Tuesday, October 31, 2006

Golf & Investing

Jeev Milkha Singh who has won the Volvo Masters in Spain has the following to say on the final day's play: (courtesy Rakesh Jha, TNN)
I have stopped putting pressure on myself. If human beings get result
oriented, it's sure to lead them into pressure. I have realised that and now I am just enjoying my game without thinking about the results. I am focusing more on routine and the process of what will help me suceed......

On his routine he says that he's following the same routine but with greater focus. He realises that to be more competetive, he has to work on his mental strength more.

How true for succeding in the Investment field too! Putting pressure on ourselves, we often tend to take a wrong call. And with targets, we don't exactly enjoy the process. And we need to build on our mental strength too if we hope to be successful.

Investing is a sport after all!! Have fun as you go along.

News of the week


As part of RBI’s mid-term review of the monetary and credit policy to be released on October 31, it is expected to come out with comprehensive guidelines on NBFCs.

The private sector accounted for Rs71 of every Rs100 spent on capex in 2005-06. Of the 1,769 listed entities that spent Rs1098.45bn on capex in 2005-06, Rs777.66bn was from 1,559 private companies.


Congress president Sonia Gandhi has given hints that there is no room for young party leaders in the Union Council of Ministers as of now.
Traders in Delhi will go on a 72-hour strike from October 30 to protest the sealing drive in the city.


State-owned oil marketing companies are seeking zero customs duty for capital goods imported for the new refineries coming up in Punjab, Bina in Madhya Pradesh and Paradeep in Orissa.

IOC plans to invest ~Rs120bn to upgrade its refining facilities to handle high sulphur crude oil - media. GAIL (India) plans to expand its CNG distribution network to 46 cities in the country over the next four years .

VSNL has signed an MoU with global telecom service providers for construction of a new submarine cable system - media.
Reliance Communications: 1) plans to set up a platform for Indian petroleum giants that will enable the PSUs to service customers through mobile phones; 2) plans to enter high-end wireless data services market in India, currently dominated by BlackBerry devices - media.
Tata Steel’s land lease in Jamshedpur is being reviewed by the Jharkhand government - media.
Sun Pharmaceutical is set to take its lead molecule for anti-allergic treatment to the phase-II trials (trials on patient) in the US - media.
Ranbaxy will have to either go to the US Supreme Court or wait until 2010 to launch the cholesterol-lowering drug atorvastatin - media. Wipro has clinched a deal for developing the Madhya Pradesh govt’s electronic tendering project, which will not involve any cost to it - media.
TCS has announced the formation of a Japan offshore development centre to be based at its facility in Kolkata - media.
TajGVK’s 3Q PAT at Rs1.51mn was up 62% YoY - media.

Source: Collated from Bloomberg and the following news papers-Economic Times, Business Standard & Financial Express dated 23-27 Oct, 2006

Monday, October 30, 2006

Profits from stock market

I must claim my place as a successful stock investor since I have made huge profits. How? By not investing a single penny, and investing with my instincts!!

Well, this (technical) analysis stems from the fact that my elder brother who is an IIT(D)/IIM(A) product has invested a lot and has lost a lot. Since I didn't have any money to invest, naturally I profited with the absense of loss. This part of the story happened when the markets were down in the dumps.

Now cut to a later date when I had some money and I invested them into the first stocks that came to my mind without troubling anybody with any analysis. Luckily the stocks happened to be HDFC, Satyam and LICHFL. And the rest they say is history.

Hey, I'm not asking you to follow my style. You may not be that lucky after all. But here's what I think on the issue:
1. Empirical studies have shown time and time again how market timing and analysts’ forecasting abilities have failed countless times. You can not improve your forecasting ability because there are just too many countless variables to account for.
2. For people who do not want to do research, index investing is a good solution.
3. Go for Mutual Funds which have consistently performed over a period of say, 3-5 years. Take the SIP route.

Though direct stocks have the ability to give the best returns, please see the time and effort required to be able to get the best out of it. It's fine if you have a portfolio worth more than 10 lacs, I guess. But if it's less than that, the returns may not be justified for the efforts required.

Futures & Options

In futures trading, you take buy/sell positions in index or stock(s) contracts expiring in different months. If, during the course of the contract life, the price moves in your favor (rises in case you have a buy position or falls in case you have a sell position), you make a profit. In case the price movement is adverse, you incur a loss.

To take the buy/sell position on index/stock futures, you have to place certain % of order value as margin. With futures trading, you can leverage on your trading limit by taking buy/sell positions much more than what you could have taken in cash segment. However, the risk profile of your transactions goes up.

While buy/sell transactions in margin segment have to be squared off on the same day, buy/sell position in the futures segment can be continued till the expiry of the respective contract and squared off any time during the contract life.

Margin positions can even be converted to delivery if you have the requisite trading limits in case of buy positions and required number of shares in your DP in case of sell position. There is no such facility available in case of futures position, since all futures transactions are cash settled as per the current regulations. If you wish to convert your future positions into delivery position, you will have to first square off your transaction in future market and then take cash position in cash market.

Another important difference is the availability of even index contracts in futures trading. You can even buy/sell NIFTY in case of futures in NSE, whereas in case of margin, you can take positions only in stocks

In options trading, you take buy/sell positions in index or stock(s) contracts expiring in different months with various Strike Price. Strike price is the Price at which the underlying Asset is Agreed to be Bought or sold. Premium is the downpayment the Buyer of Call or Put is required to make for entering the options agreement.

In case of Futures the Buyer has an unlimited loss or profit potential whereas the buyer of an option has an unlimited profit and Limited downside. The Seller of a Futures has an Unlimited loss or profit potential but the seller of an option has a Limited profit but Unlimited Downside.

Sensex at 13000

The Bombay Stock Exchange's sensitive index of 30 scrips, popularly known as SENSEX has crossed a historical 13000 during intra day trading today, viz, 30th October, 2006.

For the premier Stock Exchange that pioneered the stock broking activity in India , 125 years of experience seem to be a proud milestone. A lot has changed since 1875 when 318 persons became members of what today is called "Bombay Stock Exchange Limited" by paying a princely amount of Re1.

Since then, the stock market in the country has passed through both good and bad periods. The journey in the 20th century has not been an easy one. Till the decade of eighties, there was no measure or scale that could precisely measure the various ups and downs in the Indian stock market. Bombay Stock Exchange Limited (BSE) in 1986 came out with a Stock Index that subsequently became the barometer of the Indian Stock Market.

SENSEX, first compiled in 1986 was calculated on a "Market Capitalization-Weighted" methodology of 30 component stocks representing a sample of large, well-established and financially sound companies. The base year of SENSEX is 1978-79. The index is widely reported in both domestic and international markets through print as well as electronic media. SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. From September 2003, the SENSEX is calculated on a free-float marke capitalization methodology. The "free-float Market Capitalization-Weighted" methodology is a widely followed index construction methodology on which majority of global equity benchmarks are based.

Come on India, Aa ya India!!

Sunday, October 29, 2006

Sector Analysis: Banking

We have seen the financial results for the IInd Qtr. ending Sept. 06 of the premier banks in the country viz, ICICI Bank and SBI recently.

So what are the important result areas where we should compare them? To my mind, the following factors have immense bearing on performance evaluation of a Bank:

  1. Net interest margin (NIM): For banks, interest expenses are their main costs (similar to manufacturing cost for companies) and interest income is their main revenue source. The difference between interest income and expense is known as net interest income. It is the income, which the bank earns from its core business of lending. Net interest margin is the net interest income earned by the bank on its average earning assets. These assets comprises of advances, investments, balance with the RBI and money at call.
  2. Operating profit margins (OPM): Banks operating profit is calculated after deducting administrative expenses, which mainly include salary cost and network expansion cost. Operating margins are profits earned by the bank on its total interest income. For some private sector banks the ratio is negative on account of their large IT and network expansion spending.
  3. Cost to income ratio: Controlling overheads are critical for enhancing the bank's return on equity. Branch rationalization and technology upgradation account for a major part of operating expenses for new generation banks. Even though, these expenses result in higher cost to income ratio, in long term they help the bank in improving its return on equity. The ratio is calculated as a proportion of operating profit including non-interest income (fee based income).
  4. Credit to deposit ratio (CD ratio): The ratio is indicative of the percentage of funds lent by the bank out of the total amount raised through deposits. Higher ratio reflects ability of the bank to make optimal use of the available resources. The point to note here is that loans given by bank would also include its investments in debentures, bonds and commercial papers of the companies (these are generally included as part of investments in the balance sheet).
  5. Capital adequacy ratio (CAR): A bank's capital ratio is the ratio of qualifying capital to risk adjusted (or weighted) assets. The RBI has set the minimum capital adequacy ratio at 10% as on March 2002 for all banks. A ratio below the minimum indicates that the bank is not adequately capitalized to expand its operations. The ratio ensures that the bank do not expand their business without having adequate capital.
  6. NPA ratio: The net non-performing assets to loans (advances) ratio is used as a measure of the overall quality of the bank's loan book. Net NPAs are calculated by reducing cumulative balance of provisions outstanding at a period end from gross NPAs. Higher ratio reflects rising bad quality of loans.

This list is not at all exhaustive. There are a number of other indicators like efficiency and profitability ratios. For newbies like me, it's more than enough numbers!!!

And btw, the NIM of SBI is higher compared to ICICI and HDFC by 1% (approx.)!!!

Exchange Traded Funds (ETF)

Basically, ETFs are open-ended index fund that can also be traded on the stock market.

Compared to Mutual funds, there are many advantages of ETFs, one is real time pricing, secondly long term investors are protected from short term traders. Hence it proves to be an ideal instrument for both long term as well as short term investors and also it is easy to buy and sell from the exchange. One major disadvantage of ETF is that the investor should have a demat account and a broking account.

There are two types of advantages over index funds - one is the expense ratio which is currently lower in ETFs as compared to normal index funds. The second advantage is the distribution costs- the other index funds have to pay trail commission to the broker, while ETF does not pay the same. So the ETF cost will be lower.

In addition to the above-mentioned expenses, there also exist some `hidden' costs like transaction costs. Such costs do not form a part of the expense ratio like brokerage and STT. The transaction costs however, are incurred by index funds but not by ETFs. This is another area where ETFs score over regular index funds.

ETFs don't incentivise their product, which other regular mutual funds can do, hence there is no one pushing it.

But internationally what has happened that over a period of time people have found out that ETFs are ideal instruments and it has become more popular.

Just to give an example - in the last three month if you look at the Nifty BeES, among all forty funds it was ranked 11th in the down market, which clearly shows that the ETFs/index funds are working.

Thanks to Personal Fn.com interview of Mr. Rajan Mehta who is the Executive Director of Benchmark Asset Management Company Pvt. Ltd

Unique Insurance Plan

Here's a unique Insurance plan from LIC ( a pleasant surprise!!). It's called Jeevan Saral and it lives upto its name, for sure.

You simply decide the amount you are ready to pay every month. LIC will insure you for 250 times that amount, regardless of your age ( between 18 and 50, of course). And if you have any qualms about paying monthly, you can opt for quarterly, halfyearly or annual payments too.

The Maturity Sum Assured depends on the age at entry of the life to be assured and is payable on survival to the end of the policy term. It also offers the flexibility of term and a lot of liquidity by way of partial surrender of policy whenever you require some urgent money.

For benefit details and an illustration too, go to LIC.

Saturday, October 28, 2006

SBI Q2 Results

India's largest lender, State Bank of India, on Saturday posted a bigger than expected 2.6 percent fall in quarterly earnings but margins improved as loans yielded higher returns.

SBI, with access to cheap savings bank accounts through its more than 9,000 branches, said operating profit rose 24.7 percent to 24.73 billion rupees in line with the rest of the banking industry.

State-controlled SBI said profit in July-September, its fiscal second quarter, fell to 11.84 billion rupees from 12.15 billion rupees a year earlier, missing a forecast of 11.9 billion rupees in a Reuters poll of 10 analysts.

In the last year second quarter, SBI's net profit was boosted by the 6.5 billion rupees benefit from tax write-backs and absence of tax provisions.

Most banks have posted strong earnings growth in the July-September quarter due to loans growth as individuals borrowed to buy homes and cars, and corporates borrowed to expand capacities.

Banking sector's loans grew 31 percent in the July-September quarter, but the central bank has raised the short term rates 75 basis points this year in three phases to contain inflationary pressures.

The expectation that rates may not be raised further due to the Federal Reserve holding its rates, led to a fall in yields in the last quarter boosting the bond yields which added to banks' profits.

ICICI Bank, SBI's smaller rival, posted a 30 percent rise in July-September earnings, and the New York-listed HDFC Bank, reported a 32 percent rise in net profit earlier this month.

Analysts are expected to revise up their banking sector earnings estimates for the year to March 2007, if the central bank leaves interest rates unchanged during its meeting on Tuesday.

SBI, which employs around 200,000 staff, said its net interest margin grew to 3.32 percent in the September quarter, compared with 3.13 percent in the same period a year ago, as it increased lending rates during the quarter.

Net interest income for the quarter rose 8.07 percent to 38.99 billion rupees, from 36.08 billion rupees a year earlier.

Its net bad loans fell to 1.67 percent in July-September, from 2.27 percent a year earlier.

Shares in SBI rose 41.4 percent in the quarter, outpacing a 17 percent gain in the BSE's main index and a 39 percent gain in the banking sector benchmark.

Analyze a Company

How to go about systematically analyzing a company? You must look for the following to make the right analysis:

Industry Analysis: Companies producing similar products are subset (form a part) of an Industry/Sector. For example, National Hydroelectric Power Company (NHPC) Ltd., National Thermal Power Company (NTPC) Ltd., Tata Power Company (TPC) Ltd. etc. belong to the Power Sector/Industry of India. It is very important to see how the industry to which the company belongs is faring. Specifics like effect of Government policy, future demand of its products etc. need to be checked. At times prospects of an industry may change drastically by any alterations in business environment. For instance, devaluation of rupee may brighten prospects of all export oriented companies. Investment analysts call this as Industry Analysis.

Corporate Analysis: How has the company been faring over the past few years? Seek information on its current operations, managerial capabilities, growth plans, its past performance vis-à-vis its competitors etc. This is known as Corporate Analysis.

Financial Analysis: If performance of an industry as well as of the company seems good, then check if at the current price, the share is a good buy. For this look at the financial performance of the company and certain key financial parameters like Earnings Per Share (EPS), P/E ratio, current size of equity etc. for arriving at the estimated future price. This is termed as Financial Analysis. For that you need to understand financial statements of a company i.e. Balance Sheet and Profit and Loss Account contained in the Annual Report of a company.

Investing in Stocks?

What precautions must one take before investing in the stock markets? Here are some useful pointers to bear in mind before you invest in the markets:

  • All investments carry risk of some kind. Investors should always know the risk that they are taking and invest in a manner that matches their risk tolerance.
  • Do not be misled by market rumours, luring advertisement or ‘hot tips’ of the day.
  • Take informed decisions by studying the fundamentals of the company. Find out the business the company is into, its future prospects, quality of management, past track record etc Sources of knowing about a company are through annual reports, economic magazines, databases available with vendors or your financial advisor.
  • If your financial advisor or broker advises you to invest in a company you have never heard of, be cautious. Spend some time checking out about the company before investing.
  • Do not be attracted by announcements of fantastic results/news reports, about a company. Do your own research before investing in any stock.
  • Do not be attracted to stocks based on what an internet website promotes, unless you have done adequate study of the company.
  • Investing in very low priced stocks or what are known as penny stocks does not guarantee high returns.
  • Be cautious about stocks which show a sudden spurt in price or trading activity.
  • Any advise or tip that claims that there are huge returns expected, especially for acting quickly, may be risky and may to lead to losing some, most, or all of your money.


The Reserve Bank of India has expressed its reservations on the policy for special economic zones (SEZ) & has ruled out any concessional finance to developers and units in these zones. RBI wants that they should be treated on par with other realty projects.

RBI has directed nationalized banks to offer credit to SEZs on the same terms and conditions as offered to real estate developers.RBI has notified that the exposure of banks to entities for setting up SEZs or for acquisition of units in SEZs,which includes real estate, would be treated as exposure to commercial real estate sector with immediate effect.

RBI's views lend support to apprehensions expressed by the finance ministry and the IMF that SEZs would take away resources from other areas and lead to uneven development and would lead to massive revenue loss to the exchequer.

Friday, October 27, 2006

Planning tools

Money Control gives you a lot of tools to plan your personal finance decisions. Most of us spend more than half of our lives working and saving because money is important, in fact crucial. However, most of us spend almost no time planning to make that hard-earned money work more effectively for us.

Money Control brings you a host of calculators and tools to facilitate the planning process.

Risk Analyser is an interesting tool which tells you about your risk capacity and tolerance. After a list of 20 questions which you answer( and these questions are searching as well as eye openers!) the software tells you about your risk appetite.

Also , based on your risk profile, they will recommend an asset allocation structure best suited for you. The RiskAnalyser should take you about 10 minutes to complete.

An interesting and helpful exercise for all of us.

ICICI Q2 Results

ICICI Bank has declared its second quarter results. ICICI Bank's Q2 net profit up 30% at Rs 755 crore from Rs 580.05 crore. Its Net Interest Income (NII) was up 47% at Rs 1,577 crore from Rs 1,070 crore. The bank's retail assets were up by 57%, deposits were up 57%, YoY. Tthe bank's CASA ratio has improved to 23% and the fee income has grown by 62% .

ICICI has changed the banking scene in India over the last few years. We
expect robust credit growth this year too. About 69% of the Bank's assets are contributed by the retail bank about 10% of the assets are contributed by the international bank and the balance by the domestic corporate bank with about 7% coming from the rural and agricultural business.

Looking at credit to GDP ratio in India it is indeed quite low. When you compare consumer credit to GDP in India for a country of our size is just about 10-12%. So there is a crying need for credit to fund consumption, to fund infrastructure, to fund a whole lot of capital expenditure and therefore one would expect a robust credit growth in the current year across the banking segment.

Way to go, ICICI!

Monday, October 23, 2006

Chitragupta Puja

Today is Chitragupta Puja and as decendents of Chitragupta, we, Kayasthas, celebrate it by worshipping our pens. Isn't pen mightier than sword!!
According to mythology, Chitragupta was the account keeper of the heavens and he had the transactions of people doing right and wrong. 
Today we also celebrate the beginning of the new year for us. Let's start with a clean slate.
Happy Chitragupta puja.

Sunday, October 22, 2006

Samvat 2063

Vikram Samvat 2062 has been a great year for the Indian stock market with the markets growing at a phenomenal 60 % over last year.

So isn't it scary now to invest in the stock markets now? While it will be unfair to expect such stupendous returns of the recent past, returns between 15-20% should be feasible even now. And this return is still better than other avenues!

To be more specific, let's take a call on the following factors which may impact the growth of the markets. They are:
  1. Multiplier effect of Infrastructure development.
  2. Rising Income levels.
  3. Increasing growth of Services.
  4. Growth of GDP
  5. Growing confidence of Indian managers.

If we think that these factors will positively impact the economic growth, then we should be pretty confident of the stock growth too.

However before taking a leap into your favorite sectors, it is important to learn about the company's fundamentals, soundness of its business model and good earning prospects apart from comparing it with its competitors.

Happy new year and happy investing

Saturday, October 21, 2006

Using options

If you expect the price of the stock to rise, buy a call option at a predetermined price, which is lower than the rise you expect in the stock's market price at the time of exercise of option.

However, if you expect the price of the stock to fall, buy a put option at a predetermined price, which is higher than the fall you expect in the stock's market price at the time of exercise of the option. If your judgment goes wrong, simply let the option lapse and you just lose the premium you have paid to buy the option.

Suppose an investor is bullish and buys a call option on Infosys shares at the strike (exercise) price of Rs.5,250 at a premium of Rs.150 where the time to exercise the option is 1 month. The investor will earn profits if the price of Infosys crosses Rs.5,400 (Strike Price + Premium i.e. Rs.5250+ Rs.150). Suppose stock price touches Rs.5,700, the investor should exercise the option to buy the share at the exercise price of Rs.5,250 and then sell it in the market at Rs.5,700 making a profit of Rs.300 (selling price of Rs.5,700 minus purchase cost of Rs.5,250 minus premium cost of Rs.150). If at the time of expiry of the 1 month, the stock price falls below Rs.5,250, the buyer of the call option should not exercise his option. In this case he loses only the premium paid i.e. Rs.150.
Similarly, if the investor anticipates a fall in the price of Infosys, he should buy a put option to gain if his expectation turns out to be true.

Options offer three significant benefits:
Versatility: Besides offering flexibility to the buyer in form of right to buy or sell, the major advantage of options is their versatility. An investor can use options in as conservative or as speculative a manner as his investment personality dictates.

High Leverage: Option contracts allow the investor to control the full value of the underlying shares for a fraction of the actual cost. For instance, though Infosys trades at Rs.5,600, an investor can get full exposure to it by investing only the premium of Rs.150.

Risk Management: T he buyer can only lose what was paid for the option contract (i.e. the premium), which is a fraction of what the actual cost of the asset would be.

World over the derivative markets are bigger than the equity markets and options are the most favored instruments because of the unique combination of unlimited return-limited risk offered by them.

courtesy: Finance Insights which is a rich source of information on Finance


The daily trade of commodities futures market is expected to rise by another Rs 5000 crores from the Rs 15000 crores being traded currently.

With increasing interest from investors, the basket of 120 commodities currently being traded is likely to touch 250 by 2007-08.

The Assocham-NMCE paper says that commodities as an asset class is increasingly being used to diversify asset portfolios by investors. Commodities offer a classic hedge against inflation.

Happy Diwali

The Diwali festival celebrates the victory of good over evil, light over darkness, and knowledge over ignorance, although the actual legends that go with the festival are different in different parts of India.

In a recent editorial, the Times of India summed up the modern meaning of Diwali:"Regardless of the mythological explanation one prefers, what the festival of lights really stands for today is a reaffirmation of hope, a renewed commitment to friendship and goodwill, and a religiously sanctioned celebration of the simple — and some not so simple — joys of life."
In olden days Diwali also marked the beginning of a financial year. Stock exchanges in India celebrate Diwali as a "muhurat" day: a beginning for the new year!

Friday, October 20, 2006

HDFC Q2 Results

Housing Development Finance Corporation Ltd (HDFC) has reported a 23 per cent growth in net profit for the quarter ended September 30, 2006.

Net profit for the quarter stood at Rs 368 crore, against Rs 298.9 crore in the corresponding year-ago quarter. The net profit for the fiscal half-year ended September 30 amounted to Rs 664.84 crore, a rise of 22 per cent year-on-year.

The net interest margin for the quarter has been maintained at 2.16 per cent, Mr Keki Mistry, Managing Director, HDFC, said.

On real estate prices, Mr Mistry said that there had been some correction in prices in certain pockets of the country. But there was still demand for home loans. "The middle-income segment is driving the home loan growth. There is genuine demand from end-users as affordability has increased," said Mr Mistry

HDFC's total income for the second quarter increased to Rs 1,456 crore (Rs 1,048 crore), a growth of 39 per cent. Total expenditure rose by 48.6 per cent to Rs 982 crore for the quarter (Rs 660 crore). Of this, interest and other charges amounted to Rs 914 crore (Rs 607 crore). Gross profit (after interest and before depreciation and taxation) rose by 23 per cent to Rs 470.11 crore (Rs 382.83 crore).

Loan approvals for the first six months of the fiscal amounted to Rs 14,729 crore, growing 28 per cent over Rs 11,543 crore in the corresponding period last year. Loan disbursements during the same period increased by 27 per cent to Rs 11,280 crore (Rs 8,910 crore).

Income from interest on loans for the half year grew to Rs 2,218 crore (Rs 1,603 crore).

The housing loan portfolio (including loans outstanding, deposits and investments in preference shares and debentures for financing real estate related projects) as on September 30, 2006, amounted to Rs 51,332 crore, an increase of 25 per cent over a year ago.

HDFC's capital adequacy ratio stood at 13.5 per cent of the risk weighted assets against the minimum requirement of 12 per cent.

Economics, Finance and Accounting

To my mind, the name of Finance minister is a misnomer. His key result areas are the growth of the GDP, tax environment, domestics savings, defining his role in economic affairs, rate of inflation, rate of interest, etc. And all these areas pertain to Macro Economics.

I don't know why our FM isn't called our EM: Economics Minister. More than getting into an unnecessary debate, I'll try to understand the linkages between Economics, Finance and Accounting. Because till now the three of them blurred into one for me, I must admit.

Prof. Prasanna Chandra in his book on Financial Management writes: "There are two important linkages between economics and finance. The macro-economic environment ( tax, monetory and fiscal policies, etc ) defines the setting within which the firms operate. The micro-economic environment(eg. cost analysis, marginal analysis, etc) provides the conceptual underpinning for the tools of financial decision making.

So we must attempt to understand the basic concepts of macro and micro economics to understand and take financial decisions.

Accounting was Finance for me. Moreover most Financial Managers are given responsibility for both accounts and finance. But it is important to understand that while Accounting is a kind of score keeping, Finance aims at value maximisation. Accounting help us to record all transactions while Finance help us in charting a future course of action.

Thumb rules for Investing

Recently I wrote that the thumb rule on the percentage amount of your investment in equity is 100 minus your age. But Flexo writes in his blog ( Consumerism Commentary ) that someone decided that with people living longer in retirement, that wasn't enough equity. So they changed 100 to 120. By this logic, 10-year olds should have 110% of their funds in stocks. I'd like to see a 10-year old who can pull that off.

Flexo has done a review on the Money Magazine's 25 rules to grow rich. Read the full story here.

Though there are many things which don't apply in the Indian scenario like the 401(K). However decide for yourself for these rules:
  • Spend no more than 2 1/2 times your income on a home. For a down payment, it's best to come up with at least 20%
  • Your total housing payments should not exceed 28% of your gross income. Total debt payments should come in under 36%.
  • It's worth refinancing your mortgage when you can cut your interest rate by at least one point.

Thursday, October 19, 2006

Finance learnings

I'm pretty happy about my 50th log. It has been an exciting learning process and these blogs are an e-scratch pad for me to put together my thoughts on finance.

There is significant progress being made in the financial and investment environment in India and it has become increasingly important to understand the essence of modern finance, to understand the key principles of financial economics and developing basic skills in applying financial tools and techniques.

Centre for Financial Management (CFM) is a Bangalore based centre for excellence in Financial Studies under the direction of Prof. Prasanna Chandra, an authority on Financial Knowledge. They offer two distance education courses on finance: Diploma in Finance and Certified Financial Manager. Though the lack of classroom situation is a dampner, the cost and the accessability makes up for it. With a fee of Rs 4000 and Rs 9000 respectively, the course is value for money indeed.

Another course coming on is the result of a tieup between Multi Commodity Exchange (MCX), India and Institute of Financial Market (IFM). MCX is an independent and de-mutulised multi commodity exchange. It was inaugurated on November 10, 2003 by Mr. Mukesh Ambani, Chairman and Managing Director, Reliance Industries Ltd. The IFM is a leading provider of educational products and training for the financial services industry. Together they intend to start a commodities education course in a big way.

Please don’t buy an insurance policy from me

  (Source: The Indian Express, Dated 19th october, 2006). A story worth looking at.
I had been talking to Darshan Kumar (name changed), an insurance agent for some months. One morning in June he asked me "Do you want to become an agent?" "You can earn 40 per cent of the policy premium as commission. If you sell a policy with a Rs 1 lakh premium, you earn Rs 40,000 in the first year alone," he said. When I told him that not all policies yield a commission of 40 per cent, he said he would tell me the ones that did.
I knew insurance agents push policies that maximise their commissions, without caring for a policyholder's needs. However, to check the claims made by insurers that they follow best practices, had qualified agents and mis-selling was not rampant, I played along, and committed.

Darshan briefed me on the formalities: 100 hours of class work over 18 days at an insurance training institute, followed by a two-day crash course at the company, then an exam certified by the Insurance Regulatory Development Authority (IRDA). That's pretty intensive and time-consuming, I retorted. "Not to worry, it would be taken care of," he said.

On July 4, I filled up forms to become an agent of the life insurer he represented. I gave him Rs 700 (Rs 150 for course book, Rs 200 to the Insurance Institute of India as exam fee and Rs 350 as the licence fee, which would be refunded if I didn't clear the exam). "But I can't attend classes since I have a regular job," I told him. "No problem, just take a day out to show your face to the people at the institute and take your course book. I will take care of the attendance," he said.

On July 15, I went to the institute showed my face, took my course book and signed the register for 18 days — proof that I had completed 100 hours of class work. But he reminded me that I must attend the two-day learning programme, on August 18 and 19, conducted by the insurer, at their office. When I expressed my inability to come for two days, pat came the reply: "Come for one."

I skipped the August 18 class. On August 19, I attended the class, that too only for the first half. At one point, when I asked the company trainer — the only person who seemed intent on playing by the rules — for a copy of the model test papers, he said: "Most of you don't attend classes at the training institute and then you resort to desperate measures."

The next day, I sat for the exam in a Delhi school, with my mobile phone in tow. The invigilator objected, but when I told her that I had forgotten my calculator, she let me keep it, provided I kept it in 'silent' mode. A week later, my contact informed me I was a qualified life insurance agent and that I can — and should — start selling policies.

When I told him that I didn't have documentary proof, he said: "Everybody sells policies without a licence. Why are you worried? You have cleared the exam. Give me your photograph, and I will get it ready. Meanwhile, you must sell policies." Two months on, I haven't sold a single policy and I keep making excuses for not giving him my photographs. From time to time, he calls and asks me why am I not selling. He has to — if new agents like me don't sell policies, the company's premiums don't increase. If premiums don't increase, point-persons like Darshan don't earn more.

Top ten reasons why businesses fail

Here's an honest article on business failures by Bart Saxey and I reproduce it verbatim.
Let me be perfectly honest with you, there is no such thing as something for nothing, but you already knew that didn't you. Then why are there so many home based business and success programs being sold by way of TV info-commercials, ads in magazines, newspapers, and the especially the Internet? I personally think that we would all like to think that there is a shortcut to success but deep inside we all know that is success is earned. 

Success would not be success if you could simply purchase a home based business system for $49.95 that is completely automated and all you do is collect the money, yet I have personally seen thousands of internet sites and info commercials claiming they have a fully automated system, plug in and you will be wealthy by just paying your $49.95, presto you're an instant success, no real efforts required, they even guarantee it. 

People are purchasing these programs every day and they are disappointed everyday. I will even admit to you that I have purchased these programs and had them piled up in my drawer (anybody else?). 

What I am saying that focused and leveraged efforts are "key" to success. Let's compare a home based business with a weight loss program. Weight loss programs are everywhere and they range from real programs that teach the truth, which is healthy eating and exercise are required to get any real results, to magic weight lose plans that all you do is take a pill and you are magically transformed with no effort. 

Read the full story here. Here are some pointers:
  1. Not Understanding Capital & ROI
  2. Listening To The Wrong People
  3. Marketing, Marketing and Marketing
  4. Poor Environment Management
  5. Having A Closed Mind
  6. Poor Product or Service Selection
  7. Fear of Rejection
  8. No Leverage
  9. Inadequate Planning
  10. In conclusion

We want to make sure you have the knowledge and information, to you make these important decisions. Our Mission is to provide all the support and resources you require to assist you in making an intelligent decision about the perfect business opportunity for you.

If there you are looking for that perfect business and do not currently have one, and what you've learned makes sense then revisit our site for further information, or e-mail us at info@ultimatesuccesssystem.biz.

The Ultimate Success System Team


PERMISSIONS TO REPUBLISH:  This business article may be republished in its entirety free of charge, electronically or in print, provided it appears with the included copyright and author's resource box with live website link.

Courtesy of: http://hombyz.com : For All Your Internet Business Needs

Wednesday, October 18, 2006

GRASIM, The Aditya Birla group company

Grasim, the flagship Company of the Aditya Birla Group, has posted excellent results for the quarter ended 30t


September, 2006 on the back of superior performance from both its key businesses, viz., Cement and Viscose Staple Fibre (VSF). Turnover, Gross Profit and Net Profit have recorded a significant growth. Cement and VSF businesses continued to be the major business drivers.

Consolidated revenues at Rs.3,184 crores (Rs.2,344 crores) reflected an increase of 36%. Net Profit soared by 109% at Rs.418 crores (Rs.200 crores), in spite of a substantially higher provision for tax expense, which was up by 201% at Rs.207 crores (Rs.69 crores).

The three major factors that spurred performance are:

Firstly, growth in volumes; secondly, higher realisations; and thirdly, savings in operating costs resulting from ongoing modernization efforts, up-gradation of plants and energy optimization

Tuesday, October 17, 2006

Financial experts

Here's an interesting review done by Ramit on Performance chasing and Market timing , a chapter from the book: Boglehead's Guide to Investing. I really liked this part which is as below:
Patri Friedman has written about a scam (....) "There is a particularly clever scam," he writes:
Get a list of email addresses of people interested in sports betting. Say you have 32,000. Email 16,000 of them to say that the home team will win this week's big team, and 16,000 to say the home team will lose. Now, half of the people will have gotten the correct prediction, and the next week, you do the same thing with them. After 5 weeks, you'll have 1,000 email addresses of people who have seen you pick the winner five times in a row!. Now you pitch your 1-900 number or paid email list subscription to this amazed group.
The amount of faith we put in financial "experts" who actually may not be very good at predicting the future is frightening. And so it's a good idea to do some study on your own and take responsibility for yourself!


Financial Ratios

Financial ratios help us to make some sense out of the number crunching in the profit and loss account and the balance sheet of a company. Though it appears a daunting exercise for newbies, one can easily understand the process because it's not that complicated.
Before initiating the numbers game, I would prefer to first ask myself the question as to what is the purpose of my looking at the financial ratios of that particular company. That question will set me into a guided direction istead of just completing a template.
It is also important to study the ratios in comparison with the other industry players and the industry standards itself.
Here's an article from ICMBA which talks about Financial ratios. This site also gives you articles on various topics of Economics, Marketing, Accounting, Strategy, Management, Statistics and Operations.

Monday, October 16, 2006

Penny wise, Pound foolish

Here's a very interesting link from Consumerism Commentary:

10 Examples of How You Can Be Penny Wise, Pound Foolish:

Penny wise and Pound foolish

Insurance Basics

Even though new age financial planners scoff at the idea that Insurance can be an investment, here's a revealing figure. The total fund manged by LIC is more than Rs 5 lakh crore while the total funds managed by the entire Mutual Fund industry is Rs 2.31 lakh crore only!
Even though Mutual Funds may and should catch up with Insurance, let's take a look at the Insurance concept. Life insurance is universally acknowledged to be an institution which eliminates risk, substituting certainty for uncertainty and comes to the timely aid of the family in the unfortunate event of death of the breadwinner.

Life insurance is concerned with two hazards that stand across the life-path of every person:That of dying prematurely leaving a dependent family to fend for itself and that of living till old age without visible means of support.

In India, Life insurance is popular because Savings through life insurance guarantee full protection against risk of death of the saver.  Life insurance encourages 'thrift'. It allows long-term savings since payments can be made effortlessly because of the 'easy instalment' facility built into the scheme. It is also easy to acquire loans on the sole security of any policy that has acquired loan value.  Life Insurance is the best way to enjoy tax deductions on income tax and wealth tax.

A policy that has a suitable insurance plan or a combination of different plans can be effectively used to meet certain monetary needs that may arise from time-to-time. Children's education, start-in-life or marriage provision or even periodical needs for cash over a stretch of time can be less stressful with the help of these policies. Alternatively, policy money can be made available at the time of one's retirement from service and used for any specific purpose, such as, purchase of a house or for other investments. Also, loans are granted to policyholders for house building or for purchase of flats

With the insurance industry showing robust growth, it's time to become more aware of your insurance needs. And which is actually evaluating your human life value and then deciding your insurance.


Definition Derivative is a product whose value is derived from the value of one or more basic variables, called underlying. The underlying asset can be equity, index, foreign exchange (forex), commodity or any other asset. Derivative products initially emerged as hedging devices against fluctuations in commodity prices

In India, BSE created history on June 9, 2000 by launching the first Exchange traded Index Derivative Contract i.e. futures on the capital market benchmark index - the BSE Sensex. the exchange commenced trading in Index Options on Sensex on June 1, 2001. Stock options were introduced on 31 stocks on July 9, 2001 and single stock futures were launched on November 9, 2002. September 13, 2004 marked another milestone in the history of Indian Capital Markets, the day on which the Bombay Stock Exchange launched Weekly Options, a unique product unparallel in derivatives markets, both domestic and international. BSE permitted trading in weekly contracts in options in the shares of four leading companies namely Reliance, Satyam, State Bank of India, and Tisco in addition to the flagship index-Sensex.

Types of Derivatives:

Forwards: A forward contract is a customized contract between two entities, where settlement takes place on a specific date in the future at today's pre-agreed price.

Futures: A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that the former are standardized exchange-traded contracts, such as futures of the Nifty index.

Options: An Option is a contract which gives the right, but not an obligation, to buy or sell the underlying at a stated date and at a stated price. While a buyer of an option pays the premium and buys the right to exercise his option, the writer of an option is the one who receives the option premium and therefore obliged to sell/buy the asset if the buyer exercises it on him. Options are of two types - Calls and Puts options:'Calls' give the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date. 'Puts' give the buyer the right, but not the obligation to sell a given quantity of underlying asset at a given price on or before a given future date.

One use of derivatives is as a tool to transfer riskFor example, farmers can sell future contracts on a crop to a speculator before the harvest. The farmer offloads (or
hedges) the risk that the price will rise or fall, and the speculator accepts the risk with the possibility of a large reward. The farmer knows for certain the revenue he will get for the crop that he will grow; the speculator will make a profit if the price rises, but also risks making a loss if the price falls.

Of course, speculators may trade with other speculators as well as with hedgers. In most financial derivatives markets, the value of speculative trading is far higher than the value of true hedge trading. As well as outright speculation, derivatives traders may also look for arbitrage opportunities between different derivatives on identical or closely related underlying securities.

Because derivatives offer the possibility of large rewards, many individuals have a strong desire to invest in derivatives. Most financial planners caution against this, pointing out that an investor in derivatives often assumes a great deal of risk, and therefore investments in derivatives must be made with caution, especially for the small investor.

But anyway it's a matter of your own risk taking abilities.

Sunday, October 15, 2006

Securities basics

The definition of 'Securities' as per the Securities Contracts Regulation Act (SCRA), 1956, includes instruments such as shares, bonds, scrips, stocks or other marketable securities of similar nature in or of any incorporate
company or body corporate, government securities, derivatives of securities, units of collective investment scheme, interest and rights in securities, security receipt or any other instruments so declared by the Central Government. 
Securities Markets is a place where buyers and sellers of securities can enter into transactions to purchase and sell shares, bonds, debentures etc. Further, it performs an important role of enabling corporates, entrepreneurs
to raise resources for their companies and business ventures through public issues.
Transfer of resources from those having idle resources (investors) to others who have a need for them (corporates) is most efficiently achieved through the securities market. Stated formally, securities markets provide channels for reallocation of savings to investments and entrepreneurship. Savings are linked to investments by a variety of intermediaries, through a range of financial products, called 'Securities'.
The desirability of conditions of perfect competition in the securities market makes the role of the Regulator extremely important. The regulator ensures that the market participants behave in a desired manner so that securities market continues to  be a major source of finance for corporate and government and the interest of investors are protected. 
The responsibility for regulating the securities market is shared by Department of Economic Affairs (DEA), Department of Company Affairs (DCA), Reserve Bank of India (RBI) and Securities and Exchange Board of
India (SEBI).
Extracted from the study material provided by NSE, India

Saturday, October 14, 2006

Equity Investment Basics

When you buy a share of a company you become a shareholder in that company. Shares are also known as Equities. Equities have the potential to increase in value over time. It also provides your portfolio with the growth necessary to reach your long term investment goals. Research studies have proved that the equities have  outperformed  most other forms of  investments in the long term

This may  be illustrated with the help of following examples: 
a)  Over a 15 year period between  1990 to 2005, Nifty has given an annualised return of 17%.
b)  Mr. Raj invests in Nifty on January 1, 2000 (index value 1592.90).The Nifty value as of end December 2005 was 2836.55.  Holding this investment over this period Jan 2000 to Dec 2005 he gets a return of 78.07%.  Investment in shares of ONGC Ltd for the same period gave a return of 465.86%, SBI 301.17% and Reliance 281.42%

Therefore, Equities are considered the most challenging and the rewarding, when compared to other investment options. Research studies have proved that investments in some shares with a longer tenure of investment have yielded far superior returns than any other investment.
However, this does not mean all equity investments would guarantee similar high returns. Equities are high risk investments. One needs to study them carefully before investing. 

Broadly there are two factors: (1) stock specific and (2) market specific. The stock-specific factor is related to people's expectations about the company, its future earnings capacity, financial health and management, level of technology and marketing skills.  The market specific factor is influenced by the investor's sentiment towards the stock market as a whole. This factor depends on the environment rather than the performance of any particular company.

In the investment world we come across terms such as Growth stocks, Value stocks etc. Companies whose potential for growth in sales and earnings are excellent, are growing faster than other companies in the market or other stocks in the same industry are called the Growth Stocks. These companies usually pay little or no dividends and instead prefer to reinvest their profits in their business for further expansions.   While looking for "Value Stocks" the task is to look for stocks that have been overlooked by other investors and which may have a 'hidden value'.

To download the entire material for financial markets visit NSE, India


Pioneered by Bangladesh's visionary Economist and Banker, microfinance leads the fight against poverty. In a fitting tribute to the relevance of bringing about peace with poverty alleviation, the Noble committee awarded the peace prize to Muhammad Yunus.
Wikipedia defines Microfinance as a term used to refer to the activity of provision of financial services to clients who are excluded from the traditional financial system on account of their lower economic status . It is specially relevant to India because of its huge poor population.
In India, banks lend microcredit through self help groups (SHG). There are more than a million SHGs and it is the biggest program in the world with total loan of more than Rs 7000 crore benefitting 2.42 crore families ( Source: TOI, Mumbai, 14.10.2006)
Grameen Foundation, an international group of people inspired by the work of Grameen Bank, Bangladesh has the mission is to empower the world's poorest people to lift themselves out of poverty with dignity through access to financial services and to information. Their global network of microfinance partners reaches 2.2 million families in 22 countries.
In Insurance, LIC has entered into an MoU with the Confederation of NGOs in Rural India which would implement a microinsurance scheme with its network of more than 3,000 NGOs/SHGs. The scheme, named Jeevan Madhur, is a modest savings-linked life insurance plan where one might disburse premiums regularly at weekly, fortnightly, monthly, quarterly, half-yearly or yearly intervals over the term of the policy with minimum and maximum sum assured of Rs 5,000 and Rs 30,000.

Friday, October 13, 2006

Chartered Financial Analyst

Increasing globalisation requires development of a global perspective of the financial scene: personal, business and government finance. This means a growing tribe of professionals who have an understanding of the Financial scene across geographical boundaries.
The CFA charter is a global graduate level self study program. It aims to build a fundamental knowledge of global investment principles that apply in every market all over the world. It is a flexible self study program and let's you set the schedule. That is why it can be invested into by freshers as well as working professionals.
The CFA site says that the CFA charterholders receive a 41% higher compensation than non CFA charterholders.
The curriculum includes 10 topic areas which are: Ethical standards, Quantitative methods, Economics, Financial statement analysis, Corporate Finance, Analysis of Equity investments, Fixed income investments, Derivatives, Alternate investments, Portfolio management. The examinations are grouped under three levels, starting with basics and going further on integrating the topics.
And the best part is that it not at a that prohibitive cost. Do you have it in you..? 

Commercial Mortgage Backed Securities

The Indian Real estate market is growing rapidly thanks to a buoyant economy and supportive regulatory environment. Special Economic Zones is the latest initiative by the Government. As a result , the funding requirement for commercial real estate is increasing substantially.
Commercial Mortgage Backed Securities (CMBS), globally a popular form of financing, can provide an alternative tool for the real estate industry.
CMBS is a financial instrument secured by receivables from commercial real estate. A CMBS instrument is created by pooling together commercial mortgages and securitising the pool. The RBI has already issued guidelines governing the securitisation of performing assets of lenders.
CMBS helps in transforming relatively illiquid assets into liquid and tradable instruments. It acts as an additional source of funding for the Developer as well as the Bank. It can provide an alternative instrument in the hands of the investor too.
Let's see whether CMBS can contribute to the growth of the commercial real estate industry in India. 

Time value of money

The time value of money serves as the foundation for all other notions in finance. It impacts business finance, consumer finance and government finance. Time value of money results from the concept of interest.
Isn't your Rs 500 note the same after one year? No, you'll promptly say. Inflation can eat into it or interest can add to it. So there are various high sounding words like Future Value (FV), Net Present Value (NPV), And the formula is simple :
\left( FV  \right)  \ = \  PV  (1+r)^n
Fazed with this formula?  There are ready made tables giving factors where you just do the basic calculator stuff. Important thing is to understand that time value of money(TVM) is vital to your financial decisions.
I will attempt to upload an Excel sheet (should be easy with some amount of time) where you can toggle more easily with the numbers, both PV and FV !

Thursday, October 12, 2006

Goals for the new year

A small crush with web technology is growing up to some serious work. Work which I'm enjoying. Something where I'm having fun while learning.

Thanks to friendly technology and help from the net community, I have a blog and a site running. Today I've created this site and have planned the following pages: Blogosphere , Personal Finance, Business Finance, Investing guide, Knowledge centre, Institutions , Insurance, Mutual Funds, Securities, Loans, Credit cards, Commodities, Forex, Tools, Calculators, Humour, Presentations and Consultants.

A vital aspect of working towards a goal is to put some pressure on yourself to achieve that. This is my way  to put pressure on myself by  publishing it on the net.  Initially I thought of having a target of earning a dollar or two every day by 1st  of Jan, 2007- a time frame of 2.5 months.  But then it is a greedy thought and isn't it better instead to have a target for traffic, say 500-1000 hits a day?

But as Covey tells you to act within the circle of influence , Krishna says that it is better to "act" and not care for the "results" and the Tao tells you that a journey of 1000 miles starts with a single step, here is my target for 1st Jan., 2007.

  1. I will complete 100 blogs ( http://financexchange.blogspot.com )
  2. I will write an e-book  (Guide to Investing)
  3. I will create  50 pages of my site  ( http://financeforu.googlepages.com/home )
Pray these noble thoughts hang on with me.

Wednesday, October 11, 2006

Financial goals calculator

Here's a simple way of looking at your goals and the time frame needed to achieve that.

Evaluating a mutual fund

The performance of a scheme is reflected in its net asset value (NAV) which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. NAV of mutual funds are required to be published in newspapers.

The NAVs are also available on the web sites of mutual funds. All mutual funds are also required to put their NAVs on the web site of Association of Mutual Funds in India (AMFI) www.amfiindia.com and thus the investors can access NAVs of all mutual funds at one place.

The mutual funds are also required to publish their performance in the form of half-yearly results which also include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5 years and since inception of schemes.

Investors can also look into other details like percentage of expenses of total assets as these have an affect on the yield and other useful information in the same half-yearly format. The mutual funds are also required to send annual report or abridged annual report to the unitholders at the end of the year.

Various studies on mutual fund schemes including yields of different schemes are being published by the financial newspapers on a weekly basis.

Apart from these, many research agencies also publish research reports on performance of mutual funds including the ranking of various schemes in terms of their performance. Investors should study these reports and keep themselves informed about the performance of various schemes of different mutual funds.

Investors can compare the performance of their schemes with those of other mutual funds under the same category. They can also compare the performance of equity oriented schemes with the benchmarks like BSE Sensitive Index, S&P CNX Nifty, etc. On the basis of performance of the mutual funds, the investors should decide when to enter or exit from a mutual fund scheme.

Tuesday, October 10, 2006

NAV a factor?

Some of the investors have the tendency to prefer a scheme that is available at lower NAV compared to the one available at higher NAV. Sometimes, they prefer a new scheme which is issuing units at Rs.10 whereas the existing schemes in the same category are available at much higher NAVs.

Investors must understand that in case of mutual funds schemes, lower or higher NAVs of similar type schemes of different mutual funds have no relevance.

Investors should choose a scheme based on its merit considering performance track record of the mutual fund, service standards, professional management, etc.

Fair practice code

NHB has issued a Fair practice code for Housing Finance companies on 5th September, 2006. Better late than never.

The maturity level of the personal finance market has a long way to go especially in loans, credit cards, insurance and of course mutual funds.

It also reflects the maturity of the players/institutions themselves. Just see the change in Home finance market after ICICI came in. And they have been rewarded with the mantle of market leader with more than 30% market share in 5 years.

(Rs 25740 crore disbursement by ICICI alone in 2005-06. In 2001-02, the entire disbursement in India was Rs 23858.43 crore )

Closed Ended MFs

Even though in comparison with Insurance and Home finance industry, Mutual Funds are much more transparent, it doen't mean it's brutally honest. The timing of launch of close-ended funds these days have something behind it.
It coincides with a regulation issued by the market regulator i.e. Securities and Exchange Board of India (SEBI) that only close-ended NFOs will be permitted to charge initial issue expenses. Conversely, open-ended NFOs will be required to meet sales, marketing and other related expenses from the entry load and not through initial issue expenses.
So beware, the hoardings, banners and ads inviting you to invest is your money!

Mutual funds, Home finance and Insurance regulators

Compare the regulators of the three industry in terms of their web sites and you get a fair idea of the maturity level of the industry itself. The links: SEBI, NHB, IRDA. True, they are different products but look at their efforts in making the public aware. Yours truly made an attempt to contact the three regulators on the net media.

SEBI investor guidance gives the latest efforts.Infact it has a separate site dedicated to investors. IRDA investor awareness section has not been updated after Feb, 2005. And the NHB "contact us" mail id bounced!!

I have a feeling that there is a comparative advantages of a Mutual Fund by way of more transparency, flexibility and being well regulated. Insurance and Housing Finance market have a lot of catching up to do.

Monday, October 9, 2006

Asset allocation

Proper asset allocation of your investment can make or mar your wealth management dreams. Asset allocation is a way of deciding the goals and objective of your investments and therefore is the critical element of your investments.
OK, but is there a way of doing that? Financial planners will put the burden back on you and you begin thinking that if I have to decide that why is the bugger (planner) required. In a way he's right since you must take responsibility for yourself.
There is help by way of a thumb rule for the dumbest of all who don't know to decide for themselves. For equity allocation, you should invest (100 - your age) % of your investments. That is if you are 30 years old, you should invest 70% in equities. The balance goes to debt.
And remember your Insurance should not be confused with Investments. But that's another log, btw.

Sunday, October 8, 2006

Organise the net

Robert Scoble said website managers not using RSS feeds on their sites should be fired . Almost a year later we should extend that notion to marketing and communications executives and managers. Read the full story

If you are currently considering RSS readers, Google reader is the one I use and find it friendly for a newbee.

If you want to know more about RSS feeds or Aggregators, go to Wikipedia.

(An aggregator or news aggregator or feed reader is client software that uses a web feed to retrieve syndicated web content such as weblogs, podcasts, vlogs, and mainstream mass media websites, or in the case of a search aggregator, a customized set of search results.

Aggregators reduce the time and effort needed to regularly check websites for updates, creating a unique information space or "personal newspaper." Once subscribed to a feed, an aggregator is able to check for new content at user-determined intervals and retrieve the update. The content is sometimes described as being "pulled" to the subscriber, as opposed to "pushed" with email or IM. Unlike recipients of some "pushed" information, the aggregator user can easily unsubscribe from a feed.

Find a list of RSS feeds/ Aggregators here

Organise the net for yourself.

Saturday, October 7, 2006

Manpower training for Finance industry

The Indian economy currently growing at the rate of 8 percent is expected to grow at a higher rate in the years ahead. For India, it is just the beginning of the best to come.

Reforms in the financial sector, covering Banking, Insurance, Financial markets, Trade, taxation etc. have been a major catalyst in strengthening the fundamentals of the Indian economy.

The Institute for Finance, Banking and Insurance (IFBI), jointly conceived by NIIT and the ICICI Bank, has been set-up to cater to the manpower needs of the exponentially-growing Financial Services sector in India and overseas.

Their flagship programme, The Post Graduate Diploma in Banking Operations (PGDBO) is a 6-month full-time program being offered at its six centres at Mumbai, New Delhi, Chennai, Kolkata, Bangalore and Hyderabad.

To be a global player in Finance, India needs trained manpower. IFBI, FPSB, Chartered Financial Analyst Institute, Institute of Chartered Financial Services of India (ICFAI) have a job at hand and an opportunity too.

Power of compounding

Einstein called compounding to be the eigth wonder of the world. It's powerful and astounding. And once you have understood compounding you can easily claim to be a wise investor! Because after seeing the power of compounding, you will start as soon as possible, stay invested for the longest time possible and invest regularly.

Let's look at an example given in this table. It teaches about finance and the power of compounding. The figures are based on an assumed annual rate of return of 10 percent, with no withdrawals and no taxes. Whether these conditions are attainable or desirable is beside the point. This table merely illustrates a principal that's based purely on mathematics.

Another example illustrates the power of compounding by way of comparison between a savings account and a Mutual Fund. Illuminating indeed.

Starting with a small Rs 1000 and by investing Rs 1000 every month compounded at 10% amounts to Rs 78171 after 5 years. In 10 years it more than doubles to Rs 202457. The figures at the end of 15, 20, 25, 30 40, 50 years are Rs 402621, 724986, 1244159, 2080292, 5595607, 1,47,13,428!! Do yr own toggling here

Easier said than done,eh?

Friday, October 6, 2006

Google hacks

Here's a link on Google hacks . Interesting read. It may also be interest to know about the author

Enjoy Googling while u r here on this planet now!

My 25th log: The Why and What.

Hey, less than a month since I've become a blogger and it's my silver jubilee entry! I'm patting my back for being one of the fastest(25) blogger on the block though I don't know it's bragging or a fact. (Feedback from professional bloggers will help)

My leave from office 'cause of my back problem has definitely helped the cause. Though I'm beginning to enjoy this medium and aim at being a professional blogger!

If I have to continue this blog, it's time I articulated the "Why" of it. Here are some thoughts.

Patanjali, a great Indian sage says, " When you are inspired by some great purpose, some extraordinary project, all of your thoughts break their bonds, your mind transcends limitations, your consciousness expands in every direction and you find yourself in a new, great and wonderful world. Dormant forces, faculties and talents become alive and you discover yourself to be a greater person than you ever dreamed yourself to be".

Not doing anything and letting it all happen is another philosophy. The Tao's theory. Wei Wu Wei:Action Without ActionHas anyone ever told you: "Just act natural"? It's impossible of course. If you're acting, it can't be natural.

Where do I stand in between? I have more than 16 years of work experience in Insurance, Home Finance and Investment industry. Though I've been a reluctant marketer and a disorganised manager, I've been credited for contributing to my organisation in Marketing as well as administration. Whatever good has happened because of my analytical abilities, love for technology and ability to communicate (especially written)with Sales people. Maybe that's the reason I've created this blog which uses my knowledge, communication ability and love for technology!

I also believe that information leads to knowledge and knowledge is power.

Before I appear too knowledgeable let me put a disclaimer that the blog may not be treated as financial advice. Take responsibility for yr self.

Now the "What" part. Since you are reading this you already know the title. Maybe it is too much to keep Personal finance and Business finance together. But this gives me a lot of topics and more time before getting into a "blogger's block". Unless I cross 100 odd logs, I wd not think of bifurcating them. I also put in some interesting stuff which I really want to share without being a spammer.

I will attempt to put a link to the financial scene in India. I think that there is a lot of difference in the level of the markets geographically. For example the credit score in India is just taking off while in US it is indispensable for any credit.

I will attempt to chronicle the development and promotion of standards for Financial Planning to benefit the general public in the country. I will also make an effort to explain financial management for businesses in simple language (Finance for non finance executives: FFNFE)

I have also provided a download link where I will give links to Financial tools, software and presentations. I have created a page for
downloads too. The readers can access my "blogosphere", "links", "archives" too.

Have created a Google group where anyone can join and get updates and participate. Mail here

My target audience are the Students and non finance executives.

I wd love to have some feedback here so that I can update this log regularly. Wish me Godspeed!

Ways to become a better blogger

Here's a link to Techrepublic's article on how to become a better blogger. Pure commonsense, though nothing outstanding.

I think an honest effort on your part is the key. And not to think of monetizing before you have gr8 content is important. Though I need to remind myself on that also!!

Read an article trashing Bloggers as half wits, failed writers and mercenaries among other epithets. The writer obviously has not seen the best of blogs which add value to the community. Though there are a lot of rubbish blogs and blogs catering to the narcissism, the same can be said about journalists too.

Isn't it a case of pointing fingers at others without realising that three fingers point back to you and the fifth to God!!

Happy blogging

Thursday, October 5, 2006

Picture of the year

Who's who ? Nothing financial abt it!!

Certification in Financial Markets

The Financial scene in India has miles to go before it can be said to be mature. Beginnings hv been made and efforts are made by regulators in this direction.

The financial markets in India are going to be the turf of certified professionals very soon due to regulatory compulsions and/or initiatives of the industry.

NSE's Certification in Financial Markets (NCFM) provides a critical element of the financial sector reforms by developing a pool of human resources having right skills and expertise in each segment of the industry to provide quality intermediation to market participants.

NCFM has 14 modules starting from an introductory Financial Market overview to Broker's and Corporate modules. It also covers the modules of AMFI and FPSI. The cost of each module is a nominal Rs 1000 except for the Commodities market module for which the fee is a nominal Rs 1200.

Seems to be a great opportunity for young people and financial professionals alike.

Log on to http://www.nseindia.com/ and look for the NCFM button.

Wednesday, October 4, 2006

Thinking hats

Thoughts are energy packets. So when u r happy, u can climb mountains. But when down with negative thoughts, it's difficult to get out of bed!

And then we hv to deal with 60000 thoughts a day. And still thinking is a hard job.

Recently I went thro this delightful book by Edward de Bono on thinking. Here's a gr8 link to
Effective Thinking .

Bono's official site appears to be this

Here are the six hats for ready reference:
  1. White for facts, figures & information (Virgin white)
  2. Yellow for positive thinking, brightness and optimism(Sunshine)
  3. Green for creativity, fertile,movement, (Plants)
  4. Black for the negative judgement, why it will not work (Devil's advocate)
  5. Red for emotions and feelings,hunch & intuition (Seeing red)
  6. Blue for the orchestra conductor, cool and control, thinking abt thinking (Blue ocean).

All of them together make great thinking.

Tuesday, October 3, 2006

Investing mistakes

Here's the link to a story from Fidelity. Avoiding mistakes

Though they are so obvious, people still hv to be told abt them. Maybe just for an article sake...???

I got this story from Ramit

Basic Financial Management

Isn't it important to understand corporate financial information, understand how accounting data flows and evaluate corporate financial performance and understand the language of accounting and finance.

And though it is not exactly rocket science, it looks entirely geeky to many of us. Well, I'll use the KISS strategy; Keep It Simple, Stupid...nothing that u r beginning to imagine...

Before we move on to Financial ratios, capital budgeting,et al, let's begin with three broad areas of Financial Management. They are:

1. Capital Budgeting : Defines the business and capital allocation.
2. Capital structure : Discusses the ways and means of financing.
3. Working Capital Management : It's short term(day to day) Financial Management.

The fundamental principle of Finance is that any business proposal shd be undertaken only when the present value of the future cashflows is greater than the initial cash outlay.

And I'll sign off with the "Goal" of Financial Management which is the maximisation of the wealth of the shareholders.

Haven't I kept it simple,stupid...

Porter's model for analysis

While analyzing a company a lot of number crunching is done. P/E ratios, dividend yields, profitability ratios, efficiency ratios, and what not. And for a new initiate, it can be a damning and confounding exercise.

Moreover this exercise leads to confusing the trees with the forest! I mean shouldn't we be interested in the larger picture instead of just number crunching.

I would think of taking a qualitative insight into a company and look at it's Management team, Competitive advantage and a look at the industry in which the company operates.

I have done a BCG model for ITC which you can see and comment.

Another model that is popularly used is the "Porter's Analysis" which is an environmental analysis of the industry. It takes into account 5 factors of competitive advantage. Let's look at it from the view point of ITES industry.
  1. Entry Barriers : The entry barriers in the software industry are low. For instance, to set up an ITES business, the initial investments are lower than the revenue realisation per seat.
  2. Inter firm rivalry: The Indian ITES industry has intense competition among themselves.
  3. Bargaining power of suppliers: All suppliers have high level of maturity (SEI-CMM level 4/5). So it doesn't appear relevant.
  4. Bargaining power of Buyers: The competition makes it vey high for buyers.
  5. Threat from unorganised sector: Since quality is a key factor here, the competition will not allow the organised sector to survive.

Monday, October 2, 2006

Gandhi Jayanti

Today's Gandhi Jayanti. Gandhi emphasized : "A person cannot do right in one department whilst attempting to do wrong in another department. Life is one indivisible whole. "

So while we are excited about robust growth in the services and manufacturing industry, are we concerned about the little or no growth in Agriculture. And when 75% of our population lives in villages!!

Maybe it's time to have a relook at Gandhi's philosophy on Finance and Management too.

Mahatma Gandhi said that some things will destroy us. They are : Wealth Without Work and
Commerce (Business) Without Morality (Ethics) Notice that both of them have a bearing on
the social and political fabric of our country.

The two supreme values for Gandhi were truth and nonviolence. One of his greatest insights was to understand that violence was linked to poverty and injustice, which are sometimes now referred to as structural violence. He opposed poverty and injustice because to do so was a condition for peace, a pre-condition for peace

What would be his solution? Here's come's the spinning wheel (charkha): Gandhi says that India does not need to be industrialized in the modern sense of the term . It has 7,50,000 villages scattered over the vast area 1900 miles long 1500 broad. The people are rooted to the soil and the vast majority are living a hand to mouth life. What ever may be said to the contrary, having traveled throughout the length and breath of the land with the eyes open and having mixed with millions are living in enforced idleness for the last four month in a year.

Agriculture does not need revolutionary changes . The Indians peasant requires a supplementary industry. The most natural is the introduction of the spinning wheel not the handloom The latter cannot be included introduced in every home, whereas the farmer can, and it used to be so even a century ago. It was driven out not by economic pressure but by force deliberately used as can be proved from authentic records. The restoration therefore of the spinning wheel solves the economic problem of India at a stroke [Source: The collected works of Gandhi, Vol. 22]

Gandhi says and I quote "I would say that if the village perishes India will perish too. India will be no more India. Her own mission in the world will get lost" Gandhi said the world has enough resources to meet the needs of everyone, though not to satisfy everyone's greed.

Gandhi makes sense to you? Want to read more? Visit http://www.mkgandhi.org/ for more. Why don't you buy his Selected works of Mahatma Gandhi set of 5 books - 2500 pages Rs150/-(US$4) only