Impact 
The precious yellow metal - Gold displayed a subdued growth of just 1.92% for the period January 02, 2012 to March 20, 2012. This consolidation in the prices of gold can be attributed to the signs of recovery shown by the U.S. wherein the economy grew 3.0% for the fourth quarter of 2011. Moreover, the unemployment rate also remained unchanged at 8.30% for the month of February 2012 which boosted investor confidence.
Gold consolidates
(Source: ACE MF, PersonalFN Research)
Apart from the global factors, the Union Budget 2012 presented on March 16, 2012 has proved to be a dampener as far as attracting investments in gold is concerned. Standard gold bars and coins with 99.5% purity will now attract customs duty of 4% instead of 2% earlier. Further the customs duty has been raised to 10% on non-standard gold from earlier customs duty of 5%. This may negatively impact the demand for gold at least in the short to medium term.
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We believe that though gold may consolidate further due to the dampening factors at the domestic as well as global level, the secular uptrend is intact as, unless proper austerity measures aren't taken by paining Euro nations, the occurrence of a catastrophic event cannot be ruled out because this is an acute financial crisis which can shake the complete financial system across the world. The fact that barring Germany, all Euro nations have been downgraded reflects that the problem is grave. Similarly, for the U.S., the primary challenge is to trim its debt, and control its debt-to-GDP ratio
| Impact
"The life of a finance minister is not easy and I must be cruel only to be kind" were the words of the finance minister Mr. Pranab Mukherjee in his union budget speech. Has the finance minister been really kind or was it his cruelty that the markets did not like the overall budget.
With the conclusion of the Union budget 2012 and after reading the fine prints, the investors realised what actually the finance minister left for them in their kitty. Though the finance minister tried to maintain a balance between reforms and fiscal consolidation in his budget speech, it finally turned out to be more generous for the rich who will become richer and left very little for the low income earners. So, if you fall in the high income category with earnings of over Rs 10 lakhs per anum for FY 2012-13, then the savings on your income tax will be Rs 22,660, while if you earn anywhere between Rs 2 Lakh to Rs 8 Lakh, then with the new tax slabs, your savings from taxes will not be more than Rs 2,060. So it is not that your high savings will result in high earnings, but instead your high earnings will result in high savings on your personal taxes.
To know more about what should be your strategy for investments in equity, debt and gold please click here.
This Week's Poll !!!
Are your investments guided only by tax incentives?
| Impact
When investor sentiments are positive and the overall investment environment is vibrant, the manufacturers of financial products try to make hay when the sun shines. Well, they make most of such times; launch several news schemes, thus attempting to lure investors. Moreover, today financial innovation is occurring at such a rampant pace, that simplicity is lost and products are getting rather complex. Thanks to the financial engineers and marketers of such products.
The questions which keeps lingering is that, is such financial innovation indeed creating unique products and do instil creating prudent asset management practices, or it is just there to woo investors and gather more money. Interestingly, today there has been so much of acceleration towards financial innovation, that even distributors / agents / relationship manager (i.e. the important financial intermediaries too are finding it tough to understand these products, and in case they have been successful in selling such a complicated financial product, investors are left in a tizzy.
To read more on how to safeguard yourself from complex financial products please click here.
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| Impact
The Budget 2012 received varied response from various pockets of the society. Some say it's a non-event and others believe it to be a good attempt in a situation of political pressures and rising fiscal deficit. On direct taxes front, more importantly, the Finance Minister this time removed the distinction between 'men’ and 'women' as regards tax exemption limit is concerned. However, the exemption limit for the Senior citizens stands unchanged at Rs 250,000.
To know how your net take home salary will get a boost post the Budget 2012 please click here.
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In an interview with the Business Standard, Mr Montek Singh Ahluwalia shared his views on the Budget 2012, the fiscal deficit expectation and growth expectation.
Mr Ahluwalia believes that the expectation that a Budget could somehow tackle all the problems is wrong. According to him the Budget is needed to do some important things right, but most of the things that need to be done are outside the Budget. Thus, he thinks that it is not right to spend too much energy focusing on the Budget. Also, Mr Ahluwalia spotted three important measures announced by the Budget 2012. The first important measure according to him is the acknowledgement by the Finance Minister that the fiscal deficit went out of line. "The finance minister (FM) deserves a lot of credit for coming out with what it is like and then laying out a sort of road map for the next three years. He came upfront and put together the fiscal deficit number and a fiscal deficit target, not only for the coming year but also for the next two, which is more realistic than what was there earlier," he said. The second important thing he noted was the boost to the infrastructure sector by doubling the limit to Rs 60,000 crore for tax-free bonds. Last but not the least important measure was the introduction to a negative list on the Service tax.
On whether the fiscal deficit as projected for FY 2012-13 will be met, Mr Ahluwalia said, "Any Budget is always made on the basis of some assumptions about things beyond one's control. Yes, if you see a huge change in oil prices, Budgets everywhere would have to be reformed. I am hoping this fear will abate and oil prices stay roughly where they are now. He said, I am going to cap subsidies at two per cent, and this is a very important step."
Moreover, Mr Ahluwalia also shared his views on the growth estimates provided by the Budget by saying that, "The Budget is always based on a projection of growth target. I think this year's 6.9% will get revised to 7% when the full data come out. Let's ask, will the 7% go to 7.6%? Tough, but it can be done, assuming you don’t have some huge explosion externally, which disrupts everything."
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- Smaller mutual fund houses have been accusing the mutual fund industry body Association of Mutual Funds in India (AMFI) for proposing a complete ban on the upfront commission to the distributors. Also, capping total expense ratio at 2.25% will mainly benefit the large fund houses as perceived by the small fund houses. On the other hand large fund houses have been asking AMFI and market regulator SEBI to stop upfront commission as they were experiencing heavy 'investment churning' by distributors.
Post the entry load ban, fund houses have been struggling to keep the folios intact. Moreover, with the distributors showing disinterest in approaching the investors for selling mutual funds, AUMs have been dwindling for the whole mutual fund industry. We believe that introducing a 'fee based' model will be in the best interests' of both the distributors as well as the investors.
Thus, SEBI and AMFI should take concrete steps in giving due attention to this aspect for further development of the mutual fund industry along with keeping the investors' interests' in forefront.
- Retail inflation as measured by the Consumer Price Index rose to 8.83% for the month of February 2012 as against 7.65% in January 2012. The rise in the CPI inflation can be attributed to the high prices of protein based items and edible oil products.
- The Finance Minister introduced the 'Rajiv Gandhi Equity Scheme' in the Budget 2012 with an intention to encourage flow of savings in financial instruments and improve the depth of domestic capital market. The scheme would allow for income tax deduction of 50% to new retail investors who invest up to Rs 50,000 directly in equities and whose annual income is below Rs 10 lakh. The scheme will have a lock-in period of 3 years.
To know more about this scheme, and to understand whether it is a wise idea to invest in it please click here.
- Concerned about the over exposure of the Life Insurance Corporation (LIC) of India's exposure to public sector banks, the Insurance Regulatory and Development Authority (IRDA) will soon decide on whether to allow LIC to retain its holding in public sector banks where it has breached the 10% limit.
- Property registrations in Mumbai fell 11% for the month of February 2012 as the customers continued to stay away from buying new homes and office spaces. The absolute number of registrations mellowed down to 4,203 from February 2012 as compared to 4,427 registrations recorded in the previous month.
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Fiscal Deficit: When a government's total expenditures exceed the revenue that it generates (excluding money from borrowings). Deficit differs from debt, which is an accumulation of yearly deficits.
(Source: Investopedia)
| | QUOTE OF THE WEEK
"Each man is the smith of his own fortune."
- Appius Claudius Caecus
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