Impact 
In an attempt to make life easier for the tax payers, the Law Ministry along with the Information Technology Ministry are mulling ways to remove the offline process to be followed by the tax payers after they are done with the online filing of returns. The offline process involves taking a printout of what is called the ITR-V form, sign it, and mail it to the I-T department's Centralized Processing Centre (CPC) in Bangalore.
The I-T authorities need to be absolutely certain about the identity of the person filing the form, which is why it currently mandates a physical signature. A digital signature is an option, but one needs to pay to obtain a digital signature for oneself and that is not something everyone would want to do. Thus, the I-T department is now looking at the option of what is called an electronic signature, where your identity is verified online through different ways, including a PIN that could be sent to one of your previously specified devices and which you can use to authenticate yourself.
The efficiency that e-filing and the CPC brings is expected to free much of the I-T department's resources to do the things the department should actually be doing; which is to track black money and conduct investigations into tax frauds.
We believe that making income tax filing completely online is an encouraging move, as filing returns may get simpler and convenient. However, those who aren’t well-versed with the procedure to fine on-line returns or are uncomfortable in using technolgy may continue to seek the services of tax consultants.
The complete online mode of filing income tax returns is also expected to reduce the physical paper work considerably, and is also expected save cost for I -T Department as well as the assesse to some extent.
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| Impact 
Mutual Fund industry’s assets have been on a decline since the beginning of the calendar year 2012. Even when the Indian equity markets (represented by the benchmark BSE Sensex) gained 18.8% within the first two months of the CY 2012, the mutual fund industry remained net sellers to the tune of Rs 4,000 crore.
In the ensuing months too, the BSE Sensex hasn’t been able sustain its uptrend due to the Euro zone crisis (especially in Greece and Spain), and host of domestic factors such as high inflation, widening current account deficit and fiscal deficit amongst others. This thus has led to mutual fund industry assets declined further, whereas on May 25, 2012 they (mutual funds) have turned net sellers to the tune of Rs 5,798 crore.
MF activity v/s BSE Sensex
(Source: ACE MF, PersonalFN Research)
The decline in the AUM of the mutual funds can be attributed to two main reasons: Firstly the rally in the equity markets in the beginning of the year gave a chance to the mutual funds to book profits on their investments; and second, the redemption request built-up as dark clouds loomed around for the reasons cited above.
We believe the descending trend of mutual fund activity, reveals a scenario of pessimism in the short-term due to downbeat economic sentiments prevailing. Having said that, most of the fund houses recognise that present valuations of the Indian equity markets are appealing to accumulate promising long-term investments and thus are encouraging many investors to adopt the Systematic Investment Plan (SIP) mode of investing to sail well during uncertain times. We too are of the view that SIPs can help you manage the volatility of the markets well, through rupee-cost averaging and power your portfolio with the benefit of compounding. However, while investing prefer diversified equity mutual funds schemes which have a good track record and are from fund houses following prudent investment systems and processes. Also one should look at an investment horizon of 3-5 years while investing in equity mutual funds.
| Impact
While every country strives to have stable capital flows, it depends on the ‘type’ of capital flows it receives. Foreign Institutional Investors (FIIs) flows (often referred to as hot money), although they are tracked vigilantly, they could flinch a rollercoaster for the capital markets, as they often act as migratory birds which flock from one place to another in search for greener pastures (i.e. better economic growth, upbeat economic sentiments, etc.), and if they don’t see them they exit.
In an attempt to attract foreign capital flows, the Securities and Exchange Board of India (SEBI) is now planning to relax some of the processes to make it easier for qualified financial investors (QFIs) to buy stocks in India.
Let us delve into details of what the capital market regulator intends doing for this.
Please click here to read more.
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| Impact
Emotions play a major role in determining the stock market activity. When the investor sentiments are upbeat and there is a wave of optimism amongst the investor community, the stock markets or equity markets move northwards. On the contrary when the nervous investment sentiments prevail and clouds of pessimism hover over the investor community, the equity markets mellow down resulting in drain down of investors’ wealth.
Thus, citing this pessimism in the equity markets and bleaker prospects, the Portfolio Management Services (PMS) providers are now offering equity products with variable costs. In this structure, clients pay fund management fees only to the extent of gains, as against the traditional system where a fixed fee is charged irrespective of return which the fund delivers, in addition to a performance bonus too.
Please click here to read more.
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In an interview with the DNA Money, Mr Peter Brooks - Behavioural Finance Specialist at Barclays shared his views on role of culture in determining attitudes towards risk and returns and sentiments affecting people’s ability to make rational investment decisions.
Mr Brooks believes that the risk-taking behaviour is often driven by culture prevalent in an individualistic society and a collectivist society. "The collectivist societies are home to bigger families where, if I were to fail, have a financial meltdown or maybe a bankruptcy, then my relatives will all come in and support me. Typically, the countries that are seen to be collectivist would be India and other Asian nations such as China. Therefore, one of the theories that they have is that the collective support mechanism they have in Asian nations actually increases people’s ability to take risk. In contrast, countries in Europe and the US are seen to be more individualistic. I haven’t seen that reflected in the data, so the impact of that aspect of culture is perhaps questionable. I think the biggest draw of culture is in understanding the social dynamic and the history of a nation which often moulds our individual attitudes towards taking risk. If you are in India, you are somewhat restricted to the Indian home market and also your own social history. Your background and the region’s background will have a huge impact," he explained.
As far as the role of sentiments in investment decision making is concerned, Mr Brooks is of the view that people, mostly in Asia are drawn to tangible assets which they can touch and feel. He says that it is difficult to pin down what the psychological factor is that draws them to these assets. "For some people, it may be a distrust of paper assets. Or, perhaps, if the world economy does implode, that house is still going to be there, that piece of jewellery is still going to be there. They are still going to have value. I think it (sentimental attachment to things) has that potential. I think it gets very difficult to get people to see beyond that. It may be irrational from a financial perspective," he explained.
We believe that investment decisions of people in India are influenced by the society in which they live. Moreover, the investment decisions are also influenced by the regional background too. For instance, people in the southern states in India have more inclination towards real estate and gold. They seldom invest in financial assets such as equity, mutual funds, fixed income instruments, etc.
In our opinion sentiments too, play a major role in taking investment decisions in India. For instance, an insurance policy till today is sold on the basis of emotions. While selling endowment plans, money back plans, child plans, etc. the agents target specific emotions of individuals in their sales pitch. The main purpose of insurance i.e., the life cover is seldom paid attention too during such emotional driven sales.
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- ING Asset Management is planning to sell its Indian mutual fund business along with its Asia-Pacific insurance asset management businesses to help repay the assistance provided by the Dutch government in 2008 at the time of the global financial markets meltdown. Some of the those who are interested in purchasing Dutch firm ING Asset Management's Indian mutual fund business are South Korea's Mirae Asset Management, Vanguard and US-based Pramerica.
In our opinion the Indian asset management business may witness a lot of consolidation going forward as the mutual fund industry is highly fragmented. Growth in the past few years has been slow and feeble given extremely volatile market conditions, a slowing economy and a government paralysed by allegations of corruption and dull leadership at the centre.
- Morgan Stanley has received banking licence from the Reserve Bank of India (RBI) which will enhance the financial services firm's ability to lend to corporate clients, whom it advises on takeovers. However, it is unlikely to get into locally popular banking activities such as corporate or retail loans.
One of the conditions that could be a drag on its profitability is the minimum mandated lending to agricultural activities. The priority sector limit for foreign banks is at 32% of total loans, lower than the 40% target for domestic banks. The RBI is also in the process of mandating too-big-to-fail foreign banks to operate as wholly-owned subsidiaries in the country, a structure that will ring-fence local operations from any global financial storm.
- With an aim to achieve break-even in FY 2015, IDBI Mutual Fund is planning to come up with three to four new products in both debt and equity space in the current financial year. The company will also come up with a fund of funds scheme in gold segment this fiscal, where retail investors can invest through systemic investment plan (SIP) route.
- Chairman of the Prime Ministers’ Economic Advisory Council (PMEAC) - Mr C Rangarajan hinted at price corrections in both diesel and cooking gas over the next few months to send a strong signal to foreign investors and to ensure adequate capital flows. Mr Rangarajan discounted suggestions that the petrol price rise will have a significant impact on inflation and also said that action on diesel and LPG prices would have some temporary effect on inflation but would help in bridging the fiscal gap, which was important to attract foreign capital flows.
- In order to facilitate better Asset Liability Management (ALM), the Reserve Bank of India (RBI) has permitted cooperative banks to formulate policies on their own to check the practice of premature conversion of fixed deposits into other deposit schemes by customers with a view to obtaining higher interest rates.
- In an effort to boost foreign capital inflows in the country, the Government has allowed qualified foreign investors (QFIs) from six member-countries of the Gulf Cooperation Council (GCC) and 27 countries of the European Commission (EC) to invest in the Indian capital market. With this, a $1-billion window over and above the current $20-billion limit has been created for QFI investment in corporate bonds and mutual fund debt schemes. The window is meant to test the waters for the time being and could be widened if required. Norms for opening accounts in India and keeping funds in them have also been relaxed substantially.
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Behavioural Finance: A field of finance that proposes psychology-based theories to explain stock market anomalies. Within behavioral finance, it is assumed that the information structure and the characteristics of market participants systematically influence individuals' investment decisions as well as market outcomes.
(Source: Investopedia)
| | QUOTE OF THE WEEK
"There's not a lot you can do about the national economy but there is a lot you can do about your personal conomy."
- Zig Ziglar
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