Gold: A safe haven Nov 20, 2009

Long term investments pay-off

Nov 20, 2009

Weekly Facts
	Close	Change	%Change
BSE Sensex	16,785.65	89.6	0.54%
Re/US$	46.69	0.1	0.26%
Gold Rs/10g	17,190.00	310.0	1.84%
Crude ($/barrel)	77.93	0.4	0.54%
FD Rates (1-Yr)	4.50%-6.50%

Weekly change as on Nov 19, 2009

Gold: A safe haven

Impact

Since generations, it has been emphasized that there is no other safer asset class than gold and no asset class shines like gold; and it's true in a way

Gold and Inflation (Source: Bloomberg)
(Data: from Jan 3, 2009 to Oct 17, 2009)
(Note: Gold Prices taken of MCX Spot Mkt.)

The above chart demonstrates the positive relationship between inflation and gold. During inflationary times gold has always shown an upward movement, thereby acting as a hedge against inflation; offering a cushion to investors.

Even during turbulence of the equity markets; when equity markets crashed, gold as an asset class gained prominence, as investors preferred a safer investment avenue.

Hence, to save yourself from the pinch of rising inflation and turbulence of the equity markets, we advice investors a safe haven of investing by allocating 10-15% of the portfolio to gold.

It's pouring mutual fund reforms

Impact

The Securities and Exchange Board of India (SEBI) is making sweeping changes in mutual fund regulations. Now the advisory committee comprising of industry representatives and investor bodies have recommended the following:

Fund management fee - The Asset Management Companies (AMCs) should lower their fund management fee from the present level, as their Assets Under Management (AUM) increase

Present Fund Management Fee

AUM	% of AUM
First Rs 100 cr	1.25
> Rs 100 cr	1.00

Ensuring corporate governance - As investors in the listed companies, fund houses are entitled to question a company about its corporate governance, whenever they feel that the company is not acting in the interest of investors. SEBI here was of the view that mutual funds are not utilising the rights vested in them

In addition to the above, the other reforms planned by SEBI are as under:

Change in the standard warning - The regulator now wants mutual funds to convey in their standard warning that investors could lose their entire investment. The wordings for the same are yet to be finalised

Minimum number of investors – The minimum number of investors in a scheme may be increased from 20 to 50

Maximum holdings of investors – The maximum holding of an investor is proposed to be reduced from 25% to 10-15% (approximately)

We believe that these mutual fund reforms will strengthen mutual fund regulations, which will in turn, protect investors’ interest.

Transparency and accountability

Impact

The Reserve Bank of India (RBI) has asked banks to disclose commissions and other fees received by them while selling mutual funds and insurance. This move will enable the customers to know how much banks are earning from every mutual fund or insurance product which is sold to them.

This measure from RBI will ensure that:

Banks do not push these financial products recklessly to their customers in order to earn higher commissions

Customers may obtain those financial products which suit their financial goal

Customers can know the amount of commission the bank earns from each product

The move taken by RBI will warrant a more responsible and accountable method of advisory in financial products and will preclude the experience of mis-selling financial products to customers.

Hedging risk in insurance portfolio

Impact

The Insurance Regulatory and Development Authority (IRDA) is on the path to roll-out detailed guidelines to allow insurers to invest 5% of their portfolio in the Futures & Options (F&O) segment.

Currently, for traditional and Unit Linked Insurance Plans (ULIPs), the insurers are allowed to invest in the following manner:

Traditional Policies
Type of Securities	% of Total Funds
Approved Securities
Government Securities	50
Infrastructure related projects	15
Other than Approved Securities
Equities, mutual funds and money market instruments	35
ULIPs
Equities	Upto 100%

Under the new guidelines, traditional insurance plans will be able to invest upto 5% of their other than approved portfolio in derivatives. ULIPs on the other hand will be restricted to invest only 5% of their entire portfolio. The detailed guidelines are expected within a month's time.

Such a measure by IRDA will help the investors to hedge their risk and improve liquidity.

AND OTHER NEWS...

The Ministry of Finance (MoF) will incorporate the "regulatory impact assessment module", to assess the impact of the actions of three regulators - SEBI, PFRDA and IRDA. The MoF will bring on-board third-party consultants to carry out this study. The move is an effort to strengthen and deepen the financial markets.

Fidelity Mutual Fund launched its new fund/scheme called 'Fidelity India Value Fund'. The fund is an open-ended diversified equity fund, managed by Mr. Nitin Bajaj, which will invest in companies that have more intrinsic value than reflected in their stock prices. The new fund offer opened for subscription on November 16, and will remain open till December 15, 2009.

National Securities Depository Limited (NSDL) has launched a facility named 'SIMPLE' (Submission of Instruction through Mobile Phone Login Easily), which enables investors to submit delivery instruction slips to transfer securities in their brokers account for the purpose of pay-in. Investors who wish to avail of this facility require a GPRS enabled mobile phone and need to register to SPEED e-service as a password user through NSDL.

Now voting on the corporate affairs is just a click away; Central Depository Services (India) Ltd has launched its e-voting system. During the voting period investors can cast their votes by visiting the website (www.evotingindia.com) by entering their demat account number and Permanent Account Number (PAN) as password.

SEBI is planning to reduce the time taken to list the Initial Public Offers (IPOs) to 7 days. Currently, it takes 20 days to list the IPO issue, which builds the risk for the investors and issuers. The move is intended to bring in more efficiency to the primary market issues.

Food inflation rose to 14.6% for the week ended November 7, 2009. On weekly basis, it rose by 0.87% from 13.68% in the previous week.

The Organisation for Economic Cooperation and Development (OECD) doubled its growth forecast for the year 2010. India and China will lead the recovery, with India growing at 7.3% and China by 10.2% in 2010.

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