company.. If at any point of time you get uncomfortable, you could pull out your investments and park it in other stronger firms. (Link)
2) Milind Kotibhaskar shares his experience with a ULIP Agent (over email with me)
Many years back, I was studying in the college and staying in hostel. One evening, one decent looking young man entered my room. He told me that he was from my home town and gave me few references. He thus established a good rapport with me. Then he gently told me that this night he has to leave for Delhi ( or Bangalore or such place ) to attend a job interview. But he has lost his train ticket and he does not have money to buy new one. This job is a lifetime opportunity for him, but he will not be able to make it due to lack of money. So would I be so kind as to lend him some money so that he can travel and attend the interview ? He looked sincere and genuine. I gave him whatever money I had. He thanked me and said that he will return my money as soon as possible. Later when I told this to my friends, they started laughing at me and said I will never see him again in my life, and that is what happened.
Years after, 6 months back, ABN Amro people visited me ( I have salary account with them ). All dressed nicely ( tie and all that ). They wanted to sell me ULIP. They made impressive speech, talked about the returns that I would get etc. All this to a fellow who has crossed 50. I think these people were no different from the conman that duped me in the hostel. I know mutual fund agents who persuaded their clients to sell their existing MF schemes and buy NFOs ( agents used to get very good commission on NFOs ). I know LIC agents who ask their clients to surrender existing policies and buy new one so that these agents can meet their annual targets and to earn hefty commissions on Insurance policies . I feel sorry for the conman who took few rupees from me, and if caught in the act, would have faced police action. Instead he should have become an LIC agent or ULIP agent. He then could have conned more people without fear of police action and got more money in return.
3) Partha Iyenger shares How Real Estate prices gets manipulated by handful of big players .
During the period of Nov 2007-January 2008, large number of high net worth investors got carried away by the bull market assuming that they could make quick returns by booking profits when the sensex moves to 25,000. A large sum of the money allocated for real estate investments (in parts or full) by these investors were moved to stock markets and commodity markets. When the markets crashed immediately, which they did not expect, they were struck. The couldnât pull out the monies, due to losses. The real estate market which was also on a bull run till then, found the buyers who had shown interest earlier [some of them made advance payments], specifically in premium apartments, backing out. Read Real Estate Returns in India
Hence the Mumbai markets went through a period of correction (though the cycle was shorter) and picked up again gradually when the markets started its rally since April 09..In fact, some of the developers to speculate [through leverage as well] in the stock markets and move it back to their business.. As usual timing is very difficult and thatâs why one of the problems faced in the last two years by real estate markets is âcashâ.. Which means not completing projects in time!
The single word for this phenomenon is âliquidityâ. I am afraid you could get reliable statistics on real estate, since India lacks transparency[ be it in title deeds or transaction mechanisms] and we are yet to have real estate investment trust vehicles or REITS which would help track data and give a better picture. It should happen soon⊠(Link)
4) Pramod Moudgill shares his excellent insight on how to look at Fund houses and Fund managers
a) Whether it has some discipline and process set for investments or it is only a One man show i.e. fund manager is calling all the shots. Â The former is always better.
b) Whether the fund is keeping an eye on the funds if they are being true to their mandate and the fund manager is not deviating from the mandate for the sake of returns.
d) What is the performance and association of the investment team with the fund house. Is it changing fund managers every year ? if so then a big problem.
e) I dont know about others but to me the important point is the credibility of the parent company.
Let us evaluate fund houses on above parameters
1) Sundaram has a strict cap that none of its diversified funds will invest more than 5% in a single stock (Except select focus – Its mandate is to remain focus), At FT the  stock selection is done by a team of experts and the same is true with HDFC. These things make sure that one person can not skew the investments to his will.
2)Sandip Sabharwal is arguably the shrewdest fund manager India have ever seen. If you see the portfolio of SBI funds then you can observe that all the diversified funds had 90% stocks in common, so a global fund a contra fund a midcap fund and others were same despite their different mandates. Now look at DSP top 100 it doesnt have a single midcap stock, DSP midcap not a single large cap. Same with HDFC Top 200 and Sundaram midcap or Growth fund. When I invest in a large cap fund I know that I will be geting a large cap fund for sure. FT blue-chip and Prima do not have a single stock in common. Look at some good Equity Mutual funds
3) DSP has only seven equity funds and is winning so many awards based on that only. HDFC has only one sectoral fund. Sundaram recently has launched some new funds but if you compare these houses are conservative with new launching. They have every kind of funds and that is good. Look at Tata , Birla, Reliance they work like NFO Factory. The sole aim is to get money via NFOs.
4) Fund managers, – Prashant Jain is with HDFC for 10 Years, Naganath with DSP for a decade, Sukumar ans Siva Subramaniam with FT for over 12 Years. other that Anup Bhaskar no fund manager has left Sundaram in a long time. Can others (of course Nilesh Shah and Madhu Kela are there) boasts of such long relations.
5) Finally the corporate governance, Check yourself about the credibility of Sundaram and HDFC. Other two are internationally acclaimed.
OK that is the criteria I used, There are some others which may be fitting in these parameters but then performance is foremost and you can check about the consistency for these funds over many years. It has not been a flue. Keep a watch on IDFC and ICICI. Former is transforming itself and the latter is relatively new. Somehow I feel that 2010 will belong to these two guys. In the first quarter fall they have shown character. (Link)
Comments please , Did you like these comments and the learning ?
Do you want your children to be smart when it comes to Finance? Donât you want them to learn all the things, which youâre learning today, from this blog & other resources? And that they donât repeat the mistakes, we made in our lives?
Financial Education for Children is as important as their regular education. Sadly, we do not have in our school curriculum. However, you can start teaching your children, the basics of money, so that they become, more aware, more responsible and think in a better way about finance.
Itâll not just help your children, but even you as a parent in many ways. Here, I present 9 things to teach your children.
How to save money
Most kids today are indulged, like never before. All they do, is spend. The money mostly comes from one of the parents. The kid asks you for a 100 bucks to buy the latest thingamajig, you question them why, they answer you, and you give them the money.
This generally, makes them believe that once they give you a âgood enoughâ reason, the moneyâs in the bank (or their grubby liâl hands) đ . You need to make sure, that kids understand how you save money. This will happen only, when they themselves, understand how to save money.
Let them save some money for their little goals (even big onesâ). If your kid wants to buy something, which you think can wait, encourage them to save towards its purchase. Whenever you give them some money for anything, ask them to save 25% of it for that goal.
Apart from this, you can give them some small amount weekly to save for that goal directly. Please buy a piggy bank for your children. You can buy a fancy one or the clay one we had in our days đ It works!
How to keep track of money
You should teach your kids where the money at home comes from, where it goes and how much is saved. Iâd ask them to maintain a simple table where they can write how much money they received, & when, from whom, & where it was spent.
These 4â5 things are good enough for a small child to start with. If you have a computer at home, you can make an excel sheet and ask your kid to maintain the account, while making sure, that things are very simple for the kid to understand. Donât over do it đ
Once they start doing this exercise, theyâll gain an awareness of where they spend their money & to what extent. You can sit with them each quarter, and review the sheet. Don’t try to point whatâs right or wrong. Just gently point out facts; that’s all.
How to pay what its worth for something
Have you ever faced a situation when your kid bought something and they were cheated & charged exorbitantly? Or demanded something from you, but they thought that it’s wasnât that expensive?  Kids don’t always realize, just how much something costs. They just want it.
The best way to deal with this situation, would be to ask them upfront, what they think, is the price of something. If they demand a video game from you, they might not know how much it costs. So ask them, what they think is the price, Â & what is the maximum theyâd like to pay for it.
Many times, you will find that the price is much more than they themselves think. In which case, they might want to reconsider buying it.
My experience:
I remember, when IÂ was young, my brother & I demanded a video game from my dad. He fobbed us off a couple of times, but later he asked us, âPata bhi hai kitne ka aata hai?â (“Do you know how much it costs”) . We were puzzled, as we really didn’t know the cost.
We assumed itâd cost us something like a 1000 bucks, but we later found, that it actually sold for more than 3,000 at that time. Once we knew the price and compared it to the value it delivered, it didn’t make sense to buy the game. We had much better, healthier entertainment options.
And guess what? Dad bought us the game, next year! đ
How to spend money wisely
Ask them their priorities, what they need this year, what their wishes are, and help them sort out their desires and their requirements. Ask them, what is more important? Whatâs secondary? This way, you encourage them to think in the right direction.
You are giving them an opportunity to understand difference between needs and wants. This might not be true for small kids below 10, but will be more relevant for children in between the ages of 10 & 18. Kids often times speak or figure out amazing things, which we adults don’t think about. Do this exercise and you might find, that your kid has real smarts!
Please share examples from real life if any đ .
How to think about money
You should make sure that your child’s attitude towards money is shipshape; that they respect money, understand that it takes an effort to earn, and also understand the fact that, while money is important, it’s only secondary, as far as happiness & a content life are concerned.
Talk about money in front of them in a way, which gives them an appropriate view. Make sure, you don’t give them an impression that the familyâs happiness isnât as important as your job or business. Read Personal Finance Mistakes
How to live on a budget
If you give your children pocket-money, make sure they live on it, the entire month and they do not come to you smack bang in the middle of month, asking for more, for things they could have managed with the same pocket-money.
This happens only when children deviate from their monthly needs and carelessly spend on what they don’t need. While, they may ask for more, because of some emergency need sometimes, over a long-term, you should make sure they stretch with that pocket-money.
Children will understand budgeting better, if you yourself practice it (ouch!). When they see how you allocate expenses each month, and stick to it, chances are, they will replicate it at their level. While, this whole thing can be tough initially, help them out, by giving them the extra money they need in first 2-3 months and then restricting gradually.
Watch this video to know how to raise a smart child about money:
How to invest
Start teaching your child, the different ways of investing. Teach them basic banking, how banks operate and what it means to earn interest on an amount. You can also buy them some games which teach investing. Ask them to deposit some amount with you and you can pay them interest per month.
When you give them pocket-money, say Rs.500 per month, ask them to deposit back Rs.250 with you, with the assurance that next month you will pay them 10% interest on that amount, i.e : Rs.275. Though you might be out-of-pocket by Rs 25, the knowledge you impart to them is priceless !
This Rs.25 gives them the important message, that saving their money and investing regularly can increase their money many times over.
Donât tell me you want your children to do regular 9-5 jobs! Donât you want to instill some entrepreneurial skills in your children right from start, so that they know what they want to do in life and take an initiative to work along those lines?
The first step:
First step is to talk about different ideas your children have. When they are small, they can have weird ideas, but listen to them, & ask them how they can make money from some idea. Ask them questions like “Can you think of some idea, using which, you can make money?”
My own brother who is 13 yrs old makes weird stuff out of junk which can act like a toy gun! He once said, that if he can make 10 of those and sell at Rs 20 each, there will be many friends of his who will be ready to buy it. Though he didn’t do it, he surely has the right attitude.
You can encourage your child to do some random / different / creative stuff for a few hours every day (during vacations at least) and pay them extra money for it. This will help them earn some money and also help you do some work for which you wanted to pay someone!
If you have a garden, you can ask your child and his friends to do some random things for which you wanted to hire a guy anyway. This has some advantages; First â your children will understand, itâs not that easy to earn money and they have to work for it.
The second step:
Here, you will help your kids to spend some time constructively, which they would have spent playing or roaming around or playing video games. And finally, your money stays at home đ
Thinking a bit bigger, maybe you can really involve your child and his friends and work on some month-long project… one, that has a whole business plan, revenue model and which then earns money for 1 month (may be this can be done in summer holidays). Wow… this seems exciting, talk to your child about this today and see the response.
Ideas? Anyone?
How to handle credit
You should also start teaching your child, to handle credit.
If you pay them Rs 500 pocket-money and in the same month they demand Rs 200 extra, you can give them that money, but now introduce them a concept of âcreditâ. Tell them that it’s not going to be free and you are cutting Rs 50 for next 4 months from their pocket-money and paying them just Rs 450.
If you want to add some horror and suspense, make it 5 months (charge interest). This will make sure they ask for extra, only if they need to. Stick to this with discipline, and don’t fall for emotional atyachaar from your children,(they are really good at it, especially girls!)
The previous pointâs example can also be used here. If you are making some small project for them from which they can earn money, loan them some seed money like Rs 1000-2000 (as a venture capitalist) and then demand the money back after 1 month with interest. (I come up with crazy thoughts at times đ )
Conclusion
Teach your children basics of money from the very start. These tips will act as a foundation for your childâs financial education and they can build upon these learnings in the future. Most of these tips are for children, but can be used for your spouse, who may not be that good at personal finance. What say?
Comments, Can you also share your tips ? Do you think these tips will be helpful to your children? If no, then what are the obstacles?
There are many newcomers in Personal Finance who have no idea of very basic things . So I thought of doing a video presentation covering topics like Section 80C , HRA , HRA Example , LTA and Medical Exemptions , Tax Calculations , Tax Slab and example , Power of Investing Early , Understanding Equity and Debt , Investments Options , What is Insurance , Insurance Options , 4 most important things in Personal Finance . Lets see how everyone likes it . I would love to hear your views and suggestions so that I can create much better video tutorials in future .
Risk free returns, in our country are amongst the highest in the world. In countries like US, the interest rates are 1-2%. Equity markets in our country continue to provide 12-15% annual returns (Find Why) . But how much do investors expect from equity these days? A lot! No one is ready to settle below 20-25%? 12% is abusive to them, & makes them feel like they are cheated. A reader told me that he earned 100% this year from equity (2009) and he will be happy with even 25% next time! LOL! This happens when you look at short-term returns. Investors who started in 2004 started thinking that they are all âWarren Buffetâ and can leave their jobs in some years! Whereas all investors who started in 2007 end or 2008 start compare equity with their mother-in-laws, they just can’t stand it.
Think long-term, and timing will just not matter much. For retirement and child education, which is 15-20+ years away, just start a SIP in an Index fund and then go into a COMA, come back once in a while and just review it every 6 months to a year. That’s all.
Feeling special when it comes to Life or Health Insurance
Iâm not sure why, but some people feel that they are god gifted. They feel good health is a good excuse to skip Health Insurance and just because they don’t drive carelessly, it makes them âAccident proofâ. They donât realise that most people die in accidents not because they don’t drive well; itâs because the other person does not. Probability of dying is almost the same for everyone, but everyone feels that they have better chances, of not being part of an accident or an attack.
Be realistic; especially in bigger cities the chances of accident is higher than smaller cities. Most and more casualties happen in bigger cities. Take adequate Life and Health cover.
Excessive Leverage and careless spending
In recent times, we spend like thereâs no tomorrow. Easy available credit for home loan & the tax breaks available on them, EMIs available as an option for buying almost anything these days; all these easy means for laying hands on money has suddenly changed the way we see âAcquiring Assetsâ and âSpendingâ. Unlike our parents and grandparents, we are spending money, which we havenât even earned. We buy houses, cars, vacations etc., and then pay the cost for the rest of our working lives. In some cases, it might make sense, but a large section of society just lives beyond their means (See this eye-opener from Subrmoney) .
Research shows, that we feel less guilty when we pay with our credit cards rather than cash. When we use cards, we don’t see money going out; thereâs just a consolidated bill at the end. Nothing can be done (or undone) then, you just pay it. Imagine you are paying cash every time you are buying something you really do not need. We buy unwanted clothes, & unnecessary gadgets we can do without. How many of us claim, sometimes that we just can’t survive without a certain device, or feel that we can’t enjoy our life without certain doodads? Didnât our parents and the old generation live without them or with limited quantities ?
Why have we all suddenly shifted to plasma TV rather than the old TV we have used in our childhood? Of course, technological changes should happen and we should always move forward, but buying a Plasma TV just because it looks cool in your drawing-room, does not make sense at all; that too, if you havenât yet planned for your retirement or taken care of all the important goals in life. If it’s really your need , then go ahead , I would encourage , but most of the time people buy it out of comparison with friends and relatives. Once your other priorities have been achieved , you can go for it, But not at the cost of something more important .
Iâve heard horror stories of people who have bought homes and are crying today. Their home prices are moving up, but the quality of life has drastically decreased. They suffer horrible amounts of stress because now, even small things in life which gave them happiness, look unaffordable… all because that 2 BHK Flat’s EMI has to go through next month (A close look at Real Estate Returns in India).
No quality trips & vacations, heavy stress because of insecurities of jobs. Imagine a double income family with income of more than Rs 1 lac, who belongs to top 1 percentile of the highest earners in the country, but not leading a happy life because of excessive debt they have taken on all the loans and not enjoying little things in life because of these issues . Whats the point of earning so well then ? Donât try to be over ambitious at the cost of your current lifestyle and happiness! If you can’t manage your life successfully and happily, then the car, and the house, and all that financial planning is just a waste. (Read What is the goal of Financial Planning)
Short vision
Close your eyes and try to imagine your retirement, child education & marriage related expenses, and health care costs after 30 years. Can you predict your grocery bills after retirement? Living in present is great, but planning your future is critical now. Let us do a small exercise to show you what your dietary (food & eating) expenses at home after retirement will be.
Consider a 30 years old couple today… How much do they need to eat a decent breakfast, lunch and dinner at home? Even if you consider a meal at Rs 25, that’s Rs 150 for 3 meals/2 person a day, thats Rs 4,500 per month. I guess that’s what the grocery bill of most married couples in their 30’s would look like (IÂ am unmarried, as yet). Now, Rs 4,500 per month today, means 25,000 per month after 30 yrs, which is 3 lacs per year just for groceries. Forget inflation for now, if you live for 30 yrs after retirement (worst case), that’s 30 years X 3 lacs = 90 lacs just for your breakfast, lunch and dinner and this, doesn’t even consider inflation. Some people think they would need 1 crore for their retirement , LOL !! . You will require at least 10-15 crores, start working on it NOW !! . Pray to God, you don’t live longer than that, else it would be really painful!
Not ready to pay for Advice
This is in our culture & our genes, it seems. The very idea of paying for advice is anathema to us. We rely on âfreeâ advice most of the time. If we can get the top 10 mutual funds from valueresearchonline.com, then why pay someone for advice? When we know term insurance is best, and we have a good formula to calculate life insurance requirement, then why do we need a financial planner to tell us how much Insurance we need? If we have so many personal finance websites and magazines then why do we need financial planner, we can do it all by ourselves? We are a DYI (do it yourself) country! . I get many questions over email and comments, Imagine me asking for money for giving personalised advice, How many people will consider paying or will even accept that its fine ?
We must understand, however, that there are situations where you just canât match professionals in some areas. The other thing is some advice can be general. For example “top 10 mutual funds” might not work for you, & might not be suitable for your situation. A different set of mutual funds might work in your case and to analyse your situation, Â an investment consultant can be helpful. You have to take a call on whether its worth doing it all yourself or pay the fees & have a pro handle it.
Take large real estate transactions for example; I am amazed to see many people mailing me questions on complicated real estate deals, they are doing themselves, which actually might need a CA attention or professional advice to deal with. But why pay the CA that extra 10k or 15k he will ask for? They then, make mistakes and in long run lose a big amount of money just because of ignorance and not having optimized the whole deal.
In my opinion we are going to see far-reaching long-term consequences once the SEBI-IRDA issue gets resolved for Financial Planning profession. I base my fact & assumptions that SEBI is on a strong wicket rather than IRDA. However we need to go to the origin of this situation. In this article we will see what exactly is happening at this moment between SEBI and IRDA over ULIP ban and whats its implication on financial planning . Also Read : A short guide to Hire a Good Financial Planner in India
What is SEBI & IRDA issue all about? How it actually originated?
The IRDA was formed before SEBI and with the help of IRDA insurance companies came out with a Jugaadu product called ULIP which is just identical to MF with one minor difference that apx.2-5% of a clients investment goes to provide a life cover and rest is invested in either market, Govt. Securities, corporate debt or Equity, depending on the mandate of that fund. Now the second part is nothing but just like a mutual fund scheme.
Where is the problem now?
There is no problem with it as 90% of insurance premium world over goes to market or securities. However, in India the ULIP products become terrible investment products because if one invests Rs.100 in a ULIP then 20% of your money goes into commissions and approx. 2% into insurance, only 78% of oneâs money is invested in market or securities. So to get back to 98 ( 100 â2 ) it would take in normal market conditions at least 2 years in Equity oriented funds and 4 years in debt oriented funds. So all you are doing is just recovering your principal in next 2 to 4 years. Now, the miss-selling by an insurance agent gets hidden in the bull run and because of rampant financial illiteracy even among so called highly qualified professionals & corporate executives leave alone the advisor selling the ULIP, the investor is fooled into putting more money in these bull runs saying that your money will double in âxâ years and in the bear runs when the ULIP loose even their principal, the advisor gives them a either long term talk or plays on the investor fear and switches them to another products. Hence, an advisor in India is the a true definition of an âopportunistâ. In the bull run he plays on the âgreedâ of the investor and in the bear run he plays on the âfearâ of the investor.
What the above does is that apart from loss to investors it gives an unfair advantage to insurance companies compared to mutual fund houses where commissions are in fraction of your investments. What is the incentive for an advisor or even big distributors like banks & distribution companies to sell MF schemes when they have the option of selling a similar scheme where they gets heavy commissions⊠as an agent what would you do go for Rs.20/- commission on ULIP or Rs.1 on Mutual Fund Scheme on an investors investment of Rs.100/-.
Now, taking stock of the above problem SEBI has gone for an eagle eyeâs view of the whole problem and to create a level playing field among all market participants.After a lot of cajoling & convincing IRDA which failed to budge, SEBI issued the harsh step of issuing an quasi-judicial order restraining Insurance companies from offering ULIP without proper registration with SEBI.
What will happen now?
Though there is likely to be a stay on the SEBI order given the large number of clients who hold ULIP products by the high court. This can be a short-term breather to insurance companies but it is not a long-term solution.
Who is on strong wicket when the issue goes to Court â SEBI or IRDA?
Mr. Bave is a master strategist, he knew that the lobby of insures is very strong and united and it will take him years to bring them to negotiating table. With the powers conferred to him by parliament, he issued a quasi judicial order.
Now, quasi â judicial order is such that even Mr.Bave cannot revoke it. The IRDA may win a temporary relief in this war, but SEBI stands on a strong footings as in the court of law the court will go where investor interests remains. Insurance companies must see the larger picture and rather than worrying about loosing valuations post an unfavorable order, they must prepare them self to change with the times.
What are the implications of the SEBI & IRDA issue for Financial Planning profession?
So lets come back to the question whatâs in it for Financial Planning profession ? In my opinion, realizing the investors interest the court will rule in favor of SEBI, post which Insurance companies will have to bring down the commissions to Mutual Fund level on ULIPâs.
Is this is a good news for Financial planners?
Yes, but how many of us are changing as fast as the opportunity provided by structural changes effected by such orders? Time & again it has been proved that great opportunity lies when you have big structural changes in an economy. Every century gives some opportunity during financial turmoil and this time we are in the midst of such an opportunity.
There are many areas which we talk about regarding financial awareness, however there are things which a retail investor is never aware about and that’s “International finance”. It’s equally important to understand what is happening at national and international level which can hugely impact a common man. With financial markets becoming increasingly complacent about the recurrence of a crisis, we believe it is relevant to explain a couple of areas of concern which could trigger the next round of the crisis.
Greece â Europeâs Achilles Heel
Source : DNA
What’s Going on in International markets
In the last few weeks, Greece has taken the centre stage in the financial markets. Within the next two months, Greece has to pay back the maturing bonds [to investors across the world] and finance its budget deficit. The country needs to borrow around $40 billion from the international market. With 10 year Greek Government bond interest rates of around 7% (more than 3% to 4% higher than 10 year U.S. Treasury or German Government Bonds), this has led to fresh worries over a potential default by the Greek government. What has added to the problem over the last two days is a rapid withdrawal of deposits from Greek banks by individuals in the country. Unless, Greece agrees to the terms set forth in the rescue package put together by European Union and IMF [to reduce government spending and increase taxes], it is difficult to get the support of this consortium to raise the $ 40 billion to stave off the crises. As you can see from the graph, Greeceâs debt is over 111% of GDP. We believe the situation in Greece is getting grimmer day by day and could be a trigger for a crisis in other European nations â Portugal, Italy, Spain.
Read more on this through the following links :
http://ow.ly/1wR0D (Retry opening this several times , if it does not show you article)
The fiscal stimulus initiated by China last year through bank lending to the tune of $ 1.2 trillion has led to potentially unstable conditions in their economy. According to well-known investor James Chanos with 60 percent of the countryâs GDP relying on construction âChina is on a treadmill to hellâ. Marc Faber a long time optimist on China and well-known economist Kenneth Rogoff have also spoken of a China Bubble recently. With the Chinese government trying to enable a slowdown in real estate speculation via a recent tax on sale of homes when they have been owned for less than five years, one cannot rule a rapid decline in prices which would have a negative impact on economic growth.
Any one or combination of the two global factors identified above could trigger a mild to deep correction in the financial markets and slow down the world economy. Due to the strong financial linkages with the U.S. and the rest of the world, India will not be spared.
This is a Guest Column by Partha Iyengar â Founder and C.E.O and Srinivasa Sharan â Adviser, Investment Management – Accretus Solutions
Disclaimer : The article is for information purposes only and should not be construed as any recommendations. Accretus Solutions does not intend to solicit any business. Accretus Solutions do not take any responsibility of the losses that may arise out of actions taken based on the article. This article is not a substitute for developing an investment strategy or plan with a professional adviser. The views expressed in the article are that of the authors only.
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Source : DNA
