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| December 23, 2016 |
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Impact 
"I have asked for only fifty days. Please bear with me until December 30, 2016. (Thereafter) if you find any fault with my effort or with my intent, I am ready for any punishment you want to give me, and will be present for it at any nook and corner of the country. "
These are the translated excerpts from PM Modi’s speech that he delivered in Goa on November 13, 2016. He was talking about demonetisation.
More than 40 days have passed since then, but hardships of people are far from being over. Moreover, the situation on the ground looks unlikely to return back to normalcy anytime soon. Small scale businesses are in distress. Unskilled labours are out of jobs, and banks still don’t have adequate cash to disburse.
The central bank believes this is a ‘transient’ phase, but it hasn’t been providing any deadline as to when this ‘transition’ will end.
As per the RBI press release dated December 21, 2016, the apex bank has disbursed currency worth Rs 5.93 lakh crore between November 10, 2016, and December 19, 2016. Demonetisation has sucked out high-value banknotes worth Rs 15.44 lakh crore. In other words, over the last 40 days, the RBI has managed to remonetise only about 38% of the scrapped currency. Issuing Rs 2,000 hasn’t addressed the liquidity problem. There is an acute shortage of Rs 500 and Rs 100 notes.
The chairman of the State Bank of India (SBI) expects the restrictions on cash withdrawal might stay a little longer as it seems the banks may not have adequate cash to disburse even in the foreseeable future. Many other bankers have directly and indirectly echoed similar sentiments.
While the common man suffered, some bank officials sprung up parallel banks to 'remonetise' corrupts. The authorities have confiscated crores worth new currency notes through constant raids. Instead of coming down heavily on banks which have observed malpractices, RBI seems to be busy in reversing its own decisions.
A heap of unfinished work is mounting and precious time is flying. While the opposition tries to reopen ‘diaries’ that have got buried in the past the ruling party is busy doing the chest-thumping exercise. The common man doesn’t have such privileges. The PM's script is being written in New Delhi, as always it has been.
Setting the melodrama aside, if the promise of 50-days was made on a serious note, the jury wouldn't be out for very long on demonetisation after December 30, 2016.
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Impact
Demonetisation has affected many industries adversely, but the mutual fund industry stands to gain from this exercise. At a time when the consumer-centric companies are recording sharp declines in monthly sales and have been cutting advertising spends, the mutual fund industry has witnessed a steady growth.
Mutual funds: unaffected by demonetisation?
(Source: AMFI, PersonalFN Research)
Between November 2015 and November 2016, the Assets Under Management (AUM) of the mutual fund industry has grown at 26.1%. From Rs 13.43 lakh crore in November 2015, the AUM of the mutual fund industry surged to Rs 16.94 lakh crore in November 2016. In the first 8 months of the Financial Year (FY) 2016-17; the industry added 44 lakh new folios taking the total tally to 5.2 crore. The unprecedented inflows in equity oriented schemes have helped the mutual fund houses achieve such an impressive growth rate. Among whole new folios that were added in the first 8 months of FY 2016-17, a little over 70% have been in the equity oriented schemes—a segment that is dominated by the individual investors. In equity oriented schemes nearly 99.2% folios belong to individual investors.
Rising AUM and greater participation indicate that the mutual fund investing has gained popularity of late. The pleasing aspect of this growth story has been the maturity of investors. The numbers suggest that investors are getting wiser and smarter. As reported by Business Standard dated December 20, 2016, mutual funds now have 1 crore active Systematic Investment Plans (SIPs). Commenting on this trend Chief Investment Officer of LIC Mutual Fund, Saravana Kumar said, “More investors are choosing the SIP route of investing for equity-oriented MFs. Investors have increasingly appreciated the fact that volatility is part and parcel of MF investments. As Indian investors are becoming more educated about equity asset class and its superior potential in providing risk-adjusted returns, I believe that equity would see a rising trend of growth.”
The industry players have been hoping to maintain the same growth momentum in the calendar year 2017. It is expected that the industry AUM would cross Rs 20 lakh crore mark in the New Year. It is also expected that, after demonetisation, the preference of Indian investors may move away slowly from physical assets to financial assets. The mutual fund industry is likely to benefit from these changing dynamics.
PersonalFN is of the view that, there is no alternative to educating investors. Although the investors have demonstrated resilience under tough market conditions in the recent past, they still fall prey to NFO (New Fund Offer) tactics of mutual funds. Under strong market conditions, mutual fund houses try to garner AUM by painting a rosy picture of Indian economy. It’s sad that more than 15% of investors hold their equity investments for less than a year—something that needs to be corrected. For the industry to repeat the similar growth in future, mutual funds will have to get more responsible and accountable. PersonalFN has taken many initiatives to educate investors. Equity investing is essentially for the long term.
You should follow your personalised asset allocation to decide on how much you should invest in equity. Personalised asset allocation considers factors such as your risk appetite and financial goals.
If you are not sure as to which mutual fund scheme to invest in, you may try out unbiased mutual fund research services provided by PersonalFN.
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Impact
Until recently, the Government refused to accept there were significant gaps in the planning and execution of demonetisation. But, it is coming to terms with grassroots reality. A few days ago, the Union Minister for Micro, Small, and Medium Enterprises admitted that the demonetisation exercise has been detrimental for businesses and people. And, he is not the only one to acknowledge the problem.
Before demonetisation shook up India, high-value currency notes formed a little over 86% of country's total currency in circulation. So, it's no surprise we are now facing a severe cash crunch. As per RBI, there were approximately 2,203 crore pieces of Rs 500 and Rs 1,000 notes put together in circulation as on March 31, 2016. Replacing these was not an easy task. To fill the lacuna, the Government promoted the use of digital money. Many economists have been highlighting India's unpreparedness to promote digital payments. So be it the lack of I.T. infrastructure or adequate legal framework to protect the users' rights and fix the responsibilities, India scores way below some developed countries. Even the Finance Minister had to recently acknowledge that, the digital payment solutions can run only in parallel to cash, and the former can't replace the latter.
However, it would be erroneous to think it's the infrastructure and regulatory framework that still allow cash to reign as king. Global experience suggests that using cash is a tendency and even supreme technological infrastructure can't promote digital payments beyond a point.
To read more about this story and Personal FN's views over it, please click here.
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Impact
A day hasn't passed without confusion ever since the nation has slipped into demonetisation mode. Sometimes it's RBI, and on other occasions, it's the Government that issues directives only to reverse the previous instructions. The count of such flip-flops has already surpassed 100 Between November 8, 2016 and December 21, 2016.
The Government has often defended its moves saying that operation of such magnitude and scope couldn't have been planned to a minute detail on the day one.
While there is nothing wrong with being responsive to the changing circumstances what bothers citizens is the 'trial and error' approach of the Government.
While there is no intent to suggest that the functioning of RBI has changed under the new governor, we can't ignore some facts. The recent policy approaches of the RBI haven't been befitting its image and reputation.
What's new?
The Government, at various levels, had already made it clear that a person can deposit money in his/her account anytime until December 30, 2016. The least citizens of this country could have expected is that the Government would remain consistent on this policy at least.
But, it seems even that was too much to expect from this Government and the central bank.
To read more about this story and Personal FN's views over it, please click here. |
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Bond yields have fallen sharply post demonetisation. The banks have already lowered the interest rates on deposits thanks to the stupendous inflow of deposits. And the story of falling interest rate doesn't end there.
Four crore subscribers of Employees' Provident Fund (EPF) will get 8.65% interest in FY 2016-17—a four-year low. In FY 2015-16, EPF holders had received 8.8%. However, this year, the Central Board of Trustees (CBTs) of Employees Provident Fund Organisation (EPFO) recommended the lower interest rate as to match the last year's payout this year, there has been the sufficient surplus. As per the EPFO's financial audit and investment committee (FIAC), the total corpus of EPF may stand at Rs 39,000 crore by the end of FY 2016-17.
In the wake of falling interest rates on Small Savings Schemes (SSS) and inflation, the labour ministry and the finance ministry are likely to agree on the rate recommended by the CBT. This might help achieve better policy transmission, but the EPF subscribers might keep wondering when the prices of life essentials would reflect more transparency in pricing. Unless that happens, monetary policy transmission would be for namesake. In the end it doesn't benefit investors.
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Digital Money: Any means of payment that exists purely in electronic form. Digital money is not tangible like a dollar bill or a coin. It is accounted for and transferred using computers. Digital money is exchanged using technologies such as smartphones, credit cards and the internet. It can be turned into physical money by, for example, withdrawing cash at an ATM.
(Source: Investopedia)
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Quote: "You must gain control over your money or the lack of it will forever control you. "- Dave Ramsey
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