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| 17th August, 2012 |
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| Weekly Facts |
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Change |
%Change |
| BSE Sensex* |
17,691.08 |
133.3 |
0.76% |
| Re/US$ |
55.78 |
(0.5) |
-0.87% |
| Gold Rs/10g |
29,905.00 |
140.0 |
0.47% |
| Crude ($/barrel) |
116.43 |
4.2 |
3.77% |
| FD Rates (1-Yr) |
7.25% - 9.25% |
Weekly change as on August 16, 2012
*BSE Sensex as on August 17, 2012
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Impact 
After hovering above the comfort zone of the RBI for quite some time, the WPI inflation for the July 2012 eased to 6.89% aided by dip in food inflation as well as fuel & power inflation. Moreover, the July 2012 inflation number is the least since the change in the base year in August 2010. Thus, RBI may now be encouraged to reduce policy rates to soothe the nerves of the market, in the backdrop of some mellowing in WPI inflation and see-sawing IIP data.
(Source: Office of the Economic Advisor, PersonalFN Research)
The country's largest public sector lender, the State Bank of India (SBI) at present has reduced its interest rates upto 50 basis points (0.50%) on home and car loans, and thus now other public and private sector banks are expected to follow the suite. The SBI's stance of reducing the interest rates comes on the back of the Reserve Bank of India (RBI) announcing 1% cut in Statutory Liquidity Ratio (SLR) at its first quarter review of monetary policy which was scheduled on July 31, 2012.
We are of the view that, the RBI may rethink on its monetary policy stance at its upcoming second quarter mid-review of monetary policy scheduled on September 17, 2012. If the RBI indeed reduces policy rates we may see the benefit of rate cuts being passed on to bank customers. Under such circumstances, if you are looking at home loans and auto loans you wait until at least wait for the quarter under review of RBI (second quarter review of monetary policy is scheduled on October 30, 2012). Also if you are already having any home loan or car loan you could witness a sigh of relief.
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Impact
The capital market regulator - the Securities and Exchange Board of India (SEBI) vide a circular has directed brokerage firms, mutual funds, portfolio managers and other capital market entities to accept "Aadhaar" cards as valid proof of address while dealing with account holders or investors. The other documents permitted to be used as address proof in the capital market include passport, driving licence, voter ID card, ration card, bank statement and utility bills, while a valid ID proof documents also include PAN (Permanent Account Number) card.
It is noteworthy that "Aadhaar" is also permitted as valid ID proof and address proof documents in the KYC (Know Your Customer) procedures for opening of bank accounts, buying an insurance policy, buying a telecommunication product and many other services.
We believe that, the SEBI's step to consider "Aadhaar" as a valid proof of address is a credible step. But if "Aadhaar" is made mandatory, the requirement of other documents such as the ones mentioned above, barring the PAN should be done away with, as it simply adds to the documentation work.
However, the efficiency of issuing 'Aadhaar' cards to the citizens of India has to garner pace and strict time line have to be enforced. It is noteworthy that many citizens have still not received their "Aadhaar" cards. Some of the cards have not reached the beneficiaries even after enrolling for the same 10 months ago. Such lapses should be taken by the Government on a serious note, as any manipulation in issuance of Aadhaar card could prove to be detrimental.
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Impact
While making important decisions in life whether financial or non-financial it may not always be possible to get them right at the first instance. Since we are humans each with a different mind-set and intellect, it may not be possible to make a correct decision at all times. But if the incorrect or wrong decisions are detected at an early stage they can be rectified in a better way with a lesser damage or loss.
Similarly, when you find that the insurance policy bought by you either out of the sales' pitch of the insurance agent or just to save tax, is not meeting the purpose for which the policy was bought, you tend to rectify your incorrect decision. You tend to think of surrendering the life insurance policy to your insurer, whereby depending upon the number of years of premium payment, the insurer repays you a sum of money - known as the surrender value. However in most cases, you as a policyholder would have to bear a loss of more than 50% (i.e. 50% of the total amount paid as premium is deducted as a penalty). Under such circumstances many policyholders become reluctant to surrender their policy and continue with their premiums. To know the changes brought about by the IRDA in the surrender charges of an insurance policy, please click here.
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Impact
Every time you go out for shopping, you tend to look out for something new and different. It is quite natural to get attracted and enticed to buy different products with latest technology to make your daily lives less cumbersome. Well, this approach would work in such cases (of buying tangible goods) but when it comes to investment decisions, you ought to take extra care before you plunge into it; just because the product offered to you is different and has something new in store for you. You might land up buying a product which does not suit your needs or risk profile. Moreover you might incur heavy financial losses.
Similarly, when you buy insurance policy you need to act responsibly and make decision based on your requirements. It is quite possible that to lure policyholders into buying new products, the insurers come up with a different product in order to meet the sales target or new business premium targets. To know more about the draft guidelines for ILIPs, please click here.
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- Bharti AXA General Insurance may soon come up with an 'unemployment insurance' product in the current fiscal as the domestic economy is witnessing a slowdown. At present, the insurer is waiting for necessary approval from the regulator to launch such a product. The product will cover the general credit risk of a person during a loss of job. For example, payment of equated monthly instalments of the person insured for some months.
We believe that, unemployment insurance is a new product in the general insurance category in the country, though it is a very popular product in the western economies. The product may well attract quite a few employees due to uncertainty emanating in the job market due to a gloomy global economic environment. However, before signing in for such a product pre-conditions one must check all the conditions affixed to such a policy. For instance, there could be a condition where an insurer may not offer an insurance cover for loss of employment for closure of a company's division due to poor financial health or an action imposed by a public authority leading to a firm's closure.
- A Labour Ministry's proposal for increasing the monthly pension of Provident Fund (PF) subscribers is awaiting Finance Ministry's approval. This proposal, if accepted will benefit nearly 6 crore formal sector employees. At present, most provident fund subscribers receive less than Rs 500 a month as pension after decades of service. Employers contribute 12% of workers' salaries to their EPF accounts, over two-thirds of which is diverted to an employees' pension scheme launched in 1995. The Government chips in with a subsidy of 1.16% of the salary (up to Rs 6,500 a month) towards this scheme
We are of the view that, although there are benefits like provident fund available, employees should not ignore their retirement planning exercise. A pension of Rs 1,000 per month say after 20 years may not be of any value to you. As a result it becomes imperative that an investor starts his or her retirement planning exercise at an early age of the working life, to live a blissful life during the golden years.
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Pension Plan: A type of retirement plan, usually tax exempt, wherein an employer makes contributions toward a pool of funds set aside for an employee's future benefit. The pool of funds is then invested on the employee's behalf, allowing the employee to receive benefits upon retirement.
Source: Investopedia
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Quote : "Education is the ability to listen to almost anything without losing your temper or your self-confidence." - Robert Frost
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