 |
| June 26, 2015 |
|
|
| Weekly Facts |
| |
Close |
Change |
%Change |
| S&P BSE Sensex* |
27,811.84 |
495.67 |
1.81% |
| Re/US $ |
63.62 |
0.11 |
0.17% |
| Gold Rs/10g |
26,365.00 |
-535.00 |
-1.99% |
| Crude ($/barrel) |
62.08 |
0.57 |
0.93% |
| F.D. Rates (1-Yr) |
6.75% - 8.50% |
Weekly changes as on June 25, 2015
*BSE Sensex as on June 26, 2015
|
Impact 
Punters betting millions on the galloping horses at English derby run a risk of losing money if their judgement goes wrong. That is a trouble with placing one's bet on the fastest horse of the last season. If you carry the similar approach in investing, you may land up in big trouble. Therefore, PersonalFN always recommends its readers and investors to stay away from gambling or speculating and suggests that hard earned money should be invested prudently. Yet, investors seem to be swayed by the exuberance in the market amid a period of risk-on.
Until recently participation of investors in financial assets such as equity and mutual funds, was awfully low. But amid the exuberance, a capital shift is gathering pace from physical assets to financial assets.
Here are some interesting facts…
- 40 Lakh new demat accounts were opened in the Financial Year (FY) 2014-15
- Value of share settlements in demat account has risen more than 50% in FY 2014-15 on Y-o-Y basis
- Mutual funds have witnessed addition of over 25 lakh new folios in FY 2014-15, followed by nearly 6 lakh more account in the first 2 months of FY 2015-16
Although it is pleasing to notice Indians shedding their love for physical assets and making way to financial ones; are the reasons convincing enough?
Well here are a few factors which have contributed to the shift in trend…
- Mellowed down retail inflation facilitating attractive positive real returns
- Alluring returns generated by equity
- Positive real returns generated even by some debt instruments
- Gold having lost sheen (as gold prices are down nearly 5.0% over last one year and Gold ETFs too having fallen more than 15% in terms of Assets under Management (AUM) during the same period)
- Steep property prices and unattractive returns clocked by real estate due dull demand (as real estate developers are sitting on heaps of inventory but refusing to lower rates despite stressed demand)
- Change in the perception of risk involved in financial assets
What PersonalFN thinks about the shift?
We fear that this change in capital shift from physical asset to financial assets might be temporary. If retail inflation rises, real returns narrows and exuberance gives way; we may see a reversal in this trend. With uncertainty yet looming around, investors may yet again look at gold. The onset of festive and wedding season has anyway the potential to revive demand of precious yellow metal. For real estate, if builders / developers begin to offer discount to offload inventory, investment demand in real estate may also rise. The transmission of policy rates by some banks has already made home loan rates relatively affordable.
PersonalFN believes while you invest in various investment avenues in the endeavour to diversify your portfolio, you ought to get your asset allocation right. A prudently drawn asset allocation can help you balance your portfolio's risk and reward keeping in mind your risk profile, your financial goals, and your investment time horizon.
Do you think this shift is permanent in nature or you think it would last just temporarily? Share your views here.
|
Impact
Irrespective of how good an investment plan is; investors tend to be reluctant to invest if it doesn't provide them flexibility. In today's world, people seek shorter investment commitments and prefer to have a facility to break in investments when needed, besides expecting good returns.
National Pension System (NPS) was launched to provide a retirement savings alternative to investors. However, its spread remained limited mainly because of complex structure and functioning of the product. In the current form, one must buy an annuity at maturity. Annuities are taxable; which is a negative. Furthermore, withdrawing money before maturity is not easy either. Knowing these probable shortcomings of the product design, The Pension Fund Regulatory and Development Authority (PFRDA), the regulator of the scheme, has modified some guidelines.
What has changed?
- A subscriber of NPS is permitted to withdraw upto 25% of his contributions for meeting a few specified expenses. These include expenses towards higher education and marriage of children including those of adopted children, construction or purchase of a residential property provided one doesn't have any second home, irrespective of mode of ownership. Furthermore, to take care of 13 dreaded diseases such as cancer, kidney failure etc., one may withdraw upto 25% of his contributions.
- The age of retirement assumed for the scheme has been brought down from 60 to the age determined by the employers as the retirement age.
- Earlier, at 60, NPS happened to go in deferred mode if not withdrawn. Also, making further contributions was not possible. Now, making contributions upto the age of 70 has become possible and automatic deferment has been put off, but now written consent of the subscriber would be required.
- The new guidelines exempt subscribers from a mandatory purchase of annuity if the accumulated amount in tier I account is equal to or less than Rs 2 lakh at the age of 60.
- However, new guidelines prohibit portability of annuities unless done within a free-look period
- Besides aforesaid changes, there are a few procedural changes as well. The account opening form has been shortened and simplified. Investors opening accounts through banks will be exempt from KYC norms if they have already complied KYC norms with banks.
PersonalFN is of the view that, changes in the rules may help attract new investors to the scheme. But even after amendments, effectiveness of the guidelines and improvement in flexibility remains questionable. For example, partial withdrawals are allowed only after 10 years and that too only upto 25% of contributions made. It is available only thrice in the entire tenure of the scheme with an interval of 5 years between two withdrawals. This means, amount that can be withdrawn may be inadequate.
PersonalFN believes investors should not depend on just one product while saving for the retirement and consider investing across the spectrum of asset classes and investment instruments therein after identifying their risk appetite.
|
Impact
We are living in the world where fashion trends change very fast. However, there are a few things which remain immune to any change in fashion. Similarly, in the world of investing, no matter how quickly preference of investors change, certain tenets remain unshakable and unquestionable. One of them is importance of asset allocation.
It has been found that investors are losing interest in gold of late. It is evident from the outflows from gold Exchange Traded Funds (ETFs) which have mounted to nearly Rs 1,250 crore in last 1 year.
Holding trends in Gold ETFs...
Data as on June 23, 2015
(Source: AMFI, PersonalFN Research)
The decrease in AUM has come on account of two factors. One, decline in gold prices and the other is lower buying interest internationally.
Why are investors losing interest in gold?
There are growing speculations that Federal Reserves (Fed) in the U.S. may hike interest rates from the current level sooner or later. In anticipation of a rate hike by the Fed, commodities traders have been betting on a fall in gold prices. Gold prices are down nearly 5.0% over last one year which has made investors believe that momentum in gold is lost.
When real interest rates in the U.S. become negative, investors pounce on gold as it is considered as a store of value. This is why, when Fed slashed interest rates and announced financial stimulus packages in the aftermath of global financial crisis, gold rallied sharply. Now that Fed is set to hike rates, traders have been shorting gold looking to make money, as price falls. This speculation over the interest rate scenario in the U.S. has also made USD stronger against the basket of other major currencies of the world. As you may be aware, there is an inverse relation between USD and gold prices. So, whenever dollar strengthens, gold loses sheen and the opposite holds true as well.
To know more about this and PersonalFN's views over it, please click here.
|
Impact
The Indian Meteorological Department's (IMD's) forecast for southwest monsoon brought out a possibility of a deficient rainfall this year. It has brought down its long-range forecast to 88% of Long Period Average (LPA) from 93% LPA in a forecast released in April 2015. Such an estimate spells bad news for the agrarian sector which has encountered the atrocities of unseasonal summer rains and hailstorms.
The southwest monsoon thus far in June seems quite satisfactory with some regions witnessing even above-normal rainfall. So far we are off to a good start for southwest monsoon, but most parts of central and northwest India is yet to witness the onset of rainfall. According to the IMD between June 21 and 25, rainfall will increase over many parts of central and adjoining eastern and northwestern parts of the country. Thereafter, between June 26 and 30, rainfall is expected to increase over the Gangetic plains and northwest India.
To read more about this news and our views, please click here.
|
- Please don't be surprised if you are offered tax breaks for paying a certain proportion of your total expenses using debit and credit cards. It is also possible that, while you make payment using plastic money at petrol pumps or booking railway tickets, you may be relieved from paying transaction charges. Do you wonder why? Here is the reason…
In an attempt to curb the circulation of black money, the Government has been planning to discourage the use of hard cash in trade and commerce. The Government has a proposal of incentivising the use of debit and credit cards, by providing tax breaks not only to the users but also to the shopkeepers. The proposal is open for comments until June 29, 2015
PersonalFN believes that, it is a first step towards curbing the generation of black money and may serve the purpose well. However, to bring down black money circulation many more steps may have to be taken.
|
Financial Asset: "An asset that derives value because of a contractual claim. Stocks, bonds, bank deposits, and the like are all examples of financial assets. "
(Source: Investopedia)
|
Quote : "We don't have to be smarter than the rest. We have to be more disciplined that the rest." - Warren Buffett
|
|
|
|
© Quantum Information Services Pvt. Ltd. All rights reserved. Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of PersonalFN is strictly prohibited and shall be deemed to be copyright infringement.
Disclaimer: Quantum Information Services Pvt. Limited (PersonalFN) is not providing any investment advice through this service and, does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. All content and information is provided on an 'As Is' basis by PersonalFN. Information herein is believed to be reliable but PersonalFN does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. PersonalFN and its subsidiaries / affiliates / sponsors or employees, personnel, directors will not be responsible for any direct / indirect loss or liability incurred by the user as a consequence of him or any other person on his behalf taking any investment decisions based on the contents and information provided herein. This is not a specific advisory service to meet the requirements of a specific client. Use of this information is at the user's own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. All intellectual property rights emerging from this newsletter are and shall remain with PersonalFN. This is for your personal use and you shall not resell, copy, or redistribute this newsletter or any part of it, or use it for any commercial purpose. The performance data quoted represents past performance and does not guarantee future results. As a condition to accessing PersonalFN's content and website, you agree to our Terms and Conditions of Use, available here.
Quantum Information Services Pvt. Ltd. 101, Raheja Chambers, 213, Nariman Point, Mumbai - 400021. Tel: +91 22 6136 1200
Website : www.personalfn.com CIN: U65990MH1989PTC054667
|