Impact 
In a bid to squash the several instances of rogue trading by wealth managers [wherein the High Networth Individuals (HNIs) are cheated by selling complex financial products], the Securities and Exchange Board of India (SEBI) has finalised new rules for regulating investment advisors in lines with the structure in the mutual fund industry to prevent growing complaints from investors about being short-changed.
The capital market regulator now wants a Self-Regulatory Organisation (SRO), to be set up in order to oversee investment advisors. At present scores of financial advisors operating in the country - several of them unqualified - pose a threat to the investors. Thus now to reduce or remove this threat, SEBI intends to mandate all investment advisors to be certified, and become a member of the SRO (which is likely to be set up in this financial year). Moreover, making clear distinction between advisors and distributors is also being considered by SEBI, since at present the demarcation line between advisors and distributors is blur, which is resulting in investors being short-changed.
It is noteworthy that this is the second time that the capital market regulator has worked out rules to regulate the activities of investment advisors who advise investors on a host of investment products for a fee. In 2007, it had come out with draft regulations for this segment but did not finalise it.
We believe that clear demarcation line define "advisors" and "distributors", would help investors while seeking their services. Going forward the cases of rogue trading would also reduce as investors would be aware about distinct services provided by the "advisors" and "distributors" - and making advisors a member of the SRO would also infuse in accountability and responsibility in their practice. However, the capital market regulator should ensure that the SRO functions in the larger interest of investors and not merely lobby of big financial advisors.
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Impact
The stringent norms on the Unit Linked Insurance Plans (ULIPs) prompted the insurers to concentrate more on the traditional products as the sales of the ULIPs plummeted drastically. However, the traditional products were tweaked by the insurers in such a way that the resultant product was not in favour of the policyholders.
The recently floated traditional plans had low or insufficient insurance cover with respect to the premium charged to the policyholders. Thus in order to secure and enhance the basic underlying principle in a life insurance policy (i.e. death benefit), the Insurance Regulatory and Development Authority (IRDA) has asked life insurance companies to increase their life cover to 10 times the annual premium, as against 5 time the annual premium at present.
Moreover, the Direct Tax Code (DTC) suggests that the annual premium paid for the life insurance policy will be taxable if it exceeds 5% of the capital sum assured. This means the sum assured has to be at least 20 times the premium paid to be eligible for this deduction.
We believe that the IRDA has done the right thing by cracking the whip on the insurers for tweaking the traditional insurance plans in such a way so as to be less beneficial for the policyholders. Insurance cover is the essence of any traditional insurance plan and the insurers should not play with it for their own vested interests.
Also, an individual seeking insurance must keep in mind that the insurance is for protecting the most definite yet uncertain event in one's life i.e. death. And thus, one should opt for a pure term insurance plan as this category of life insurance serves the purpose very well.
| | Impact
The Foreign Institutional Investors (FIIs) started the month of September 2011 on a positive note - being net buyers and so far (as on September 20, 2011) have bought to the tune of  2,220 crore. The valuations of the Indian equity markets seemed to have appealed them as the BSE Sensex corrected nearly 21% (to 16,821.46 points as on September 02, 2011) from its previous high of 21,004.96 on November 05, 2011.
(Source :ACE MF, PersonalFN Research)
Moreover, while the economic turmoil in the Euro zone and the United States has rendered the investors directionless, FIIs are exuding confidence towards India as it continues to offer promising growth prospects supported by a strong consumption story and well-regulated banking and financial services sector. Moreover, even though the GDP growth rate for the 1st quarter of 2011-12 has dwindled to 7.7%, it appears far more appealing when compared to developed nations (who are reporting dismal economic growth).
But we believe that while the FIIs have turned their heads towards India (as an investment destination), we (India) would be susceptible to outflows from them as well in case if any nervous news is disseminated from the developed nations. It is noteworthy that Indian equity markets may not come out unscathed from the global turmoil and as such are bound to get affected due any negative news coming from the developed world. Also, FII flows by nature are like migratory birds which flock from one place to another in search for better environment.
For long-term economic progress of our nation we require long-term investment in the form Foreign Direct Investment (FDI) which can help achieve infrastructure needs, as infrastructure is the key to India's growth going forward. | | | | Weekly Facts |
| Close | Change | %Change | | BSE Sensex* | 16,162.06 | (771.8)  | -4.56% | | Re/US$ | 49.54 | (1.9) | 3.94% | Gold /10g | 28,030.00 | (135.0) | -0.48% | | Crude ($/barrel) | 111.04 | (0.3) | -0.26% | | FD Rates (1-Yr) | 7.25% - 9.25% | Weekly change as on September 22, 2011
*BSE Sensex as on September 23, 2011 | | | | This Week's Poll !!!
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In an interview with the Economic Times, Mr. David Vines - Professor of Economics at Oxford University shared his views on the worsening debt crisis in the Euro zone & the U.S. economy and India as an investment destination.
Mr. Vines thinks that a big concern for everybody is the fear of a double dip recession. He highlighted three sets of worries; first, things are not progressing well politically in the U.S. so the fiscal position is uncertain and in the light of that uncertainty, the private sector is holding back as well. Secondly he thinks that in Europe, it's just like a policy jungle. Fundamentally to resolve the European crisis, he believes is not expensive but it requires real political leadership from Germany. Thirdly, according to him is the inflation problems caused by moving of growth to the emerging markets which are much energy-intensive and from where the demand for food is rising.
On whether Greece should be bailed out or allowed to default, Mr. Vines points out to the fact that the Lehman episode has shown that the default risk route, which many people are advocating, is not a safe one. According to Mr. Vines the cost of resolving the Greek position is not too high, and that the recovery will happen if Greece becomes more competitive which requires huge currency deprecation; but unfortunately this is not possible within the Euro. "It requires real political courage in Greece for big wage cuts. What Greece needs is a very large wage cut and a big haircut on its debt," he said.
"Opportunities in India are very good," says Mr. Vines. He believes that India is a very important long-term opportunity for investors. According to him, the prevention of the double-dip recession and the management of the inflation problem are the two things that will decide whether money would come to India or not. Nonetheless, he believes India is inevitably a vibrant democracy and thus as long as the external risks are dealt with, the prospects are very good.
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Rogue Trader: A trader who acts independently of others - and, typically, recklessly - usually to the detriment of both the clients and the institution that employs him or her. Rogue traders typically trade in high risk investments which can create huge losses but also large gains.
(Source: Investopedia) | | | QUOTE OF THE WEEK
"The world does not pay for what a person knows, but it pays for what a person does with what he knows."
-Laurence Lee | | |