Impact 
The insurance regulator - Insurance Regulatory and Development Authority (IRDA) is in the last lap of checking repositories' preparedness and infrastructure, and is likely to allot licences by May-end or early June for insurance policies to be issued and held in electronic form. Though e-policies (electronic policies) will be available across life, health and motor insurance segments, the service will first start for life covers.
Initially, the insurance industry expects customer traction to be low but will later gravitate to e-insurance as and when the customer understands the benefits of e-insurance. Buying an e-insurance policy will also be easy. The customer can approach the insurer and put in a request to issue an e-policy in his or her name. The insurer will then contact the repository, which, in turn, will call the customer and complete the 'Know Your Customer’ (KYC) norms for an e-insurance account (e-IA). Once the policy is issued, the insurer will share the details with the repository, who, in turn will update it in the customer’s account. After this, a receipt of the transaction summary will be handed over to the customer. On the other hand, a customer can also open an e-IA and then buy a policy either online or offline. The repository service will be free of cost, as the insurer will pay the repository.
Moreover, for policy conversion, a customer can open an account and send the policy conversion request along with the policy document to the repository. Each e-IA will get a login ID and password to access one’s account and electronic policy details online on the repository’s website.
We believe that having an insurance policy in electronic form will make things easier for the policyholder. There will be no policy documents to be preserved for many years. Also, a policyholder having multiple policies from different insurers can hold them all electronically in a single e-IA account.
Moreover, any changes in the address or name can be intimated just once and the change will reflect in all the policies via the e-route.
| Impact 
The demand for gold on the auspicious occasion of Akshaya Trithiya (on April 24, 2012) remained subdued due to high prices of the precious yellow metal. Gold prices rose to Rs 28,112 from Rs 20,700 a year ago, marking an increase of 35.8%.
(Source: National Stock Exchange, PersonalFN Research)
The above chart too, shows decreasing trading volumes in the gold Exchange Traded Funds (GETFs). However, an interesting observation of the data on net inflows in GETFs, for FY12 reveals that there has been 59% increase in net inflows in GETFs as compared to FY11 (where Rs 2,289 crore was garnered); which is 43 times more than the amount collected in FY09, the year in which global financial crisis shook capital markets.
We believe that a muted response for gold on the occasion of Akshaya Trithiya should not be a deterrent to investors in gold. Instead one should invest in gold the smart way i.e. through gold Exchange Traded Funds (ETFs) for the merits they offer, which are:
- Convenience
- No worry about the quality of the precious yellow metal
- No premium charged at the time of purchase (like in case of physical gold)
- Low cost
- No hassles about obtaining the right value while you sell
Also, gold as an asset class in your portfolio helps to balance the overall portfolio risk due to its inverse relationship with other risky asset classes such as equity. An allocation of at least 5% to 10% to your portfolio, with an investment horizon of 10 to 20 years can really help shield your portfolio from turbulence in the equity markets.
| Impact
Sudden and intense policy changes have sometimes adverse repercussions in the long run. The decision of 'entry load ban' taken by the SEBI (Securities and Exchange Board of India) in September 2009 did not go down well with the mutual fund industry. The decision of entry load ban was implemented in a cut-and-dry manner instead of in a slow, phased manner. This thus resulted in a difficulty for the mutual fund industry to adjust to this new business model.
Citing this difficulty, the Association of Mutual Funds in India's (AMFI) Chief Executive - Mr H.N. Sinor has expressed his concerns, and plans to initiate a discussion with SEBI to review its 2 year old decision of a complete ban on the entry load. In an interview with the Economic Times, Mr Sinor raised a few points to express his concern for the mutual fund industry.
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| Impact
The world of investments is so complex that many a times you are confused on selecting the right investment avenue matching your need and risk profile. Hence you approach experienced professionals to manage your investments or take some sort of help in planning your finances in order to fulfil your various goals. This is because either you don’t have enough time to manage your finances, or you simply lack the required skills to manage your money.
Considering this, if the Finance Ministry wants novice investors to invest directly in the equity markets in order to avail a tax benefit by investing in the Rajiv Gandhi Equity Savings Scheme (RGESS), then it may be difficult for the novice investors to pick the right stocks suiting their risk profile, at the right valuations. Though the tax benefit will help investors save their taxes, the direct investment in the equity markets may not be fruitful if utmost care is not taken in selecting the right stocks. And surely selecting the right stocks is definitely not as easy as buying grocery!
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In an interview with the Economic Times, Mr Ruchir Sharma - Head of Emerging Markets at Morgan Stanley shared his views on the stance that the Government of India should adopt for economic growth and a conducive political system needed for an economy to break out.
Mr Sharma believes that if the Government continues with its spending in the post-crisis period, India may see the same fate as Brazil in the late 1970s when excessive Government spending led to persistent inflation and crowding out of private investment. He also said, "The premature creation of a welfare state, falling turnover among the rich and powerful and a disturbing tendency of farmers to stay on the farm are some of the key issues that need to be addressed for India to become a breakout nation."
Mr Sharma is of the view that it is not the type of system that matters, it is the stability of the system and, even more important, whether the leaders running it understand the basics of economic reform. "The chance that any particular system - democratic, authoritarian or any other - will have a positive impact on a country's breakout potential is about 50-50," he said.
We are of the view that the Government needs to come out with strong policy reforms in order to spurt the investment mood in the country. The fiscal deficit target of 5.1% for FY13 set out by the Government in the Union Budget 2012 requires net borrowings of Rs 4.79 lakh crore. The steep borrowing target may create a liquidity crunch in the banking system as well.
At a time when the economy is showing signs of a slowdown and the RBI has started its policy rate cut regime, it would be appropriate for the Government to kick-in policy reforms and aim at attracting FDI in the country.
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- The scope of the Central Registry, which registers all loan-linked properties, has been widened to include all properties with no loan attached. A pilot project for registering all properties would begin before March 2013. Also, to operate the pilot project and maintain it, a Central Electronic Registry of Securitisation Asset Reconstruction (CERSAI) has been incorporated.
- According to the economic think tank, Centre for Monitoring India Economy (CMIE), the net profit of India Inc. is expected to rise 30.6% in fiscal FY13. Moreover, the report expects the PAT margin to expand 1% at 7.1% due to fall in input prices, inflation and softer interest regime. The CMIE has also forecasted international prices of raw materials, such as crude, natural gas, edible oils and coking coal, to fall in FY13.
- The RBI in its latest directive has allowed all financial institutions to hedge their underlying credit risk in corporate bonds using credit default swaps. Financial institutions include Export-Import Bank of India, National Bank for Agriculture and Rural Development, National Housing Bank and Small Industries Development Bank of India. Earlier, only commercial banks, primary dealers, non-banking finance companies, mutual funds, insurance companies, housing finance companies, provident funds, listed corporate and foreign institutional investors were permitted to use the credit default swap market.
- In order to instil data accuracy and overcome criticism, the India Post will help Central Statistical Organization (CSO) to collect data to compile the Index of Industrial Production (IIP). India Post has been helping the CSO under the Ministry of Statistics and Programme Implementation to collect data for the Consumer Price Index (CPI) since 2010.
- In order to ensure that the customers are protected even in case of plain vanilla products, the Government of India is mulling ways to enact a comprehensive law for financial sector consumers. It is noteworthy that at present consumer protection laws are in place, but not specifically for the financial sector consumers.
- In order to speed up refunds, TDS claims in all tax returns (ITR-1 to ITR-6) will be accepted without verification if the difference between the amount claimed in the return and the amount reflected in the TDS return (AS-26 statement) does not exceed Rs 1 lakh. This will enable the Income Tax department clear nearly 95% refunds without verifying each TDS claim. Cases with zero-matching, invalid TAN and difference exceeding Rs. 1 lakh will, however, be cleared only after due verification. This precaution is necessary to avoid refund frauds.
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Credit Default Swaps: A swap designed to transfer the credit exposure of fixed income products between parties. A credit default swap is also referred to as a credit derivative contract, where the purchaser of the swap makes payments up until the maturity date of a contract. Payments are made to the seller of the swap. In return, the seller agrees to pay off a third party debt if this party defaults on the loan. A CDS is considered insurance against non-payment. A buyer of a CDS might be speculating on the possibility that the third party will indeed default.
(Source: Investopedia)
| | QUOTE OF THE WEEK
"Success is simple. Do what's right, the right way, at the right time."
- Arnold Glasgow
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