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| December 07, 2012 |
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| Weekly Facts |
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Close |
Change |
%Change |
| BSE Sensex* |
19,424.10 |
84.2 |
0.44% |
| Re/US$ |
54.14 |
0.7 |
1.26% |
| Gold Rs/10g |
30,700.00 |
(950.0) |
-3.00% |
| Crude ($/barrel) |
108.68 |
(1.6) |
-1.45% |
| FD Rates (1-Yr) |
7.50% - 9.00% |
Weekly change as on December 06, 2012
*BSE Sensex as on December 07, 2012
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Impact 
Many of us in today's stressful times want flexibility in practically whatever we do. We wish quite a many things and also have a desire in our heart to have it our way. Even while we invest, with today's rising cost of living, we often prefer to invest a small portion every month or periodicity as per our choice, which enables us to save for a financial goal systematically and at the same time provide us with flexibility. Seemingly recognising this aspect, recently India's largest private sector bank - ICICI Bank Ltd. launched flexible recurring deposit scheme, named "iWish" for its savings account customers.
The product offers customers the flexibility to choose when and how much to save to meet their life goals, and interestingly for the first time in India also share their goals on Facebook with friends and family, who can choose to contribute to the goal.
Unlike a traditional recurring deposit wherein you are required to deposit a predetermined fixed amount at a periodicity for a pre-fixed rate of interest per annum and for a set tenure of time; "iWish" provides you:
- Flexibility to save varying amounts of money at any time of choice
- Create several goals and track their progress on an easy-to-use online interface
- Enables customers to share their wishes on Facebook, and let their friends and family be a part of their dreams by contributing to the customer's account from any bank account (using a VISA debit card)
Many of you may be wondering how such an innovative financial product was developed. Well, ICICI Bank Ltd. has developed this product in collaboration with Social Money - who is a leader in the social saving space in the United States (U.S.), and the product has been customized to suit the Indian market and regulations.
We are of the view that, "iWish" is indeed an innovation in social savings and provides one to flexibility while one would like to plan for life goal(s). But we think although flexibility feature is good and luring, it is imperative for investors to have a much disciplined approach and save and invest regularly. Also one needs to consider host of aspects such as your age, income, expenses, existing asset, liabilities and nearness to your financial goal; for you to plan for your life goals very prudently. Remember financial planning require customisation and mix of asset classes in your portfolio, on your path to achieve your life goals.
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Impact
In the month gone by (i.e. November 2012), the Indian equity markets recovered after a phase of exhaustion in October 2012. The strong impulse in the market movement during the tail of the month led to the BSE Sensex register a gain of +4.5% (or 834.52 points) and infused exuberance. While downbeat global economic sentiments did fade with intermediate positive economic data (the U.S. registered an increase in its third quarter GDP to 2.7% well supported by consumption, federal Government spending and export) and bailout measures doled out for Greece along with approval given for restructure of Spanish bank loans; it didn't show signs of fear easing for the domestic mutual fund industry (although the FIIs rejoiced over this intermediate positive news flows).
BSE Sensex vs. MF inflows
Data as on: November 26, 2012
(Source: ACE MF, PersonalFN Research)
In the month gone domestic mutual funds continued to be net sellers in the Indian equity markets as depicted by the chart above. They net sold to the tune of Rs 1,273 crore; but a noteworthy point is that their selling streak reduced as compared to October 2012 where they net sold to the tune of Rs 2,520 crore. Also for the mutual fund industry the impulse shown by the Indian equity markets, left request for redemptions in equity funds unabated, as investors preferred to book profits. Thus fund managers experienced redemption pressures, while they were watchful about domestic issues such as how the reform measures would take course with approvals awaited in the winter session of the Parliament, in a political scenario which appeared tainted with graft charges emerging against every political party. Hence although the markets did show an impulse, there was scepticism which led mutual funds maintaining their selling streak as seen even in the previous months.
We are of view that, while investing in mutual funds investors should have a long-term investment horizon of at least 3 years and not be encouraged by intermediate exuberant phases to redeem their investments. We recognise that you may want to manage the integral volatility of the equity markets; but to do so it would be prudent to adopt the Systematic Investment Plan (SIP) mode of investing which provides you the advantage of rupee-cost averaging and powers your portfolio with the benefit of compounding. While investing in mutual funds, we recommend that you invest in schemes which have competed at least a 3 year track record and those from fund houses which follow strong investment processes and systems. Remember, if you have winning mutual fund schemes in your portfolio you don't need to worry, as they can help to create wealth over the long-term.
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Impact
The Employees' Provident Fund Organisation (EPFO) has finally infused easy by which members could access the EPF account statement. The EPFO launched its e-Passbook service, which will now make accessing EPF account statements just a click away. Thus if you are an active subscriber (whose electronic challan-cum-return is already uploaded) you can simply log on to www.epfindia.gov.in to access your details. However, if the account is inoperative (i.e. there are no contributions in the preceding 36 months) the online access is not permitted.
Member of EPFO can register themselves on the portal by using a photo identification (ID) number, such as PAN, Aadhaar, National Population Registry, driving license, passport, or voters' ID. They can add multiple ID numbers after registration and can use any one for logging into their accounts. Mobile phone numbers can be used as passwords. However under e-Passbook only one registration will be allowed against one mobile number. Once registered, a member can download the passbook by entering his or her account number. If available, the passbook will appear for download.
We are of the view that, the initiative taken by EPFO will indeed facilitate members to track their accounts with ease online, and that in turn would facilitate reduction in administration cost to an extent. Overall the process of registration is not cumbersome and therefore can encourage many to obtain their account details online.
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Impact
We are in the month of December already, and we are quite sure that many of you would be jotting down your "to-do list" for the next calendar year. But here's something that requires your immediate attention, for you to handle your financial transactions comfortably, before you exude hope for prosperity in the New Year.
Beginning next year, i.e. from January 1, 2013 Cheque Truncation System (CTS) would be implemented, whereby flow of the physical movement of cheque (issued by a drawer to the drawee branch), will be eliminated in the truncation process. Instead an electronic image of the cheque will be sent along with the relevant key information. Thus going forward from January 1, 2013 you may not be able to use your old cheque leaves, if they aren't CTS complied. To know more about this news and its impact on your personal finances, please click here.
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Impact
Reckoning the fact that investing in the debt market entails risk such as interest rate risk, default risk, inflation risk, liquidity risk and re-investment risk, amongst host of other economic risks as well; recently the Insurance Regulatory and Development Authority of India (IRDA) proposed to allow Credit Default Swap (CDS) on listed corporate bonds as reference obligation. However, the draft guidelines permit the use of CDS only for the purposing of hedging, whereby insurers can only be "users" (i.e. protection buyers) of CDS, which could enable them to manage their credit risk well.
The draft guidelines also allow insurers to buy CDS of unlisted but rated bonds of "infrastructure companies". Besides, unlisted/unrated bonds issued by the Special Purpose Vehicles (SPVs) set up by the infrastructure companies are also eligible as reference obligation. To read more about this news and know our view over it, please click here.
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- After Canada Securities Administrators (the securities market regulator in Canada), recently barred Indian Asset Management Companies (AMCs) from selling their investment products to local investors, the Indian funds and portfolio managers are now under the scanner of the U.S. Securities Exchange Commission for serving clients there (in the U.S.) without the requisite regulatory approvals for such activities.
These entities include those soliciting soliciting investments from institutional and individual investors in the U.S., including non-resident Indians (NRIs), in funds and portfolio products involving arts, real estate, commodity and other non-equity assets.
We are of the view that, this is a very prudent and vigilant step taken by the U.S. SEC intended to protect the interest of clients in the U.S. and also sends warning to financial services (that they cannot evade requisite regulatory approvals) wanting to offer their services in the world's largest economy. Last week itself, the U.S. SEC charged four brokerage houses for providing unauthorised broking services to the American clients. We think that Indian companies wanting to offer financial services to abroad should strictly comply with regulatory approval and set good as well as ethical standards of practices.
- The Government in power decided to reduce agents' commission under various small savings schemes and Public Provident Fund (PPF). Finance Minister, Mr P. Chidambaram in the Rajya Sabha said, "The government, after consulting all stakeholders and representations received, has decided to reduce the commission under PPF and SCSS (Senior Citizens Saving Scheme) to zero and under SAS (Standardised Agency System) to 0.5%." Likewise, it has been recommended to reduce commission under Mahila Pradhan Kshetriya Bachat Yojana (MPKBY) to 1.0% in a phased manner from 4.0%. Thus for the time being the commission under MPKBY has been kept at 4.0% and the matter would be review in the due course.
We are of the view that, the Government's move is followed by the recommendations of Shyamala Gopinath Committee to reduce commission of 0.5% on SCSS and 1.0% on PPF to zero. But such a move, we believe is certainly pro-investor which could help pass the benefit of market alignment of rates to investors.
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Credit Risk: The risk of loss of principal or loss of a financial reward stemming from a borrower's failure to repay a loan or otherwise meet a contractual obligation. Credit risk arises whenever a borrower is expecting to use future cash flows to pay a current debt. Investors are compensated for assuming credit risk by way of interest payments from the borrower or issuer of a debt obligation.
Source: Investopedia
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Quote : "It's not your salary that makes you rich, it's your spending habits." - Charles A. Jaffe
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