Thursday, October 30, 2008


Why terrorism in India is uncontrollable ? It is because our civil society does not have guts to protest really. We, rather all encourage it! Never our Government have been able to motivate people to stand together firmly against human rights and human values. In fact, at times, the some Government directly or indirectly encourage violation of human rights. Neither our government, nor our parties nor our institutions & clubs have taught us how to value human life!

In Assam, terror struck this morning. Many people died. Every news channel have reported the matter. Almost all the news channel have beamed the episode with vivid description. But no channel have devoted enough time to condemn it & to encourage civil society to stand up against it. Reporting the matter repeatedly is one thing but discouraging the terrorism is another responsibility. The vivid show of terrorism is not enough. It is necessary for the media to devote enough time to discourage the event too. The terrorist have liked the flash of news. They need publicity. Whether it is mujaheddin, Ulfa ,ISI or any group from any other country all get encouragement when mass publicity is received instead of mass protest in unison. Actually our own society is to be blamed for recurrence of terrorism in our society. In a Strong civil society that value human dignity terrorism can not flourish.This is for the first time there were huge protest by people at Ganeshguri. People felt tired of bomb blasts and inaction of the Government.Where was the disaster management team? After blasting the first bomb it took twenty minutes to blast another in Ganeshguri. Why disaster management team could not warn all the market areas of Guwahati by that time? whose failure was that . Is there no disaster Management team in Guwahati? Sorry, It is unacceptable that even in twenty minutes time disaster management system could not be put into action! Civil society gets the government it deserves. Like our most citizen our government is also timid and weak.

Our Chief minister is a clean and honest persons. He earned many feathers to his credit during last few years. But his performance in yesterday's press conference was dismal! A friend of mine told me that our CM could not even articulate his thoughts . Rather he was more keen to conclude his conference. It is understandable that when city was burning CM need not get bogged down with press. Yet, he should not fumble publicly while articulating his thought. In to day's situation, as my friend suggested, a clean and honest Chief may not be required. Today you need a person of Guts who can lead the disaster management team from the front. My friend even suggested that with so much achievements in the past why the CM is wasting his time in the office. Rather like Lal Bahadur shastry he can voluntarily seek retirement and make a name for himself.After all what every person seek in life after a successful career ? The fame for his life! CM can earn fame by owning up moral responsibility of the failure of disaster management team and make a hero out of himself.later he might be able to occupy the position of chairman of lok sabha,, a Governor or a vice president, which are more administrative than statesman like position. The view of my friend is of course the expression of the frustration of citizens for the inept handling of the situation on terrorism. Perhaps his sudden departure may not stop terrorism but would revive value based politics in the society.The most admirers of his have asked where has Tarun gogoi of past gone who dared to resign, from the union cabinet in a matter moment, without even verifying with prime minister?

More than fifty people died in today blasts. Much more would die here after because there is no mechanism in our civil society to blame and discourage the terrorism. Similar was the situation in Europe once upon a time. It was the same condition in USA too. But it is not only government's efforts. More importantly civil society in those countries roared against terrorism. Today none can think of creating terror in Europe effectively. Why? Because citizen have built defence mechanism. Can we not build up the defence mechanism, against terrorism? There is almost no terrorism in New Zealand and in Australia at all ! Why? It is because of the self esteem of the citizen. The civil society doe snot encourage it at all. It is because citizens of the country, irrespective of economic division, want to live a contented life. They want to honour & value human life.The Day Indian would think as one nation and start honouring its own self there would be no terror in our country.

The terrorism would not be contained in Assam nay in India . It would comeback again and again so long as civil society fail to motivate itself in looking at people with a divisive mind of caste , creed and religion. Today fifty odd people died in Assam.Tomorrow 100 people would die in Kashmir , day after it would be in Hyderabad.

Indian are making politics out of the terrorism. Every subgroup has its own agenda. We are not a Nation but bunch sub nations having our own motive to look after our own selfish interest. Do we really want terrorism to end? Never ! Like flood, natural calamities hunger we really welcome terrorism in our heart but verbally we preach peace. We make politics out of human weakness. What a nation we are. Can we be a great nation? never! Shame on us!

Sunday, October 26, 2008


The last Friday saw bloodbath on bourses all over the world. The fear of loosing out has brought down the Indian market to pre 2006 level. Naturally investors panicked .It is even difficult for RBI to revive the market. The steps taken by RBI would ensure that liquidity improves and inflation drops. The repo rate cut would ensure financial stability only. According to me RBI might take further steps on Repo rate after sometime to ensure growth of economy.
I was pleasantly surprised to receive a call from a lady executive from Digboi asking which are the shares she can buy with such a fall. It appears lady investor of Assam has matured She bought shares of BHEL, Reliance industries a few days back and wants to buy now more. She also invested only fifty percent of saved money in equity that too in a systematic way. Yes, It is always prudent to keep the investment horizon simple especially for investors of Northeast as they have entered the arena recently. Of course the mutual fund companies also would try to attract investors under various new names and brands. But do not always depend on the brokers. Talk to a financial advisor of your choice with an open heart. He would advice you what to do with the newly launched funds. Try to do your own homework. Study investment MAGAZINES AND BOOKS WORTH THE NAME AND DECIDE YOURSELF WHAT YOU WANT TO DO. People earn money with great efforts .They have the responsibility to protect the hard earned money. If investors do not care for their money no one would manage it well for them. Long back Kautilaya explained that it was not enough just to earn money. It was necessary to save it for future. But still more important was to protect the hard earned wealth. This dictum of protection of past must be followed by every investor at all cost even now. Share market directly or indirectly reflect the state of economy. This is a difficult time. Everyone should think twice before investing. Investors can invest only if he or she can spare money for not less than five years. Indian market would come up only slowly. Unless investors can take calculated risk no investment be made. But keep it in mind that this is one of the best time for investment.

Recently Raja Deka (named changed) wrote to me that he has invested at least in sixteen mutual funds .But lost money in all of them except in two funds . HE WANTED T O KNOW WHAT IS TO BE DONE? He also bought the share of Himachal futuristic and lost enormous amount of money. He wanted to know how he can recover the loss. I was very sorry to study his portfolios. It is almost impossible to retrieve the situation. It was a real bad situation. I however advised him that some of the funds which were subscribed by him were good. H e would be able to get back not only lost money but be able to make a decent profit in due course of time. He needs to be patient. But some of the shares and funds are beyond retrieval. Either he can continue to carry his baggage till a decent up turn take place or he can retire the loss now and enter into large cap shares like L &T, reliance industry or buy nifty index and diversified mutual fund like HSBC Equity, DSPML equity 100 etc.

It is proven beyond doubt that the money management now a days depended on the level financial literacy. Monika Halan, executive editor of Money had made a bold statement in her recent article that financial literacy would soon be the buzz word in India. It was interesting to note that financial product manufacturers, regulators and stock exchanges had identified the lack of financial literacy as a key road block in conversion of savings into investment. This trend is more pronounced in North-East India where people have high small saving money but still unaware as to how it should be converted into asset class of equity. I strongly recommend to all educated persons to read the article in the “last note” of Money Magazine of10thSeptember. ( issue.
I have written on Fixed Maturity Plan sometime before. The Mutual Fund houses now aggressively introduce fixed maturity plan...

Equity linked FMP, in turn, invest primarily in equity linked debentures and securitized debt instrument. These are highly sophisticated yet complex structured product. Our investors are new and need not be exposed to complex product. If they are beaten once at this moment people would shy away from investment horizon itself. That would be unfortunate. They should be helped in choosing simple investment tools, like PPF, Diversified Mutual fund, ELSS, liquid fund, arbitrage fund and bank fixed deposit. Let them mature slowly and graduate to complex product of their own later.

Thursday, October 23, 2008



Once John M. Keynes famously said, in the long run we are all dead. So to make money in short term perhaps came FMP. In India the mutual funds started fixed maturity plans, as early as 2005 on a regular basis. At that time FMP were the darling of corporate houses and high net worth persons only. But in 2008, as interest rate went up & equity crashed the most of the mutual fund houses started offering fixed maturity plans in various period of maturity for common investors too. Investors who flocked to gold as the 'safe asset' were disappointed at the way the price dropped in August. Real estate rates too have dropped. People got attracted to FMP. Seeing the increased interest of large section of population more and more FMP s are on offer at present. Now, question has been asked as to how safe the FMP is?

The FMP s is generally a safer instrument. But as the mutual fund cannot guarantee the returns like bank fixed deposit, it only “indicates” the returns. The pre tax returns are similar or slightly higher than the bank fixed deposit. But post tax return is much higher compared to FD of bank due to tax treatment. Generally the FMP s is closed ended fund. Generally you cannot exit till the maturity of the plan. However there is a provision. But the exit load is high enough
Presently, the only asset that beckons is debt with interest rates rising. But would it make sense for an investor to move into debt? While this is a good time to reassess one's portfolio, it would not be wise to simply rush to income funds, Fixed Maturity Plans (FMP s) or fixed deposits.
Why people invest in FMP now days? Investors find FMP more tax efficient. In dividend mode it does not attract any tax in the hands of investors. (However dividend distribution tax of 14.5% is charged). If the plan is for more than a year long term capital gains tax is only imposed which is much lower than the regular income tax of 33%. Of late it is seen that some of the Mutual Fund Houses have offered 11.50% “indicative returns” for a period of three years. This kind of returns was unheard of before. It is observed that large numbers of taxpayers are lining up to subscribe to such plan.
It may not be very effective for non income tax payers. If any senior citizen’s yearly income is less than Rs.two lakh twenty thousand he or she would not be really benefited by subscribing to fixed maturity plan. The FMP attracts capital gains tax and dividend distribution tax. So FMP s would not be cost effective for non income tax payers. Widows, single mothers and senior citizen who do not pay income tax should continue to subscribe to bank’s FD. That would be much more beneficial to them. Whether FMP s is totally safe instruments? Generally it is safe but sometime bad realization of bond purchased by fund may disturb the apple cart. The FMP generally invests in high quality triple xxx papers rated by two credit rating agencies. Yet there can be slip between cups and the leaps. Up till now no such incidents have been reported. Yet there are talks in the air, after sub prime situation, that incase some mutual fund depended on the papers of non-liquid sector a possibility exist for delay in payments! In theory you can loose your money in FMP but in real practice you get back the money you are indicated at the time of subscription to the FMP. The FMP generally offers tenures of one month to 420 days. (ICICI’s three years tenure is an exception, offering 11.5% indicative return.) We recommend that persons who have trust in the system of mutual fund may subscribe to the fixed maturity plan after due diligence. If you are an Income tax payer, a high net worth person and need good return, in short term, may subscribe to FMP. But one thing must be kept in mind that in October,08, Warren Buffet is buying equity for he felt in the long term equity is the King. Of course you need Lion’s GUT to jump into equity now!


Thursday, October 16, 2008


I must admit this is a good question to ask. The Most of the common investors always try to invest their hard earned money when Sensex or Nifty go up. A very large number of investors bought mutual fund when sen sex moved up from 18,000 to 21000 Points. As the Sen sex touched 10,750 figure there are hardly any retail investors to buy funds. Is it a good trend?

It is not correct practice to time the market. None have benefited greatly by such an act.Timing the market is a difficult proposition. Rather investors should invest their money in a disciplined way. Systematic Investment plan is highly recommended for any retail investor. Many people have asked what should we do now when financial storm is lashing the market and economy. Should we keep our money in FMP? or Should we use FD of the Bank only? Should we totally avoid the stock market?

I have thought over the matter again and again .I felt at present our approach should be as under:

1. We should first calculate how much money do we have for investment? once we arrive at a figure then find out what is our age? If our age is fifty then we must deduct our age from a heavenly figure of 100. In the instant case the result would be fifty. Now, this figure of fifty should be considered as a percentage(%) that could be saved or invested in equity. Now we need to calculate out of this fifty percent how much we have already invested in equity through shares or through mutual funds. In case we have invested already forty percent then there are 10% left for fresh investment at present. In case you are risk averse then invest this 10% in Fixed deposit of Bank. If still you can withstand risk this 10% can be invested under the systematic investment plan for a period three years. It is expected that the storm lashing the financial world would calm down by 2010-11 or little later. You would there after make a handsome gain.

2 Should we avoid investment in equity? asked a reader of my blog.My reply was he can in case ne is risk averse. But he does not expect then to make money later. It will take time to get better return out of his already invested money since he had invested it when Sen sex did reach 21000 points.

3"Should we take out our money now, asked another reader. The investment has lost 50% value?" My reply was: It is a wrong perception of yours. You have not lost money. At present your loss is a notional loss. Perhaps you may lose further notionally. As soon as you take out money the loss will be the real loss. Can you really afford it? Have patience. Do not act in a hurry. What goes up it comes down. And what goes down it would come up especially stock market. Only thing it would take time. During 1932 stock market crashed. The great depressed followed. but it came up !The year 1945, saw a great rejuvenation in USA. They have not looked back. Germany faced worst financial situation after world war but by Sixties both Japan and Germany became one of the few richest nations of the world. We need not forget that destruction would be followed by rejuvenations. We must not panic now!

4. " I want to book loss once sensex reaches 15000 points to avail tax benefit, some time before the year ends. I would put back the money in liquid fund and invest through STP in mutual funds. when sen sex goes down thereafter I would be buying units in low cost. Can I not do that ? Would that not be a profitable to me?" Yes, that would be. But are you sure that the sensex would again go down just after you book the profit? What happens if sen sex goes up instead? Nobody can predict the behaviour of market. Not even Warren Buffet. We should be a investor and not a juggler! If you can predict surely that after you book profit sensex would further go down then surely go ahead and do it as you wish. But as a matter of practice I do not recommend such thing. IF you have extra money, in case you are capable of taking risk go ahead and invest systematically for long term and make money in the right way. Congratulations to you.

Wednesday, October 15, 2008


Karthik Rajaram, Los Angles based Indian, considered a financial wizard, found dead with his wife, sons and mother in law in his posh house in September. He killed himself & family members as his fortune was wiped out by the melt down in the US. Forty-five years old Raja ram once made over 1.2 million dollar in a single deal in London. An MBA of UCLA was named by The Telegraphs of London as the most astute investor. LA land records revealed that he even profited three times from the sale of his house before collapse of real estate market. Then, what had gone wrong? He over traded in the months of September. His entire money perished. So, my advice to my readers is never over invests. The safety of your money is First. Invest only a small part of your money in share market instruments, and avoid private sector’s FD at present.

The festive season has rarely been so full of turmoil. Indian Prime Minister Dr Man Mohan Singh recently explained that Indian market is now open to the world. So, it is not possible to insulate absolutely the country’s economy from the influence of other economies of the world. This apprehension of Indian prime minister have started showing up in the minds of some of the investors of the country, as gloom is spreading from trading floor to factories. Even Mutual funds are getting strong redemption pressures. Even hitherto stable liquid funds may not be as safe now. RBI’s promised funds of twenty thousand crore may not be enough to stablise mutual funds.

Ranjan Das, one of our esteemed readers called me to convey that he was in the midst of a dilemma. He confided that he had not been able to decide whether he should buy individual shares of the companies or Index based investment at this moment, when country is reeling under fiscal crisis.

I assured him that he was not a loner facing that dilemma. Many investors have burnt their finger during the month of January when they bought very good shares like SBI, L&T & Reliance Industry yet lost money heavily. I can only assure my readers that those shares are golden shares& none would be looser in the long term. But do not expect a miracle. It would take time. The World Bank has predicted that India will survive the fiscal storm. In share market patience is the greatest virtue. Invest systematically for very longer horizon only. Now let us discuss whether buying Nifty index is better or buying individual stock is a better move?

To answer this question it would be necessary for us to address two important questions. The first one is whether individual stock is the flavour of the day or buying index is more prudent. The second question is should anyone time the market? The answers to those questions are complex. It cannot be explained in one liner. It deserves a detailed explanation. If an investor has time and energy to do research and methodically study of share market it would be really nice to take a good look at individual stock. The index based investment is the sum total of all the index based shares. Only those investors who did not have time or interest for a detailed study need to buy NIFTY BASED INDEX FUND. When market goes up investors would be really making money. But when the market pushes itself down they would be loser surely! So the second question arises should we invest in nifty index now? For me timing the market is absolutely taboo. YET INVESTOR CAN INVEST NOW provided he is capable of withstanding the risk should market goes down further. It is essential to note that the market might go down even now. Yet it is expected come up only sometime in the year 2010-11 or later. At present share market is not meant for new investors. So my sincere advice would be that only veterans risk taking investors, capable of withstanding long term risk of the investment, may enter the market. The safety of investment must be the top priority always. Greed must not be allowed to take over the needs. Please consult your financial advisor before investment!


Tuesday, October 14, 2008


Perhaps nobody in the civilised world would answer the question of mine now.
who is the Culprit for financial crisis of the world? Perhaps, the financial mayhem was created by the greed of civilized world, educated world , innovative world and by financial wizards initially. The system went on merrily and every segment made profit out it. Banks made money, brokers and agents made money, insurance company made money and most importantly investment banks made huge money out of thin air. Knowing it well that poor creditors would not be able to sustain, in case of road block some day, Financial experts and intermediary preferred to close down their eyes for greed had over taken them.

But what regulators were doing? What rating agencies were doing ? How did the rating agencies gave Double & triple AAA ratings. were they blind? or did they fail do their research? or were they looking other ways? why? Is it intentional? or were they incapable? In case they were incapable they can be sacked but if it is intentional then they should be penalised for criminal breach of trust. Do not investors agree with me?

One of the economist has asked the question is this a case of suicide, accidental death or murder by the financial jugglers ? According to me it can be a suicide. But more likely it can be a perverted act of destruction of a system due to greed which brought prosperity to the world of business. It is a kind of annihilation out of aggression. People now will lose faith on the system. World's monetary system shall have to be perhaps rewritten! Why rating agencies are not hauled up for their failures. Why banks started providing mortgage to doubtful persons ? Since when business of finical institutions have become charity ? We know all business enterprise need to take care of the society and they should earmark fund for upliftment and creation of value. But should any business organisation is allowed to
sacrifice their corporate objective just to make additional money out of thin air?
Why after providing mortgage to weaker section of people without co-lateral intermediaries were allowed to issue derivative instruments which had no basis. Is this work of sound financial judgement? Were regulators sleeping?

It is now proved beyond doubt that the American regulators were aware of the highly risky bubble since the end of twentieth century. But connected persons kept it under the carpet. Can Alan Greenspan deny that he never knew of the great storm that was going to blow up financial edifice of the world ? At least some of us would not believe it. Why the present Treasure secretary had not helped Lamond Brothers when it approached for help? Why did he take so much time to realise that entire financial system was in peril? Cheer inefficiency or he could not dream of such a situation.
Perhaps the world would never know who was the real culprit. After few months surely business cycle will turn around and situation will improve. But how people, who lost out their life's savings & pensions without their fault, would regain wealth & more importantly the confidence on the financial wizards, who innovated the system of profiteering, but was not held responsible for the mayhem. Should these people go unpunished? Only time would reply!

Sunday, October 12, 2008

World's finacial crisis & Indian Banking

The world is passing through a worst financial crisis since 1932.The International Monetary fund warned that the world's financial system is near meltdown now. France assured that a meeting of the European leaders would be held in Paris to chart out the steps to contain the crisis & to stop triggering most sever global downturn in decades. By the time this article appears Great Britain would launch its biggest retail bank rescue operation when four Britain's largest Banks including Loyd's TSB, Royal Bank of Scotland, Barclay's and HBOS would ask for 35 billion pounds lifeline. If this is the condition of largest Banks of developed countries then what would be the condition of banks of Indian origin?
According to RBI ,fortunately Indian banks are better placed. Why? The Indian banks are conservative and do not indulge in sub prime credit. Indian banks generally do not lend without collateral securities and for that reason banks are relatively safe. But does it mean that Indian banking system will remain unaffected? In today climate of globalisation it is impossible to stand alone in seclusion. We need to be realistic. Melt down may sounds death nails for brokerage fund but depositors would remain generally safe. RBI governor has assessed the situation and identified that in our country the problem would be that of liquidity. The Government and RBI would ensure that enough liquidity is pumped into the economy so that inter banking credits are not effected. The Government would also ensure that companies with robust fundamental would not be allowed face the crisis of fund. One of the victim of the crisis could be Airline segment. Of course the share value may go up or down depending on the stock market situation. The investors would surely be effected in short term but in longer term it is yet possible to regain the strength.

According to me there is no reason to panic unless investors have indulged in over trading. The depositors need not panic & withdraw their funds. The Government India, unless catastrophic situation befall the economy, would see that depositors do not lose out of their savings in the nationalised or private banks. But one thing must be understood clearly that India shall have to face the storm of international financial crisis.Emerging markets like India have over the last few years offered spectacular returns but have always been considered "risky". It is not surprising that at the slightest hint of crisis foreign investors took the flight to safe haven.During last year FII invest around 15 billion dollars in Indian market. Already 9billion dollar left the market. More are prepared to fly out. But that would not really aggravate the situation . The problem would be that of liquidity in India.
One thing is true that we depend more on external market to sell our goods and services. In 129895-96 we wold 9.1% of our goods abroad. In 2007-08 we sold 13.5% of our goods to foreign buyers. This signify that we depends more on external funds to support our growth..We borrowed 29 billion and received 34 billion foreign direct investment. With financial crisis can we expect any help now? AS global recession would hurt us.Can we achieve 9% growth rate? It is impossible. Though Finance Minister is hope full to achieve *% growth I am not.I personally feel if we can achieve 7% growth even we should be considered lucky. This however doe snot mean that we are doomed. Our baking situation is much better . It is unfortunate that ICICI bank is in the eye of the storm. With over 27 million customers and hundreds of thousand investors the bank has been in the news for all the wrong re sons.RBI has already comforted the depositors yet there are people to spread rumours. Yes it is a fact that the rumours of bank's international operation has effected its reputation . This is in spite of the fact that the bank's saving rose to 43,456 crore as against 32,121 crore in the corresponding quarter of last year.

RBI governor reassured from Washington that the money of the depositors in Indian banks are safe.He said that RBI is geared to to inject more liquidity into the country's financial system and that there is no cause for anxiety. He however agreed that the baking sector has some exposure t distressed financial instruments and troubled financial institutions. But that exposure is part of the normal course of their business and is quite Small relative to the size of their overall business. One thing must be kept in mind that only a few bank have exposure in troubled spots and most of the Indian bank are out of it. Yet event in international scenario would effect the country's bank one way or the other and we must face the reality with a pinch of salt.
In today's great financial turmoil the greatest victim is not the money and wealth.It is the mind of people. The crisis of confidence in the mind of people will make or destroy the economy. The bad time does not last long but weak mind can destroy life and organisation, nay economy of country. The Banking runs on confidence. Let us hold hands march forward with head high and build up our strength.