S&P BSE Sensex*	Re/US $	Gold Rs/10g	Crude ($/barrel)	FD Rates (1-Yr)
20,666.15 |530.7 -2.50%	62.42 |0.9 -1.50%	30,735.00 | 55.0 0.18%	104.68 |5.4 -4.89%	8.00% - 9.00%

 

While you shop, you may always be on the look-out for discounts. After all everybody wants to save costs. But when it comes to mutual fund investing, retail investors seem to be reluctant to do so. Lower participation in direct plans offered by mutual funds, especially in the equity category, suggests that investors still prefer the conventional route of "going through distributors" to invest in mutual funds.

What are direct plans?

With an aim of strengthening the position of mutual funds; SEBI took a number of steps over past few years. These included encouraging mutual funds to look beyond top 15 cities, strengthening the regulatory framework and also energising the distribution network among others. However, to be fair with those who want to invest directly (bypassing distribution channels), separate expense structure was advised. From January 01, 2013 mutual funds started offering separate plans having lower expense ratio known as direct plans.

Have they become popular?

It's been observed that, equity oriented funds, which have highest participation of retail investors, have lowest proportion of total assets (around 3%) in direct plans. This means retail investors have been hesitant to take up the direct route.

What may be the possible reasons?

Lack of awareness, inadequate investor education and desire of having a broker to execute transactions as well as render advice might be keeping retail investors away from opting for direct plans. Do they make a difference? PersonalFN studied expense structure of diversified mutual fund schemes whereby it found that, on an average, direct plans save about 0.60% of cost per year. This may not sound good enough for you to switch from standard plans to direct ones. But if one has a long time horizon in mind, say 10 years, it may save you good deal of money. For example, if you invest Rs 10,000 per month through Systematic Investment Plan (SIP) in a mutual fund for 10 years through direct plans and assuming mutual funds generate 15% returns on compounded annualised basis, you may save about Rs 70,000. Those opting for lump-sum investments may save around Rs 2, 50,000 over 10 years.

Should you opt for direct plans?

PersonalFN believes that savvy investors who use online banking platform and don't mind investing in mutual funds using e-route may be better off opting for direct plans. Also, those who are taking independent advice on mutual funds can also consider investing through direct plans. PersonalFN is of the view that, under sideways market conditions wherein markets stay in a tight range for years, cost saved means a lot to the investor.

How new rules will make claim settlement easy in health insurance?

Awareness about health insurance is growing. With medical costs going out of roof, people are willingly buying health insurance policies. However, filing claims is often a painful procedure and many of you may have experienced difficulties in getting the claims settled due to lengthy, tedious and unfriendly settlement procedures. But with introduction of new rules, claim settlement procedure would become much simpler.

What will change now?

Unlike earlier, customers won't have to approach multiple insurers for claim settlement (in case they have a cover from more than an insurer). Instead, they may deal with only one of them and get their claims settled. Earlier there was a clause that required (viz. contribution clause) insurers to share the burden of claim in proportion to the sum of insurance cover provided by them. Abolition of this clause would substantially reduce the paper work since customers don't have to approach multiple insurance companies which normally ask for original documents. Time saved due to elimination of contribution clause would help settling claims faster. Cashless facility would become easier to use since no multiple insurers would have to be involved. Moreover, since you can get the claim settled only from one insurer; you may continue to enjoy no-claim bonus from other insurer(s). But a word of caution, in case claim amount is in excess of insurance cover provided by a single insurer; you will have to go through the same old procedure.

PersonalFN is of the view that, new rules that came in effect in October would work in favour of customers. Abolition of contribution clause would speed up the process of claim settlement and may result in customer satisfaction. In turn, this may make health insurance policies not only customer centric but also more popular. This may induce more people to buy health insurance policies. PersonalFN believes health insurance is an essential aspect of one's financial plan and thus shouldn't be ignored.

Have markets parted their ways from realities?

Equity markets in India are scaling higher and have recently hit their all-time high. In October, S&P BSE Sensex, a frontline stock index, closed above 21,000-mark after 3 long years. On November 05, 2010 the index had closed at 21,004. Thereafter Indian equity markets had hit a rough patch and entered a corrective phase. Now they have fully recovered. But what is missing from the market is bullish sentiment of domestic investors. PersonalFN brings to you analysis of macro-economic indicators that broadly affect the market movement and shares with you its views on the future market course.

  Which way markets are headed?

NAV Data: November 05, 2013
(Source ACE MF,PersonalFN Research)

If we compare market movement from the previous peak to the peak recently recorded on the index, there have been significant variations in the macro-economic indicators. Although a few indicators have substantially improved; others have worsened quite a lot.

Indicator	2010-11	2013-14 *
Inflation	9.52	5.49
IIP	8.21	0.60
GDP	8.50	4.40
Current Account Deficit	2.60	4.90
Rupee	45.40	59.44

* Figures are as per the latest available data averaged for the current financial year-to date.
(Source MOSPI, ACE MF, RBI and PersonalFN Research)

As given in the table above, inflation is the only factor that has improved over last 3 years, excluding which; all other major economic indicators have slumped further. Growth in Gross Domestic Product (GDP) has reduced almost to half. Industrial growth has been even worse at below 1% mark. Widening current account deficit has pushed rupee far below the levels witnessed in the Financial Year (FY) 2010-11. Moreover, inflation measured by the movement of Wholesale Price Index (WPI) has come down mainly because of lower industrial inflation. Retail inflation is still high. Expensive food articles are pushing the retail inflation higher.

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Has buying at Muhurat trading generated fruitful returns for you?

Diwali is the festival of lights; it is symbolical to the victory of goodness over evilness. During the festive time, people worship Goddess of wealth, Lakshmi. It is believed that those who perform Lakshmi puja see their wealth growing. Dalal Street also celebrates Diwali and despite of Lakshmi Pujan being a public holiday, bourses are kept open for the "Muhurat" so that people can buy shares on this auspicious day. Old timers believe that shares one buys during "Muhurat Hours" always reward. In 1970s and 80s people used to buy stocks on the day of Muhurat and hold them for years. Many of them have reaped rich rewards, thanks to excellent returns markets have generated over last 2-3 decades.

However, times are changing. Markets have become turbulent and no trade is a sure-shot trade today. Still your broker must be sharing with you "tips" for Muhurat trading. As the day of Lakshmi puja comes closer, mails having titles such as "5 Stocks to buy this Diwali" start hitting your inbox frequently.

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How many times it happens that you have some cash with you but don't have time to go to a bank and deposit it? There is some good news for those who can't visits banks and avail various services due to time constraints. Keeping in mind customer requirements, banks have started opening unmanned banking branches which will be opened whole day and night. Besides metros, such electronic branches would be opened in tier-1 and tier-2 cities. These electronic branches would render services such as, cash deposits and withdrawal, cheque deposit facility, generating receipts, money transfer and booking fixed deposits among others.

PersonalFN believes such initiatives would make day-to-day banking easier for customers. One may not has to stand in long queues just for depositing a few thousand rupees in one's saving bank account. Rather, you may visit electronic branches at your leisure any time after, during or before banking hours. However, at least initially, only those who are comfortable using technology might benefit.

But as awareness grows, such branches may see higher footfall. PersonalFN is also of the view that, if cell-phones could penetrate in remote areas where previously no electronic communication facilities were available; electronic bank branches may have unexpected positive effects on increasing penetration of banking services.

Leading Indicator: "A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators are used to predict changes in the economy, but are not always accurate."

Quote: "Behind every stock is a company. Find out what it's doing"‒Peter Lynch