What Your Financial Advisor May Not Tell You   Jan 08, 2016

January 08, 2016
Weekly Facts
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S&P BSE Sensex* 24,934.33 -1226.57 -4.69%
Re/US $ 66.93 -0.18 -0.27%
Gold Rs/10g 25,960.00 980.00 3.92%
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F.D. Rates (1-Yr) 6.25% - 7.90%
Weekly changes as on January 07, 2016
*S&P BSE Sensex value as on January 08, 2016

English is a very rich and beautiful language. But, unless you understand the finer nuances of words, you are likely to use inappropriate words to describe situations. This is true in case of any other language of the world. For example, if someone asks you if you have lied to your parents in your childhood; you wouldn’t deny it, if you are honest about it. If the question was silently modified to whether your children lie to you now, again the answer is likely to be in the affirmative. Hey, there’s a silver lining. You may have not even ‘lied’, but you believe what you did was lying. And that’s the point in discussion here.

There’s a difference between fibbing and lying. According to ‘Merriam Webster’;

A fib : an untrue statement about something minor or unimportant

A lie : an assertion of something known or believed by the speaker to be untrue with an intent to deceive

What you did when you were a child might have been just fibbing, but you misunderstood it for lying. This is quite possible. Having said this, there’s a thin line between a fib and a lie. Fibbing is common among children, but what it’s not is a lie with intent of causing harm to someone knowingly and deliberately.

Now consider this…

Well, if someone makes you believe in a fantasy, claiming it to be reality, what would you call it? It’s rather difficult to answer that question, isn’t it? Now, let’s not restrict ourselves to fibbing and lying. Many would call it good selling, and a few others may call it the art of storytelling.

Going one step ahead, if anyone makes a statement that he believes to be true yet hides crucial facts, facts that he knows may change your perspective. What would you call it? He’s not lying, right or is he?

But how to distinguish between a fibber, a liar, a dishonest, and a fraudster financial advisor.

A fibber: He/she may say, “Sir/madam, you are such a well-tempered and sharp minded person, you shouldn’t find it difficult to understand the product. Please give me a chance to explain.” Here the advisor is not lying about the product per se, but he is fibbing when says you are a well-tempered and sharp minded. The intent is to secure your appointment for one more presentation. Fibbers are not so dangerous.

A liar: “Sir/Madam, there’s nothing much to read about this product. You may read it if you want to, but you won’t lose money in equity oriented mutual funds if you hold them for 5 years.” In this case, a financial advisor is misleading you by giving false information to influence your decision making.

A dishonest financial advisor says: “Sir, so what if you are 50; there’s no hard and fast rule that a person can’t buy insurance at 50. I suggest you to buy two new plans. One is unit linked and the other is for your retirement. You can stop paying premium after 3 years if you want, yet this would generate returns higher than mutual funds.”

A fraud: “Sir / Madam, I run an investment fund and would request you to invest Rs 5 lakh in it. I would invest your money in such a way that, it fetches you 100% returns in 1 year. In reality, he is not authorized to run any such scheme and he doesn’t even run such a scheme. He has intent of robbing you and fleeing away. You may not meet such advisors in your day to day life. They are special cases but be wary of them

Ethics and morals

These are moral issues. They are really more complex than they appear. Those in the profession of distributing financial products or giving financial advice; often fib, lie, cheat or swindle. Many of them spin tall tales. They sell you mundane and rather ordinary products in the name of life-changing ones. It isn’t that they are unaware this product is going to fall short of expectations in the end, but they don’t care about it. Their loyalties are different. They can literally botch up your neatly managed finances. let’s look at what they don’t reveal to you:

  • While financial advisors and insurance agents sell you traditional insurance policies, they don’t tell you the bonus is not guaranteed. They show you the illustrations making certain assumptions about bonuses. Making assumptions are fine but not highlighting them, as assumptions, is not okay. Or they may simply avoid informing you that bonuses are not guaranteed, and are dependent on your investing quotient.

  • Financial advisors may not brief you about risks involved in investment propositions. Be it mutual funds or Unit Linked Insurance Plans (ULIPs).

  • Insurance plans with investment component are often costly, especially the ULIPs and money-back plans. The crooks remain silent about the costs.

  • Many times, financial advisors fail to explain or remain silent about the importance of diversification. They try to push the products that would earn them more commissions.

  • Dishonest financial advisors often hide that newly launched funds, which are often priced at Rs 10, are not cheaper than the existing funds which quote the higher Net Asset Value (NAV)

  • Financial advisors often remain silent about the ideal time horizon required for a particular product to yield results upto its potential.

This list can be literally endless.

PersonalFN believes you should say goodbye to your financial advisor if you find the statements above to be true in his/her case. So, whom to trust then? PersonalFN has been working on congregating all ethical, genuine, and competent financial advisors at one platform. You may assess their performance, ask them tough questions and importantly, rate them based on your experience with them. Your opinion matters the most. Do write to us to share your story.


Most of us borrow from banks for various reasons. The main factor that affects your decision is the cost of borrowing. This is primarily a function of cost of funds to banks, their profit margins, credit worthiness of borrowers, demand for loans, and general growth trends in the economy among others. Among these, the cost of funds is a crucial factor. Whenever RBI lowers repo rates (policy rates), a determinant of inter-bank lending rates, it signals banks to lower the cost of lending. However, there’s no such obligation on banks.

Recent experience reveals…

In the year, 2015, RBI lowered policy rates by 125bps (1.25%), however banks didn’t pass on much of it. Banks have been giving plausible excuses that their cost of borrowing has gone down only recently so they are unable to lower the lending rates for the loans with across the board maturities for the reason of avoiding asset liability mismatches. To deal with this technical issue, some structural changes were needed. RBI has been successful in finding a solution.

To address the problem, RBI released new guidelines to correct the flaws in the process of interest rate computation. As per the new guidelines, “All rupee loans sanctioned and credit limits renewed w.e.f. April 1, 2016 will be priced with reference to the Marginal Cost of Funds based Lending Rate (MCLR)which will be the internal benchmark for such purposes.”

It is believed that shifting to the MCLR would help improve the efficiency of monetary policy transmission.

What would the implications of MCLR be?

When the new regime becomes operational from April 01, 2016, short tenure loans may get cheaper. This is because the banks will have MCLR benchmarks for different tenures. In simple words, now the banks will able to distinguish between long term and short term funds for calculating the interest rates, which they weren’t doing till now. They weren’t lending below the base rate, which used to be common for all maturities.

Impact on the industry shows…

Until now, companies with good market positioning and favourable credit rating were directly accessing the markets (through Commercial Papers, CPs) for borrowing short term funds. Banks were pricing their loans higher than the CP rates. Now that the cost of short term funds will drop, so will the CP yields. This will make short term borrowing cheaper for such companies. Those who have no access to CP market for the lack of credit rating can now borrow from banks at a cheaper rate. However, there may not be much of an impact on long term funds.

Impact on debt funds

Assuming that the RBI may continue with its accommodative monetary policy even in 2016 and inflation stays lower going forward, ultra-short term funds and short term income funds may underperform compared to long term income funds. The RBI may like to maintain a comfortable liquidity position in the system. These factors will collectively push the short term yields lower. However, this doesn’t mean that long term income funds will reward you exceptionally.

What strategy should you adopt going forward?

Whenever you are investing in a debt fund, make sure that you invest in a fund whose maturity profile somewhat similar to your time horizon. You should avoid speculating on the interest rate movement. If you have a shorter time horizon of say 8-12 months, you should invest in short term income funds, ignoring the brighter outlook for long term income funds. We never know, the fundamentals of each category could change without any prior notice.

Year 2016 is a tricky year for debt fund investors; don’t expect returns similar on those you made in 2015. RBI is unlikely to cut policy rates by another 125bps.


You may read volumes on your favourite subject but unless you truly comprehend the message of the writer, your efforts go in vain. The same is true in case of investing. Savvy as well as novice investors seek information that will help them identify rewarding investment options.

However, it’s been observed that, no matter how much they read about it, they continue to make the same mistakes. You may know the safety measures, but still lose money because greed often overpowers sincerity.

For instance, largecaps appear cheaper than mid and small caps on valuations at the onset of 2016. However, investors have been flocking to midcaps, pushing the valuations higher. So much so that a few fund houses have stopped accepting fresh funds under their select midcap oriented schemes about 2-3 months ago. Investors still appear bullish and midcap oriented New Fund Offers (NFOs) have been getting a good response.

Why investors are bullish on midcaps?

Due to their inherent nature, midcaps are considered to have a higher return potential than largecaps. Indian equity markets have been in the bull phase since December 2011. Although they were corrected significantly in 2013; they bounced back. Thereafter, there has been no significant fall in the market. When markets are stable and largecaps get a little expensive; investors rushed to the midcap counters. However, many investors prefer to trade in largecaps but invest in midcaps simply because large caps have better liquidity than midcaps. In simple words, when needed, largecaps can be sold off quickly.

How are market valuations placed?

Portfolio Asset Class Graph - DHFDC
Data as on January 01, 2016
(Source: BSE, PersonalFN Research)

n the year 2015, FIIs invested cautiously in Indian markets. They withdrew their monies from Indian markets quite regularly in the second-half of 2015. They may have not been specifically negative but India as a market may have become less attractive. This caused largecaps to lose more than midcaps. In fact, while India’s bellwether index, S&P BSE Sensex lost approximately 5% in 2015; S&P BSE Midcap ended the year 2015 with gains of around 7%. As a result, Sensex traded at the PE (Profit/Earnings) multiple of 19.83 (on trailed earnings) as on December 31, 2015. On the other hand, the S&P BSE Midcap traded at the PE multiple of 26.57 on the same day. As you may be aware, lower PE denotes lower valuations. Clearly, largecaps appear more attractive at the index level.

To ready more about this story and PersonalFN’s views over it, please click here.


We see that corporations across the globe face similar challenges. Depending on the size of the business, financial strength of the company and quality of management, the severity of the challenges and concerns may differ. Nonetheless, the hot topics at meetings remain more or less the same. Unsatisfactory performance, low/moderate growth in sales numbers, and the like are most common.

Case in point, Gautam works for a manufacturing company. Let’s see what happened to him recently.

Time: 6.30 p.m.

Venue: CEO’s cabin

Departments involved: Production, Purchase and Marketing

People present for the meeting: Department heads and the officers directly reporting to heads.

Agenda: Discussion about exceptionally poor performance and progress of one of the key projects

“Gautam, this is not a Government office. The management won’t tolerate this delay. Why couldn’t you get your job done last week? It shouldn’t have taken you more than a day or two, yet you dilly dallied for a whole week. We are a pioneer company in this industry; you can’t mess up with such an important project. It affects our image in the industry. To top it, Ritesh and a few of your team members got their palms greased in the tendering process. What’s happening here? Do you understand where we are going to land up if we continue like this?”

The CEO of the company was dressing-down the employees responsible for the poor progress of the project. These are not one-off cases. If you work with a private company, you can relate to this situation. Unfortunately, the functioning of Government departments has become synonymous with bureaucracy, corruption, and unproductivity. In reality, a bunch of dishonest and badly behaved ‘babus’ give all Government employees a bad name. Private companies are not far behind.

To know more about digital wallets and which ones to select, please click here.

The episode of JP Morgan burning investors’ money in bad quality assets decisions is not very old. Although, the institution later swung fast into action and slogged it out to recover money and did so with a minimum loss, the entire story has made the regulator upset. Securities and Exchange Board of India (SEBI) has been planning to tighten the guidelines for mutual funds investing in bonds. The new rules mainly revolve around the introduction of safety measures and the revision of exposure limits for mutual funds. It now remains to be seen what happens at the annual meeting of the SEBI scheduled on January 11, 2016.

Interbank Rate: The rate of interest charged on short-term loans made between banks. Banks borrow and lend money in the interbank market in order to manage liquidity and meet the requirements placed on them. The interest rate charged depends on the availability of money in the market, on prevailing rates and on the specific terms of the contract, such as term length.
(Source: Investopedia)

Quote : “Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down.”
-Warren Buffett


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