Wednesday, August 8, 2007

Weekly Update No.I

The following are the important events and decisions made during the first week of August’07 which has an impact on our personal finances.

* On 31st July, RBI Governor announced the review of its monetary policy and increased the cash reserve ratio (the deposits that banks keep with RBI) from 6.5% to 7%. RBI also lifted the daily cap of Rs 3000 crore which the RBI had kept on absorption of excess liquidity. The CRR move will lead to absorbing around Rs 15-16000 crore of excess liquidity from the system.

* The RBI has the unenviable task of reducing inflation, keeping the interest rates benign and also keeping the Rupee appreciating beyond Rs 40 a dollar. The three are linked but not exactly friendly with each other. To keep the Rupee from appreciating, RBI is buying Dollars. And that injects extra liquidity in the system which can lead to inflation.

* Facing the wrath of the sub-prime woes in the US markets, the Indian indices plunged sharply on August 1 and this resulted in them ending lower for yet another time on the bourses. The week was witness to one of the biggest intraday declines ever. Coming on the back of a huge sell off across the globe, especially in the US markets, Sensex edged lower by more than 600 points on Wednesday and Nifty too, declined by more than 180 points.

* The markets are nervous and the volatility index, maintained by the Chicago Board Options Exchange, has doubled in recent weeks. Swaminathan S Anklesaria Aiyer, in his weekly column in TOI asks us to hope for the best but be prepared for the worst. Mr Aiyer has visualized three scenarios. One, nothing to worry, things will become normal soon. Two, there is a cyclical down trend waiting to happen. Three, there’s a disaster coming! He remembers the Asian crisis ten years back.

* In Mutual Funds, the total Asset under Management (AUM) reached Rs 4,86,513 crore at the end of July, a jump of 21.5% over Rs 4,00,333 crore at the end of June. That too when the PAN has become compulsory from July 1, 2007 and the MFs were cribbing about it being unfair that the Insurance companies were not subjected to the same regulation.

* UTI Mutual Fund latest offer of Lifestyle Fund takes into accounts the changing demographics. This scheme has an investment objective to provide long term capital appreciation and/or income distribution from a diversified portfolio of equity and equity related instruments of companies that are expected to benefit from changing Indian demographics, Indian lifestyles and rising consumption pattern. There are 242 companies identified for investment and I’m told that the last three year return of these companies is 52% and for the last one year, it’s a whopping 72%!

* ICICI Prudential Life Insurance Company will be focussing on health insurance in a major way. The company has announced the launch of “Crisis Cover”, a policy covering 35 critical illnesses, total and permanent disability and also death. Crisis Cover will be sold through the company’s 680 branches. ICICI Prudential is working on revamping its features of Diabetes Care, a plan launched in November last year. The policy encourages a monitoring regime as per the Diabetic Association of India with policyholders required to undergo three mandatory tests

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