Although gold prices are at present hovering near their all-time high in the Indian market, investors are heaping-up gold in their portfolio. But interestingly, it is not physical gold which they are heaping-up, instead it is Gold ETFs (GETFs), in which they are evincing interest into.
(Source: ACE MF, PersonalFN Research)
The rise in the headline inflation can be attributed to the following components which constitute the WPI.
Ever since the worries of Euro zone debt crisis have gripped the global economy, investors in India too are taking refuge under the precious yellow metal (through GETFs) due to its trait of being a safe haven. This is clear depicted by the ascending trend of the chart above where Assets Under Management (AUM) of GETFs, have swelled from Rs 4,800 crore of AUM in April 2011, the AUM under GETFs have risen to Rs 10,312 crore.
We believe that the rising trend in GETFs indicates that wisdom is dawning upon investors in India, as they have shown preference to invest in gold the smart way.
We are of the view that exposure to gold (through GETFs) should be an integral part of one’s portfolio and can help in diversification. This is because of negative correlation which gold has with other assets like equity - especially during uncertain times. Given the gloom clouds surrounding the global economy due to the burgeoning debt crisis in the Euro zone and slump in economic growth across economies, we think that one should continue to invest in gold, as the secular uptrend appears intact. Yes, any temporary relief measures taken by the Euro zone, like the famous bailout packages may bring in some consolidation in the gold prices but unless a long term solution is chalked out by the Euro region, gold will continue to outperform other asset classes. In our view, one should always have a minimum of 5% - 10% allocation to gold and invest in it with a long- term investment horizon of 10 to 20 years.
This Week's Poll !!!
Are you investing in gold despite high prices?
The Insurance Regulatory and Development Authority (IRDA) has decided to soften its earlier stance on bundling of insurance products by now imposing only a partial ban on the practice of bundling insurance product with other products. It is noteworthy that, earlier the insurance regulator had issued a discussion paper to examine the issues related to tying and bundling insurance policies with other services and goods and how conflicts of interest may arise need to be dealt with. Moreover, then the regulator was of the view that there ought to completely ban bundling and tying of insurance products.
However, the insurers were of the view that a complete ban on this could adversely affect their businesses, and thus opposed the move. Thus now by implementing a mere partial ban on bundling of insurance products, it seems that the concerns of insurers have been heard, and the IRDA is playing a developmental role.
Bundling of products happens when two or more than those products are sold together as one component. Examples include, selling auto insurance product of a particular company while one purchases of a vehicle or extending insurance cover on home loans, while one invests in property.
In our view insurance products should be primarily made simple for a layman to understand, in order to take a prudent decision to indemnify risk. As far as bundling and tying up of insurance products with other services or tangible products are concerned, only closely related products should be bundled. For instance, a motor insurance policy can be bundled with a car or a two-wheeler, but bundling of an insurance product as redemption for reward points accumulated on credit card spending seems ridiculous, and should not be permitted.
Most of the aspiring young adults aim at pursuing higher education. Their ultimate aim is to have a great career and high income through employment or entrepreneurship. Though higher education instils confidence in young adults and makes them competitive in today's cut throat competition, ignorance still prevails in terms of having a common knowledge on one's investments. And this ignorance of investors results in bad investment decisions, which are also many a times induced by the self-centred distributors.
For example, recently mutual fund houses while sending Consolidated Account Statement (CAS) to their investors have classified some of the mutual fund accounts as 'Dormant account' owing to the fact that there have been no transactions in a particular mutual fund scheme since the last six months. But not being well-versed with the term many investors have panicked and rushed in for redemptions by citing the word 'Dormant account' in their CAS.
To read more about this news please click here.
The general price rise in the country, commonly known as inflation has not only dampened the growth prospects of the country but has also affected the common man or the ‘aam aadmi’. Along with high food inflation due to lack of storage facility, the common man has to bear the brunt of rising fuel prices. With the rains expected to be below normal due to the possibility of an ‘El-Nino’ effect, the chances of further rise in food inflation looks eminent. Also, any spike in the crude oil prices (the possibility which looks bleak right now) may further push up the petrol prices making the common man suffer.
To add to the woes of the common man, even banks off late have increased their charges on some of the transactions undertaken by the customers. Let us see some of the services provided by banks to their customers which would cost you more.
To know more about the charges levied by the banks, click here.
In an interview with the Economic Times, Dr Mark Mobius - Executive Chairman of Templeton Emerging Markets Group shared his views on the outlook for Emerging Markets (EMs), whether growth can be revived without the Reserve Bank of India (RBI) easing interest rates and the factor which can turn the sentiment positive for India.
Dr Mobius believes that the outlook looks positive for three main reasons. Primarily in his view, the growth rate in EMs, including India is excellent despite all the problems we have been hearing. "About India, the fact remains that the economy is growing at a very good pace and that is also true for emerging markets generally. This year we are expecting an average of 5% growth in emerging markets versus less than 1% for the developed countries. Secondly, foreign reserves in emerging markets have been building up. So they are now much higher in emerging markets than the developed countries. The third point is that the debt levels of emerging markets are much lower in terms of the ratio of debt to GDP. So the emerging markets are looking very good," he said.
As far as India’s growth is concerned, Dr Mobius is of the view that the economy can still grow despite the RBI not easing interest rates. He observed that in India at the state level, there is a lot of activity, there are a number of states that have instituted reforms to assist business and to encourage investment, which will drive a lot of what is going on in India. "So we do not have to focus only on New Delhi, but look at the individual states, what they are doing. So, there is going to be continued growth," he said.
The key factor to turn the sentiment to positive for India is predictability. "The business community investors, both domestic and foreign, have got to know what the Government plan is and whether the Government is going to institute that plan. So, they in turn can make plans for their future. It is not good to have a change in tax policy and then a change back to another policy because this creates a lot of uncertainty and business hates uncertainty. They do not want to invest if they are uncertain," he explained.
We believe that as compared to the developed economies which are under dark clouds, the emerging nations including India are performing well and growing at a pace faster than the developed nations. We agree with the factors mentioned by Dr Mobius which brighten the outlook for the emerging nations. But clearly for India, the political stability, clarity in tax laws and encouraging FDI inflows are of utmost importance for placing India on the high growth trajectory.
Implementation of the Goods and Services Tax (GST), Direct Tax Code (DTC), 100% FDI in multi-brand retail, clarity on GAAR, etc., will usher in a new era for the country and hopefully attract foreign capital flows in the country.
- The capital market regulator Securities and Exchange Board of India (SEBI) is planning to rope in CEOs and Fund Managers of mutual fund houses over non-performance of mutual fund schemes and probe their non-compliance with the stated investment objectives. SEBI’s Chairman - Mr U.K. Sinha expressed that the fund houses need to look into the non-performance of mutual fund schemes and consider merger of some schemes.
We believe if the SEBI indeed implements this move, make mutual fund houses more responsible in their business of asset management, and one may also see less number of New Fund Offers (NFOs), as fund houses would focus on performance and not be in the rats race of increasing Asset under Management (AUM).
- If the MSCI’s Annual Market Classification Review reclassifies Taiwan and/or Korea as developed markets the weightage of other emerging markets like India and China would increase in the MSCI Emerging Market Index. The reclassification would increase India’s share in the monies allocated to emerging markets, as there will be fewer countries in the emerging markets index. However, the increase in India’s weightage would be much lower than China’s and Brazil’s. According to estimates of Morgan Stanley's estimates, a potential reclassification of either countries or both in the developed market could result in $875 million to $2.5 billion of passive flows for India.
- The Reserve Bank of India (RBI) has decided to allow non-bank entities with minimum net worth of Rs 100 crore to operate automated teller machines or ATMs, essentially a banks' domain till date. The banking regulator expects non-bank entities to install ATM machines beyond tier 1 and tier 2 cities, which corners a lion share of banks' automated delivery channel. The RBI will allow non-bank entities to set up ATMs under the Payment and Settlement Systems Act 2007. They would need to establish technical connectivity with the existing authorised shared ATM network operators and card payment network operators.
- The Foreign Direct Investment (FDI) for month of April 2012 plummeted by 41% to $1.85 billion as against $3.12 billion in April 2011. The decline in the FDI can be attributed the current slowdown in the economy and the series of downgrades to the credit outlook of India by different rating agencies.
- In order to provide better and continuous services to policyholders, the IRDA has directed the life insurance companies will have to allot new agents to policyholders to service their orphan policies in case of removal of existing agents. 'Orphan life insurance policies' means the policies initially affected by an individual agent whose services were subsequently terminated or removed from the rolls of the insurer. The IRDA has also said that only those agents, who have completed at least two years of service, can service the orphan policies. Moreover, single premium life insurance policies are not eligible for allotment under these guidelines.
- Unlike earlier, when SEBI used to conduct investor meets once every quarter or at least three times a year, the SEBI has not conducted an investor meet in the last six months. The last time SEBI met up for an investor meet was in December 2011. These meetings serve as an important bridge between investors and the capital market regulator, as issues and grievances concerning small investors, especially those that may have slipped the attention of the regulator, are highlighted by the respective investor associations. At present, there are 26 of such SEBI-recognised investor associations.
Index: A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is an imaginary portfolio of securities representing a particular market or a portion of it. Each index has its own calculation methodology and is usually expressed in terms of a change from a base value. Thus, the percentage change is more important than the actual numeric value.
QUOTE OF THE WEEK
"Lack of direction, not lack of time, is the problem. We all have twenty-four hour days."
- Zig Ziglar