  | | September 06, 2013 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 19,270.06
| 650.3
| 3.49%
| | Re/US$ | 66.01
| 0.5
| 0.81%
| | Gold Rs/10g | 31,560.00
| (1,705.0)
| -5.13%
| | Crude ($/barrel) | 115.01
| (3.1)
| -2.62%
| | FD Rates (1-Yr) | 8.00% - 9.00% | Weekly change as on September 05, 2013
*BSE Sensex as on September 05, 2013 | |
Impact 
There have been some real estate companies luring home buyers by offering some fanciful schemes. These include, offering substantial discounts for first few buyers; giving freebies and offering some value added services at no extra costs among others. One ad that attracts many house huntsmen is "avail pre-approved loans and pay no EMI till possession". Although it may sound cliché, there are no free lunches. If developer pays EMIs on your behalf for specified time period, say till possession, that doesn't come to you free of cost. Moreover, upfront disbursement of loans to developers puts the home loan borrowers (the home buyers) as well as the lender at risk. Being concerned over the deteriorating asset quality of banks, RBI has come down heavily on such loan schemes which are popularly sold as "20:80" or "25:75" schemes. RBI has asked banks to link the disbursal of funds to the stage of construction instead.
To know why RBI has taken such stand; you first need to understand nitty-gritty of these schemes.
By tying up with developers directly, banks save their efforts and costs of acquiring a new customer for their home loan products. On the other hand, developers get upfront disbursal of home loans which cost pretty less than what they would have paid had they themselves applied for loans. They use these funds for the purpose of construction. Builders attract potential buyers by launching teaser schemes of financing.
RBI has highlighted that such upfront disbursals defeat the principle of risk-based pricing of loans. Making available finance to developers at the rate at which home loans are sold; is a flaw and may lead to deterioration of asset quality of banks. Further, in case of any dispute between builders and homebuyers, the later may have to suffer. If the developer defaults any EMI, credit score of the homebuyer would be affected. Often builders sell flats at a premium price to buyers opting for such schemes.
PersonalFN is of the view that linking loan disbursal to the stage of construction would work in favour of home loan borrowers. This may even put pressure on property prices which are softening in many cities. However, it won't totally eliminate the risk since disbursal of loan involves 3 parties, the bank, the developer and the homebuyer. Buyers beware!
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Impact 
On the first day of his term as the Governor of RBI, Mr Raghuram Rajan announced a spate of reforms and hinted at bringing in many more, in the due course. He restated that the focus of RBI would remain on achieving monetary stability and stressed on making policies of RBI more predictable and transparent. The reforms that have already been announced along with those which are proposed, aim at achieving inclusive growth, development and the betterment of financial infrastructure. Some of his key announcements are as follows:
Besides these announcements, there have been several proposals that are noteworthy. RBI may consider allowing banks to hold lesser investments in government securities. More the funds available with banks higher might be the credit growth. RBI is also pondering on introducing interest rate derivatives on 10 year G-sec bond and also on overnight rates. Speed up the functioning of debt recovery tribunals and asset reconstruction companies would be given special impetus.
The markets reacted positively to these announcements. Fall in bond yields, sharp appreciation in rupee and swift rally in equity indices suggest that market sentiment has turned upbeat after new governor took the charge.
PersonalFN is of the view that although the new governor has given ample of clarity on roadmap of policy stance of RBI; implementation remains the key. The sentiment in capital markets may continue to sway unless there are tangible improvements in the economy. If economic adversities demand the new governor to take tough steps; markets would be disappointed. Therefore, PersonalFN believes investors shouldn't get carried away with bullish sentiment. You would be better off concentrating on your personalised asset allocation rather than speculating.
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Impact
Gold imports are said to be responsible for India's worsening current account position. And indeed gold imports as a percentage of GDP have been rising steadily over last few years. You see, from 1.3% in 2007-08, gold imports rose to 3.0% in 2011-12 as a percentage of GDP. The appetite for holding gold in India is insatiable and people buy gold through all possible modes, but mainly in the physical form. Over the years, having understood benefits of buying gold in paperless form, investors have preferred an Exchange Traded Fund (ETF) route to buy gold for last few years.
Steady growth in demand for gold
(Source: DGCI &S, RBI, PersonalFN Research)
Assets under Management (AUM) of gold ETFs rose from mere Rs 423 crore in July 2007 to Rs 10,703 crore in July 2013, which is close to a 2500% jump in just 5 years. Moreover, the physical holding of gold with Gold ETFs nearly doubled to 38 tonnes in March 2013 from 19 tonnes in March 2011.
Indian government has taken multiple measures to curb India's gold imports. It has increased import duty on gold 3 times so far in 2013. It has imposed restriction on banks and authorised bullion dealers with an aim of pushing down the gold demand. In congruence with these policies of the government, Securities and Exchange Board of India (SEBI) recently turned down requests of mutual funds to launch new gold ETFs. In January this year, the regulator had allowed some mutual funds to launch gold ETFs. However, then too it had taken cautious approach and had encouraged them to invest upto 20% of their assets in gold deposit schemes promoted by banks. This was a move aimed at utilising idle gold in efficient manner. But now SEBI has taken a tough stance and has declined to approve new gold ETF launches. The regulator is of the view that, proliferation of gold ETFs may fuel demand for gold. India has already imported 338 tonnes of gold in the first quarter of current fiscal.
To read more about this news and the view of PersonalFN over it, please click here.
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Impact
Largecaps are considered to be less risky than the mid and small caps; rightly so. Since largecap companies have stable businesses and greater financial muscle to weather economic downturn; their stock prices tend to fluctuate lesser than those of midcaps. Usually, Investors with moderate risk appetite invest in largecaps. Likewise, largecap oriented mutual funds too are popular with investors for the same reason. Your investment advisor and the mutual fund distributor must have recommended you to invest in largecap oriented funds calling them a stable investment proposition. But are they really stable? Let's find out...
Equity markets have been reeling under pressure for variety of macro-economic reasons. Persisting pressure of financing huge Current Account Deficit (CAD) and cooling domestic economy have been keeping equity indices in red. Many of you must have noticed that even your largecap funds are doing poorly these days as compared to S&P BSE Sensex, especially since the beginning of 2013. So negative performance may not come to you as a surprise but underperformance of largecap funds may have disappointed you. Before you conclude that the funds that you have invested in are incapable of generating returns (and therefore such funds should be discarded from your portfolio); wait a minute and check the performance of other largecap funds.
To read more about this news and the view of PersonalFN over it, please click here.
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- Mis-selling in insurance business is quite common but the matter of concern is; it is growing by every passing year. According to data published by Insurance Regulatory and Development Authority (IRDA), it is in receipt of over 3.4 lakh complaints against life insurers in 2012-13. Number of complaints received last fiscal were about 10% higher than those received in 2011-12. Almost half of the total complaints were lodged under "unfair business practices".
PersonalFN believes indemnification of risk is the primary objective for buying insurance. However, expectation of policy buyers to earn returns along with getting an insurance cover; allows insurance agents to mis-sell. Insurance agents often promote products which earn them high commissions. PersonalFN strongly recommends investors to opt for optimised insurance cover and go with term insurance products only.
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Repatriation: "The process of converting a foreign currency into the currency of one's own country. The amount that the investor will receive depends on the exchange rate between the two currencies being traded at the settlement time."
(Source: Investopedia)
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Quote : "Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas." - Paul Samuelson
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