  | | 05th October, 2012 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 18,938.46 | 175.7 | 0.94% | | Re/US$ | 51.75 | 1.3 | 2.41% | | Gold Rs/10g | 30,980.00 | (190.0) | -0.61% | | Crude ($/barrel) | 108.02 | (2.9) | -2.57% | | FD Rates (1-Yr) | 7.50% - 8.75% | Weekly change as on October 04, 2012
*BSE Sensex as on October 05, 2012 | |
Impact 
Piqued by the idea of undertaking underwriting of the insured person at the time of claim, the insurance regulator – Insurance Regulatory and Development Authority (IRDA) will soon come out with guidelines to prevent insurance companies from arbitrarily hiking renewal premiums on health policies under which benefits had been claimed previously. The norms would be a part of the overall guidelines for the health insurance sector.
According to the IRDA, the insurance company should assess the health risks of a policyholder at the time of selling the policy, as happens in most countries. And while changing the premium, the insurers will have to take into account the experience of the entire class and not only individual.
We believe that, the proposed guidelines if implemented will help remove the ambiguity in the pricing of non-life insurance policies and thus create uniformity in the premiums being charged to the policyholders. With this there will be increased competitiveness amongst the insurance players (insurance companies) which trickle down in the form of better service for the policyholders.
Stability in charging premium will help build up confidence in the minds of prospective policyholders and as such more and more people will be encouraged to buy health insurance for themselves and their family members.
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Impact
In the beginning of the calendar year 2012, the Indian equity markets were surrounded with pessimism as investors preferred to be risk averse amid slowdown in the global economy and gloomy clouds evident. The slow pace of growth in the world’s largest economy – the U.S.A and burgeoning debt crisis in the Euro zone got investors into a risk averse mode due to fear that things got take worse turn. This thus made some investors stay muted on their investment in equity and therefore they either opt out of the markets or adopted defensive strategy of shifting to safer havens and /or debt instruments, or while investing in equity, preferring the stable and well established large cap companies.
Data as on October 03, 2012
(Source: ACE MF, PersonalFN Research)
But actually, our study of performance of large cap, mid cap and small cap indices on year-to-date basis reveals that, those who have been more risk tolerant by taking exposure to mid and small cap segment, have indeed been rewarded better for the risk taken. This is because, the supportive measure taken by the central banks of the world [especially the ones in the developed economies such as ECB (European Commercial Bank) and Federal Reserve] during the month of September 2012, actually led to the period of “risk-on” in the mid and small cap domain. But having said that, those who preferred to invest in well-established large caps have not been rewarded that bad too; they have made respectable gains until year to date.
We are of the view that, at the present with the Government putting reform measures on the forefront the period of “risk-on” will remain which could also lead to exuberant times in the Indian equity markets. But not ruling out the fact the uncertainty is still looming around in the developed economies, the risk still remains. Hence in such a scenario, it is imperative for investors to carefully assess their risk appetite and not get swayed by the movement of a particular market cap segment. Sticking on with your ideal asset allocation would be a prudent approach and while investing in equity staggering your investments would be better.
Although, you may have heard that high risk entitles you to high returns; but the real strength of an investment avenue is its ability to contain the downside as well, which in turn translates into consistency in performance of an investment avenue, resulting in safeguarding your portfolio. Hence, it is imperative for you investors build a portfolio which consistently performs well, rather than being swayed by fancy upside movement of a particular market cap segment of the market.
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Impact
Financial exuberance has contributed immensely to the diverse nature of financial products. The traditional financial products have undergone a sea change and now the investor has access to a galore of exotic products in equity, debt as well as insurance products. Despite the wide variety of choices of financial products to choose from, investors find it difficult to select the right product matching their requirements. This leads to investments in unsuitable products by the investors as most of the times investors fall prey to mis-selling. In the insurance industry too, the policyholders find it difficult to choose from various products in the offering which are difficult to understand. For instance, policyholders find it difficult to understand the intricacies of the functioning of ULIPs due to its non-transparent nature. To know more about how you will be able to get simple insurance products from your insurer, please click here.
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Impact
Adapting to the changing times is necessary for one’s survival. And if one rejects or refrains to change with the changing times, it surely leads to his or her downfall. With the focus shifting more towards investor interests’ and education & awareness, the capital market regulator – Securities and Exchange Board of India (SEBI), has brought in a slew of changes for the mutual fund industry. Thus, the mutual fund industry has to mould itself to the changing environment in order to ensure its survival in a highly competitive financial services market.To know more about the changes in the mutual fund industry, please click here.
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- Investors with holdings (including stocks, mutual funds and other securities) upto Rs 50,000 in a demat account will now be free of any maintenance charges according to a new SEBI ruling effective from October 01, 2012. However, the charges would be capped at a maximum of Rs 100 a year if the value of their portfolio is up to Rs 2 lakh. This service would be termed as ‘Basic Services Demat Account’ (BSDA). The move is part of market regulator SEBI's efforts to encourage an investment culture in the country and reach out to a larger number of small investors.
The investors can hold securities worth up to Rs 2 lakh in BSDAs and the depository participants managing their accounts would review the accounts at the end of every billing cycle. If the value of holding in such accounts exceed Rs 2 lakh limit, the applicable charges would apply, while the investors holding normal accounts would also be given an option to convert to no-frills account if the value of their holdings dips below this threshold limit. The value of holding will be determined on the basis of the daily closing price or NAV of the securities or units of mutual funds. If the value of holding in such BSDA exceeds the prescribed criteria at any date, the charges applicable to regular accounts can be levied from that date onwards.
We believe that, such initiative from the capital market regulator is intended to increase the market participation in the equity markets. This will encourage more and more investors as the cost of investing in direct equity reduces.
- In order to widen the options available to Public Sector Undertakings (PSUs) for investing their surplus cash, the Finance Ministry may lift the restrictions on PSUs to invest in mutual funds floated by privately-held asset management companies. Earlier in 2007, the Department of Public Enterprises (DPE) had barred the PSUs from investing in privately held mutual funds. Thereafter the Association of Mutual Funds in India (AMFI) has been negotiating with the finance ministry and DPE on behalf of privately-held fund houses, which are eager to manage the PSU surpluses. AMFI has written to both the ministry and DPE to open up PSU investment surpluses to privately-held fund houses as well.
We are of the view that, giving more options to the PSUs to invest their idle cash will help them generate better returns. Moreover, there are hardly any pure public sector AMCs at present as many of them have roped in foreign partners due to lack of funds.
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Health Insurance: A type of insurance coverage that pays for medical and surgical expenses that are incurred by the insured. Health insurance can either reimburse the insured for expenses incurred from illness or injury or pay the care provider directly. Health insurance is often included in employer benefit packages as a means of enticing quality employees.
Source: Investopedia
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Quote : "A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty." - Winston Churchill
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