  | | January 24, 2014 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 21,133.56 | 69.94 | 0.33% | | Re/US$ | 61.93 | -0.39 | -0.63% | | Gold Rs/10g | 29,825.00 | 75 | 0.25% | | Crude ($/barrel) | 109.53 | 3.07 | 2.88% | | FD Rates (1-Yr) | 8.00% - 9.00% | Weekly change as on January 23, 2014
*BSE Sensex as on January 24, 2014 | |
Impact 
While you took out a loan to buy a car or your dream home, whether to go for fixed or floating interest rate might have puzzled you. Choosing any of these options has merits and demerits. But if you have opted for floating rate loans, you may not see any cut in the interest rate this year.
Why?
Recently Urjit Patel Committee submitted a report to the RBI governor to revise and strengthen the monetary policy framework. There have been suggestions to RBI to adopt the new Consumer Price Index (CPI) as an indicator for determining the monetary policy stance. At present, Wholesale Price Inflation (WPI) is used an indicator to monitor trends in inflation. The committee is of the view that CPI closely reflects the cost of living. The committee seeks to bring down CPI inflation to 8%, which hovers at 10% at present, within a year. Over next 2 years, the committee recommends to reduce the retail inflation to 6% and eventually adopt a target of 4% with a band of + /- 2%. Furthermore, it is also suggested that central government should meet its fiscal deficit targets and should reduce the fiscal deficit to 3% of GDP by 2016-17. The committee is also of the opinion that the central bank needs to adopt the flexible approach to address risks arising due to sudden inflows and outflows of foreign capital.
Impact...
If the recommendations of the expert committee are accepted by the RBI governor, it is unlikely that the policy rates would be reduced in 2014. Retail inflation measured by the movement of CPI was 9.87% in December 2013. Moreover, on the fiscal prudence front, the government is likely to overshoot its fiscal deficit target. This may further lower the scope for a rate cut. Going forward, RBI may also try to inject liquidity in the system through other means and may not solely depend on repo rates.
How would you be affected?
On this backdrop, we might even see a rate hike if inflation expectation stays up. In such a case, loans might become costly.
Since RBI seeks to attain greater policy transmission it may ask banks to pass on the rate hike / cuts to their customers. Movement of interest rates may affect your interest component of your EMI and also your investments in debt funds.
PersonalFN is of the view that, instead of basing your decision on what RBI might do at its policy meets, you should focus on your life goals.
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Impact
Long someone exchanges a currency note with you, rarely, you might check the year of printing. But now onwards, you would have to do this exercise every time. Recently RBI has decided to take banknotes printed before 2005 out of circulation from April 01, 2014. It is believed that with this move, RBI is aiming at exposing the black money that is currently in circulation. RBI has kept only banking channel open for exchange of banknotes printed before 2005. Moreover, this action is expected to help curb the circulation of fake currency.
RBI has clarified that, a person exchanging more than 10 pieces of banknotes worth Rs500 and Rs1,000 each, will have to provide proof of identity and residence in case he is not a customer with the bank. However, the requirement of providing proofs would become applicable only from July 01, 2014 onwards. It is also made clear that, notes printed before 2005 would remain officially accepted for payment and banks will have to accept them from their customers as well as non-customers.
PersonalFN is of the view that, although this move is anticipated to show positive impact on excavating black money and curbing circulation of fake currency, the impact would be limited. PersonalFN is of the view that, there is a possibility that holders of black money might have already replaced older notes with newer notes as it seems difficult that notes which are nearly 10-year old would be in good state. However, the sum of money in circulation which is printed before 2005 is estimated to be about 4 lakh crore, which is still huge. Now it remains to be seen how the implementation takes place. PersonalFN is of the view that, there could be some loopholes that may still help money-hoarders to get away with black money. The requirement of providing proofs of identity would be applicable only from July 01, 2014. This means anyone can exchange banknotes anonymously till then. It is unlikely to have a big impact on gold and real-estate markets.
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The Most Awaited Tax Planning Guide 2014 - Released!
Waiting till the eleventh hour for tax planning would lead you to the path of mere "tax saving" resulting in sub-optimal tax reduction.
So undertake your tax planning activity well in advance this year.
PersonalFN's Tax Planning Guide (2014 Edition) shows you how you can save your hard earned money prudently from the tax-man.
Download Your Copy Now! (It's FREE!!) | |
Impact 
When you buy a life insurance policy, you protect your dependents from financial losses that may arise in case of any untoward event. But apart from loss of life there are a number of events against which you buy protection cover. For instance, with growing awareness about medical insurance, we buy health insurance policies. Similarly, if you own a car you tend to buy comprehensive car insurance which goes beyond safeguarding you against just third party loss. As more and more people are buying non-life products, insurance companies are keen on introducing some innovative changes and added features to non-life policies in 2014.
Every company offers some unique features over and above those offered in the basic plans, at present. However, with changing dynamics of business, innovations and added features are going to gain importance in 2014.
To read more about this news and the view of PersonalFN over it, please click here.
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Impact
As you might be aware, sharp swings in the sentiment as well as in the fundamentals of a particular sector can result in huge loses. PersonalFN has been repeatedly cautioning investors about the risky nature of sectorial and thematic funds. But, you would be surprised to know, sometimes, lull in a particular sector can show negative impact on returns generated even by a diversified mutual fund.
This may happen when many of them (diversified mutual funds) are betting big on a particular sector and that sector fails to perform. Take an example of banking sector.
S&P BSE 500 vs S&P BSE Bankex
Data as on January 17, 2014
(Source: ACE MF, PersonalFN Research)
Broader equity markets have failed to reward investors over last 1 year. In fact, S&P BSE 500 has generated negative returns of 0.4% on 1-Year time frame. Primary reason behind such underperformance has been the dismal performance of Banking and financial stocks. Financial sector has a weightage of about 23% in S&P BSE 500 as per the last disclosed data. S&P BSE Bankex, which captures the movement only of financial stocks, has registered deeper losses. It fell by about 14% over last 1 year. As far as performance of S&P BSE 500 is concerned, relative outperformance of Information and Technology (I.T.) and Fast Moving Consumer Goods (FMCG) arrested the down fall. I.T. and FMCG together, carry around 27% weight in S&P BSE 500.
To read more about this news and the view of PersonalFN over it, please click here.
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- Indian mutual fund industry has seen incessant outflows in 2013 due to low retail participation and difficult market conditions. Under such circumstances, many industry players are finding it difficult to garner new business. If the committee of regulators headed by the RBI governor backs the proposal of finance ministry, mutual funds would breathe a sigh of relief. The proposal was put up by the subcommittee of Financial Stability Development Council (FSDC) under finance ministry, to allow insurance companies to outsource investment management to Asset Management Companies (AMCs). Such a move may help mutual funds garner new business and may also help insurance companies concentrate on risk management and policy administration which is their primary function.
However, Insurance Regulatory and Development Authority (IRDA) has taken objection to allowing insurance companies to outsource work of fund management. It believes such a move is unnecessary as managing funds in house is cheaper for insurance companies. Moreover, it also feels that fund manager won't have any answerability to the insured.
PersonalFN is of the view that, be it fund management or policy administration, accountability matters. Mis-selling of Unit Linked Insurance Plans (ULIPs) as investment plans doesn't show accountability of insurers. At the same time, launching New Fund Offers (NFOs) during market booms exposes shortcomings of mutual fund companies. Prudent selection of investment and insurance products is important. You may find solace in taking help of independent financial planners.
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Legal Tender: "It is an "official medium of payment recognized by law that can be used to extinguish a public or private debt, or meet a financial obligation. The national currency is legal tender in practically every country."
(Source: Investopedia)
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Quote : "The four most dangerous words in investing are: 'this time it's different." - Sir John Templeton
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