Balancing The Risks
More families today are exposed to different risks when creatingwealth. How to manage them?
Clifford Alvares
When financial planner Amar Pandit asks his investors: How muchpercentage loss can you take? Answer: Around 5 per cent. "Investorsdon't want to take a big percentage loss," says Pandit. "A 10-percent loss can appear unbearable." But when asked: Can you afford tolose Rs 10,000 on an investment of Rs 1 lakh, the answer is moreoften a surprising yes. That contradiction seems to stem from anability of investors to gauge and take calculated risks. "If theyknow the amount they are going to lose, investors usually don't seemto mind," says Pandit.
But financial risks can hardly be quantified and calculatedeasily. A stock portfolio corpus could easily get pummelled becauseof market volatility. Long-term bond funds can turn quite risky ifinterest rates are headed up. Defaults of lower-rated corporate papercan easily wipe out a big chunk of any corpus. Cash appears safe, butit's vulnerable to the risk of inflation, or the risk that the moneywill not have the same worth in the future.
Interest rate hikes could see housing assets depreciate, andincrease your monthly installments. Then there's opportunity risk--of parking money in an asset that provides low returns such as asavings bank and lose the opportunity of a high growth investment.Risks are plenty. And more families are increasingly exposed to allkinds of risks. So every financial decision should be taken with aneye on the risks involved. Says Pandit: "There are various factorsthat you can't control such as oil prices, geopolitical factors, butsome critical personal money decisions can help curtail risks. Peoplehave to educate themselves about risks."
Assess and beat
Investors can't take calculated risks in the stock markets, exceptfor arbitrageurs. In the short term, the markets are increasinglyvulnerable as they move quickly and unpredictably in whicheverdirection. It's here that investors often end up making the classictrap of jumping in when the markets go up and running scared when ittumbles. Two critical steps can substantially reduce stock investingrisks. First, take a long-term view--preferably 10 years or more.Here's a fact: a longer time horizon reduces the risk of volatilityand improves returns. The Sensex returned a sound 18.8 per centcompounded over the last 20 years (Rs 1 lakh invested 20 years ago isworth a solid Rs 31,62,464).
For Haresh Sadani, stocks are for the long-term. This 32-year-oldAssistant Vice President at an asset management company has investedin mutual funds. "Stocks are risky, but I am not worried over thelong-term. I don't monitor my funds regularly," he says. Directinvesting is risky so he allocates only a small percentage of hiscorpus here.
Second, diversification helps spread risk among stocks. Aportfolio comprising just one or two stocks or just one sector isvulnerable to swings in that sector. Add to that a discipline ofbuying stocks when markets are down and you can increase your returnsmanifold. Adding different asset classes protects your portfoliosubstantially. Himangshu Bhattacharya, 62, has diversified intomutual funds, bank fixed deposits, and post-office savings, and somein his software business. "If you put all your money in one place,you always run the highest risk. I have all along believed inspreading it out," he says.
Another way investors can profit is from systematic investmentplans of mutual funds. Palaniappan Srinivasan has found this methodan easy way to average on the upside and downside. Though this 29-year-old it professional is not a big-time investor in stocks, helooks for a three-year track record of performance and for attractiveprospects. "At my age, I would like to invest in developing companystocks--which could have greater risks, but can provide greaterreturns. When I touch 40, I will turn conservative in stockselection."
Real estate investors face a concentration risk. Too much of onetype of asset is detrimental if the demand for this asset weakens.Real estate also faces the risk of liquidity--you can't sell it offimmediately. On the other hand, this asset provides the benefits offinancial leverage if asset prices increase and you have financed theproperty through a bank loan. Says Pandit: "This asset has thepotential of leverage, but the risks of concentration and illiquidityare a major hindrance." For investors who prefer real estate, it'sbest to look for property in locations that are growing and wheredemand potential is high.
Fixed deposits and bonds are among the least risky, but in therisk-reward spectrum, the returns from these assets barely keep aheadof inflation. Government securities are safer as they carry asovereign guarantee. Investors are also affected by the interest raterisk, which has a huge impact on bonds. When rates rise, bond pricesfall. The longer the bond's maturity period, the more its price willfall. For example, a 30-year bond will fall harder than one thatmatures in five. So invest in bond funds that have a maturity periodof around one-to-two years as the impact of interest rates on them islower. There's a possibility that bond fund assets could default. Allbond fund holders face this risk.
Cash may appear safe, but it's affected by inflation. The sameamount of cash will not be able to buy the same value of goods oneyear from now. Inflation eats into the purchasing power of money, andis the biggest risk investors face today. Says Pandit: "It's a hiddenrisk and therefore you have to have assets that beat inflation by acomfortable margin."
Take Cover
Even today there are many people who have not got sufficient lifeinsurance to protect their families. A cover on life helps in moreways than one. "There are two risks that get covered through lifeinsurance--the risk of dying too early and the risk of living toolong," says Vinay Taluja, Vice President, Bajaj Capital, a wealthmanagement company. Both the risks are taken care of by lifeinsurance covers. Fifty-four-year-old R.B. Sharma has cover for atotal value of Rs 1.5 crore. "I always believed that one must coverone's family against risk," says the Senior General Manager fromShriram Pistons and Rings.
If the objective is pure insurance and not returns, then termpolicies are for you. A term insurance makes sense as the premiumsare cheap and the objective of covering your life is achieved. Thereare various benchmarks as to how much cover one should take. But ageneral thumb-rule would be to take a policy that covers at least 10times one's current annual income.
All investments involve a certain amount of risk, and the generalrule is that the more the returns, the more the risks. But if youdon't take risks at all, then inflation will hit you. Investors haveto find out their own ideal balance of risk and reward. Just equallyimportant, there can be no rewards, without risks.
-additional reporting by Ritwik Mukherjee, Nitya Varadarajan andKapil Bajaj
Five Questions to Assess your Risk Profile
If you won a lottery, where would you invest most of it?
1. Government savings and bonds
2. Mutual funds
3. Equities
What kind of investor would you call yourself?
1. Conservative
2. Cautious, but open to opportunities
3. Aggressive and willing to take risks
Do you constantly think about your investments?
1. Check investments occasionally
2. Do a regular check
3. Continuously monitor my investments
What would you choose if you are offered the following options?
1. Rs 10,000 in cash
2. A 50-per cent chance of winning Rs 50,000
3. A 25-per cent chance of winning Rs 1,00,000
What is your most important investment goal?
1. To conserve your original investment
2. To beat inflation moderately
3. Make the highest returns
If your answers largely comprise of the first choice, your riskprofile is conservative. A consistently third choice makes you anaggressive investor
Six ways to Mitigate Risks
GET LIFE COVER
It's the one risk that is insurable. Premiums on a term planaren't too expensive, but it ensures that your family is well takencare of in case of any eventuality
DON'T CHASE RETURNS
Aggressive investing is often the cause of many a loss. Riskierassets give the highest returns, but there's an unlimited downside tothem
DIVERSIFY
A healthy mix of different assets, mutual funds, fixed depositsand stocks is the only way you can ensure maximum safety of yourassets. Not all asset classes fall at the same time. It can reduceoverall returns, but protects against maximum losses
DON'T OVER LEVERAGE
It may help you multiply your returns, but at the same time overleveraging can get disastrous if the market tanks. It can multiplyyour losses
THINK LONG TERM
The longer your investment horizon, the lower is your risk fromstocks. But ensure that you have a carefully selected portfolio thatis regularly monitored
HEDGE FOR INFLATION
It can cut into assets in a big way if you don't have a healthymix of inflation beating assets. Make sure you have some stocks andequity mutual funds in your portfolio
It's A Big Hit
Multiplexes are poised for rapid growth. But watch the valuations.
Rishi Joshi
Outside PVR cinema in Saket, New Delhi, an ever growing number ofyoung and old wait to watch the next new blockbuster. It's a scenethat plays out in many multiplexes across Delhi. Ditto in othercities of India. Inside these multiplexes, entertainment is not foundwanting with video parlours and now bowling to keep you busy betweenmovies. With better movies, an exceptional movie-watching experience,the Indian multiplex industry has grown furiously from nowhere toover 400 screens currently.
But a bigger stage is set for growth as multiplexes are planninganother 1,500 screens by 2010, which can rake in more than 30 percent of box-office collections. That's still a long way off theglobal average of 75 per cent, but more than enough to keep theprofits rolling in for these multiplexes. The big names are set tobuild more screens (see Gunning for Screens), and its potential isreflected in the rich valuations the companies command--PVR trades ata p-e (price-earnings multiple) of 54, Cinemax 37, INOX 32 and Adlabs34.
India is among the largest film producers in the world, with over1,000 movies released annually, but screen density is extremely lowat about 12 screens per million people. Besides, on average, anIndian spends just Rs 4 per month to watch movies. Yet with so manyfilms, there's a dearth of good quality screens--India has onlyaround 13,000 screens, but China, which produces fewer films, hasfive times more screens at 65,000, while us has 36,000.
Buoyant Collections
Tax breaks have been a boon for the industry. In the 80s, statesimposed steep entertainment tax on theatres, making them unviable. In2001, several states waived entertainment tax for multiplexes in theinitial years of their operation. That has paved the way for thesector to clock ticket sales of $700 million (Rs 2,870 crore) by2010, according to estimates by SSKI Securities, and total revenuesof $1.1 billion (Rs 4,510 crore).
The business model of a multiplex is simple. The more tickets itsells, the better the occupancy. That apart, the business makes moneythrough sale of food and beverages (F&B), advertising, and some fromroyalty. About 15 per cent of revenues are accounted by F&B, wherethe margins are high at a sturdy 80-85 per cent.
This business revolves around attracting more people inside amultiplex. To achieve that, multiplexes are now building otherbusinesses around their core competency of film exhibition. PVR, forinstance, is now looking to build food courts, video parlours,bowling centres, fitness and youth zones and integrate it seamlesslywith exhibiting movies. Shringar Cinema is also working on openingfood courts in multiplexes.
Challenges Ahead
But even as there is potential, there are hurdles that couldimpede their growth. One key concern of the stock markets has beenthe ability of the muliplex players to execute projects on time. Mostmultiplexes get delayed due to construction bottlenecks and legalclearances. Often, multiplex operators are dependent on malldevelopers for timely handover, which is the reason why stocks likePVR and INOX have corrected over the past year. Explains Kejal Mehta,Analyst, Karvy Stock Broking: "The markets were disappointed asproject execution by the sector was not on track. While the companieswere growing by around 50 per cent, the markets expected more." Insuch a scenario, companies that have a tie-up with reputed developershave an edge. Adds Sanjeev Hota, Senior Research Analyst, Emkay Shareand Stock Brokers: "Investors should look for companies which have aproven record in project execution."
The other challenge for the industry is to sustain margins aftertax exemptions are withdrawn. Says Mehta: "When entertainment taxexemptions are gradually withdrawn, there could be a rationalisationof the tax levels as well, which are quite high. If that doesn'thappen, then it could be a risk." Entertainment taxes in many statesare as high as 40-100 per cent.
Also, as SSKI points out in its report, "With the increasingrelevance of alternate revenue streams like telecast rights, homeentertainment and mobile entertainment, the share of theatres inmedia consumption will stagnate, a trend observed in the US." But,adds Mehta, "It would be a while before these revenue streams matureand start impacting the business of multiplexes."
Meanwhile, the big players in the multiplex industry, in anattempt to derisk their business model, are expanding theirfootprint. Almost all the major players today, like PVR, INOX andShringar, have a presence in film distribution as well. Some areplanning to foray into film financing and production. PVR Pictures, a100 per cent subsidiary of PVR, has inked a two-film deal withBollywood superstar Aamir Khan, which it will also distribute on apan-India basis. Adlabs has signed a Rs 35-crore deal for threemovies with Hrithik Roshan. Says Hota: "Right now, it's wait andwatch. It remains to be seen whether these companies can besuccessful in their new ventures. Barring Adlabs, others don't haveprior experience of running these businesses."
But investors must look for companies where the valuations are nottoo expensive. There's immense potential for the sector; but toborrow a term from the industry, not all companies will turn outblockbusters.
Lay A Solid Foundation
For higher studies, don't ponder over the money situation.Education loans are handy, and cheap.
Kapil Bajaj
When Delhiite Abhijit Nath, 24, bagged admission to theprestigious IIM Ahmedabad for the two-year post graduate programme inmanagement in 2003, he decided to take a bank loan. A Rs 3.5-lakhloan from Oriental Bank of Commerce (OBC), sanctioned without anyhassles, paid for his education as well as cost of living. "I didn'twant to burden my parents with the expenditure on my IIM stay," hesays, "even though they might just have been able to fund my studywith some difficulty. An IIM stay is usually a guarantee of anexcellent job and handsome salary. So, I was confident of my capacityto easily repay the loan." Nath has since joined a Mumbai-basedprivate equity company and repaid his loan in 18 months with largeinstallments at an interest rate of 10.5 per cent that remained thesame from the time of sanction.
Pankaj Kahra, 24, from Punjab, also turned to study loan in 2005for his two-year pg diploma in International Business from Delhi-based Fortune School of International Business. He secured financingof Rs 2.6 lakh from State Bank of India (SBI). "My father could nothave borne the full cost of the education, which totted up to over Rs5 lakh. So, I had to take the loan," says Kahra, who has recentlycompleted his course and joined a Delhi-based shipping company. SBI,however, took over a month to sanction Kahra's loan. And while theinterest rate was 8.5 per cent at the time of sanction, he is nowrepaying the loan at 11 per cent, thanks to the floating rate system.
Look for a Deal
"All public sector banks give study loans only on floatinginterest rate. But towards the end of 2004, we decided not to alterthe rates for student borrowers for some time. That explains why astudent may not have experienced any rise in rate," says RavindraYadav, CEO (Rural Development Trust), OBC, explaining why Nath seemsto have had a better deal than Kahra in terms of interest rates.
Nath and Kahra's slightly contrasting experiences also underlinethe need for a borrower to carefully choose the bank. There is alarge difference among public sector banks in terms of interestrates, ease of sanction, and the tendency to alter the interest ratesof study loans. Each bank posts its latest rates and other conditionson its website; if latest information is not available, call up thebank. "Remember that banks are well known to extend rates that arelesser than their announced rates, depending on how prestigious youreducational institution is. So, it's always better to personallycheck from the bank what they can offer you," says O.P. Gupta,Assistant General Manager (Retail Banking Division), Punjab NationalBank (PNB).
Banks link study loan rates with their PLRs (which differ betweenbanks) according to preset formulas. For example, while OBC's studyloan of up to Rs 4 lakh comes at PLR of 13.25 minus 2, which worksout to 11.25 per cent, PNB charges PLR of 13 plus 'term premium' of0.5 per cent (applicable if repayment period is three years or more)minus 1.25 per cent, which works out to 12.25 per cent. Bank of Indiacurrently charges 12.50 per cent, Bank of Baroda 12 per cent,Corporation Bank 11.25 per cent and Canara Bank 10.75. Rates arerevised when a bank changes its PLR, not arbitrarily. Say Yadav:"It's always better to go for the cheapest rate. It may go up only ifthe bank increases its PLR, but is still likely to be lower thanother banks' rates."
Education Loans Made Simple
ELIGIBILITY
Indian nationals, not above 45 years of age, who have securedadmission in a recognised course of an approved university orrecognised institute. Parent or guardian is made co-obligant in allloan agreements
EXPENSES COVERED
All relevant expenses of tuition, boarding, including purchase ofcomputer, two-wheeler and travel expenses
AMOUNT OF LOAN
For education in India, up to Rs 7.5 lakh (can increase). For anoverseas education, up to Rs 15 lakh (can increase)
MARGIN (BORROWER'S CONTRIBUTION)
For loans up to Rs 4 lakh, no margin. Loans above Rs 4 lakhrequire 5 per cent margin for studies in India, and 15 per cent forstudies abroad
SECURITY
No security required for loans up to Rs 4 lakh, for loans betweenRs 4-7.5 lakh, third-party guarantee required, and above Rs 7.5 lakh,collateral is essential
DOCUMENTS REQUIRED
Mark sheets, proof of admission, schedule of expenses for thespecified course, photographs, borrower's bank account statement,brief statement of assets and liabilities of the parent/guardian,etc.
REPAYMENT
EMIs are payable over five-to-seven years after the course plusmoratorium period (12 months after course completion or six monthsafter getting the job, whichever is earlier)
The Deals for Education
A look at what interest rates different banks are offering.
Canara Bank
10.75%
Dena Bank
11-11.5%
Corporation Bank
11.25%
Oriental Bank of Commerce
11.25%
What Professional Courses Cost*
ENGINEERING
(Four-year BE/B-Tech)
IITs: Rs 2.50-3.50 lakh
Private colleges: Rs 4.50-6 lakh
MEDICINE
(Five-year MBBS)
Govt-funded colleges: Rs 5-6 lakh
Private colleges: Rs 20-30 lakh
BUSINESS MANAGEMENT
(Two-year course)
IIMs: Rs 3.5-4.5 lakh
Private institutes: Rs 5-14 lakh
The Loan Basics
All public sector banks follow a government-prescribed pattern forloans in the education sector. Following are the conditions that aremore or less common to their loan schemes
Rates can vary widely--usually 9 per cent to 13 per cent--betweenbanks depending on the 'prestige' of an institute
Simple interest is charged over course plus moratorium periodafter which interest amount is added to principal and compound rateis charged
All loans are offered on floating rate system; so rates will varywith the bank's prime lending rate (PLR)
If interest is serviced regularly over the study and moratoriumperiod, a concession of 1 per cent in interest rate is allowed afterexpiry of moratorium
Female, SC/ST and physically challenged borrowers are allowed 0.50per cent concession
No processing fee is charged; most banks also do not have anycharge on prepayment
Top Of The Class
Private banking has a lot to offer, if you have the moolah thatis.
Anand Adhikari
The private banking lounge of a typical foreign bank is notdecorated in old oak furniture, but instead has the look of a modernand open-space banking office. And it's behind these cubicles thatmany individuals get the best advice on a whole range of assetclasses--even assistance for buying a turboprop aircraft or selectinga Tyeb Mehta painting. Little wonder, private banking is attractingmore individuals as the booming economy spawns new millionaires.
There are many private banks offering specialised products andcustomised services for their clients. Last month, Standard Charteredbecame the latest entrant to launch private banking services in adozen new markets, including Singapore, Hong Kong, Beijing andMumbai. Neeraj Swaroop, ceo, Standard Chartered India, said the bankhad a natural advantage given its strong banking presence amid thegrowing number of entrepreneurs.
India ranks second amon the fastest growing high net worthindividual (HNWI) population in the world, according to Merrill Lynchand Capgemini's World Wealth Report. The Indian millionairepopulation grow by 20 per cent last year, but is expected to beat theAsian average growth rates in the coming years. Asia Pacific HNWIWealth is projected to reach $10.6 trillion by 2010 at a 6.7 per centgrowth rate. "We think India is expected to grow faster than theAsian average, probably at a rate in the 15-30 per cent range," saysAjay Sondhi, MD (Regional Head-Global India), Citi Global WealthManagement. Also, in a recent Forbes report, India outranked Chinaand Japan for the most number of billionaires. This new money isfinding its way to private banking.
Take, for example, paediatrician Janakidas Trivedi, 50. Trivedidoes not have the time to manage his money on a regular basis. Arelationship manager updates Trivedi on a daily basis on hisaccounts, and advises him on the next course of action.
"Private banking is personal and a relationship manager is like afamily doctor," sums up Subir Mitra, Head (Private Banking), hsbcIndia. In fact, not all banking customers can avail such privilegedservices as net worth limits restrict access. Besides, not all citiesare covered under private banking (see What's on Offer). "Privatebanking is purely relationship driven. When you deal with the richand the powerful, the relationship and customised services matter themost," says Mitra.
Private banking focusses on wealth management. The services arefor hnwis like doctors, film stars, small businessmen and topmanagement executives, who have little time to take care of theirinvestments on a regular basis. The private banks invest on behalf oftheir clients. They even advise investors on the best course ofaction to save taxes. They set up trusts, manage the assets of thetrust and also plan for succession (see For a Few Rupees More). SaysSutapa Banerjee, Head (private banking), abn amro, India: "We offerholistic services covering all the asset classes allowed by theregulator, including wealth protection and wealth transmission(succession planning)."
"We offer a variety of services catering to our clients' needsthat go beyond investment advisory, including art advisory, trust andestate planning, philanthropic advisory, aircraft financing as wellas co-investment opportunities," says Puneet Matta, Country Manager,Citi Private Bank. The scale of these services goes beyondgeographies. Recently, a foreign private banker helped his Indianclient to acquire a company overseas.
Private banking clients also get door-step banking services. Somebanks have begun to give advisory services on alternative assetclasses such as art. abn amro, which launched its private bankingbusiness five years ago with assets under advice of over $1 billion,suggests allocation into art depending on an individual's riskappetite.
While nobody talks about returns, it normally ranges from 10-20per cent depending upon the risk profile and the investment horizon.Undoubtedly, foreign banks are better placed with global productaccess and streamlined processes to handle hnwis. When capitalaccount gets fully convertible, foreign bankers will be able to drawon their global expertise in managing multiple assets in differentcountries.
Of course, there are many domestic brokerage houses and mutualfunds which have begun to offer similar types of services. Therefore,one must choose a private banker carefully. If the bank pushes aproduct with a high commission structure, one should be wary. The jobof the private banker is to assess both risk and also invest for adecent return. If the bank strikes that balance, then it's worthsigning up for.
For a few rupees more
What else can you get with private banking.
Complete tax planning: Private bankers advise on all aspects oftax planning and even help compute tax from all sources like businessincome, house property and capital gains. Also suggest tax reductionstrategies.
Succession planning: Succession planning is often overlooked bymost investors. A private bank helps with a proper successionplanning, ensuring that your wealth goes to your legal heirs. Thisprotects your wealth and ensures that the transition is smooth.
Art advisory: This is a new area private banks have got into. Withart fast emerging as an investment class in India, bankers help inunderstanding art and distinguish the various artists. They also helpin identifying and allocating funds to various artists.
Trust services: The banks are now providing trust services tosupport activities like education, poverty alleviation, or a trustthat is solely to benefit a family or young ones. The bank advises ontransferring assets to a trust and plans how best the trust canmanage its assets.
Estate planning: Distribution of your wealth and real estate asper your wishes can sometimes be a chore. Private bankers ensure thatyour wealth, even house items, is distributed among your legal heirsin accordance with your wishes.
Aircraft financing: There's a complete advisory on which aircraftto buy (for personal use or for office services), including how youcan pay for the same and also get the best interest rate.
Co-investment opportunities: Private bankers also advise on co-investment opportunities in the areas of real estate, unlistedcompanies, or other asset classes where both the bank and the clientcan invest jointly.
NEWS ROUND-UP
The treasure hunt
IPOs are better placed to deliver returns, if you pick and choosecarefully enough.
If there was ever a doubt whether ipos can deliver solid returns,take a look at the gains made by the newly-listed Vishal Retail. Thestock returned a whopping 156 per cent at the current price of Rs692.7 (offer price of Rs 270). On the other side, the country'sbiggest ipo of Rs 9,187 crore from dlf received a lukewarm responseon the exchange with a gain of just 8.6 per cent at the current priceof Rs 570 (offer price Rs 525). But the verdict is clear: the ipomarket is showing signs of revival.
Since May, nine companies listed and all posted listing gains. Oncurrent gains, however, only six companies had positive gains whilethree dipped below their offer prices. ipos of Vishal Retail,Meghmani Organic, Glory Polyfilms, Nitin Fire Protection and TimeTechnoplast gained tremendously post-listing, suggesting that goodinvestments always pay off (see The ipo Party Continues). Thesecompanies were well-priced leaving enough on the table for investors.
A bull market also helps buoy stock prices. Says Ashok Kumar, md,Lotus Knowlwealth: "Historically, during a bull run, listing gainsare par for the course. Better quality ipos like icra or smartly-priced ones Vishal Retail, there is a demand spill over where manyinstitutional investors do not get allotment that fills their minimuminvestment bucket size. This results in prices moving up on listingas they buy aggressively on the opening days."
One has to carefully choose the ipo to invest in as not all ofthem are priced attractively for investors. Besides, companies wherethe fundamentals are weak tend to get a leg-up in a bull market. SaysKumar: "Weak ipos sometimes get a boost by the grey market overhang.These can crack up soon thereafter, and sometimes never recover. Thisexplains the mixed bag phenomenon of price swings post listing."
As of now, there's a huge appetite for ipos from investors,especially good ipos. Last two years have seen fantastic mop-ups inthe ipo market. According to Prime Database, Rs 23,676 crore wasraised during 2005-06 and Rs 19,718 crore in 2006-07. This year, bigissues have sailed through, and the market is humming strong with afurther Rs 30,000 crore likely to be raised. That presents a hugeopportunity for investors, but the key factors investors have towatch for are quality and a reasonable asking price.
-Anusha Subramanian
Smart Gains
Investor appetite for good quality IPOs is strong with somecompanies seeing huge subscriptions
Since May this year, all newly-listed companies posted listinggains, but six returned positively on current prices
The companies that were well-priced with sound business model gavebetter returns to investors
More IPOs are on the anvil, but look for quality and reasonableasking prices
Idle Way to Wealth
Liquid funds have a new avatar. Park your savings here.
If you are looking to park your money for the very short-term,there's still a way out. With the government hiking the dividenddistribution tax in the last budget from 14.025 per cent to 28.325per cent for retail and 22.44 per cent for corporate investors,liquid funds lost much of their sheen. But now liquid funds are beinglaunched in a new avatar: the liquid plus category.
A sebi circular defines liquid fund schemes in which the mark-to-market component of the fund, on a weekly average basis, is less than10 per cent. But the new categories of liquid funds increased themark-to-market component to more than 10 per cent to continueattracting the benefits of a lower dividend distribution tax. Liquidfunds used to hold debt instruments with an average maturity ofaround two-to-three months. However, new liquid funds have paperswith maturities of around five-to-six months. But this added maturityis not compromising with the liquid nature of the schemes or theapproximate expected returns.
However, these new liquid schemes have a lock-in period typicallyranging for a week, unlike the typical liquid funds that allowedwithdrawals within a day. Withdrawals before this lock-in period willattract a small exit load. This category makes an attractivealternative to the bank deposit. A typical liquid fund can providereturns of around 7.5-8 per cent per annum pre-tax as against 3.5 percent from a savings bank account. The lower dividend distribution taxhere, however, will result in a better post-tax yield as compared toa normal liquid fund. While the names differ between fund houses,retail investors who don't have immediate fund requirements canbenefit from them.
-Clifford Alvares
A Safe Haven
The liquid fund plus category has a better post-tax yield ascompared to a normal liquid fund
New liquid plus funds have a higher maturity but the returns arelikely to be similar to regular liquid funds
These funds have a lock-in of typically one week; prematurewithdrawals attract a small exit load
Ideal for a retail investor who does not require the funds as theyprovide better returns than bank deposits
