Wealth: He Conomic Imes

THE ECONOMIC TIMES

wealth www.wealth.economictimes.com | Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, New Delhi, Pune | November 21-27, 2011 | 40 pages | ` 5

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STOCKS

FINANCIAL PLANNING

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How to identify momentum stocks

Use borrowing as a tool to manage liquidity

When the warranty on a product may be invalid

To make gains in a short span of time, evolved investors can use technical indicators to help them identify the movement of a stock in the near term.

If assets are created through borrowed money, keeping in mind the unexpected needs for liquidity, the cost of borrowing can be managed better.

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A product warranty comes with strings attached and does not guarantee unconditional repair or replacement. Here’s what to watch out for while picking one.

Financial planning PAGE 18 Q&A PAGE 34 Test your MQ PAGE 38 Be a Financial Wizard and win prizes worth `5,000 PAGE 39

PLUS Week’s best stocks, mutual funds, loans, deposits and property.

Small savings schemes were always the safest investment. Now they have become more lucrative. Find out how you can maximise your returns. PAGE 2

Should you invest in index mutual funds or index ETFs?

Why you should look beyond past performance of mutual funds

PAGE 15

PAGE 16

How to read a cash flow statement PAGE 20

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02

Cover Story

The Economic Times Wealth, November 21-27, 2011

BIGGER BETTER

SMARTER Small savings schemes have been revamped and interest rates will no longer be fixed. Here’s how to make the most of this transition from fixed income to a market-linked regime.

PRIYA KAPOOR AND BABAR ZAIDI

T

RAJ

ill last week, you could have invested in small savings schemes floated by the government with your eyes shut. This is no longer true. With the interest rates on these schemes now linked to the government bond yields, an investor will need to assess the future movement of interest rates before committing money to these options. It is a paradigm shift that transforms these fixed income options into market-linked products. “My investments will be no different from a home loan, with the interest rate changing every year,” says Raj Kumar Dogra, a Mumbai-based lawyer, who has invested `15 lakh in the Senior Citizens Savings Scheme (SCSS). Till now, his investment has earned a fixed return of 9% per annum. This year, it will earn an interest of 100 basis points (100 basis points = 1%) higher than the yield of 5-year government bonds. Although the current yield is close to 8.85%, the scheme will offer 9% because the rate is to be fixed at the beginning of the financial year. In April 2011, the 5-year government bond yield was 8%. Likewise, PPF investors will earn 8.6% on their corpus this year, while NSCs will fetch an interest of 8.4%. Powered by the magic of compounding, this higher rate can translate into big gains over the long term. The revision in interest rates is a bonanza for investors. The shift to market-linked returns coincides with government bond yields hitting three-year high levels. If the government bond yields

04

Cover Story

The Economic Times Wealth, November 21-27, 2011

From fixed income to market-linked regime Interest rates of small savings will now be aligned to the prevailing government bond rates. Current rate (%)

Proposed rate* (%)

100 basis points

Proposed spread** (%)

50 basis points

25 basis points

25 basis points

9.0 8.7 8.0

8.3

8.0

7.50

7.50

7.25 NA

6.50

6.25

8.2 8.00

8.00

8.6

9.00 8.00

6-year NSC

7.8

6-year MIS

7.7

8.4

New options

4.0 3.50

Savings deposit

1-year time deposit

100 basis point = 1%

2-year time deposit

3-year time deposit

5-year time deposit

5-year recurring deposit

5-year MIS

*Only for the year 2011-12. The rates for the new financial year will be announced every April.

continue to remain at the current high levels till the cut-off date in April 2012, investors in long-term options, such as the PPF, NSC and the SCSS, can expect a return of more than 9% in the next financial year. “The G-sec rate would move only marginally in the coming months as we don’t expect the RBI to cut rates and the fiscal worries are unlikely to be sorted out,” says Indranil Sengupta, an econ-

omist with Kotak Bank. However, market-linked return is a doubleedged sword and the rate could also fall to below 8%. In the past 12 years, the 10-year yield has fluctuated between over 10% and below 6% (see chart). Investors like Dogra are not sure how the transition to market-linked returns will impact them. “A fixed return is important for senior citizens who depend

5-year NSC

5-year Senior Citizens Savings Scheme

10-year NSC

PPF

**Spread will be above the bond yield of similar maturity

solely on the income from investments. I am content with a lower return but it must remain fixed,” he says. However, as Charul Shah, a Mumbai-based financial planner, says, “Debt investments are an integral part of one’s portfolio. They should be actively managed too.” The government has been spurred into hiking the rates due to an alarming fall in

collections by the small savings schemes. Though these options have been the favourites of small investors for a long time, the high deposit rates offered by banks have led to a dip in small savings collections in the past 2-3 years. These funds are used to partially finance the deficit. The revamp is part of the government’s strategy to put its borrowing programme back on track.

Get ready for ups and downs The 10-year bond yield has been above 10% and below 6% in the past 12 years. Your returns from small savings will also fluctuate. 12

Actual PPF return in past 12 years: 8.29%

PPF rate 10

8

If linked to 10-year bond yield: 7.51%

10yr bond yield

He has been investing in NSCs for the debt portion of his investment portfolio and has roughly `60,000 in them. He will compare the bond yield for the year before investing in it further.

Deepak Tiwari 30 D E L H I

6

Inflation 4

2 1999-00

2010-11

The 10-year bond yield has always stayed above the inflation rate, except in 2004-5 and 2008-9. In 2010-11, inflation rose above the PPF and G-sec yield.

“Till now I used to invest in NSCs without giving a thought. Now I will have to look at the bond yield.” SHOME BASU

Cover Story

The Economic Times Wealth, November 21-27, 2011

05

BHARAT CHANDA

How big is your PPF? He and his wife have `15 lakh each in the Senior Citizens Savings Scheme. Though the scheme will give 9% this year, Dogra is worried that the returns might fall below this level in the future.

Raj Kumar Dogra 62 M U M B A I

If you invest `1 lakh in PPF every year, your corpus after 15 years will be `29.32 lakh if the interest rate is 8% throughout. IF RATE FALLS AND STAYS AT

IF NEW INTEREST RATE OF

IF RATE RISES AND STAYS AT

9%

8.6%

7.6%

STAYS CONSTANT THROUGHOUT

FROM SECOND YEAR ONWARDS

FROM SECOND YEAR ONWARDS

CORPUS AFTER 15 YEARS WILL BE

CORPUS AFTER 15 YEARS WILL BE

CORPUS AFTER 15 YEARS WILL BE

`30.9 lakh

`28.35 lakh

`31.99 lakh

YOU GET

YOU GET

YOU GET

`1.57 lakh more

`97,500 less

`2.67 lakh more

“Senior citizens like me won’t mind a slightly lower rate. It is the uncertainty of the rate that is unsettling.”

The new rate of 8.6% is only for 2011-12. The rates for the new financial year will be announced every April.

Public Provident Fund This all-time favourite option becomes even more attractive after the revamp. It has been benchmarked to the 10-year government bond yield. Your balance will earn 25 basis points higher returns than the benchmark. The biggest gainers will be investors who have already accumulated a large corpus of `15-18 lakh over the past 10-12 years and could expect higher returns in the next 1-2 years before the interest rate cycle turns. Another important change has been the raising of the PPF investment limit from `70,000 a year to `1 lakh. This make the PPF a good tool for retirement planning. Till now, assuming a return of 8%, a PPF investor could accumulate a maximum of `20.52 lakh in his account over 15 years. Now, with an additional `30,000 flowing into the account, he will be able to accumulate `29.32 lakh. Plus, the `2,400 interest earned on the additional investment of `30,000 will escape the tax net every year. The corpus will be bigger if we assume that the new rate of 8.6% will continue for the next 15 years. If a couple starts contributing `1 lakh each to the PPF every year, they can build a tax-free corpus of `61.8 lakh over 15 years. “The PPF scores over all other small savings schemes because the corpus is totally tax-free,” says Lovaii Navlakhi, financial planner with the International Money Matters. The investment is also eligible for tax deduction under Section 80C of the Income Tax Act as well as under the Direct Taxes Code. If we take into account the tax saved, the return is as high as 12.65% for taxpayers with an annual income of over `8 lakh. The only negative is that loans from the PPF will now come at 2% instead of the earlier 1%. Of course, these projections assume that

the interest rate will remain at 8.6% throughout the tenure. This is very unlikely. Analysts believe that the interest rate cycle is close to peaking out and rates could move down after 2-3 quarters. We looked at four scenarios to see how the movement of interest rates will impact the PPF returns (see graphic).

National Savings Certificates There was a time when post offices were

crowded with taxpayers wanting to buy NSCs before the end of the financial year. But the aura of the NSC diminished when agents found more lucrative options and investors got the same tax deduction but a higher rate from bank fixed deposits. Now, the government hopes to revive interest in this one-time bestseller by hiking the interest rate to 8.4% and improving the liquidity by reducing the tenure from 6 years to 5 years. SUBHAJIT PAL

A consultant, he is not eligible for PF and superannuation benefits. The PPF is his only retiral saving. He is happy that the rates have been hiked but is concerned about the future when the rate cycle turns.

41 Gautam Banerjee K O L K A T A

“The PPF is my only investment for retirement. I need some kind of assurance of returns.”

Should you bite the bait? We would not recommend this to investors. Five-year taxsaving bank fixed deposits still score over the NSCs (see table). Not only do they offer a higher rate of interest, but the yield is even higher because the bank deposits compound on a quarterly basis while NSCs are compounded half-yearly. Even if the 5-year benchmark bond yield moves up to 9%, the NSC will offer an interest rate of 9.25%. Banks are already offering higher rates. Choose a public-sector bank or a private bank of repute if you are investing in bank fixed deposits. Don’t be lured by lower rates offered by smaller cooperative banks. Also remember to break down your deposits into tranches of `1 lakh in different banks. This is because investments of up to `1 lakh per bank branch are insured against default. Bank fixed deposits are also more liquid than an NSC. “If rates go up and you are locked in at a lower rate, you can foreclose the FD by paying a small cost. This option is not possible in case the of NSCs,” says Kamal Rampuria, senior vice-president of Delhibased AUM Capital Market. The only advantage for a taxpayer is that the interest earned every year from the NSC is also eligible for tax deduction under Section 80C. If saving tax is not the objective of the investment, you could also consider investing in corporate fixed deposits. The interest rates are significantly higher than that offered by banks. But these high returns come with high risk. AAA-rated corporate deposits don’t offer very high rates, while lower rated NCDs can offer 12-13%. Steer clear of deposits with a rating below AA.

10-year NSC This is a new instrument introduced by the

06

Cover Story

The Economic Times Wealth, November 21-27, 2011

Bank FDs still score over NSCs Top five-year tax-saving bank fixed deposits. He invests the maximum `70,000 in his PPF account every year and has accumulated a corpus of almost `6 lakh. With the limit being raised to `1 lakh a year, he intends to invest more now.

Mithun Purkayastha

31 D E L H I

“A higher PPF investment limit is good, but only a small portion of the corpus should be market-linked.”

Bank

Tamilnad Mercantile Bank City Union Bank

Interest rate (%)

10.00 9.75

Oriental Bank of Commerce

9.75

IDBI Bank

9.50

J&K Bank

9.50

NSCs

8.40

Higher returns for senior citizens Top five-year senior citzen bank fixed deposits. Bank

Interest rate (%)

Lakshmi Vilas Bank

10.75

City Union Bank

10.50

Tamilnad Mercantile Bank

10.50

Corporation Bank

10.25

IDBI Bank

10.25

Senior Citizens Savings Scheme

9.00

SHOME BASU

government. The 10-year NSC will have an attractive spread of 50 basis points above the 10-year bond yield. The rate for this year is 8.7%. However, since the NSC income is taxable, this option is not as good as the PPF. Invest in it only if you have already exhausted the `1 lakh annual limit in the PPF and still want the safety of a government scheme. We looked at the post-tax returns for investments in the 10-year NSC for people in different tax slabs. The calculation has taken into account the tax savings under Section 80C at the time of investment and the tax paid on the interest that accrues every year.

The post-tax returns are good in the higher income and tax brackets, but not very exciting in the 10% and zero tax brackets. Investors can also consider 10-year tax-free bonds being issued by PSUs. The public issue of 8.19% tax-free bonds from the Power Finance Corporation concluded last week. The National Highways Authority of India is scheduled to launch one this week with a coupon rate of about 8.25%. More such public issues, including those of infrastructure bonds that can help save tax under Section 80CCF, are in the pipeline. But the interest earned from infrastructure bonds is fully taxable.

Higher slabs, higher yields

10.57%

9.83%

9.25%

8.7%

Effective post-tax yield on a 10-year NSC with a coupon rate of 8.7% and assuming tax savings under Section 80C in the first year.

30% tax slab

20% tax slab

10% tax slab

Nontaxpayer

Unless you are in the highest 30% tax bracket, investing in the 10-year NSC will not be of much benefit to you.

Senior Citizens Savings Scheme and post office MIS

accounts has already triggered a rate war among banks. Some private banks like Kotak Bank, IndusInd and YES Bank are offering The generous spread of 100 basis points higher rates of 5.5% on savings bank above the 5-year bond yield given to the deposits of up to `1 lakh and a SCSS is a boon for retirees in times of higher rate of 6% for balances high inflation. This year they will get Use borrowing beyond that. The only thing goas a tool to 9%, but their returns could be higher manage liquidity ing for the post office savings if the bond yields don’t decline till Page 19 bank is that the interest of up to April. However, bank fixed deposits `3,500 a year is tax-free. In case are a better alternative because of the of joint accounts, this tax-free higher returns they offer to investors limit is `7,000. Besides, the post above 60 years. Also, there is no limit on office is very lenient when it comes to the investment (you cannot invest more than the minimum balance in your account. `15 lakh in the SCSS) or the straitjacket of a Instead of the `5,000-10,000 required by pricompulsory quarterly payout. vate banks and `2,000-3,000 required by However, the cost exiting the SCSS is lower PSU banks, the post office has a low limit of than the penalty levied by banks for foreclosonly `500. ing a fixed deposit. If you withdraw from the But the shortcomings far outweigh these scheme after one year, the penalty is 1.5%. Afbenefits. One has to personally visit the post ter two years, this gets reduced to 1%. In case office for operating the account because it of fixed deposits, it can be up to 2% of the does not have ATMs or Net banking facility. amount. The SCSS is also attractive from a The interest rates on term deposits of taxpayer’s standpoint. Investments are different maturities have also been hiked. eligible for Section 80C benefits, though this One-year and two-year deposits have seen could change under DTC. the steepest rise (130-150 basis points) in If tax saving is not a concern, perhaps rates. But these still remain unattractive comshort-term debt funds would be a better pared to the deposit rates offered by alternative. These funds invest in debt instrucommercial banks. ments and are far more liquid than fixed The revamping of the small savings income options. “With interest rate peaking schemes and the introduction of the marketout at this point in time, it is better to go for linked returns is a major shift in the way open-ended short-term debt funds,” says government schemes work. Clearly, investors Chaitanya Pande, head, fixed income, ICICI need to reassess the small savings options Prudential Mutual Fund. afresh before they commit money. Another favourite option of retirees has “Understand the changes in the scheme propbeen marginalised in the revamp. The post erly and invest with a lot of caution. Don’t office monthly income scheme will earn a invest blindly in any scheme,” advises Kartik marginally higher rate of 8.2% but the 5% Jhaveri, director of Mumbai-based financial bonus on maturity has been scrapped. planning firm Transcend Consulting. (With Sameer Bhardwaj) Time deposits and savings account Your post office savings account would also fetch you a slightly higher interest rate—from 3.5% earlier to 4% now. The RBI’s decision to Please send your feedback to [email protected] deregulate the interest rates on savings bank

Cover Story

The Economic Times Wealth, November 21-27, 2011

07

“If rates are linked to bonds, investors won’t gain much” Vijai Mantri Managing Director and CEO, Pramerica Mutual Fund

Five of the eight funds of Pramerica Mutual Fund are debt schemes. The fund house manages assets worth over `1,500 crore. Its CEO and managing director Vijai Mantri tells Babar Zaidi how the new interest rates on small savings will impact investors, how interest rates are expected to move and why open-ended debt funds are better than fixed deposits and FMPs.

The interest rate on small savings will now be linked to the government bond rates. How do you think this benefits investors? If the interest rate has become market-linked, it will not be a big benefit to the investors. The government may fix the rate for the next 12 months, but if interest rates go down a year down the line, the PPF rate will also follow suit. The government is very clear that if you want to invest in small savings, you will have to manage the market risk. This is also evident from the way the pension regime has moved from defined benefit to defined contributions. If you invest in any option that offers you an assured coupon rate, then there is a price to be paid for that assurance. This price is a lower coupon rate. As they say, there are no free lunches.

But isn’t it true that the investments in debt funds are not eligible for tax benefits under Section 80C? Section 80C is a very crowded avenue. You have Provident Fund, life insurance, ELSS, pension, fixed deposits, school fees, housing loan repayment, etc, under this Section. There is virtually nobody who will claim the entire `1 lakh tax benefit under Section 80C from his investments in PPF. If you work in the organised sector, your PF will take care of a chunk of the deduction. If you have schoolgoing children or have a life insurance policy, much of your tax saving limit will be easily exhausted. One must also note that the PPF was set up primarily to cater to the people who are not covered by the EPF. It was meant to serve the workers in the unorganised sector. However, over the years, we have seen that it has been hijacked by the rich investors. It is like diesel. The subsidised price was meant for truckers and bus owners, but now even owners of expensive SUVs and luxury cars are claiming the benefit.

Has the hike in rates for the small savings instruments made them more attractive? Small savings interest rates have been increased but the hike is not very significant. If you look at them from a short-term perspective of about 1-2 years, the openended debt fund will outperform the term deposits. Today, you will get 8.6% on your PPF because the interest rates are high. At the same time, short-term debt funds are giving returns of 9-10%. However, one year down the line, when Should you invest in interest rates go down to, say, index funds or 7%, your PPF interest rate will index ETFs? also go down. In the case of a Page 15 short-term fund, you will not only get the accrued interest but also the capital gain.

The government is trying to attract inflows into the small savings schemes. Do you think this move will help? It is clear that the government is learning from what has happened in the

developed markets. The genesis of the Eurozone crisis is the sense of entitlement that had been created there. The pension liability is like the Damocles sword hanging over some governments in Europe. The US economy is in very good shape, but the problem cropped up because of the culture of funding through debt. For the government, the issue is that if you create a sense of entitlement, who will carry the burden? Its priority is to put two meals in people’s mouth and provide employment to the daily wage earners. The last thing the government would want to bother about are people who have `1 lakh to invest in the PPF every year. It is widely believed that interest rates have peaked out. Do you agree? Nobody can be absolutely sure about how the interest rates will move in the future, but we do try to improve our odds. From these levels, it appears that the market interest rates have, perhaps, peaked out. The corporate deposit rates today are lower than those in March 2011. This is despite the RBI raising rates 2-3 times after March. However, the market discounted the hikes six months ago. If interest rates have indeed peaked out, wouldn’t it make better sense to lock in at a higher rate in a fixed deposit? Fixed deposits and FMPs are not the smartest way to invest in debt because, firstly, in a rising interest rate scenario, you should not lock in your money at a fixed rate. You should invest it in an instrument that realigns itself to the higher rate. In the past one year, fixed deposits have given returns of 7-7.5%, while short-term debt funds have delivered returns of over 8.5-9%. Once the fixed deposit of FMP matures, you may not need the money right away. If you look at 1-year FDs and FMPs, the customer’s holding period is not exactly 365 days. It could be 370-380 days before the proceeds reach the investor and then the money stays in the bank for 10-15 days before it is utilised. So, it is not very efficiently deployed. In the case of an open-ended debt fund, you get the return for the entire holding period. Investors are gradually turning savvy. They don’t rush into NFOs like they used to. What does this mean for a new fund house like yours? We are very sure of how we want to build our business. It’s best to move one step at a time. Instead of coming out with lots of new funds and gathering investments, we are focusing on performance. Performance is the biggest leveller in the market. If your mutual funds do well, they will be noticed by investors and inflows will follow.

Please send your feedback to [email protected]

08

Last Week

The Economic Times Wealth, November 21-27, 2011

Weekly wealth monitor

1-week change (%)

44.26

1-year change (%)

The top three STOCKS

8.92 8.26

0.20

0.96 -2.56

-7.20

-4.25

-4.15

Balanced funds

Equity funds

Gold

Income funds

Weekly % change

24.95 428.60 242.20

26.97 18.35 15.89 Weekly % change

WORLD INDICES

-17.41

-19.04 10-yr GoI bond yield

Kingfisher Airlines Patni Computer Systems Shree Global Tradefin

7.20

Price (`)

Sensex

All Ordinaries Nikkei 225 DAX

Wealth doesn’t get built or destroyed in a week. But you do need to broadly know how your investments in different asset classes are doing. This monitor tells you exactly that.

4,324.10 8,479.63 5,850.17

The 10-year government bond yield is the average yield in the respective periods.

0.39 0.25 -0.30

DEBT FUNDS

NAV (`)

Weekly % change

Baroda Pioneer Income Canara Robeco InDiGo UTI Bond

16.07 12.09 29.94

0.51 0.45 0.41

EQUITY FUNDS

NAV ( `)

Weekly % change

Tata Retirement Savings Prog Edelweiss Absolute Return Religare AGILE

10 11.22 6.40

-0.32 -0.97 -1.08

Stocks are from BSE-500. Debt funds are income funds.

Source: Capitaline & Bloomberg

bulletin board

top news

MUTUAL FUNDS

Consolidated statement for investors The Association of Mutual Funds in India (Amfi) has announced that investors will now get a monthly consolidated statement for all their transactions in different fund houses. The mutual fund industry has decided to issue a Consolidated Accounts Statement (CAS) on a monthly basis for transactions starting October, according to an Amfi statement. The CAS will be issued if there are any transactions during the month and the consolidation of folios will be on the basis of the PAN details provided by the investors. The decision follows an amendment in Sebi regulation with regard to the issuance of monthly CAS. This statement will be in addition to the individual account statements that investors get from their mutual fund houses.

A pick of corporate filings by companies on stock exchanges. MindTree has allotted 1.46 lakh shares as a part of its Esop.

Sadbhav Engineering has granted 4.08 lakh shares of `1 each to its employees as a part of its Esop.

Amtek Auto has recommended a dividend of `1 on its shares.

Nimbus Industries will split its shares in the ratio of 1:5.

Bliss Gvs Pharma has recommended a dividend of 35 paise on its shares.

Panama Petrochem has declared a dividend of `3 on its shares.

Gabriel India has recommended an interim dividend of 40 paise on its shares.

ABG Infralogistics has declared a dividend of `5 on its shares.

Wipro has allotted 25,623 equity shares of `2 each as a part of its Esop.

Ambika Cotton Mills has declared a dividend of `2 on its shares.

Garware Polyester has recommended an interim dividend of `1.50 and a special dividend of `7 on its shares.

Monsanto India has declared an interim dividend of `10 on its shares.

Prism Informatics has recommended a dividend of 5 paise on its equity shares.

Dynamatic Technologies has declared a dividend of `3 on its shares.

REGULATION

Circuit limit to curb IPO manipulation Outsized gains on the day a stock is listed could become a thing of the past. Stock market watchdog Sebi is considering imposing a circuit limit on share price movement on the first couple of days of listing to curb manipulation in initial public offerings (IPOs). The primary market advisory committee of Sebi, or PMAC, will take up the proposal on 24 November. One of the key proposals is introducing a 10% circuit filter on the first two days of trading, according to an official. The move was prompted after Sebi found evidence of manipulation in recent public offers. The Finance Ministry, too, had asked the regulator to consider making the IPO process more efficient.

STOCK MARKET

Patni shares to be delisted The board of Patni Computer Systems has approved the delisting of shares from the Indian bourses and American Depository Receipts (ADRs) from the New York Stock Exchange following its acquisition by Nasdaq-listed iGate Corp for $1.22 billion in May this year. According to the company’s promoters, given the low liquidity in the company’s equity shares, the delisting proposal would allow investors to exit fully from the company’s shares. The acquirer’s promoters may offer to buy all the shares held by the public if the offer price determined in accordance with the Sebi regulation is acceptable to them.

insider trading

wealthwise

A list of companies in which shares were bought or sold by insiders. BOUGHT

SOLD

13.98 lakh shares of Kirloskar Oil Engines at an average price of `133.

76,000 shares of Tide Water Oil at an average price of `6,854.

16,059 shares of Revathi Equipment at an average price of `351.

10,000 shares of TCS at an average price of `1,131.

17,000 shares of Ambika Cotton Mills at an average price of `192. 1.25 lakh shares of NOCIL at an average price of `17.

12,000 shares of Kotak Mahindra Bank at an average price of `502. 5,575 shares of Dr Reddy’s Laboratories at an average price of `1,624.

“I don’t need a loan for buying the car. It’s for the petrol!”

PENSION

quote of the week

Govt approves changes in PFRDA Bill The government has approved the amendments to the PFRDA Bill 2011 while agreeing to the proposed 26% foreign investment in the pension sector. However, it refrained from providing assured returns to subscribers. The government had decided not to mention the FDI cap in the legislation in order to retain the flexibility of changing it through an executive order. The 26% FDI cap is to be mentioned in the regulation to the legislation. The changes in the PFRDA Bill were approved by the Union Cabinet and the bill has already been scrutinised by the Parliamentary Standing Committee on Finance. It is likely to be taken up for consideration and passage in the winter session of the Parliament, which will begin on 22 November.

Some of the good corporates, without realising that insider trading is not right or on the wrong side of law, have been indulging in this because somebody has advised them that it is all right to do so.

UK SINHA, CHAIRMAN, SEBI

This Week Market Outlook: A MAJORITY EXPECTS THE MARKET TO RISE Which segment will lead the rally?

Which way will the markets move?

At the same level:

09

The Economic Times Wealth, November 21-27, 2011

Up by more than 2%:

Up by 2%:

Down by 2%:

Down by more than 2%:

0%

50% 28% 22% 0%

An ET Wealth-Synovate poll of market experts on what to look forward to in the week ahead.

43% 40%

17%

Largecap

Smallcap

Midcap

This poll of 40-50 experts of the country’s top broking firms is conducted by market research firm Synovate after market hours every Friday.

Reader poll Hits & duds Top 3 sectors (in %) Banking & Finance . . . .50 IT and Telecom . . . . . . .43 Automotive . . . . . . . . . . .30 Worst 3 sectors Realty . . . . . . . . . . . . . . . .28 Power . . . . . . . . . . . . . . . .25 Commodities . . . . . . . . .23 Figures may not add up to 100 because of multiple responses.

DO THE QUARTERLY RESULTS INDICATE A SLOWDOWN IN THE MARKETS IN THE FUTURE? *Most readers believe that a below-average second quarter performance by companies will result in a downward spiral for the markets.

Product launches INSURANCE Bharti AXA Life Insurance has launched two unit-linked plans—Life Future Invest, targeted at high net worth individuals, and Life Power Kid Insurance, for the child segment. The former lets you accrue the benefits for the policy term of 10 years while you pay the premium for only five years. You can withdraw the sum assured partially after five years. There are no charges for premium allocation. The Life Power Kid Insurance features a career development allowance of up to 10% of the base sum assured. In case of the policyholder's untimely death, an additional benefit equal to the base of the sum assured will be paid over and above the death benefit.

NET BANKING Standard Chartered Bank has unveiled Breeze

Banking for India, a suite of customisable banking services incorporating the Internet, smartphone technology and social media. For the tech-savvy segment, the scheme includes features like personal card design, personalisation of reward points, and instant and real-time access to a virtual banker. A savings account with a debit card and a MasterCard Titanium credit card is required to be eligible for the suite of services. For more information, visit Breezebanking.standardchartered.co.in.

MUTUAL FUND Deutsche Mutual Fund has unveiled an 18month closed-ended debt fund. The NFO price for the scheme is `10 per unit. The new issue will remain open for subscription till 30 November. The minimum application amount is `5,000, and

56% YES

41% NO

3%

CAN’T SAY

Market pulse in multiples of `1 thereafter. The fund seeks to collect a minimum subscription amount of `20 crore under the scheme during the NFO period. There are no entry and exit loads.

GOLD ETF Religare Gold Fund has launched an openended gold ETF. The fund is open for subscription till 29 November. The NFO price is `10 per unit. The minimum application amount for a lump-sum purchase is `5,000 (in multiples of `1 thereafter) and the SIP amount is `1,000 a month. The minimum tenure for SIP enrolment is six months. There is a 2% exit load charge if units are redeemed on or before six months and 1% if redeemed after six months but before a year. There is no exit load after a year.

■

The stock market is expected to be volatile this week due to the futures and options settlement. There are significant positions built around the 5,000 levels for the Nifty, and market participants will be tracking it on 24 November. The currency market may also remain volatile. The USD has already crossed the `51 mark and has reached the highest level since 19 March 2009. The USD is now placed very close to its alltime high of `52.18 (3 March 2009) and any break above this level will spill this volatility into the equity markets.

10

Stocks

The Economic Times Wealth, November 21-27, 2011

How to identify momentum stocks To make quick gains in a short span of time, evolved investors can use technical indicators to help them identify the movement of a stock in the near term. SANKET DHANORKAR This involves monitoring stock prices daily and cashing out withquity investors are in weeks or months of acquiring advised to remain the asset. However, this is not as invested for a reasoneasy as it sounds. Momentum play ably long term to can be highly misleading and frusensure that they get trating at times. If you get your good returns. This is because the calculation wrong, the money risk inherent in equities is may just as easily go down the reduced over time and the possidrain. Without the right tools, getbility of earning higher returns ting a fix on such stocks is increases. However, some people difficult. Hitesh Sheth, head, techare not comfortable with staying nical research, Prabhudas invested for a long period. They Lilladher, says, “Momentum prefer to book profits at regular investing can be rewarding if you intervals and move on to the can master the use of the next hot stock, a highly risky but indicators available. The strategy potentially rewarding game. can work both ways—you can ride Though this strategy is not recthe bull markets as well as benefit ommended for the lay investor, it from market declines.” can work wonders for those who can digest the risk and afford to How to spot momentum stocks swallow some lemons along the For those keen on making money way. Do you enjoy trading from this strategy, there are through the ups and downs in several indicators or tools the stock market? Are you that can help identify constantly on the lookHow to momentum stocks. Howout for stocks that are read a cash ever, before learning about to see a spurt in flow statement about these indicators, price? If you are Page 20 you must understand among those itching to the logic behind their make short-term gains functioning. As anyone and effect a quick exit, driving a car knows, he needs you are a momentum to slow down to change the investor. direction. Likewise, the speed at which a stock is moving up or What is momentum investing? down will reduce before the final Momentum investing involves turnaround. The momentum indibuying and selling stocks that are cators help you capture this likely to witness a substantial reduction in speed. However, a jump in prices in a short span of stock that is losing momentum time. In other words, the investor need not necessarily result in a buys stocks that are about to soar turnaround. Just as a car can slow and sells them at a much higher down, but then accelerate again, price. As a momentum investor, so should a loss in momentum be one seeks to identify stocks that considered as an indication of a have the potential to yield possible turnaround. spectacular returns within a short Through the following charts, to medium holding period, say, 1we explain some simple 6 months. When the market momentum indicators and a few rallies, momentum stocks are basic rules. You can start keeping usually better placed to lead the track of the performance of some market and touch new highs. Typpotential momentum stocks using ically, the strategy involves these tools. Over time, you will be capitalising on an existing trend. able to spot the stocks that can deSo, one would try to lock in gains liver high, double-digit returns in by riding hot stocks, those that are a few months or even weeks. already witnessing a surge in These indicators are readily availprices, or momentum. Alex Mathable for investors on Websites, ews, head of research, Geojit BNP such as yahoofinance.com. Watch Paribas Financial Services, says, “Momentum investing is this space for more detailed essentially about betting on stories based on technical stocks that have already gathered analysis that can help you zero in momentum.” on potential winners.

E

GETTY IMAGES

Rate of change The rate of change (RoC) indicator is a basic momentum oscillator, which measures the speed at which the stock price is changing within a defined time period. It calculates the percentage change between the most recent stock price and the price that existed ‘n’ periods ago. When plotted as a trendline, it forms an oscillator that fluctuates above and below the zero line as the RoC moves from positive to negative. A value greater than zero indicates an increase in upward momentum (spike in RoC reflects a sharp uptick in price) and a value less than zero suggests an increase in downward pressure (plunge in RoC reflects a sharp fall in price). However, this indicator can be misleading if used in isolation. It should be used in combination with other momentum indicators. 6,000

Nifty 4,943.25

5,500 5,000 10

RoC -2.77

5 0 -5 -10

4 Apr

4 Jul

8 Aug

15 Sep

The chart plots the 10-day ROC of the Nifty (as percentage change). The red circles indicate the points where the fall in ROC has signalled a downward shift in the Nifty, while the green circle shows where the rise has signalled an upward shift.

Trading volume Another indicator to be considered is the trading activity around the stock, which is represented by its trading volume. The stocks that are adequately supported by strong volumes can be assured of continued interest, at least in the near term. Low trading volumes, on the other hand, indicate lack of interest in the security and, therefore, a lack of momentum. Usually, momentum investors prefer to buy stocks that are rising with high volume and sell stocks that are falling with high volume.

Stocks

Relative strength index The RSI compares the magnitude of recent gains to recent losses. It is calculated by using the formula, RSI=100-100/(1+RS), where RS is the average price for ‘x’ days when the stock closes up divided by the average price of ‘x’ days when it closes down. RSI ranges from 0 to 100 and a stock is considered to be overbought when this value is above 70, and oversold when it is below 30. However, these are not considered as buy or sell signals because the stock may continue to move, taking the RSI to much higher/lower levels. Like other indicators, a signal is generated when a stock loses its momentum and turns around. In this case, RSI crossing the 70 mark from above is considered a a sell signal and crossing the 30 mark from below is considered a buy signal.

6,400

Nifty

6,200

5785.45

6,000 5,800 5,600 5,400 5,200 100

RSI

50

52.05 0

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

The chart plots the 14-day RSI of the Nifty. The red circle shows the sell signal given by the RSI, where the line cuts the overbought level from above. The green circle shows the buy signal, where the line cuts the oversold level from below.

MACD signal The moving average convergence divergence (MACD) indicator is used to confirm the buy or sell signals for a particular stock, as given by other indicators, such as relative strength. It shows the relationship between two moving averages of stock prices (usually the 26-day and 12-day moving averages). The MACD indicator comprises two lines. The first depicts the movement that is the difference between the two moving averages, while the other is the signal line (usually the 9-day moving average of the MACD), which is plotted on top of the first line, functioning as the trigger for buy and sell signals. When the MACD falls below the signal line, it is a bearish signal, which indicates that it may be time to sell.

11

The Economic Times Wealth, November 21-27, 2011

MACD divergence Traders employ indicators like the MACD, RSI, etc, to identify divergence between the stock price movement and the respective indicator. For example, if a stock touches a new high, but the MACD fails to do so (that is, the recent MACD high is lower than the previous high), it is called negative divergence. This shows that the buying momentum has slowed down in the counter and, therefore, the uptrend in the stock price may be coming to an end. Likewise, positive divergence occurs when a stock makes a new low, but its MACD fails to make one. This implies that selling pressure has receded and that the downtrend in the counter may not continue for long.

6,200 6,000 5,800 5,600 5,400 5,200 5,000

Nifty Nifty

5,148.35

5,070.85

5,600 5,400 5,200 5,000 4,800 100

MACD signal 59.93

26 Aug

23 Sep

-41.04

MACD Signal

-100

MACD Signal

25 Jul

MACD divergence

0

49.45 5 Oct

The red circles show the sell signals given by the MACD line, where it cuts the signal line from above, while the green circles indicate the buy signals.

Oct

Nov

100 0 100

-96.21 Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

The yellow lines depict a negative divergence between the Nifty and MACD line, indicating that the uptrend in the Nifty is ending, while the green lines depict a positive divergence.

12

The Economic Times Wealth, November 21-27, 2011

Stocks

Should you bet on market cap or current assets? While many stocks are available at low valuations given the market turmoil, there are some that are quoting even below their working capital. Here’s why the following stocks will make for good buys.

for a stock whose overall debt to equity ratio is comfortably below 1%. The stock market sentiment may change if there is any visible improvement in the cash flow situation. The company plans to launch several big-ticket projects in the second half of 2011-12 and the success of these could be a possible trigger for the stock. “The launch of any of its bigticket projects or receipt from Orbit WTC and Ocean Parque will help Orbit Corp to improve its cash-flow situation,” says Shah.

NARENDRA NATHAN

F

inding value in a bearish market is a cakewalk. Though the broader indices like the Sensex and the Nifty are relatively stable, the price damage on the sidelines is enormous, with several stocks already touching their 2008-9 lows. The number of stocks that can be considered undervalued by the classic valuation measure—price to book value (PB) ratio—is increasing by the day. Book value is the total value of the company’s assets that shareholders would receive theoretically if a company were to be liquidated immediately. It can be calculated by adding all tangible assets, such as the current value of fixed assets, current assets, etc, and deducting all liabilities, both short-term and long-term. While it is reasonable to expect a stock to quote below its book value in the current conditions, some of them are quoting even below their net working capital (also called working capital), a subset of the book value. The net working capital is calculated by deducting all shortterm liabilities (current liabilities) from the short-term assets (current assets). The current assets include stocks in trade, debtors, cash and cash equivalents, etc. The current liabilities mainly comprise short-term trade creditors. The net working capital can be positive or negative. It is positive when the current assets are more than the current liabilities and this indicates that the company has enough short-term assets to pay its short-term obligations. At the same time, a very high net working capital (much beyond that required) also indicates that the company is not managing its working capital efficiently. Now, imagine a situation where you can buy a 100% stake in a company (market capitalisation) by paying less than its net current assets. In this case, you could recover your cost by simply liquidating the current assets and paying the current liabilities. The remaining part of the book value (fixed assets minus long-term liabilities) comes totally free. We tried

to identify such stocks from the universe of BSE-500 index. As expected, most of the stocks that we eliminated belonged to sectors like real estate, textiles, etc, that are currently facing a tough time. To make sure the screening is not skewed by stocks that possess a large net working capital, we restricted the selection to those whose PB ratio was less than 1. Finally, we reached out to the analyst community to shortlist a handful of stocks that are worth investing in. Orbit Corp: With most end users shunning the realty market due to high prices and interest rates, Orbit Corp continued to struggle in the second quarter of 2011-12 as well. Since Orbit Corp caters to the luxury segment in the market, it has been adversely affected by the drying up of its new sales volume. “The average quarterly sales volume in the first nine months of 2011 is

Alok Industries: At `2,686 crore, the company’s consolidated net working capital is significantly higher compared to its current market capitalisation of `1,576 crore. However, it is plagued by a huge debt—more than `11,000 crore at the consolidated level. Of this, `2,000 crore is subsidised textile industry debt, where the interest rate is only 4% and can, therefore, be easily ignored. However, it was forced to report a forex loss of `100 crore in the second quarter of 2011-12 due to the restatement of foreign currency debt, which is at around `2,000 crore. The appreciation of the US dollar is an ongoing process and if this trend continues till DecemDo you need ber, Alok Industries will be to pay tax on forced to report a forex loss in receiving a gift? Page 17 the third quarter as well. Since it around 10,000 sq is a major textile exporter, the ft against the quarterly average of firming up of cotton prices is 1.1 lakh sq ft in the first nine months another worry for the company in of 2010,” says Akshit Shah, analyst, SBI the future. Cap Securities. High interest rates have However, analysts are not too worried taken a toll on its second quarter financials about Alok Textiles because the as well. Although its consolidated income fundamentals of the company continue to moved up a bit by `103.4 crore, compared remain intact. So, Alok Industries’ standwith `97.7 crore in the same period last alone revenues and operating profit in the year, its net profit plunged to `4.5 crore, second quarter grew by 47% and 25%, compared with `15.9 crore—a fall of 72%. respectively, and the tepid 2% net profit The lack of fresh sales and slower growth is only because of the forex loss and approvals leading to a reduction in conincrease in interest cost. Since it has struction-linked receipts has also affected already tied up with most big global the company’s cash flow. brands, there is no concern about its However, the stock price has been business growth potential. “Alok Industries impacted more than the fundamentals. should be able to report an annualised 25% Orbit Corp’s net working capital is `1,855 topline growth and annualised 22% EBITDA crore, almost five times that of its current growth over the 2011-13 period,” says Paumarket capitalisation of `377 crore. This is rav Lakhani, analyst, Prime Broking. Alok

Stocks

The Economic Times Wealth, November 21-27, 2011

13

Companies with strong net current assets Orbit Corp

Alok Industries

Future big-ticket projects could trigger a comeback.

Despite a debt and forex losses, it is a good bet.

Presents

MUTUAL FUNDamentals

84.45

Investor Education Series 100

84.45

100

62.05

28.77 16 Nov 2010

Sensex

16 Nov 2011

Orbit Corp

16 Nov 2010

Sensex

Alok Industries 16 Nov 2011

Anant Raj Industries The business situation has stabilised for the firm.

Anant Raj’s rental income for 2011-12 is expected to hit `95-100 crore, an increase of 32% compared with the 2010-11 figures. ”

84.45

100

38.41 16 Nov 2010

Sensex

Anant Raj Inds

SUMAN MEMANI, ANALYST, PINC RESEARCH

16 Nov 2011

4

PE: 4.21 | PB: 0.36 | DVD YLD: 3.34%

0 Data as on 17 November. Source: Bloomberg

Hold Sell

5

Alok Industries

0 17 1 Industries’ heavy spending on capex to meet this high quality global demand is the main reason for this huge debt. Therefore, the debt burden is likely to come down slowly once the cash-flow situation improves. Moreover, the management has already hinted that it plans to get out of the real estate business and the money raised from this will be used for repayment of debt. “Alok Industries is expected to generate around `1,400 crore from real estate sales by the end of 2011-12 and any debt reduction will act as a trigger for this counter,” says Siddharth Rajpurohit, an analyst at Shah Investors. Anant Raj Industries: Although the company’s net working capital of `1,570 crore is only slightly above its market capitalisation of `1,514 crore, many analysts are bullish on this counter. This is because the company is sitting on a large land bank, which was bought several years ago (its strategy to buy land bank in areas that can come up in the future has worked in its favour). Moreover, Anant Raj can boast a low debt to equity ratio. With the company not planning any aggressive land acquisitions, the

Hold Sell

Buy

0

PE: 8.62 | PB: 0.39 | DVD YLD: 1.22%

Buy

1

PE: 4.75 | PB: 0.53 | DVD YLD: 1.33%

Anant Raj Industries

In the ninth of the 52-part series, ET Wealth lists out various ways to measure the risks associated with mutual funds.

Buy

8

Orbit Corp

How to assess the risk to your fund

Hold Sell

company is a relatively free of stress. However, Anant Raj is also affected by the overall real estate slowdown and this explains why its second quarter revenue and net profit came down by 31% and 28%, respectively. The bullishness on the counter is not just because of the cheap valuations. First, the business situation has stabilised for Anant Raj and it managed to show a decent quarter-on-quarter growth of 9% in topline in the second quarter. Besides, things are expected to improve in the second half of 2011-12. For instance, there is a marked improvement in its rental income. “Anant Raj’s rental income for 2011-12 is expected to hit `95-100 crore, an increase of 32% compared with the 2010-11 figures,” says Suman Memani, analyst, PINC Research. Its cash flow is expected to remain strong, contributed equally by projects that were launched earlier and the upcoming ones at Neemrana and Sector 63 in central Gurgaon.

Please send your feedback to [email protected]

T

he risks in mutual fund investment arise due to the probability of a fall in the NAV. These risks can be attributed to external and internal factors. The ones due to external factors, also known as market risks, stem from macro-economic factors like inflation, interest rates and government policies. On the other hand, the risks due to internal factors, also known as company-specific risks, are because of factors such as labour strikes, technology issues and management problems. While mutual funds aim at eliminating companyspecific risks through diversification, the market risks cannot be removed. Let us look at some of the methods used to assess the risk profile of a mutual fund. Variance & standard deviation: Variance measures the dispersion of returns around the average return of the fund. However, the calculation methodology for variance is such that it squares the units of measurement. In order to bring in the actual units of measurement (in this case percentage returns), its positive square root is used, which is termed the standard deviation. Standard deviation measures the total risk associated with a fund (market and company specific). It measures the extent to which the fund return varies across its average return. The return of a fund is the percentage change in its NAV and it can be calculated on a daily, weekly, monthly or yearly basis. A high standard deviation implies that the periodic returns are fluctuating significantly from the average return and this signifies risk. On the other hand, a low standard deviation implies that the periodic returns are fluctuating close to the average return, which implies a low probability of loss. Beta and R-square: Beta is a measure of the market or systemic risk. It is a relative measure and is calculated with respect to the fund benchmark. Mutual funds are benchmarked to the market indices—equity

or debt—depending on the type of fund. Beta measures the sensitivity of the fund return with respect to its benchmark return. Funds with a beta higher than 1 are considered volatile, whereas those with a beta less than 1 are considered less volatile. A fund with a beta of 1 implies that it is moving in complete alignment with its benchmark. So for every 10% increase or decrease in the benchmark’s return, the fund’s return increases or decreases by 10% (on an average) The beta of a fund is reliable only if it is accompanied with a high R-square value. R-square explains the extent of change in a fund’s NAV that is influenced by the change in its benchmark. Its value varies between 0 and 1. For example, if a fund has an R-square value of 0.7, it implies that 70% of the fluctuations in its NAV are because of those in the benchmark. Weighted PE multiple: The fund’s risk level can also be gauged by considering its weighted PE multiple, which is the weighted price to earning ratio of the individual scrips in the fund portfolio. This method is suitable for evaluating equity funds. The funds that have a weighted PE multiple greater than its group funds or benchmark are considered risky. Overall, the standard deviation is the most popular method for assessing the risk of a mutual fund as it includes both the marketand company-specific risks. The risks of both equity (specialised and diversified) and debt funds are measured using the standard deviation. Investors must consider these risk measures while selecting funds in order to balance there risks and returns. These statistics are readily available on various mutual fund tracking Websites such as Value Research.

Next issue: Types of risks mutual funds are exposed to

14

Pick of the Week

The Economic Times Wealth, November 21-27, 2011

Apollo Tyres: Mixed results The underperformance in the past few months has brought down the company’s valuation, making it a good pick for the long term.

Fundamentals 2009-10

2010-11

2011-12

2012-13

to keep the prices of domestic tyres stable. lthough Apollo Tyres showed a decent topline growth in all the countries that it operates in, it reported a mixed Structural changes: Apollo Tyres is expected to benefit set of numbers for the bottom line. Its consolidated net immensely from the shift towards radial tyres by truck and bus sales jumped by 47% compared with that in the same period last operators in the domestic market. Though several domestic and year. While the standalone entity reported a net sales growth of global players have announced expansion plans in this segment, 57%, triggered by the higher production at its greenfield plant in Apollo Tyres has the first-mover advantage and its high capacity Chennai and an increased demand for truck-bus radials, the net should be able to meet the increasing demand. sales growth of its European operations was Moreover, its domestic performance is 43%, triggered by the demand for winter expected to complement the good show by tyres ahead of the peak season. The South its European and South African offices in a African operations also posted a modest net 24 few years. sales growth of 15%. 2 Sell Buy While it reported a 46% net profit growth 2 Hold Attractive valuation: Apollo Tyres had been at the consolidated level, the standalone net profit for the quarter came to `22 crore, grossly underperforming the broader market down by 41% compared with `37 crore it since it declared its first quarter results and this reported in the second quarter of 2011-12. brought down its valuations compared to those This was due to an increase in rubber prices of the other players in the industry. Since an and an unfavourable product mix due to the international player like Apollo Tyres is increased share of direct sales to auto available at a price to earnings multiple of manufacturers (or OEM sales). This 6.73, investors can consider buying it for the differential performance is evident even at long term. In spite of a mixed set of the operational level. While the operating second quarter results, Selection methodology: We pick the stock that profit of its Indian entity came down by 9%, analysts have shown faith in the European operations reported a growth has shown the maximum increase in consensus the company and of 84%. Its South African office also turned rating by analysts in the past month. Consensus recommended a ‘buy’. around and reported an operating profit of rating is arrived at by averaging all analyst `2.6 crore, against an operating loss of `7.5 crore during the recommendations after attributing weightages to each of them (5 same period last year. for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus rating indicates that analysts Easing domestic margin pressure: The recent fall in natural are becoming more bullish on the stock. To make sure that we rubber prices in India should help Apollo Tyres increase its operpick only companies with a decent analyst coverage, this search ating margins again. The price of natural rubber (grade RSS-4) will be restricted to stocks that have been covered by at least 10 has fallen from `215/kg to `190/kg in the past two months. analysts. You can see similar analysts’ consensus rating changes Although there was a proposal to remove anti-dumping duties during the past week in the ETW 100 table (page 25). —Narendra Nathan on Chinese tyres, it has not been approved and this should help

Revenue

8,121

8,868

11,598

13,057

EBITDA

1,190

988

1,084

1,321

653

440

397

530

12.96

8.73

7.99

10.60

A

Analysts’ views

Actual

Net profit/loss Adjusted EPS (`)

Relative valuation Apollo Tyres

Consensus estimate

PE 6.73

PB 1.23

Dividend yield (%) 0.83 0.39

MRF

7.57

1.60

Goodyear India

8.82

2.44

2.52

Ceat

9.07

0.37

2.80

Latest brokerage calls Recomm date

Research house

Advice

Target price (`)

11 Nov 11 Nov

Quant Broking

Buy

102

Equirus Securities

Buy

98

11 Nov

IIFL

Buy

82

11 Nov

Angel Broking

Buy

74

10 Nov

Standard Chartered

Outperform

75

10 Nov

Asian Markets Securities

Buy

73

9 Nov

PINC Infinity

Buy

72

Relative performance 93.06 100

18 Nov 2010

82.14

Sensex

18 Nov 2011

Apollo Tyres

Performance of shares of Apollo Tyres compared with the Sensex. The figures were normalised at the beginning of the year.

Source: Bloomberg

What experts advise

BUY Stock

Research house

Advice

Market price `) (`

Target price `) (`

Comment

Sun Pharma

IIFL

Buy

496

628

Sun remains our top pick in pharma space, underpinned by superior domestic brand franchise and growth prospects in the US.

Tata Motors

JP Morgan

Overweight

168

203

We expect growth at JLR to be driven by its new launch, Evoque, and its ramp-up in China.

Sobha Developers

KR Choksey

Buy

227

295

Its backward integration business model ensures high quality products and timely execution of projects.

M&M

JP Morgan

Overweight

724

865

We have raised our price target after increasing our estimate for 2012-13 to factor in higher volume growth.

Simplex Infrastructures

ICICIdirect

Buy

198

285

SIL has a strong and well-diversified order book and execution capabilities, among other positives.

Lupin

PINC Research

Buy

445

513

We are positive on the stock given its robust growth across regions over the next few years.

Market price `) (`

Target price `) (`

SELL Stock

Research house

Advice

Comment

Era Infra Engineering

Elara Capital

Sell

150

135

A moderate revenue growth trajectory, coupled with a deteriorating margin profile, is expected to dent its profitability.

Cipla

Tata Securities

Sell

315

263

A modest sales growth and higher tax rates are expected to offset gains from improving operating margins in the near term.

BGR Energy Systems

Nirmal Bang

Sell

273

258

We remain negative on the future prospects of the company as the BTG industry is heading towards tough times.

Mutual Funds

The Economic Times Wealth, November 21-27, 2011

15

Should you invest in index funds or index ETFs? Though index ETFs don’t offer the SIP facility, they may be the better option due to their higher returns. GETTY IMAGES

PRIYA KAPOOR

B

eating the market consistently is difficult even for fund managers. In a bid to time the market, they may take a wrong call, resulting in losses for investors. In such cases, it may not be easy to justify the extra fee paid in the form of fund management charges. A better option could be the passive funds, which cut these costs and deliver returns in tandem with the market indices as they have securities in the same proportion as in the underlying index. There are two types of passive funds— index funds and index exchange traded funds (ETFs). Though both mirror their benchmark indices, they are traded differently. Index ETFs are more like stocks as they have a fixed amount of units and can be sold in the secondary market. In the past few years, ETFs have branched out to gold and sector-specific ETFs. So, which type of fund should you opt for? Here’s a look at some factors that may help you decide.

Check the costs The first and most important factor is the cost of the fund. Index ETFs are more costeffective as there is no distribution commission involved. It also saves on operative expenses, such as custody cost and account statement fee, which are present in the case of an index fund. This is why the Index ETFs have delivered marginally higher returns, expense ratio of index funds is usually and have a lower tracking error and expense ratio. higher than that of index ETFs. For instance, INDEX ETFs Birla Sun Life Index fund has an expense Funds Benchmark 3-year Expense Tracking ratio of 1.5%, while Motilal Oswal MOSt returns (%) ratio error Shares M50 ETF, an index ETF, has an Goldman Sachs Nifty BeES Nifty 20.05 0.50 0.06 expense ratio of 1%. This small difference in UTI Sunder Nifty 20.05 0.92 0.06 the cost creates a significant variation in the Quantum Index Nifty 20.05 0.40 0.03 returns generated by these funds over a long period of time. Therefore, index ETFs usualKotak Sensex ETF BSE Sensex 20.09 0.35 0.02 ly deliver higher returns than index funds. ICICI Pru SPIcE BSE Sensex 19.14 1.70 0.11 When we consider the three-year returns of both categories, index ETFs have delivered INDEX FUNDS returns that range from 19-24%, while index Funds Benchmark 3-year Expense Tracking funds have delivered returns of 17-20%. returns (%) ratio error Higher returns are obviously attracting Franklin India Index NSE Nifty Nifty 19.95 0.81 0.70 more investors. While the number of folios of Magnum Index Nifty 19.88 0.85 0.88 equity-oriented mutual funds has gone down Tata Index Nifty A Nifty 19.56 0.84 0.73 by nearly 7.5 lakh during the past year (as on 30 September), ETFs have added over 2.5 LIC Nomura Sensex Adv BSE Sensex 18.49 1.37 0.41 lakh folios (an increment of nearly 80%) HDFC Sensex Index BSE Sensex 17.24 1.0 0.09 during the same period. Experts say Returns as on 3 November. Source: NAVIndia When the that ETFs have come a long way warranty on a since their launch in 2002, but are product may be yet to realise their full potential. participants) wants to create new units, he deploys money from the investor invalid will have to give physical gold. For example, the next day while allotting units Page 37 a fund may specify that for creating 1,000 on the same day, whereas an ETF Tracking error units, the fund will require 1 kg of gold. deploys the money immediately on Tracking error is the difference Similarly, when an investor wants to redeem a real-time basis. between the returns delivered by the the units, the fund will return the underlying Another reason is that index funds are fund and that of the benchmark index. On an asset in a defined proportion. “This creation required to keep some cash in order to meet average, it is higher in the case of index or redemption with the fund house is done redemption demands, which is not the case funds than for index ETFs. For instance, the by authorised participants. In the case of for ETFs, where new units are created by the tracking error for Magnum Index is 0.88, retail investors, they can buy or sell the units exchange at the fund level. So, in the case of while it is 0.06 for UTI Sunder (see table). in the secondary market, a mechanism that a gold ETF, if an investor (usually authorised One reason for this is that an index fund

WHY GO FOR ETFs?

ensures the secondary market prices are very close to the NAV of the fund,” says Rajan Mehta, former executive director, Benchmark AMC. There is no difference in the tax treatment for both types of funds, which follow the same rules as that for equity mutual funds.

Which is a better option? Like an index fund, an index ETF too invests in the stocks of an index in a similar proportion. However, it is traded on a stock exchange as one unit. So, you can take advantage of intra-day volatility and buy and sell it on the basis of its real-time NAV, unlike in an index fund, which is sold and bought like any other actively managed mutual fund. Though fund houses do not offer systematic investment plans (SIPs) in ETFs, you can instruct your broker to invest a fixed amount monthly. One drawback is that you need to hold a demat account to access an index ETF. “The process may be a little cumbersome for those who do not conduct online transactions. However, if you already hold a demat account, it is better to go for an index ETF,” says Lakshmi Iyer, head, fixed income and products, Kotak Mutual Fund. Index ETFs certainly seem to score over the index funds as they deliver better returns and match their benchmark indices more closely.

Please send your feedback to [email protected]

16

Mutual Funds

The Economic Times Wealth, November 21-27, 2011

Look beyond past returns Consider other factors while selecting a fund as past performance may not indicate its true potential. SHOBHANA CHADHA

A

bhimanyu Kapoor, a 28-year-old software professional in Mumbai has a busy work schedule. Realising the benefits of investing early, he has been putting money in mutual funds through SIPs. However, lack of time means he relies on his financial agent, who advised him to invest in a fund that had given a three-year return of over 20%. However, he was shocked when an investment-savvy friend told him that it was a sub-optimal fund and that many better options were available. Kapoor is not the only retail investor who picks funds by considering their absolute past returns. “The distributor shows a fund’s past returns to investors, but not in comparison with its peers. Besides, returns say nothing about a fund manager’s investment style,” says Maneesh Kumar, managing director, Burgeon Wealth Advisors. In fact, the pitch is often made on the basis of the commission paid by the fund house to the agent, not the past returns, he adds. This selection criterion can also result in wrong choices because the past returns may not be consistent over different time frames. An analysis of the three- and five-year returns of equity mutual funds across all categories reveals that they have displayed a wide disparity over the two time frames (see table). There are many funds that have delivered double-digit returns over the past three years but have eroded the real value of investors’ money over the five-year period. These include ICICI Prudential SPIcE, UTI Master Plus ’91, Tata Equity Management, L&T Growth, ING Core Equity, ICICI Prudential Top 200, HDFC Core & Satellite and Tata Contra, among others. Financial experts cite many reasons for the high disparity in returns. “In the past three-year period, there has been only one bear phase that we are currently experiencing. In addition to this slump, the five-year period also witnessed global meltdown in 2008 and, hence, the difference,” says Amar Ranu, senior manager, Motilal Oswal Wealth Management. There is more to this than the overall market scenario. According to wealth managers, fundspecific factors like concentrated bets and wrong cash calls can also be reasons for the disparity. If a fund manager sits on too much cash during the bull period, he will end up losing many good investment opportunities. “Such a huge divergence for actively managed funds shows that the fund managers may not have timed the market properly,” says Ranu. “The disparity is accentuated in the case of mid- and small-cap funds since they have lesser liquidity compared with large-cap funds. Under redemption pressure, the former suffer more as they end up selling their stars at fire-sale prices,” says Kumar. “The disparity can also stem from a fund’s investment mandate,” says Sankaran Naren, chief investment officer, equity, ICICI Prudential AMC. Some funds’ investment objective is to follow a high-risk, high-gain strategy, which may lead to disparate returns compared with those that have a more balanced mandate. Besides, there are schemes based on specific investment themes and returns from such funds can differ by a substantial margin from their peers in the same category depending on their cyclical nature. However, according to experts, inconsistencies

GETTY IMAGES

Funds across categories have delivered disparate returns 3-year average return (%)

5-year average return (%)

Difference(%)

18.3

6.71

11.59

Large- & mid-cap

20.76

7.42

13.34

Multi-cap

21.82

8.75

13.07

25.3

8.02

17.28

Hybrid equity -oriented

18.62

8.12

10.50

Tax saving funds

20.69

6.92

13.77

S&P CNX Nifty

18.68

6.92

11.76

Large-cap

Mid- & small-cap

Funds with high disparity over different time frames Returns (%) 3-year 5-year

Scheme HSBC Midcap Equity

14.76

0.26

BNP Paribas Midcap

21.29

0.56

Magnum Midcap

21.49

1.8

Magnum MultiCap

14.82

1.29

L&T Tax Saver

21.35

2.16

LIC Nomura MF Opportunities

14.06

1.44

LIC Nomura MF Tax Plan

14.93

1.7

BNP Paribas Tax Advantage Plan

19.39

2.51

LIC Nomura MF Growth

19.54

2.57

LIC Nomura MF Sensex Advantage 18.19

2.45

Data as on 21 October 2011. Source: Value Research Online

in returns can be given the benefit of doubt if the funds have outperformed the peer group over a time frame of 7-10 years. “If this is not the case, then there should be no place for such schemes in your portfolio,” says Kumar. Quite a few of the inconsistent performers don’t have a past record of over five years, and of the remaining funds, a majority of them have failed to outperform the average returns delivered by their categories over the past seven years.

Consider other factors Past performance data is a handy tool in mutual fund analysis, but not by itself. Only when it is combined with several other factors will it be of any help in drawing viable inferences about the Top-performing quality of the fund. 100 funds across So, before selecting a 10 categories fund, investors must Page 27 consider the quantitative characteristics of a portfolio, such as expense ratio, the turnover rate and the sectoral and security concentration, among other things. Ideally, the lower the above mentioned factors, the better it is. “One should also consider qualitative factors, such as the profile and the vintage of fund house and fund manager,” says Ranu. Notwithstanding the disparity in returns, the past performance of funds can be used to assess the ability of a fund manager in handling the fund. “If the same manager has handled the fund across different market cycles, an analysis of the fund’s performance in the bull as well as the bear market will provide

an indication of its future performance,” says Kumar. In fact, this is the reason that the period for which a fund manager has stayed with a fund is an important qualitative criterion for evaluating the fund. Investor should also see if the fund manager is visibly following the investment objective and is not deviating often. Similarly, risk-adjusted returns or alpha, which is one of the most important factors used by financial advisers to evaluate a fund, is a derivative of past performance. However, it does not see the performance in isolation. In fact, it is a reflection of several other factors, such as the extra risk taken by the fund (besides the one prevalent in the overall market) and fund manager’s expertise. Among all fund types, there are both aggressive and defensive portfolios. The investor must be aware of his risk appetite and the time horizon of investments before selecting a fund. “Investors should also check for any instances of change in fund manager or merger of schemes and other similar things. The merger of a scheme is a burden for the investors, whether it is the source or target scheme of the merger, and they stand to lose out,” says Ranu. “In the case of thematic funds, investors should refrain from comparing its performance across themes. Also, the poor past performance for a theme should not be seen as a deterrent since themes are likely to witness troughs and peaks,” says Naren.

Please send your feedback to [email protected]

Taxation

The Economic Times Wealth, November 21-27, 2011

17

Do you need to pay tax on receiving a gift? If the value of the gifts received by you during a year is above `50,000, you will have to pay tax on it. However, there are a few exceptions to this rule. AMIT SHANBAUG

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few months ago, Mumbai-based Sunil Ullal was thrilled when a friend gifted him a valuable painting. However, he was in for a surprise when his chartered accountant told him that he would have to pay tax on it. “The painting is by a renowned artist and its current value is about `1 lakh. My friend gifted it to me when he realised I liked it, but I had no idea that I would have to pay for it, even if it was in the form of tax,” says the 63-year-old. According to the Income Tax Act (as well as the Direct Taxes Code, which is likely to come into effect from 1 April 2012), if you receive a gift whose value exceeds `50,000, it will be clubbed with your income and you will have to pay tax on it. This rule is also applicable if the combined value of all the gifts received by you during a financial year exceeds the limit. Says Anand Tibrewala, senior partner at Mumbaibased AD & Co Chartered Accountants: “If the total value of your gifts exceeds `50,000, you have to pay tax on the entire amount, not simply on the difference.” Says Manish Thakkar, director of Mumbai-based Thakkar Consultants: “This rule applies even in cases where you have bought a product from someone at a much lower price than its fair value.” For instance, if the depreciated value of a car is `4.5 lakh, but you buy it for `3 lakh, the balance `1.5 lakh will be considered as a gift and clubbed with your income. However, if you pay `4.1 lakh, you will not have to pay tax as the value of the gift (or the balance amount) is less than `50,000. The fair market value of a gift is the price that it would fetch if it is sold in the open market on that particular date as determined by a registered valuer. For real estate, the stamp duty value will be considered as the market value. Gifts given by specified relatives are exempt from tax, regardless of their value. Such relatives include spouse, siblings, brothers or sisters of spouse/parents, grandparents and grandchildren as well as their spouses. Also, if a property is bequeathed to you under a Will, given on the occasion of your marriage or gifted by a local institution/authority, you won’t be taxed. Says Homi Mistry, partner, Deloitte Haskins and Sells: “A gift given in contemplation of death by the donor will also be exempt. If a

person knows that he is going to die in a few days and gifts his assets to a person, the recipient is exempt from paying tax.” However, if you receive an expensive gift during an engagement, anniversary or birthday party, it will be taxed. Under Section 56 of the Income Tax act, the value of the gift is clubbed with your total income and taxed according to your tax slab. For example, if you receive a gift worth `10 lakh in a financial year, it will be clubbed with your income. As this amount will put you in the highest income bracket, you will have to pay a 30% tax, plus surcharge, on your total income. In case you earn an income from the

be considered as their income. This can help you reduce your tax liability. If you have received real estate as a gift, it is advisable to get a gift deed signed by the donor or get the property registered with the registrar. This will help you avoid legal hassles in the future. However, you should be careful as a gift deed, once signed, cannot be revoked. In case you are gifting real estate, you can add a condition/clause stating that if the recipient dies within your lifetime and does not have any descendants, the property should return to you. Property cannot be gifted to a foreign national though you can gift residential or commercial property to an

What can be gifted?  Real estate, which includes residential and commercial structures, as well as land.  Paintings and sculptures.  Archaeological artefacts.  Jewellery, as well as gold and silver bars and coins.  Stocks and bonds of companies.

Which is the right laptop for you? Page 36

When is it exempt from tax?  If the total value of the gifts received in a financial year is less than `50,000.  If the asset has been gifted by specified relatives, regardless of its value.  If you have received the gift on your marriage.  If the asset has been bequeathed to you through a Will.

gift, it will be taxable under the heading ‘Income from other sources’. For instance, if you get rental income from a house that has been gifted to you, this will be taxed. A gift given to your minor child or income from that gift will be clubbed with your income. Suppose, you have gifted a house or shares to your minor child (or spouse), it will be tax-exempt. However, the rental income or dividend earned will be clubbed with your income and taxed accordingly. But if you give such assets to your parents, who have no source of income, the income earned from it will

NRI. However, you cannot give him agricultural/plantation land. “You need to be careful about assessing the gifts you have received in a year while filing your income-tax return. If you fail to do so, not only will you have to pay the interest liability on your outstanding payments, but could also end up paying a fine that is one to three times the amount of tax you were supposed to pay,” says Tibrewala.

Please send your feedback to [email protected]

18

Financial Planning

The Economic Times Wealth, November 21-27, 2011

THE MONEY QUESTION Should you overspend on an asset that depreciates in value over time? Rajesh Vinayak is a 28-year-old executive in a private company and earns a good income. He has an expensive lifestyle, which does not leave much to save or invest. He recently decided to buy his first car and shortlisted a popular small model. When he visited the dealer, he was tempted to buy a bigger car, given the easy repayment options being offered. Going for a bigger car also means putting in a higher amount as down payment, but Rajesh is not too worried because he knows he has money for this. Is Rajesh making a decision after considering all aspects?

Paper Work

Applying for balance transfer of a home loan Refinancing a current home loan or transferring the outstanding home loan balance from one lender to another is known as balance transfer. Effectively, the new lender gives the old one the outstanding money on the loan. Once the balance transfer is carried out, the liability and obligation of the borrower for repaying the outstanding amount is towards the new lender. A borrower may opt for a balance transfer to avail of lower interest rates or better terms than those of the existing loan, if the existing housing finance company (HFC) is unwilling to offer the same. If he has a good repayment track record, he is most likely to get a good deal on interest rates with the new lender. To effect a transfer, one should get a foreclosure letter of consent, statement of account and list of property documents from the existing HFC.

Loan application The borrower must submit the loan application to the new HFC, along with supporting documents, which include bank statement, repayment track record, foreclosure letter, and list of property documents with the existing lender.

ajesh is making three important decisions, which can have an impact on his overall financial health. He is considering a higher investment in an asset that will depreciate the moment he buys it. He is tying himself to an obligation for a long period, which may seem affordable now, but may change once he has other commitments. The money he is planning to use for making the down payment and the additional amount that he will pay as EMI can be invested and will help him build a big corpus over the same period, instead of it losing value. Given his current income, buying a bigger car would imply a longer loan tenure. In the initial years, a larger portion of the EMI would go into paying interest rather than the principal. If Rajesh decides to sell the car after a few years, he will probably realise that its value is not even sufficient to pay the outstanding loan. Rajesh needs to find a via media, which will help him indulge his expensive tastes without compromising his future financial position. One way would be for him to buy the car that he had originally intended to by taking a loan for a short tenure. Since he has a good income with no commitments, he should be able to shell out a higher EMI and pay off the loan. In a few years, when he needs a bigger car and has a higher income, he can trade the old one, which will be free of encumbrances, and use the amount as down payment for the new vehicle. His financial situation would also have become stronger by then. He would have to postpone fulfilling his desire for a few years, but he would have managed to start an investment portfolio that would stand him in good stead in the long run.

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Top-up loan The new lender assesses the property against which the loan is to be sanctioned and might be willing to give a top-up loan against the rise in the value of the property.

Prepayment penalty HFCs may charge a prepayment penalty, especially if the loan is being transferred from one lender to another. It is charged as a percentage of the total outstanding loan. Some banks also impose a minimum period before allowing a balance transfer.

RAJ

SMART THINGS TO KNOW: Securities transaction tax (STT)

1

2

3

4

STT is a turnoverbased tax on the purchase and sale of securities, including shares, equity derivatives and equity funds traded on a recognised stock exchange.

In the case of mutual funds, the STT is applicable only on the redemption or sale of units, not on their purchase.

The tax is applicable whether the transaction results in a gain or loss to the investor. It applies to all investors irrespective of their tax status.

Tax is levied on purchase or sale value in the case of equity shares, futures and mutual fund units. For options, the tax is on premium during a sale; if exercised, it’s on settlement value.

5 The rate of STT for delivery-based transactions in equity shares is 0.125%. In the case of intra-day trades, where there is no delivery, STT applies on the sale transaction at 0.25%.

6 For derivatives and options, the sale of futures attracts an STT of 0.017%, while mutual fund redemptions attract a tax of 0.25%.

The content on this page is courtesy Centre for Investment Education and Learning (CIEL).

Points to note Document proof: All photocopies of the supporting documents must be self-attested. Release of documents: The existing lender may not release the property documents before the loan is repaid. The new lender may be willing to release the payment against a letter from the current lender giving details of the legal papers held by them and indicating the number of days it will take to release the documents to the borrower.

Financial Planning

The Economic Times Wealth, November 21-27, 2011

19

Use borrowing as a tool to manage liquidity If assets are created through borrowed money keeping in mind the unexpected needs for liquidity, the cost of borrowing can be managed in a better manner, says Uma Shashikant. bank deposits will be at a higher rate than the he most common problem among return on the investment. However, it helps investors is poor management of generate liquidity when we need it and we can liquidity. By its very nature, it is not easy repay it as soon as the need is over. The interest to estimate the need for liquidity. We all cost is proportionately imposed for the period for carry wads of cash in our wallet despite knowing which we use the money and can turn out to be an that we can access the nearest ATM, if needed, or affordable, absolute amount for the convenience of use the debit and credit cards instead. We have liquidity. Banks offer loans against home equity, money locked in pieces of land or property that we which is the difference between the value of the have seldom visited or used, and take high-cost house and the loan outstanding against it. Loans are loans to fund our holidays and functions. How can also available against gold, equity shares, bonds, we manage liquidity systematically? mutual funds and saving schemes. In all these cases, To manage liquidity is to move money around so the asset is offered as a security to the lender, so the that expenses and spends that do not fit into our loan is reasonably priced. regular income are easily funded. It may be However, if the value of the asset is subject to worthwhile allocating some portion of savings changes due to the market forces, the lender may to liquid assets, but an investment that features seek a margin or a cut to secure the loan. For high liquidity may also face market risks. For example, a bank may offer a loan of only 50% of example, equity shares can be sold at short the value of equity shares pledged with it. This is notice, but the market price may not be favourable to protect the lender from any fall in the value of when they need to be disposed of. These assets collateral. If the net value of collateral, after should, therefore, be liquidated only during adjusting for the margin, is `100, and we need a emergencies, when all options fail. A portion of the loan of only `50, our loan is over-collateralised. If a portfolio can be maintained in income-earning loan is over-collateralised, a lower interest can be investments that can be liquidated at short notice negotiated with the lender. and carry low risk. For instance, an ultra short-term If the money is being put to productive use, debt fund can generate steady, low levels of return, liquid assets can be leveraged to enhance wealth. and redemption proceeds are paid out in one A trader who pledges gold, a businessman who business day. mortgages his business premises, a truck driver Any unutilised balance in the savings bank who borrows to fund his truck, and a may be the easiest and most convenient promoter who pledges his equity shares are way to ensure we have cash when we all leveraging their assets. They are need it, but it has a high opportunity How to identify momentum borrowing with the view that the earnings cost. For the convenience of allowing stocks of the asset they fund will make up for the access to funds at any time, banks Page 10 borrowing cost and more. This type of boroffer the lowest rate of interest on savrowing needs greater care since the asset ings bank balances. If we use a credit that is funded may not perform as expected. card for sudden, unexpected expenses The stock traders who use margin money and and pay the entire balance when the bill is IPO investors who borrow to subscribe are all due, we actually get the bank to fund our leveraging, taking a speculative view of the asset’s short-term liquidity needs at low or no cost. We value. If it moves down, instead of moving up, they need to see this as a tactic to utilise the credit limit at may lose heavily. This borrowing strategy is very low cost when needed. The cost will convert to the different from a simple short-term liquidity arrangehighest, if we do not pay back on time. ment, and is risky. It is important to see that borrowing is a valuable Households are primarily discouraged from tool in managing liquidity. If we all decided to save borrowing and spending the money on and accumulate money before buying a home, car, consumption, celebrations, ceremonies, and holiday or a gift, we would be poorer, both in terms depreciating assets. These uses of borrowed funds of the wealth we can build and the joys our incomes draw on the future income, creating liabilities can bring. There will always be demands on our without producing any matching asset. The income that are lump sum and large, which require financial position of the household is likely to arranging for liquidity, borrowing being a key deteriorate from such borrowing. Without the choice. When we build our assets, we need to keep discipline to repay, borrowing can be burdensome this need in mind, so we have the flexibility to draw and risky. This is the reason that financial planners on the value of the asset to generate funds we can discourage households from accumulating debt. To use now and repay later. A loan backed by an asset is a smart and disciplined investor, borrowing by secure and comes at a lower cost compared with an utilising their assets can be a useful tool for unplanned, ad hoc, unsecured borrowing. Personal managing liquidity. loans, including credit cards and all types of unsecured loans given to individuals, are the most expensive since they have a high risk of default for the lender. Generating liquidity from an asset will come at a The author is Managing Director, Centre for Investment Education and Learning, cost, but this cost can be negotiated depending on and can be reached at uma.shashikant@ the nature of asset and credit score. An overdraft ciel.co.in facility on a savings bank account or a loan against

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RAJ

II.

I.

Learn & Keep

`5,356.40

(V) Proceeds from borrowings

UNDERSTANDING THE RATIOS

} }

It’s a measure of investors’ expectations of the firms’ future financial health. It’s similar to the PE ratio, but overcomes the distortion caused by the firms’ varying depreciation policies. The ratio could vary for different industries depending on the capital expenditure requirement. It can be used to compare companies within the same sector.

It measures a company’s ability to pay its short- term liabilities. A ratio of less than one indicates that the firm has generated less cash in comparison to its short-term liabilities and that there is an immediate need for cash. The higher the ratio, the better it is for the company.

TEXT: SAMEER BHARDWAJ

This is calculated by adding the cash flow from operating, financing and investing activities. It depicts the most liquid assets available with the company.

NET INCREASE (OR DECREASE) IN CASH AND CASH EQUIVALENTS

It displays the flow of cash between the company and its owners or creditors. A positive cash flow from this section implies that the company has issued new shares or probably raised money through debt. On the other hand, a negative cash flow implies that the company is servicing its debt, so the magnitude of its total debt should be examined in order to avoid highly leveraged companies. A negative cash flow in this section could also imply that the firm is buying back its stock or paying dividend, which is most favoured by the investors and shareholders.

CASH FLOW FROM FINANCING ACTIVITIES

It measures the amount of cash a company has generated through its investments. Typically, a negative cash flow from investing activities is not a bad sign as it implies that company has invested in the long-term assets such as property, plant and equipment, which will help in enhancing its future growth. On the other hand, a consistent inflow from this section could imply that the company is selling its investments (sometimes even at a discount to the market price) in order to generate cash.

CASH FLOW FROM INVESTING ACTIVITIES

It reveals the amount of cash a firm is generating from its core business. This component is of great importance to the investors because it signifies how well a company is managing its operations. A gradual or consistent reduction in operating cash flow could indicate serious issues such as fall in demand of the company’s products or loss of the market share.

CASH FLOW FROM OPERATING ACTIVITIES

It can be used to derive the free cash flow, which is used by analysts in estimating the value of the business. It helps investors assess the company’s ability to meet its obligations like servicing debt and generate cash in the future. Cash-rich companies can easily make investments in R&D, plant and machinery, and technology, which help in creating long-term shareholder value.

IMPORTANCE OF CASH FLOW STATEMENT

The net income reported in the income statement should be compared with the cash flow from operations (CFO). If it is consistently lower than CFO, it requires close examination as it implies that the firm is not able to convert its sales into cash easily. The divergence between the two is also important. A positive net income and a negative CFO implies that it is unable to earn adequate cash from its core operations or is cost-inefficient.

CASH FLOW HELPS IN IDENTIFYING RED FLAGS

`18,876.00

`1,500.00

(U) Cash subsidy

Net increase or (decrease) in cash & cash equivalents (I + II+ III)

`2,500.00

`9,356.40

`3,500

(T) Proceeds from share issue

Add: Cash inflow (T+U+V)

(S) Repayment of long term liabilities

`10,000.00

`7,134.60

(Q) Dividend paid (R) Repayment of borrowings

`1,802.10

(P) Interest paid

`895.00

`23,331.70

Less: Cash outflow (O+P+Q+R+S) (O) Issue expenses

-`13,975.30

Net cash inflow or (outflow) from financing activities

`70,895.10

`175.00

(M) Due to decrease in capital work in progress (N) Due to sale of investments

`440.00

`71,510.10 (L) Due to sale of fixed assets

Add: Cash inflow (L+M+N)

`83,147.20

(K) Due to purchase of investments

`98,423.00

Less: Cash outflow (J+K)

`15,275.80

-`26,912.90

Net cash inflow (or outflow) from investing activities

(J) Due to purchase of fixed assets

`59,764.20

Cash flow generated from operations

`250.00

`3,023.50

(H) Due to increase in inventories (I) Due to decrease in trade & other payables

`1,759.40

`5,032.90

(G) Due to increase in trade & other receivables

Less: Cash outflow (G+H+I)

`1,396.00

`665.00

(E) Decrease in inventories (F) Increase in trade & other payables

`500.00

`2,561.00

`1,500.00

`577.50

`7,751.00

(D) Due to decrease in trade & other receivables

Add: Cash inflow (D+E+F)

(C) Unrealised foreign exchange loss

(B) Amortisation and w. offs

(A) Depreciation

`9,828.50

`52,407.60

Net profit before tax & extraordinary income Add: Adjustments for non-cash and non-operating expenses (A+B+C)

`59,764.20

Net cash flow from operating activities

CASH FLOW STATEMENT OF XYZ LTD FOR THE PERIOD ENDING MARCH 2011

A company’s financials cannot be analysed only on the basis of its income statement as it may not reveal the exact cash it has, and insufficient cash can impact its solvency. So it is imperative to scan a firm’s cash flow statement along with other financial documents. Here’s how.

CASH FLOW STATEMENT

HOW TO READ A

The Economic Times Wealth, November 21-27, 2011

III.

20

22

Family Finances

The Economic Times Wealth, November 21-27, 2011

“I bought the health insurance without realising that I had taken a Ulip. I had no idea about the charges I would have to pay for my insurance.” VAIBHAV PANDYA

NET WORTH OF PANDYAs Asset

Current value (`)

EPF

5.5 lakh

Real estate

60 lakh

Fixed deposit

8 lakh

Deposit against loan

10 lakh

Stocks

45,260

Insurance

4.46 lakh

Mutual funds

3 lakh

Cash

50,000

Total

91.91 lakh

Total liability Home loan

Amount (`)

Total

27.92 lakh

27.92 lakh

Approximate net worth

`63.99

lakh

BHARAT CHANDA

Vaibhav Pandya, with his wife Harita and daughter Diya, in Mumbai.

Pandyas’ cash flow

Funds needed to achieve goals Goal

Inflow

Outflow Total monthly expenses `1,00,925

Rent `12,000

Naveen `1,26,000

Total monthly income `1,38,000 Household expenses

Resources used

Diya’s education

14

44 lakh

Existing SIPs

Nil

17

74 lakh

Existing SIPs

500

Diya’s marriage

20

93 lakh

Nil

15,000

Retirement corpus

14

4.86 crore

EPF+real estate+ FD+deposit against loan+surrender value of insurance

44,200

EMI Investible surplus needed Excess

Insurance premium (average)

`13,125

Vacation

SIPs

`5,000

`17,500

Investible surplus

`37,075*

Further investment (`/month)

Diya’s post graduation

`29,100

`36,200

Years to Future achieve cost (`)

59,700* 1,633

Annual inflation assumed to be 8%. Equity, balanced, gold and debt portfolios are expected to grow at 15%, 12%, 10% and 8% per annum, respectively. A comprehensive plan has been mailed to the Pandyas.

*Investible surplus will rise to `61,333 after the suggested investments.

Family Finances

The Economic Times Wealth, November 21-27, 2011

23

Savvy planning, skewed investment By tweaking the skewed real estate and insurance portfolios, the Pandyas can easily achieve all their goals. AMIT KUMAR

EXPERT ADVICE

PANDYAS’ GOOD MOVES ...

EXISTING ASSET ALLOCATION

68.5

% Real estate

27% Debt

4

% Equity

0.5% Cash

PROPOSED ASSET ALLOCATION

70% Equity

25% Debt 5% Cash

Since real estate was purchased as an investment and will be sold, it has not been included in the proposed asset allocation.

RECOMMENDATIONS EQUITY FUNDS HDFC Long Term Advantage Growth, HDFC Tax Saver Growth, HDFC Midcap Opportunities Growth, HDFC Equity, HDFC Prudence, Reliance Gold Savings, ICICI Pru Focused Bluechip Equity, HDFC Top 200, IDFC Premier Equity, Kotak Gold, SBI Magnum Emerging Businesses. Advice: The portfolio is scattered and difficult to manage. Pandyas must concentrate on a smaller portfolio of 4-5 strong funds, which can include Franklin India Bluechip, IDFC Premier Equity and ICICI Pru Discovery. They should quit gold funds. BALANCED FUNDS HDFC Prudence, Reliance Regular Saving (Balanced) and Birla Sun Life 95. Rationale: Considering Pandyas’ risk profile, they should opt for balanced funds. All the suggested funds have good performance track records.

T

he Pandyas tick most of the boxes when it comes to financial planning—they invest in equity and gold funds, have two properties and a sizeable amount in the debt portfolio. Though they have faltered when it comes to picking insurance (traditional, expensive plans), it can be taken care of if they act now. More importantly, they are on course to achieving all their goals in the stipulated time. Vaibhav Pandya, 32, works with a mutual fund company and lives with his wife Harita, a 27-year-old homemaker, and their 4-year-old daughter Diya, in Mumbai. Their monthly income is `1.38 lakh, and after accounting for household expenses, SIPs, insurance premium, and EMI, they are left with a handsome surplus of `37,075. This amount, along with their existing investments in mutual funds and other debt instruments, will help them achieve most of their long-term goals. These include saving for their daughter’s education and marriage, and building a healthy retirement corpus. To ensure all these goals, they must make an important decision regarding their real estate investment. The Pandyas have invested heavily in real estate, forming almost 70% of their asset allocation. While this allocation includes only the property they have bought as an investment, they also own another house valued at `90 lakh and in which they currently live. The former, bought for `14 lakh and currently valued at `60 lakh, has been rented out for `12,000 a month and has an outstanding loan of `27.92 lakh. They also shell out `1,200 per month as maintenance charges. This brings down the annualised returns to just 2.16%, which is extremely low. Pankaaj Maalde suggests selling this Mumbai property as it will provide them with the much-needed funds to save for their retirement. If they do this, their investible surplus will rise to `61,333 (this includes the `5,958 they will save on premium by surrendering their expensive insurance plans). Even after paying the loan, brokerage and long-term capital gains tax, they will be left with nearly `29 lakh. This can take care of their short-term goals, which include planning a vacation for `5 lakh and buying a car worth `6 lakh. They must also keep aside `2 lakh as a contingency fund. The Pandyas want to build a corpus of `4.86 crore in the next 14 years for their retirement. For this, their EPF contribution of `15,200 per month and LIC Jeevan Anand policy will contribute nearly `94.5 lakh. To make up for the balance corpus, the Pandyas need to allocate `16 lakh from the sale of the house, along with the deposit against home loan of `10 lakh, fixed deposit of `8 lakh, surrender values of their health insurance Ulip and

Buying real estate. Investing in mutual funds through SIPs and lump sum. Maintaining a healthy savings rate. Having an adequate contingency fund. … AND THE BAD ONES

Not buying adequate life and health insurance. Buying expensive, traditional insurance policies. traditional life insurance plan of about `4.5 lakh, as well as equity and current mutual fund investment of around `3.5 lakh. These will amount to nearly `42 lakh and should be invested in balanced fund through a monthly SIP of `2 lakh. “The balanced fund has been recommended after analysing their risk profile and asset allocation. This will give them a corpus of about `2 crore,” says Maalde. For the shortfall of `1.91 crore, he must start a fresh SIP of `44,200 in balanced funds for 14 years. The total of all this will give them the desired retirement corpus at retirement. The Pandyas have been meticulous planners as far as their daughter’s financial needs are concerned. They want to save for her college and post-graduate studies and build a corpus of `44 lakh in 14 years. For this, they must direct `8,000 out of their existing investments in diversified equity mutual fund towards this goal. They must also add `500 to the remaining `9,500 of their existing SIP

investments to build a corpus of `74 lakh in 17 years for her post graduation. For her marriage, they want to save `93 lakh in the next 20 years. For this, they must start an SIP of `15,000 in similar funds. The one area that they need to focus is insurance. Though they have an online term plan of `70 lakh and an LIC Jeevan Anand policy of `7 lakh, they are not adequately covered for life insurance. Maalde suggests that Vaibhav add another term plan of `31 lakh, which will cost him about `500 more per month. Also, Jeevan Saral and the endowment plans that they have bought are too expensive and give them a low cover. These are traditional plans, which are not flexible and unlikely to beat inflation. Therefore, Maalde advises them to surrender the plans and use the proceeds for retirement. For health insurance, they have a cover of `3 lakh each from LIC’s Health Plus plan. This is a Ulip, not a pure mediclaim plan. So, Maalde suggests they buy an individual mediclaim plan of `3 lakh each and a top-up individual plan of `5 lakh for all. This will cost them about `1,500 per month. Vaibhav should also buy a `50 lakh critical illness and `50 lakh disability accident cover for himself. This will cost them about `16,000 annually. If they follow this advice, it will not only reduce their life insurance cost and add to health premium, but will also create a surplus of `5,958, which can be allocated to other financial goals.

Financial plan by Pankaaj Maalde, Head Financial Planning, apnapaisa.com Need help with your family finances? Write to us at [email protected]

24

Real Estate

The Economic Times Wealth, November 21-27, 2011

Will property prices come down now? A recent report lists the reasons why property prices may soften in the next few months.

Inventory levels to go up further According to industry sources, the Outstanding inventory days residential inventory level is still 42Dec 2008 Jun 2011 Deviation (%) 80% off its peak (2008). Over the Gurgaon 55 12 -78.2 past few months, the inventory has been stable at around 9-15 months Bangalore 42 18 -57.1 across cities despite the slowdown Ahmedabad 35 10 -71.4 in transactions, as against its peak Noida 33 9 -72.7 of 30-55 months in December Kolkata 31 17 -45.2 2008. This is largely on account of Chennai 30 11 -63.3 subdued new launches in cities like Mumbai 26 15 -42.3 Mumbai, Noida and Chennai. On the other hand, the inventory level The deviation is from the peak in 2008. Source: Industry, Nirmal Bang Institutional Equities Research has moved up slightly in Bangalore due to aggressive new launches. All this has resulted in prices remaining firm across cities despite the subdued demand.

GETTY IMAGES

T

he residential real estate sector is set to decelerate, according to a report by Nirmal Bang Institutional Equities. One of the main reasons is that the inventory level is expected to go up over the next one year because of declining sales amid increased launches of new projects. The consequent weakness in transaction volumes will exert pressure on developers in servicing their debt. This could lead to a softening of prices as banks could force realtors to cut their inventory levels to repay the debt. Here are some excerpts from the report:

Residential demand likely to decelerate further because …

Affordability has taken a hit Affordability has taken a hit with the loan-to-value ratio falling from 90% to 80%, thereby increasing the down payment for buyers. The increase in interest rates by the RBI has also led to a rise in home loan rates. If the rates come down, it will give some respite to buyers, but residential demand will be driven more by affordable prices and salary growth. Mortgage rates Bank (%) 8.5 7.5 6.5 5.5 4.5 3.5 2.5

Hike in interest rates by 3.25% since March 2010

Repo rate

Transaction volumes in the first quarter of 2011-12 declined across cities on a sequential basis, while a few cities, such as Mumbai, Gurgaon, Hyderabad and Kolkata, reported negative growth year-on-year (YoY). This was mainly due to the subdued project launches, the lowest since March 2010, on account of the delay in government approvals and low demand because of higher prices and interest rates on home loans.

Sep 2011

Mar 2010

a) Sales volumes have come down

Reverse repo rate

Floating rates (%)

HDFC

11.3

ICICI Bank

11.0

PNB

12.5

IDBI Bank

11.0

Kotak Mahindra Bank

11.0

SBI

11.0

For loans of `30-75 lakh in August 2011

Source: RBI

Source: Companies

Residential demand growth Chennai Bangalore Pune Kolkata Hyderabad Mumbai Ahmedabad MMR* Gurgaon 60

40

20

Funding to the realty sector is moderating

y-o-y growth q-o-q growth

(%) 0

20

40

60

80

100

Data for first quarter of 2011-12; *MMR: Mumbai Metropolitan Region

b) Salary growth lags behind rise in property prices The salaried class, which accounts for Price trend across cities around 70% of the total residential demand, 190 Price Index has witnessed a 10-13% CAGR in salary over 170 150 2009-11, according to industry experts such 130 as Aon Hewitt and Mercer. However, prop110 erty prices in cities like Mumbai and NCR, 90 which account for more than 40% of resi70 dential demand, have gone up by 60-80% 2008 2009 2010 2011* Gurgaon Noida Bangalore Chennai from their 2008-9 lows. Hence, transactions Kolkata Mumbai Salary in these cities have been hurt the most over Assuming 100 as the base for January 2008 the past few quarters. Also, the rising inflaSource: ICICI HFC, Cushman & Wakefield tionary pressure since the second half of *First half of the year 2010-11 has dented the purchasing power of buyers. Other cities, such as Chennai and Kolkata, have also seen a rise in property prices by 25-40% since 2008-9, but the prices in Bangalore have moved in line with the salary growth.

Credit growth, which had witnessed a sharp acceleration in 2010-11, moderated in the first quarter of 2011-12 on a y-o-y basis, partly reflecting the effect of higher lending rates and partly the base effect. Bank lending to the real estate sector moderated from 22% growth y-o-y registered in April 2011 to 17% in July 2011. This was on account of the RBI’s directive to banks to slow down their lending to real estate projects as a precautionary measure to avoid loan defaults.

(%) 26

Moderating credit growth

22 16 12 Dec 2010 Jul 2011 Non-food bank y-o-y credit growth Real estate y-o-y credit growth Source: RBI

Rising interest rates The average cost of debt for the realty sector has gone up by 100-500 basis points (bps) since 200910. Fresh loans are now offered at 12.5-15%. In case of companies, it has gone up by 20-100 bps in the first quarter of 2011-12, and the recent hike by the RBI will further increase the interest cost this year. Most of the mid-sized developers are rushing in for non-convertible debentures (NCDs), which are dearer than bank loans, as banks have become more cautious about lending to the realty sector.

Average cost of debt (%) 2009-10 2010-11 2011-12* DLF

10.5

11.5

11.4

Godrej Prop 10.9

9.9

11.0

14.4

14.2

HDIL

12.7

Oberoi Realty^NA Sobha Dev

14.5

NA

NA

12.9

13.6

*First quarter of 2011-12. ^ Oberoi Realty is a zero-debt company. Source: Companies, Nirmal Bang Institutional Equities Research

In This Section

smart stats

27 30 31 32 33

ET Funds 100 Global investment Loans & deposits Real estate Insurance ranking

ET WEALTH TOP 100 STOCKS Every week we put about 3,000 stocks through four key filters and rate them on a mix of factors. The end result of this exercise is the listing of the top 100 stocks based on the composite rating to help ease your fortune hunt.

Fast Growing Stocks Top 5 stocks with the highest expected revenue growth (in %).

RANK CURRENT RANK

GROWTH%

PRICE ` Previous Rank

Stock Price

Revenue

VALUATION RATIOS

Net Profit

EPS

PE

PB

Div Yield

PEG

RISK Downside Risk

Gujarat Gas Co

RATING Bear Beta

447

Adani Power

No. of Consensus Analysts Rating

355

Pipavav Defence

Rain Commodities

1

1

29.50

51.37

107.49

107.39

4.27

0.74

3.16

0.04

1.75

1.13

6

5.00

Mercator Lines

Monnet Ispat

2

3

385.50

60.65

32.61

74.32

7.99

1.15

2.59

0.11

0.97

0.51

10

4.10

Kansai Nerolac Paint

153 145 101

Gujarat Gas Co

3

4

365.85

447.41

336.29

339.20

18.42

5.60

5.88

0.05

1.17

0.27

25

3.56

Mahindra Lifespace

4

5

281.60

54.52

64.84

51.37

10.67

1.07

1.78

0.21

1.24

0.71

6

4.83

CESC

5

6

257.50

27.65

63.81

64.95

11.16

0.66

1.62

0.17

1.49

0.99

27

5.00

JK Cement

6

8

101.00

24.16

129.23

129.11

10.92

0.49

2.01

0.08

1.55

0.33

6

4.67

India Cements

7

7

69.50

27.19

380.61

386.27

10.69

0.52

2.22

0.03

1.76

1.68

42

3.93

Least Expensive Stocks

Oil India

8

10

1221.30

35.91

34.18

30.14

10.09

1.86

3.03

0.33

0.95

0.37

45

4.47

The 5 stocks with the lowest forward PE.

See revenue column in the adjacent table.

Greaves Cotton

9

9

75.00

51.21

70.98

71.04

15.24

4.25

3.07

0.21

1.17

0.52

5

5.00

Prakash Inds.

Allcargo Logistics

10

18

122.65

35.57

46.19

41.40

9.47

1.35

3.22

0.23

1.59

0.76

13

4.69

HDIL

Tecpro Systems

11

12

200.00

53.68

33.88

35.00

6.84

1.45

1.54

0.20

1.37

0.86

12

4.83

HSIL

12

14

164.85

53.67

84.68

68.39

12.59

1.60

1.51

0.18

1.54

0.58

7

4.57

United Phosphorus

13

16

132.65

42.95

47.28

47.82

10.60

1.64

1.47

0.22

1.63

0.90

20

4.85

Automotive Axles

14

11

355.75

71.03

75.20

66.24

12.08

2.61

2.41

0.18

1.35

0.66

5

4.40

Aditya Birla Nuvo

15

15

907.35

37.67

55.46

57.83

10.37

1.55

0.60

0.18

1.26

0.81

11

5.00

Mercator Lines

16

17

22.25

144.85

149.80

132.63

5.54

0.23

0.00

0.04

2.36

2.08

7

4.14

Sterlite Inds. India

17

23

108.20

37.83

29.50

28.06

7.19

0.87

1.93

0.26

1.66

1.58

48

4.52

Deepak Fertilizers

18

21

154.00

40.15

27.55

27.55

7.23

1.28

3.20

0.26

1.31

0.49

12

4.42

Hexaware Tech

19

19

83.55

58.07

138.82

132.87

21.54

2.41

4.54

0.16

2.00

1.93

22

3.95

KSK Energy

20

26

58.85

99.44

89.78

73.48

11.43

0.73

0.00

0.16

1.98

0.61

6

4.17

ONGC

21

24

259.80

23.28

24.25

22.17

9.74

1.90

3.40

0.44

1.23

0.47

52

4.71

Strides Arcolab

22

22

408.00

67.21

114.18

111.53

15.26

1.79

0.36

0.14

1.73

0.95

9

4.89

Balkrishna Inds.

23

28

177.50

40.81

39.05

38.94

8.54

1.93

0.80

0.22

1.38

0.55

13

4.69

GE Shipping

24

20

204.50

21.28

34.07

32.79

6.67

0.52

2.08

0.20

1.44

1.16

11

4.82

IVRCL

25

29

32.00

17.42

109.15

107.96

16.83

0.31

1.66

0.16

2.65

1.99

37

4.38

Piramal Glass

26

31

106.05

23.18

59.04

52.69

9.10

2.80

3.24

0.17

1.89

1.07

5

5.00

Opto Circuits India

27

44

225.80

54.50

39.34

39.60

11.24

3.02

1.99

0.28

1.69

1.05

14

4.64

IL&FS Transportation

28

27

180.60

51.16

22.81

17.78

8.32

1.57

1.82

0.47

1.44

0.51

25

4.68 4.83

1.83 3.41

Rain Commodities

4.27

Sintex Inds.

5.32

Usha Martin

5.53

See PE column in the adjacent table.

Best PEGs Top 5 stocks with the least price earning to growth ratio.

0.03

Aban Offshore

Rain Commodities

0.04 0.04

0.04

0.05

Mercator Lines

India Cements

Gujarat Gas Co.

See PEG column in the adjacent table.

Sadbhav Engg.

29

35

117.40

37.30

41.15

96.64

18.19

2.06

0.50

0.19

1.46

0.74

18

Petronet LNG

30

33

158.70

78.96

58.14

57.93

19.64

4.54

1.25

0.34

1.49

0.76

53

3.81

Puravankara Projects

31

25

74.10

50.56

50.89

50.86

13.04

0.98

1.38

0.26

1.51

0.81

9

3.67

Tulip Telecom

32

36

133.60

35.00

27.60

22.52

6.51

1.64

1.15

0.29

1.38

0.95

19

5.00

Jubilant Life

33

45

204.05

26.79

61.07

58.87

13.50

1.43

0.97

0.23

1.66

0.91

17

4.53

Eicher Motors

34

41

1649.00

48.48

84.69

84.16

22.82

3.52

0.67

0.27

1.28

0.38

11

4.36

Hero Motocorp | 4.95

Kalpataru Power

35

32

101.75

28.35

25.44

23.88

7.70

0.94

1.45

0.32

1.39

0.76

20

4.55

Graphite India | 4.87

MindTree

36

30

397.40

33.54

67.45

64.45

15.40

2.03

0.95

0.24

1.54

0.35

28

3.54

Hexaware Tech | 4.54

IOC

37

48

271.95

41.47

10.54

11.81

8.10

1.10

3.59

0.69

1.28

0.21

36

3.78

Usha Martin | 4.12

Adani Power

38

42

74.45

354.60

297.46

288.42

30.31

2.48

0.00

0.11

1.55

0.95

34

2.94

Cairn India

39

46

307.20

52.98

30.06

28.28

9.04

1.42

0.00

0.32

1.31

0.96

53

3.68

Prestige Estates Pro

40

40

84.70

22.03

68.65

46.52

14.33

1.30

1.39

0.31

1.93

1.31

16

4.88

McLeod Russel India

41

55

222.80

16.62

30.65

34.25

9.91

1.61

2.24

0.29

1.59

0.81

11

4.91

Redington India

42

56

86.00

37.62

46.29

45.60

15.01

2.86

1.26

0.33

1.35

0.80

10

4.80

Hindustan Zinc

43

58

111.05

23.95

24.50

23.75

9.27

2.02

2.26

0.39

1.39

0.95

46

4.48

Tata Chemicals

44

49

330.00

18.12

38.01

37.50

12.63

1.54

3.04

0.34

1.19

0.75

17

4.06

GVK Power & Infra

45

53

11.20

40.24

42.26

41.49

10.81

0.49

0.00

0.26

1.90

1.32

22

4.14

HCL Tech

46

54

404.25

34.81

42.30

39.13

16.75

3.63

2.43

0.43

1.59

1.50

67

4.22

Least Risky

Amara Raja Batt.

47

38

217.90

34.48

31.86

30.79

12.66

2.90

2.06

0.41

1.22

0.30

15

4.33

Top 5 stocks with the lowest downside risk.

Bosch

48

52

6982.10

47.50

45.85

41.30

25.16

5.27

1.81

0.61

0.75

0.25

11

4.64

Hindalco Inds.

49

39

123.70

12.26

35.00

34.01

9.36

0.79

1.22

0.28

1.80

1.36

46

4.26

Aban Offshore

50

50

394.85

2.76

233.13

326.93

14.43

0.93

0.89

0.04

2.03

1.76

20

4.05

Income Generators Top 5 stocks with the highest dividend yield. Gujarat Gas Co | 5.88

Dividend stocks are considered safe stocks during a downturn. Figures indicate what an investor can earn as dividend for every `100 invested.

See dividend yield column in the adjacent table.

Bosch Monnet Ispat

0.75

0.97

Sintex Inds.

51

66

91.70

30.99

24.61

21.92

5.32

1.03

0.74

0.24

2.14

1.29

23

4.91

Graphite India

52

34

71.95

29.95

14.83

9.94

6.53

0.92

4.87

0.66

1.32

0.56

6

5.00

Power Grid Corp of India

0.85

Indiabulls Real Esta

53

57

63.45

20.70

109.47

115.75

16.84

0.27

0.46

0.15

2.27

1.54

18

4.22

KEC International

54

63

43.80

32.59

19.07

19.11

11.08

1.20

2.71

0.58

1.46

1.04

28

4.64

Reliance Infra

55

65

411.45

68.61

18.77

11.51

6.58

0.46

1.73

0.57

2.38

1.66

23

4.48

Oberoi Realty

56

51

219.00

44.09

32.10

23.81

13.05

2.18

0.46

0.55

1.14

0.60

27

4.74

Engineers India

57

64

228.95

39.68

33.66

30.51

13.95

4.98

2.29

0.46

1.10

0.69

9

4.78

ITC

Orchid Chemicals

58

79

160.40

41.92

20.58

20.55

7.15

1.04

1.91

0.35

2.53

2.00

6

5.00

1.02

Lanco Infratech

59

43

12.15

87.24

25.43

22.20

6.25

0.62

0.00

0.28

2.55

1.88

23

4.17

Usha Martin

60

59

25.40

21.91

19.39

22.11

5.53

0.42

4.12

0.25

1.77

0.73

10

3.70

Gujarat Inds. Power

61

75

70.95

38.54

3.88

3.83

6.50

0.78

3.49

1.69

1.05

0.30

8

4.63

Oil India

0.95

See downside risk and bear beta columns in the adjacent table.

26

Smart Stats

The Economic Times Wealth, November 21-27, 2011

CHANGE

GROWTH%

PRICE `

Previous Rank

CURRENT RANK

Stock Price

Revenue

Net Profit

VALUATION RATIOS EPS

PE

PB

Div Yield

PEG

RISK Downside Risk

RATING Bear Beta

Analysts’ Pets

No. of Consensus Analysts Rating

Top 5 stocks with only buy recommendation.

Prakash Inds.

62

72

36.70

35.38

18.20

3.89

1.83

0.30

2.53

0.47

2.32

1.39

7

5.00

CESC

Torrent Pharma

63

62

574.50

32.55

41.35

41.24

17.85

4.72

1.39

0.43

1.09

0.44

22

4.32

27

KPIT Cummins Info

64

60

162.00

51.25

49.77

49.72

13.58

2.32

0.43

0.27

1.68

1.53

21

4.10

NIIT Tech.

65

69

204.40

40.06

15.13

13.37

6.62

1.62

3.55

0.49

1.57

1.17

12

4.67

Rallis India

66

71

147.00

43.32

48.58

48.41

22.67

5.66

1.40

0.47

1.36

0.42

12

4.42

Kansai Nerolac Paint

67

68

871.20

101.34

126.03

126.09

45.47

7.05

1.15

0.36

1.24

0.06

7

3.71

Mundra Port

68

70

137.90

94.71

65.93

64.34

28.80

6.32

0.68

0.45

1.78

0.92

28

4.50

Arvind

69

76

90.20

18.19

74.18

104.45

12.69

1.31

0.00

0.12

2.35

1.37

7

4.71

VA Tech Wabag

70

67

340.00

27.74

64.93

45.91

16.02

1.57

1.18

0.35

1.39

0.52

5

4.40

Tulip Telecom

19 Essar Aditya Birla Nuvo Ports

11

11

Praksash Inds

7

Divi's Laboratories

71

74

712.25

42.40

33.20

32.76

21.87

5.23

1.40

0.67

1.03

0.74

20

4.70

Bharat Forge

72

77

276.75

33.91

68.32

64.44

21.93

3.24

1.27

0.34

1.41

1.14

25

3.96

Indraprastha Gas

73

82

384.20

63.49

35.16

35.24

20.86

5.40

1.27

0.59

1.10

0.61

41

3.66

Ipca Laboratories

74

78

244.85

30.41

20.18

19.81

12.10

3.03

1.27

0.61

1.27

0.21

27

4.81

Zuari Inds.

75

80

513.00

15.61

30.44

20.12

6.19

0.96

0.85

0.31

1.28

0.66

5

4.80

What is Hot

Essar Ports

76

83

70.80

6.42

132.78

120.33

27.89

0.90

0.00

0.23

2.25

1.86

11

5.00

Stocks that improved analyst rating in one week.

NIIT

77

93

46.45

10.16

24.44

21.92

8.11

1.34

3.20

0.37

1.45

1.07

11

4.55

Bajaj Electricals

78

86

178.80

32.23

31.17

28.85

12.15

2.88

1.57

0.42

1.68

0.74

17

4.47

Madras Cements

79

84

111.45

23.10

49.93

49.98

12.71

1.54

1.10

0.25

1.35

0.92

11

3.27

Motherson Sumi Syst.

80

87

150.40

43.76

29.45

29.09

14.65

3.57

1.81

0.50

1.52

0.50

16

4.25

IRB Infra.Develop.

81

91

138.65

55.17

15.50

14.20

10.23

1.90

1.03

0.72

2.35

1.31

48

4.77

Bharti Airtel

82

85

397.50

31.60

42.64

42.65

24.81

3.08

0.25

0.58

1.20

0.77

54

4.30

HDIL

83

61

73.05

47.97

20.64

11.15

3.41

0.31

0.00

0.31

2.57

1.64

28

3.93

UTV Software Comm.

84

90

945.55

63.82

65.70

65.66

28.36

4.17

0.00

0.43

1.26

0.46

7

4.14

ABG Shipyard

85

73

393.70

33.58

39.96

39.95

10.25

1.54

1.02

0.26

1.75

1.19

5

4.00

Supreme Inds.

86

89

179.95

26.05

22.54

22.57

11.68

4.17

2.36

0.52

1.05

0.42

6

4.83 4.30

HT Media

87

NR

125.00

25.22

41.17

30.95

15.89

2.21

0.29

0.51

1.28

0.35

30

Adani Enterprises

88

99

335.40

59.44

63.49

56.11

14.40

2.11

0.28

0.26

2.36

0.90

7

3.57

Raymond

89

92

362.50

21.93

265.17

265.10

41.08

1.81

0.28

0.15

1.85

1.76

5

5.00

Pipavav Defence

90

NR

55.65

153.06

257.71

335.26

84.56

2.12

0.00

0.25

1.83

1.01

5

3.80

BPCL

91

100

520.95

20.26

13.43

16.44

11.38

1.21

2.75

0.69

1.25

0.32

45

3.16

MaxIndia

92

88

166.35

36.82

2352.52

3306.77

1343.52

2.72

0.00

0.41

1.47

1.00

10

4.40

Hero Motocorp

93

94

2193.40

30.36

54.06

28.45

22.52

14.69

4.95

0.79

1.52

0.07

63

2.95

Power Grid Corp

94

97

100.95

31.72

24.33

15.61

16.22

2.15

1.70

1.04

0.85

0.65

32

4.50

Polaris Software Lab

95

NR

129.10

22.97

10.62

10.42

6.16

1.23

3.48

0.59

2.11

1.62

14

4.79

Simplex Infra

96

96

198.00

26.19

18.65

18.35

7.86

0.90

1.00

0.43

1.60

0.82

25

4.04

Eros International

97

95

235.55

44.37

55.74

53.67

15.50

3.05

0.00

0.29

1.71

1.12

5

4.40

Cummins India

98

47

335.30

29.86

40.90

37.52

20.17

6.29

3.19

0.54

1.17

0.58

21

3.24

ITC

99

NR

201.80

27.38

33.13

32.38

31.19

9.58

2.15

0.96

1.02

0.85

49

4.51

Ultratech Cement

100

NR

1135.60

37.87

58.73

28.60

22.85

2.93

0.52

0.80

1.16

0.59

49

2.88

Figures are number of analysts tracking the stock. See the last column in the table.

1.00 Graphite India 0.80 Pipavav Defence 0.30 NIIT 0.18 GE Shipping 0.14 Opto Circuits India Figures show improvement in rating on a scale of 0-5.

What is Not Stocks that have gone down in analyst rating in one week.

Puravankara Projects -0.44 GVK Power & Infra -0.27 Eicher Motors -0.18 Reliance Infra -0.16 Adani Power -0.12 Figures show dip in rating on a scale of 0-5.

NR: Not in the ranking. Data as on 11 November.

The four filters used to arrive at the Top 100 stocks Only traded stocks Of the about 7,000 listed stocks, only actively traded stocks were considered.

2. ... but only at reasonable valuation.

Companies with a market capitalisation below `500 crore were dropped. However, if a company had a market cap higher than this, but its annual revenue was lower than `500, it was not considered. Only well tracked

Having arrived at the final stocks universe, we ranked them using the following four principles. A percentile rating, that is, on a 1-100 scale is given to each parameter and the composite ranking is arrived at using the weighted average of these parameters. 1. Growth is the key ...

3. Analysts’ views matter ... Total Weight: 20%—this consists of 10% weight to the total number of analysts covering the stock (the higher, the better) and 10% to consensus rating (a composite rating based on the recommendations by all analysts who track a stock. Again, the higher, the better).

Total weight: 30%, which is further split into 10% weight to revenue growth, 10% weight to net profit growth and 10% to growth in EPS (the higher, the better, for each parameter). Growth is calculated by comparing the ’consensus

We picked stocks that are tracked by at least five analysts. Only profitable and growing

The ranking methodology has been developed by Narendra Nathan.. A detailed explanation of the methodology is available at www.wealth.economictimes.com

Total weight: 40%, which comprises 10% weight to PE ratio, 10% to PB ratio, 10% to PEG ratio (the lower, the better, for all three parameters) and 10% to dividend yield (the higher, the better).

Rating rationale

Only big stocks

5% weight was assigned to downside risk and bear beta each (the lower, the better, in both cases).

estimate’ for the next 12 months with the historical 12month values.

We considered only those stocks that are expected to show growth in revenue, net profit and EPS (earnings per share) in the in the next four quarters. The final two filters were that the companies should have made profits in the past four quarters and have a positive net worth.

METHODOLOGY

4. ... and so do the risks. Total weight: 10%. Two kinds of risks were considered. A

Movers this week Stocks that saw a major change in ranking. Ess Dee Aluminium Ess Dee Aluminium is out of the rankings despite being at the number 2 rank last week because the company's market cap has gone below the `500 crore cut off used for the ranking.

Top 5 Large-cap Stocks

Top 5 Mid-cap Stocks

Top 5 Small-cap Stocks

Top 5 weekly gainers (price)

Top 5 weekly gainers (price)

Top 5 weekly gainers (price)

1

Cipla Price: 313.75 | % chg: 9.42

2

1

Idea Cellular Price: 98.85 | % chg: 4.16

3

2

United Breweries Price: 399.05 | % chg: 2.49

4

Bank of India Price: 334.95 | % chg: 0.74

5 Stock prices in `, as on 18 November 2011

Patni Computer Price: 444.85 | % chg: 22.84

Bharti Airtel Price: 397.65 | % chg: 0.54

1

Pantaloon Retail Price: 198.25 | % chg: 15.67

3

Shree Global Tradefin Price: 236.00 | % chg: 12.92

4

Sunteck Realty Price: 384.35 | % chg: 3.32

5

Trent Price: 1032.85 | % chg: 3.08

Systematix Corporate Price: 49.20 | % chg: 53.27

2

Vybra Automet Price: 21.45 | % chg: 39.29

3

Oasis Securities Price: 46.35 | % chg: 27.51

4

Deccan Polypacks Price: 13.84 | % chg: 27.32

5

Welspun Global Price: 61.40 | % chg: 26.86

Smart Stats

The Economic Times Wealth, November 21-27, 2011

ETW FUNDS 100 B E S T

F U N D S

T O

B U I L D

Y O U R

LEADERS & LAGGARDS Taking a long-term view of fund returns, here is a list of 10 funds in each category—five leaders (worth investing) and five laggards (that may be a drag on your portfolio).

P O R T F O L I O

LAGGARDS LEADERS

ET Wealth collaborates with Value Research to identify the top-performing 100 funds across 10 categories. Equity funds and equity-oriented hybrid funds are ranked on 3-year returns while debt-oriented hybrid and income funds are ranked on 1-year returns.

Equity: Large-cap 5-year returns -0.51 LIC Nomura MF Opportunities

0.8 LIC Nomura MF Sensex Advantage

1.44 LIC Nomura MF Index Sensex

1.85 VALUE RESEARCH FUND RATING

NET ASSETS (` cr)

R E T U R N S 3-MONTH

6-MONTH

1-YEAR

HDFC Index Sensex

( % ) 3-YEAR

5-YEAR

EXPENSE RATIO

Equity: Large Cap ICICI Prudential Focused Bluechip Equity Retail



3104.60

Franklin India Bluechip



JP Morgan India Equity



HDFC Index Sensex Plus



Reliance Quant Plus Retail



DSPBR Top 100 Equity Reg



ICICI Prudential Top 100



-0.33

-4.44

-10.49

4024.77

-1.13

-6.06

346.75

-3.03

-6.57

69.25

-2.14

-7.58

-15.27

30.85

—

1.85

-11.24

27.19

9.45

1.83

-16.14

23.57

—

2.32

23.22

7.82

1.00

158.07

-3.60

-10.29

-17.64

22.79

—

2.42

3015.49

-3.13

-7.54

-13.75

22.42

10.71

1.85

310.91

-0.07

-7.79

-13.84

21.94

6.14

2.29

2.16

31% The 3-year return of ICICI Pru Focused Bluechip is the highest in its category.

L&T Growth

-4.16 JM Equity

ICICI Prudential Index Retail



93.13

-2.26

-8.21

-16.61

21.53

6.26

1.50

UTI Mastershare



2461.56

-3.85

-6.90

-13.47

21.47

7.88

1.87

Principal Growth

Baroda Pioneer Growth



69.92

-6.01

-13.07

-23.14

20.87

8.03

2.50

-0.84

IDFC Imperial Equity



384.50

-3.46

-8.10

-16.39

20.24

8.57

2.29

Magnum MultiCap

Equity: Large & Mid Cap

0.57 

UTI Opportunities Canara Robeco Equity Diversified

185.75

-3.65

-8.37

-14.47

34.76

—

2.39



1650.11

-0.38

-1.83

-8.02

31.21

13.58

1.94



457.78

-3.05

-5.33

-10.72

29.49

11.75

2.28

Fidelity India Growth



327.95

-2.85

-6.44

-14.65

28.64

—

2.33

Principal Large Cap



411.55

-4.74

-11.55

-19.80

28.43

8.09

2.29

UTI Dividend Yield



3439.19

-3.68

-6.08

-12.84

27.88

13.97

1.84

HDFC Top 200



10692.11

-5.30

-11.49

-19.35

27.67

11.21

2.23

35% The 3-year return of Mirae Asset Opp. is the highest in its category.

Reliance Equity

0.95 LIC Nomura MF Growth

Fidelity Equity



3387.30

-3.15

-6.73

-15.17

27.52

10.12

1.84



4130.18

-2.57

-10.10

-13.54

25.81

9.57

1.45

UTI Equity



1953.64

-2.39

-5.52

-13.62

25.76

9.38

1.90

Magnum Equity



455.59

-3.08

-8.09

-14.57

25.68

8.16

2.28

17.13

Birla Sun Life Frontline Equity



2884.73

-3.54

-8.95

-17.07

25.59

9.85

1.85

JM Multi Strategy

DSPBR Opportunities



696.82

-5.00

-10.03

-19.53

25.31

7.14

2.16

17.4

Tata Pure Equity



593.92

-2.67

-6.04

-18.11

23.79

8.34

2.21

Birla Sun Life Special Situations

Religare Equity



19.35

-5.67

-10.09

-16.74

20.67

—

2.50

4.43 HSBC Progressive Themes

17.48 L&T Contra

Quantum Long Term Equity



82.54

-2.35

-7.68

-15.79

32.28

11.47

1.33

HDFC Equity



9432.92

-7.87

-14.65

-22.76

30.86

10.71

1.78

Morgan Stanley A.C.E.



352.11

-3.25

-9.51

-21.14

28.98

—

2.31

Religare Contra



66.17

-5.35

-8.67

-17.02

27.89

—

2.50

HDFC Capital Builder



520.36

-6.18

-10.51

-18.05

27.59

9.44

2.23

Tata Equity PE



689.09

-4.64

-11.42

-18.05

27.17

11.27

2.17

AIG India Equity Reg



157.67

-3.69

-3.53

-9.35

27.05

—

2.40

BNP Paribas Dividend Yield



12.31

-5.98

-5.44

-13.16

27.00

8.92

2.50

DSPBR Equity



2588.82

-5.63

-9.69

-18.20

25.19

11.53

1.87

Franklin India Prima Plus



1714.77

-1.00

-5.10

-10.71

25.16

9.31

1.89

10.2

Reliance Regular Savings Equity



3122.68

-8.01

-14.12

-24.86

24.89

11.00

1.84

Escorts Leading Sectors

HDFC Growth



1269.24

-2.59

-8.18

-16.37

23.64

10.81

1.98

14.68

18.24 HSBC Unique Opportunities

-4.23 JM Core 11

HSBC Small Cap 

428.94

-1.81

7.53

-1.58

41.98

8.78

2.31

ICICI Prudential Discovery



1760.97

-5.07

-13.30

-18.17

38.59

9.44

1.82

IDFC Premier Equity



2388.17

-4.75

-1.79

-12.82

35.74

20.47

1.88

DSPBR Small and Mid Cap Reg



1253.11

-7.17

-8.53

-20.34

34.55

9.02

1.99

Reliance Equity Opportunities



3192.90

HDFC Mid-Cap Opportunities



1606.41

Religare Mid Cap



55.03

ING Dividend Yield



96.72

-5.30

-7.99

-15.56

34.44

9.95

1.84

-7.16

-5.39

-13.49

33.70

—

1.95

-8.24

-5.05

-15.39

33.62

—

2.50

-3.07

-5.25

-14.43

33.60

14.01

2.50

Religare Mid N Small Cap



18.19

-8.32

-6.24

-16.42

33.58

—

2.50

UTI Master Value



709.23

-5.62

-8.92

-17.73

33.11

10.44

2.17

20% The 5-year return of IDFC Premier Equity is the highest in its category.

14.72 HSBC Midcap Equity

15.65 Escorts Growth

-9.42 LIC Nomura MF Children Fund

IDFC Sterling Equity



1131.36

-5.66

-8.08

-17.53

33.10

—

2.02



235.77

-2.27

-6.58

-12.28

32.83

12.66

2.36

-1.06

Birla Sun Life Dividend Yield Plus



994.09

-4.52

-6.20

-15.84

31.60

13.44

2.07

JM Balanced

Sahara Mid-Cap Fund



12.54

-9.81

-11.23

-24.11

28.13

9.88

2.47

Birla Sun Life Pure Value



71.00

-6.15

-7.70

-19.51

27.48

—

2.50

1.61 LIC Nomura MF ULIS

2.75

Canara Robeco Infrastructure



Taurus Infrastructure



131.40

-5.78

-8.59

-13.55

25.25

8.59

2.43

16.22

-9.84

-17.47

-31.20

22.66

—

2.50

AIG Infrastructure and Economic Reform Reg



117.93

-9.10

-7.99

-16.54

22.01

—

2.50

HDFC Infrastructure



911.51

-14.71

-21.00

-33.23

18.14

—

2.05

ICICI Prudential Infrastructure



2462.22

-7.49

-14.20

-23.64

15.47

6.43

1.86

Franklin India Bluechip

8.57 IDFC Imperial Equity

8.03 Baroda Pioneer Growth

7.88 UTI Mastershare

13.97 UTI Dividend Yield

13.58 UTI Opportunities

11.75 Canara Robeco Equity Diversified

11.21 HDFC Top 200

10.12 Fidelity Equity

32.28 Quantum Long Term Equity

30.86 HDFC Equity

30.79 Tata Contra

30.3 HDFC Core & Satellite

29.3 HDFC Premier Multi-Cap

41.98 Magnum Emerging Businesses

40.16 ICICI Prudential Discovery Inst I

38.59 ICICI Prudential Discovery

35.74 IDFC Premier Equity

35.38 DSPBR Micro Cap Reg

Hybrid: Equity-oriented 5-year returns

Tata Dividend Yield

Equity: Infrastructure

9.45

Equity: Mid- & Small-cap 3-year returns

Equity: Mid & Small Cap Magnum Emerging Businesses

DSPBR Top 100 Equity Reg

Equity: Multi-cap 3-year returns

ICICI Prudential Dynamic

Equity: Multi Cap

10.71

Equity: Large- & Mid-cap 5-year returns

-2.43

Mirae Asset India Opportunities Regular

27

Baroda Pioneer Balance

2.91 LIC Nomura MF Balanced

12.57 HDFC Prudence

12.05 Reliance Regular Savings Balanced

11.35 HDFC Children's Gift-Inv

10.91 Birla Sun Life 95

10.82 HDFC Balanced

Returns as on 17 November 2011

28

Smart Stats

The Economic Times Wealth, November 21-27, 2011

ETW FUNDS 100 VALUE RESEARCH FUND RATING

NET ASSETS (` cr )

R E T U R N S 3-MONTH

6-MONTH

1-YEAR

( % ) 3-YEAR

5-YEAR

EXPENSE RATIO

Equity: Tax Planning Canara Robeco Equity Tax Saver



302.14

-4.31

-5.91

-12.70

32.22

13.79

2.33

ICICI Prudential Tax Plan



1259.35

-4.03

-10.27

-17.09

31.58

6.35

1.98

HDFC Taxsaver



3032.10

-6.34

-9.85

-18.58

29.02

7.56

2.07

Fidelity Tax Advantage



1182.87

-3.60

-6.91

-15.80

28.14

10.87

2.00

Franklin India Taxshield



803.51

-0.38

-3.33

-8.09

27.64

9.85

2.07

Religare Tax Plan



108.14

-6.02

-6.62

-14.41

27.57

—

2.48

Taurus Tax Shield



68.35

-4.58

-8.43

-21.25

25.49

12.89

2.50

Sahara Tax Gain



10.94

-6.72

-8.98

-19.07

25.47

11.01

2.50

Tata Tax Saving



130.48

-2.64

-5.21

-12.27

24.52

5.95

2.44

14% The 5-year return of Canara Robeco Tax Saver is the highest in its category.

Top 5 SIPs Top 5 equity schemes based on 10-yr SIP returns. Reliance Growth

27.15 Magnum Global

25.08 DSPBR Equity

25.05 Magnum Contra

Equity: Banking Sahara Banking and Financial Services



22.76

-7.94

-12.79

-28.42

33.91

—

2.50

Reliance Banking Retail



1707.46

-8.99

-15.29

-29.89

29.64

17.57

1.92

Reliance Banking ETF



11.32

-10.07

-15.02

-27.66

26.47

—

0.35

24.69 HDFC Top 200

24.66

30%

Hybrid: Equity-oriented HDFC Prudence



HDFC Balanced Birla Sun Life 95

6356.17

-6.11

-7.40

-12.24

29.74

12.57

1.79



421.59

-4.22



449.28

-2.87

-4.20

-6.09

28.43

10.82

2.05

-5.01

-10.45

26.24

10.91

Tata Balanced



320.59

2.29

-2.00

-3.45

-9.19

25.28

10.50

2.33

Reliance Regular Savings Balanced



750.32

-3.39

-8.09

-16.72

25.25

12.05

2.13

Canara Robeco Balance



191.75

-2.35

-3.16

-6.47

23.77

9.62

2.38

DSPBR Balanced



734.56

-3.91

-6.48

-12.52

20.13

10.37

2.08

The 3-year return of HDFC Prudence is the highest in its category.

SIP: Systematic investment plan

% annualised returns

As on 17 November 2011

Equity: SWPs Top 5 MIP schemes based on 3-year SWP returns. HDFC MIP Long-term

14.76

Hybrid: Debt-oriented Conservative

HDFC Children's Gift-Sav

Birla Sun Life MIP II Savings 5



459.98

1.86

4.27

6.76

8.76

9.97

1.30

HDFC Multiple Yield Plan 2005



370.54

1.16

3.50

6.75

12.98

9.42

1.75

Canara Robeco MIP



343.55

1.04

2.40

4.02

13.83

10.03

2.07

Birla Sun Life Monthly Income



614.20

0.46

2.28

3.50

12.75

8.41

1.95

14.53 Canara Robeco MIP

14.35 ICICI Prudential Advisor-Cautious

UTI Monthly Income Scheme



608.76

0.33

1.77

2.81

10.82

7.99

1.80

L&T MIP



134.70

0.73

1.50

2.14

7.45

8.77

2.19

HDFC MIP Long-term



9135.62

-1.22

-0.60

-0.17

16.02

9.67

1.53

13.53

Reliance MIP



6466.44

-1.28

-1.04

-0.18

13.64

9.66

1.54

SWP: Systematic withdrawal plan % annualised returns

13.56 HDFC Multiple Yield

As on 17 November 2011

Hybrid: Arbitrage UTI SPrEAD



38.49

2.05

4.58

8.31

6.73

7.79

SBI Arbitrage Opportunities



52.26

1.59

3.96

8.20

6.11

7.13

1.17

Kotak Equity Arbitrage



122.31

1.53

3.49

7.72

6.45

7.24

0.95

HDFC Arbitrage Retail



59.84

1.66

3.47

7.35

6.25

—

0.85

SBI Dynamic Bond



24.37

1.82

5.25

9.88

5.79

3.38

1.25

Birla Sun Life Medium Term Retail



947.66

3.11

4.80

9.32

—

—

0.10

Sahara Income



L&T Select Income-Flexi Debt Ret



1.00

9.8%

Debt: Income

2.69

2.21

4.54

9.30

9.02

9.29

0.35

174.61

2.28

4.62

8.99

—

—

0.59

Religare Active Income Fund Plan A



766.13

1.67

4.86

8.98

6.24

—

1.80

Birla Sun Life Dynamic Bond Ret



2347.47

1.72

4.78

8.30

8.65

9.01

0.88

ICICI Prudential Medium Term Regular



103.51

2.12

4.42

8.28

—

—

0.26

LIC Nomura MF Bond



68.61

1.44

6.03

8.26

9.00

7.94

1.51

Templeton India Income Opportunities



4155.25

2.20

4.81

8.16

—

—

1.42

IDFC SSI Medium-term Plan A



166.43

1.82

5.04

7.86

10.08

8.58

1.20

BNP Paribas Bond Reg



210.04

2.10

4.48

7.83

9.21

—

2.00

Mid & Small Cap exposure of Large & Mid Cap Funds 45.55

44.83

41.95

41.64

ING Core Equity

IDFC Classic Equity Plan A

The 1-year return of SBI Dynamic Bond is the highest in its category.

Magnum Contra

All equity funds including balanced equity funds sorted on 3-year returns; all others ranked on 1-year returns

Principal Growth

40.63

DWS Investment Opportunity Regular

Exposure as % of assets as on 31 October 2011

Did not find your fund here? Log on to www.wealth.economictimes.com for an exhaustive list.

Methodology

EQUITIES (figures over the past three years)

The Top 100 includes only those funds that have a 5- or 4-star rating from Value Research. The rating is determined by subtracting a fund’s risk score from its return score. The result is assigned stars according to the following distribution:

Large-cap: More than 80% assets in large-cap companies.



Next 22.5%



Middle 35%



Next 22.5%



Equity large- & mid-cap funds with the largest assets under management.

Large- and mid-cap: 60-80% assets in large-cap companies.

9,591 8,404

Multi-cap: 40-60% assets in large-cap companies. Mid- & small-cap: At least 60% assets in small- and mid-cap companies.

Top 10%



Largest AUM Funds

(Not covered in ETW Funds 100 listing)

Bottom 10%

Fixed-income funds less than 18 months old and equity funds less than three years old have been excluded. This ensures that all the funds have existed long enough to be tracked for consistency of performance. Given the focus on long-term investing, liquid funds, short-term funds and FMPs are not part of the list. For the same reason, we have considered only the growth option of funds that reinvest returns instead of offering dividends that increase the NAV of funds. Despite these rigorous filters, the list includes 2/3 funds of each category to maximise choice from the best funds. The fund categories are:

7,060

Tax planning: Offer tax rebate under Section 80C. International: More than 65% of assets invested abroad. Income: Average maturity varies according to objective. Gilt: Medium- and long-term; invest in gilt securities.

Returns as on 17 November Assets as on 30 September Rating as on 31 October Expense ratio as on 30 September

3,652

3,396

Equity-oriented: Average equity exposure more than 60%. Debt-oriented aggressive: Average equity exposure between 25-60%. Debt-oriented conservative: Average equity exposure less than 25%. Arbitrage: Seek arbitrage opportunities between equity and derivatives. Asset allocation: Invest fully in equity or debt as per market conditions.

Look beyond past returns when evaluating a fund Page 16

HDFC Top 200

HDFC Equity

Reliance Growth

Reliance Diversified Power

Franklin India Bluechip

AUM in ` crore as on 31 March 2011 Methdology of selected Top 100 funds on www.wealth.economictimes.com

Smart Stats

29

The Economic Times Wealth, November 21-27, 2011

REMAINING FUNDS

These funds did not make it to the best lists under any category but have moderately high net assets. This makes it important to track their performance regularly. NET ASSETS (` cr)

RETURNS (%) 3-MONTH

6-MONTH

1-YEAR

Equity: Large Cap Birla Sun Life Index BNP Paribas Equity DSPBR Top 100 Equity DWS Alpha Equity Regular Franklin India Index BSE Sensex Franklin India Index NSE Nifty Goldman Sachs Nifty ETS HDFC Index Nifty HDFC Index Sensex HSBC Equity ICICI Pru Focused Bluechip Equity ICICI Prudential Top 200 IDFC Equity IDFC Strategic Sector (50-50) Equity ING Large Cap Equity Kotak Sensex ETF L&T Growth L&T Hedged Equity LIC Nomura MF Equity LIC Nomura MF Index Nifty LIC Nomura MF Index Sensex LIC Nomura MF Opportunities LIC Nomura MF Top 100 Magnum Index Principal Index Reliance Top 200 Retail Religare AGILE Sundaram Select Focus Reg Tata Index Nifty A Tata Index Sensex A UTI Leadership Equity UTI Master Index UTI Master Plus '91 UTI Nifty Index Equity: Large & Mid Cap Bharti AXA Equity Eco Bharti AXA Equity Reg Birla Sun Life Advantage Birla Sun Life Int. Equity Plan B Birla Sun Life Top 100 DWS Investment Opportunity Reg Franklin India Opportunities FT India Life Stage FoF 20s HSBC Dynamic HSBC India Opportunities ICICI Pru Advisor-Very Aggressive ICICI Pru Indo Asia Equity Retail IDFC Classic Equity Plan A ING Core Equity ING OptiMix Multi Mgr Equity Option A JM Equity Kotak 50 Kotak Equity FoF LIC Nomura MF Growth LIC Nomura MF India Vision Magnum Contra Magnum MultiCap Morgan Stanley Growth Principal Growth Reliance Equity Reliance NRI Equity Reliance Vision Religare Growth Sahara Growth SBI Bluechip SBI One India Sundaram Growth Reg Sundaram India Leadership Reg Tata Equity Management Taurus Bonanza UTI Contra

32.61 102.05 3015.49 110.53 58.64 134.71 652.21 68.80 45.04 796.08 3104.60 516.19 400.15 30.06 6.85 36.08 24.16 8.91 87.52 30.85 25.27 37.43 240.16 35.36 15.76 902.73 60.29 797.78 8.98 5.55 667.23 63.08 858.29 186.90

-2.88 -1.72 -3.03 -3.66 -2.38 -2.61 -2.30 -2.81 -2.38 -4.26 -0.19 -4.04 -2.35 -3.91 -3.34 -2.18 -3.18 -2.67 -4.91 -2.31 -2.34 -5.24 -4.64 -2.44 -2.42 -6.81 2.94 -2.55 -2.36 -2.54 -4.47 -2.28 -2.95 -2.66

-9.17 -3.49 -7.35 -8.01 -8.73 -8.75 -8.44 -9.19 -8.90 -9.61 -4.14 -12.01 -8.41 -9.83 -8.35 -8.36 -8.24 -9.43 -12.23 -9.45 -9.81 -13.94 -12.99 -9.66 -8.69 -13.08 -4.54 -7.75 -8.78 -8.94 -9.49 -8.56 -7.12 -9.05

-18.48 -10.12 -13.39 -20.85 -16.84 -17.35 -16.76 -17.79 -17.57 -18.22 -9.90 -20.99 -16.94 -20.35 -16.81 -16.31 -17.01 -19.67 -21.23 -16.76 -16.89 -21.67 -22.65 -17.52 -17.24 -19.55 -12.97 -19.54 -17.51 -17.27 -19.56 -16.62 -14.88 -17.84

71.41 71.41 318.12 261.36 302.24 97.31 363.24 11.43 92.91 165.82 6.34 196.20 177.30 42.18 60.81 49.00 844.41 37.74 107.15 48.51 2908.24 439.95 1396.05 207.83 1215.77 104.42 2527.02 41.42 11.19 752.20 523.34 173.14 137.72 140.81 31.91 165.00

-2.72 -2.80 -5.54 -2.43 -4.11 -5.31 -3.78 -1.65 -2.61 -2.83 -1.28 0.51 -5.19 -3.96 -3.33 -4.55 -2.82 -4.31 -4.43 -5.80 -6.01 -6.62 -4.80 -4.27 -6.32 -5.57 -10.07 -3.99 -4.73 -4.17 -5.13 -5.20 -5.27 -2.04 -2.75 -5.21

-7.78 -7.90 -10.27 -10.46 -8.49 -9.91 -7.59 -5.47 -7.97 -6.42 -0.11 -5.78 -11.15 -10.04 -10.89 -12.44 -6.92 -9.85 -12.33 -13.15 -12.81 -14.87 -12.23 -12.37 -13.99 -13.61 -16.02 -8.70 -9.04 -10.54 -10.70 -10.81 -10.40 -4.55 -8.87 -15.41

-17.05 -17.30 -22.53 -15.85 -14.98 -24.64 -19.18 -9.17 -17.01 -14.01 -5.09 -11.01 -22.70 -17.24 -22.48 -24.81 -16.18 -21.50 -20.92 -25.42 -23.65 -26.12 -25.04 -24.70 -26.10 -20.40 -25.36 -16.00 -18.77 -20.35 -21.48 -22.08 -19.04 -14.65 -17.05 -27.80

14.41 823.26 236.48 207.44 767.88 355.48 1861.67 180.26 385.95 670.63 449.49 189.31 76.62 8.05 48.25 226.31 61.11 861.60 8.38 82.58 1112.47 105.19

-2.92 -5.32 -5.30 -3.55 -3.85 -1.02 -2.91 -8.22 -6.67 -6.53 -5.98 -9.52 -5.26 -7.06 -5.37 -4.15 -0.92 -2.95 -5.49 -5.07 -5.39 -6.80

-5.53 -11.11 -8.36 -9.58 -8.19 -7.07 -10.35 -15.64 -11.45 -11.27 -8.90 -18.88 -11.98 -10.38 -7.55 -14.77 -7.26 -7.93 -10.14 -12.13 -10.39 -11.38

-12.46 -24.46 -19.15 -23.76 -17.17 -13.71 -17.04 -27.33 -21.73 -18.10 -17.78 -37.35 -25.47 -22.13 -19.00 -30.29 -21.66 -19.90 -20.94 -23.20 -22.83 -22.61

Equity: Multi Cap Birla Sun Life Asset Allocation Agg Birla Sun Life Equity Birla Sun Life Long Term Advantage Birla Sun Life Special Situations Fidelity India Special Situations Fidelity International Opportunities Franklin India Flexi Cap Goldman Sachs Nifty Junior BeES HDFC Core & Satellite HDFC Long-term Equity HDFC Premier Multi-Cap HSBC Progressive Themes HSBC Unique Opportunities ING Contra ING Domestic Opportunities JM Multi Strategy Kotak Contra Kotak Opportunities L&T Contra L&T Opportunities Magnum Multiplier Plus Principal Dividend Yield

NET ASSETS (` cr )

Tata Contra Tata Equity Opportunities Taurus Starshare Templeton India Equity Income Templeton India Growth Equity: Mid & Small Cap Birla Sun Life Mid Cap Birla Sun Life Small & Midcap BNP Paribas Midcap Canara Robeco Emerging Equities DSPBR Micro Cap Reg Escorts Growth Escorts High Yield Equity Franklin India High Growth Companies Franklin India Prima Franklin India Smaller Companies HSBC Midcap Equity HSBC Small Cap ICICI Prudential Midcap ING C.U.B. ING Midcap JP Morgan India Smaller Companies Kotak Emerging Equity Kotak Mid-Cap L&T Midcap Magnum Global Magnum Midcap Reliance Growth Reliance Long Term Equity Sahara Wealth Plus Variable Pricing Sundaram Equity Multiplier Sundaram S.M.I.L.E. Reg Sundaram Select Midcap Reg Tata Capital Builder Tata Ethical Tata Growth Tata Midcap Taurus Discovery UTI Mid Cap

RETURNS (%) 3-MONTH

6-MONTH

1-YEAR

97.62 319.66 167.19 1054.24 812.19

-4.29 -4.13 -4.18 -5.14 -7.00

-8.41 -7.59 -7.66 -13.80 -15.39

-13.49 -18.29 -14.32 -19.25 -24.99

1512.95 133.28 29.59 43.70 467.77 5.22 6.89 654.75 772.50 415.37 124.08 27.51 292.80 23.45 13.82 161.10 62.17 301.64 57.14 966.65 244.25 6275.61 1236.82 11.76 235.73 531.45 2209.64 109.50 108.44 43.12 77.79 25.42 311.57

-7.88 -6.77 -6.68 -7.45 -6.12 -8.20 -7.26 -4.28 -4.13 -7.35 -9.97 -14.28 -10.53 -7.01 -7.05 -7.58 -3.86 -7.73 -7.34 -7.55 -7.71 -3.43 -8.68 -6.84 -7.51 -6.42 -8.46 -4.65 -3.64 -5.46 -6.42 -8.39 -6.53

-9.63 -4.59 -5.62 -10.92 -6.04 -17.11 -14.44 -12.60 -8.14 -12.14 -19.57 -21.94 -13.83 -13.20 -10.06 -9.51 -6.55 -9.05 -12.37 -4.78 -8.46 -12.03 -12.15 -8.85 -13.81 -13.26 -7.18 -10.67 -6.27 -7.06 -8.00 -9.57 -7.89

-24.13 -20.09 -17.53 -15.49 -22.08 -31.23 -22.59 -21.76 -19.67 -21.81 -40.17 -43.67 -27.18 -22.24 -19.70 -20.46 -24.03 -22.94 -25.87 -11.68 -21.92 -24.19 -26.10 -18.32 -19.39 -27.80 -19.03 -20.81 -12.77 -18.71 -19.44 -29.82 -18.46

17.93 380.52 1904.84 1904.84 34.94 129.40 52.58 7.97 846.03 96.72 756.96 1355.12 2398.36

-8.92 -10.39 -8.07 -8.18 -8.77 -8.61 -11.80 -9.60 -8.64 -6.38 -7.23 -10.63 -10.79

-7.63 -15.72 -13.91 -14.12 -16.74 -16.25 -12.36 -15.09 -14.60 -11.59 -11.11 -16.96 -18.12

-15.92 -29.69 -28.22 -28.55 -31.13 -27.98 -23.12 -27.39 -30.26 -22.42 -24.48 -30.87 -30.59

20.44 135.12 1417.29 55.85 770.22 65.62 884.40 218.18 32.76 44.44 467.47 28.33 35.42 4923.06 519.48 230.39 2026.56 1406.67 475.47

-4.25 -5.82 -6.32 -2.89 -5.43 -5.07 -4.96 -3.82 -3.12 -4.46 -4.67 -5.20 -4.48 -3.62 -5.19 -4.01 -8.16 -3.56 -4.03

-11.14 -8.13 -12.12 -3.01 -12.17 -9.80 -9.38 -9.18 -6.18 -12.96 -10.53 -11.56 -11.88 -9.23 -12.65 -11.92 -12.39 -7.82 -7.64

-21.97 -16.07 -25.15 -10.98 -22.61 -24.32 -17.89 -21.83 -15.91 -26.85 -22.06 -24.67 -20.05 -18.62 -23.45 -24.31 -20.92 -20.99 -17.59

278.38 10.31 140.39 19.20 39.19 242.73 335.76

-10.34 -14.70 -9.99 -14.73 -9.92 -10.10 -9.83

-15.45 -22.30 -15.62 -22.34 -13.95 -15.33 -15.83

-28.14 -38.60 -28.45 -38.64 -27.88 -31.20 -29.62

235.50 296.38 289.59 166.44 162.19 6.08 8.91 49.18 22.07 5.08 124.08 418.64 19.16

-1.69 -3.52 -2.26 -6.52 -2.53 -2.42 0.53 -0.77 -3.68 -2.75 -2.34 -4.95 -4.14

-3.85 -1.41 -1.53 -8.58 -2.18 -4.45 -3.42 -5.10 -8.86 -10.64 -6.14 -11.74 -8.82

-7.85 -2.38 -4.62 -20.96 -4.33 -10.99 -13.91 -12.28 -15.69 -17.55 -10.91 -18.48 -18.00

Equity: Infrastructure AIG Infra & Economic Reform Birla Sun Life Infrastructure DSPBR T.I.G.E.R. Inst DSPBR T.I.G.E.R. Reg L&T Infrastructure LIC Nomura MF Infrastructure Religare Infrastructure Sahara Infra Variable Pricing SBI Infrastructure Fund Series 1 Tata Growing Economies Infra Tata Indo Global Infrastructure Tata Infrastructure UTI Infrastructure Equity: Tax Planning Baroda Pioneer ELSS 96 Birla Sun Life Tax Plan Birla Sun Life Tax Relief 96 BNP Paribas Tax Advantage Plan DSPBR Tax Saver DWS Tax Saving HDFC LT Advantage HSBC Tax Saver Equity ING Tax Savings JM Tax Gain Kotak Tax Saver L&T Tax Saver LIC Nomura MF Tax Plan Magnum Taxgain Principal Personal Tax Saver Principal Tax Savings Reliance Tax Saver Sundaram Taxsaver UTI Equity Tax Savings

Equity: Banking Goldman Sachs Banking BeES Goldman Sachs PSU Bank BeES ICICI Pru Banking & Financial Serv. Ret Kotak PSU Bank ETF Religare Banking Sundaram Financial Services Opp Ret UTI Banking Sector Reg Hybrid: Equity-oriented FT India Balanced HDFC Children's Gift-Inv ICICI Prudential Balanced ICICI Prudential ChildCare-Gift ICICI Pru Eq & Der Volatility Advtg Reg ING Balanced JM Balanced Kotak Balance LIC Nomura MF Balanced LIC Nomura MF Children Fund LIC Nomura MF ULIS Magnum Balanced Principal Balanced

NET ASSETS (` cr)

Principal Conservative Growth Sundaram Balanced Reg Templeton India CAP Gift Plan UTI Balanced UTI CCP Advantage Hybrid: Debt-oriented Conservative Baroda Pioneer MIP Birla Sun Life Asset Allocation Cons Birla Sun Life MIP Birla Sun Life MIP II Wealth 25 BNP Paribas MIP DSPBR MIP DWS Money Plus Advantage Reg DWS Twin Advantage FT India Life Stage FoF 50s Plus Floating FT India MIP HDFC Children's Gift-Sav HDFC MIP Short-term HDFC Multiple Yield HSBC MIP Regular HSBC MIP Savings ICICI Prudential Blended Plan B Option I ICICI Prudential ChildCare-Study ICICI Prudential MIP ICICI Prudential MIP 25 Reg JM MIP Kotak MIP LIC Nomura MF Floater MIP LIC Nomura MF MIP Magnum Children's Benefit Plan Magnum Income Plus Inv Magnum MIP Magnum MIP Floater Principal Debt Savings Principal Debt Savings Retail Sundaram MIP Moderate Tata MIP Tata MIP Plus UTI MIS-Advantage Plan Hybrid: Arbitrage Goldman Sachs Derivative Goldman Sachs Eq & Der Opportunities HDFC Arbitrage Wholesale ICICI Prudential Blended Plan A ICICI Pru Eq & Der Inc Optimiser Ret IDFC Arbitrage Plan A IDFC Arbitrage Plan B IDFC Arbitrage Plus Plan A JM Arbitrage Advantage Religare Arbitrage Debt: Income Baroda Pioneer PSU Bond Birla Sun Life Income Birla Sun Life Income Plus Birla Sun Life Medium Term Inst BNP Paribas Flexi Debt Reg Canara Robeco Dynamic Bond Retail Canara Robeco Income DSPBR Bond Ret DSPBR Strategic Bond Reg DWS Premier Bond Reg Fidelity Flexi Bond Ret HDFC High Interest HDFC Income HSBC Flexi Debt Regular HSBC Income Investment ICICI Prudential Advisor-Very Cautious ICICI Prudential Income ICICI Pru Income Opportunities Retail ICICI Prudential Long-term Premium ICICI Pru Long-term Premium Plus ICICI Prudential Long-term Reg ICICI Pru Medium Term Prem Plus IDFC Dynamic Bond Plan A IDFC Dynamic Bond Plan B IDFC SSI Inv Plan A IDFC SSI Inv Plan B IDFC SSI Medium-term Plan B ING Income ING OptiMix Active Debt Multi Mgr FoF JM Income Kotak Bond Deposit Kotak Bond Regular L&T Triple Ace Magnum Income Principal Income Long Term Reliance Dynamic Bond Reliance Income Reliance Regular Savings Debt Ret Sundaram Bond Saver Tata Income Templeton India Income Templeton India Income Builder UTI Bond

RETURNS (%) 3-MONTH

6-MONTH

1-YEAR

25.27 66.93 7.09 948.21 70.40

-3.88 -1.01 -0.58 -4.37 -3.87

-10.84 -7.12 -2.53 -7.61 -6.87

-20.21 -16.00 -6.49 -14.56 -14.07

10.18 7.35 177.95 334.80 13.63 225.18 29.21 33.68 130.69 360.50 67.07 391.53 61.88 163.31 504.28 1238.93 33.49 530.55 750.64 6.02 84.72 126.36 95.28 23.42 56.30 332.31 11.13 55.42 65.05 31.50 30.97 125.01 1021.15

0.12 -0.86 1.01 0.02 1.59 1.43 1.16 0.74 1.12 0.61 -0.29 -0.23 1.66 0.47 0.08 2.10 -1.33 0.28 0.53 3.05 0.53 0.62 -0.19 -0.28 1.00 -0.16 1.23 0.87 0.18 -2.63 -0.03 -0.53 -0.89

-0.36 -0.47 2.26 1.55 3.39 2.35 2.52 1.49 1.30 2.18 3.33 1.60 3.84 1.15 -0.09 4.36 0.06 1.54 1.62 2.77 1.08 1.06 -0.60 1.26 1.75 0.81 2.39 1.94 -0.44 -2.34 1.77 0.98 0.09

1.76 -0.13 3.32 1.27 4.85 2.54 3.37 2.11 2.89 3.27 5.74 1.77 5.49 1.22 -1.47 8.60 0.88 3.00 1.63 2.64 1.12 1.71 -0.88 1.63 1.40 0.83 3.63 2.27 -1.19 -3.67 1.87 1.10 0.28

9.62 7.06 59.84 46.90 58.09 56.61 56.61 13.35 53.35 11.30

1.27 1.19 1.75 1.33 1.22 1.69 1.82 1.30 1.69 1.45

2.83 2.76 3.61 3.09 2.84 3.65 3.91 2.67 3.51 3.44

6.46 6.77 7.59 8.25 8.21 7.78 8.32 6.55 7.68 7.55

68.91 183.75 359.33 947.66 73.31 15.16 118.77 41.74 626.44 8.92 28.94 95.63 384.85 64.17 21.85 46.65 232.27 110.27 252.25 252.25 252.25 103.51 59.96 59.96 289.19 289.19 166.43 15.04 308.77 11.15 51.19 51.19 5.09 45.93 17.57 46.49 107.66 1030.54 22.39 36.46 887.90 61.22 294.68

0.84 1.93 -0.05 3.12 -0.04 2.17 1.64 0.97 1.79 2.05 -0.40 -0.05 -0.56 1.74 1.58 0.49 0.47 0.21 2.14 2.19 2.00 2.21 2.13 2.22 1.43 1.53 1.93 0.90 1.71 1.83 0.62 0.62 1.25 0.84 1.45 0.04 -0.57 1.95 0.83 0.42 1.78 1.28 1.53

3.01 4.73 2.87 4.82 1.72 4.56 3.54 3.51 4.26 4.41 2.21 2.16 2.13 4.52 4.42 2.46 2.80 2.54 4.69 4.80 4.45 4.60 5.60 5.80 4.10 4.31 5.28 2.37 4.03 3.76 3.22 3.22 3.71 3.48 3.99 3.17 1.99 4.57 2.57 2.54 4.12 4.32 5.34

5.78 8.43 6.29 9.36 4.12 8.17 7.03 5.31 7.66 6.11 4.82 4.95 4.45 8.01 7.78 4.56 4.59 5.20 7.53 7.75 7.07 8.66 9.21 9.69 6.64 7.10 8.31 6.17 8.03 5.66 5.47 5.47 5.95 6.53 6.72 6.38 4.67 7.61 4.37 4.83 7.66 7.91 9.40

Returns as on 17 November 2011, Average AUM as on 30 September 2011

30

Global Stats

The Economic Times Wealth, November 21-27, 2011

Emerging Markets

GLOBAL INVESTING

MSCI Emerging Index lost heavily led by falling property prices in China and concerns over the prospects of the country's banking sector.

Stock markets fell worldwide as surging borrowing costs of Italy and Spain intensified the contagion fears of the Euro zone debt crisis. UK FTSE 100 5,423.14 %

France CAC 40 3,010.29 %

Canada S&P TSX 11,915.43 %

-0.40

-1.78

China Shanghai Composite 2,463.05 %

Germany Dax 5,850.17 %

-0.30

-0.67

Bars plotted according to one-year change.

FII Investments USA S&P 500 1,216.13 %

Mexico IPC 36,110.68 %

Japan Nikkei 225 8,479.63 %

-1.90

-0.25

-1.38

Volatility in the buying and selling pattern of FIIs has gone up in the past few weeks.

`17,213.96 Avg Sensex value `20,126.35

India BSE Sensex 16,461.71 %

`21,464.30

-4.25

Argentina MerVal 2,519.01 %

Cumulative value `18,519.90 Cumulative FII investments in ` cr Nov 2011

Nov 2010

-6.48

Brazil Bovespa 56,988.90 %

Hong Kong Hang Seng 18,817.47 %

-0.58

-0.77

Australia All Ordinaries 4,324.10 %

0.39

As on 17 November

The most and the least volatile

Events that can impact the markets

Volatility Index

Country

Value

Annual change

Weekly change

FTSE100

UK

29.68

43.66%

-13.72%

DAX

GERMANY

33.84

86.96%

-9.23%

NIKKEI

JAPAN

27.79

26.15%

-10.18%

NIFTY

INDIA

26.92

30.55%

8.81%

KOSPI

KOREA

34.86

71.13%

-2.41%

21 November 22 November

23 November 24 November

DJIA

USA

31.40

61.11%

4.98%

NASDAQ100

USA

30.26

44.85%

6.62%

ALPHASHARES CHINA

39.14

50.25%

4.51%

VSTOXX

39.06

57.64%

-10.66%

25 November 27 November

Japan Singapore Argentina Brazil Hong Kong UK France US Germany Hong Kong Italy South Korea Japan China

All Industry Activity Index for Sept GDP data for third quarter Unemployment rate data for third quarter Foreign investment data for Oct CPI composite index for Oct Public sector net borrowing data for Oct Business confidence indicator for Nov Personal income & Personal spending data for Oct Capital investment data for third quarter Trade balance data for Oct Consumer confidence data for Nov Consumer confidence data for Nov National CPI data for Oct Industrial profits YTD data

Will Europe push the US into recession? A Deutsche Bank report assesses the impact of the euro area financial crisis on the US and the global economy. oth the US President and US Fed Chairman have recently said that the Euro crisis is the single greatest threat to the US economic recovery. However, whether or not the crisis will push the US economy into a recession depends on how bad things get in the euro area. According to Deutsche Bank’s latest Global Economic Perspective, there is unlikely to be more than a moderate worsening of the currently developing recession in the euro area. Such a scenario under a continued muddling through the crisis with euro area GDP falling 1-2% and with a further drop in the euro, stock markets and investor confidence, and in the value of claims US banks hold on euro area residents, would pose a significant drag on the US economy but probably would not be enough to drive the economy into recession, the report says. However, a more severe and disruptive credit event in the euro area, such as a disorderly default in Greece or a failure of Italy to make needed progress on structural

B

1-year change -12.97% 1-wk change -0.21% Current value 951.97

1-year change -4.27% 1-wk change -1.38% Current value 1,162.67

-1.60

EUROZONE

MSCI Emerging Markets Index

MSCI World

reforms, would yield quite a different, if less likely, outcome. In such an event, there is a possibility of a substantially greater decline in output, asset values, the euro, and business and consumer confidence in the euro area, with enough spillover to the US to induce a significant downturn in US economic activity, as well as a significant slowdown in global growth. The US exposure to the euro area via trade flows is relatively modest and would not be enough by itself to generate a recession in the US even in the event of a severe recession in the euro area. A 5% drop in euro area GDP would reduce US exports by less than 0.5% of the US GDP. But the exposure of the US economy to the euro area would be much greater through financial channels. US and euro area stock markets have been closely correlated through the recent crisis, and there is evidence to show that movements in euro area stocks have been the more important driving force behind this correlation since the euro crisis erupted

a year and a half ago. Business and consumer confidence measures in the two regions have been similarly correlated. And US banks face exposures to assets held in the euro area periphery countries (along with CDS and other guarantees sold on euro area securities) that are potentially large enough to be substantially disruptive to US credit markets in the event of a severe downturn in the euro area. The potential drop in US stocks and confidence alone could depress US consumer spending by 2%. Add to that at least another 2% points drop in GDP from the trade linkages and euro depreciation, plus the effects of tightening credit conditions due to the hit to US banks, and we have the makings of another fairly severe recession in the US even with discretionary spending already squeezed. Indeed, a Fed survey recently found that US banks are already tightening credit standards significantly in their business with euro area residents.

Cumulative value

Avg Sensex value

Govt Bond Yield Yields of a more robust Germany and France are falling while that of others in the Euro area rising. US 1.96

France 3.64

UK 2.23

Japan 0.95

India 8.86

Germany 1.89 China 3.62

Australia 4.07

Singapore South 1.61 Africa 8.05

Greece 26.43

Switzer -land 0.89

10-year bond yield (%). As on 17 November

Currency Exchange Rate Lack of intervention by RBI and rising import demand has further weakened the rupee. Currency

` value

Weekly change (%)

Annual change (%)

12.55%

Dollar

50.91

1.58%

Euro

68.62

0.30%

12.61%

Pound

80.28

-0.31%

11.65%

0.66

1.85%

21.34%

Chinese Renminbi 8.01

1.40%

Japanese Yen

17.48% As on 17 November

Brent Crude Brent crude has lost over 4% in the last one week.

$108.71/brl 17 Nov 2011

$83.1/brl 17 Nov 2010

Deposit Rates Rates vary vastly due to different levels of inflation. Country

US UK Japan China India Russia Australia U.A.E.

6 months (%)

0.65 1.28 0.31 3.30 9.55 6.55 4.37 0.63

1 year (%)

0.98 1.77 0.53 3.50 9.85 6.50 4.88 1.00

Data on this page compiled by Sameer Bhardwaj

Smart Stats

31

The Economic Times Wealth, November 21-27, 2011

LOANS & DEPOSITS ET Wealth collaborates with ETIG to provide a comprehensive ready reckoner of loans and fixed-income instruments. Don’t miss the information on investments for senior citizens and a simplified EMI calculator.

Tenure: 2 years Catholic Syrian Bank City Union Bank Karur Vysya Bank Lakshmi Vilas Bank Punjab & Sind Bank Tenure: 3 years City Union Bank South Indian Bank Tamilnad Mercantile Bank Punjab & Sind Bank IDBI Bank Tenure: 5 years Tamilnad Mercantile Bank City Union Bank IDBI Bank J & K Bank State Bank of Travancore

What `10,000 will grow to

11,092 11,065 11,065 11,011 11,011

10.10 10.00 9.75 9.75 9.75

12,208 12,184 12,125 12,125 12,125

9.75 9.75 9.75 9.60 9.50

13,351 13,351 13,351 13,292 13,253

10.00 9.75 9.50 9.50 9.50

16,386 16,187 15,991 15,991 15,991

Interest rate (%) compounded qtrly

What `10,000 will grow to

10.75 10.50 10.50 10.25 10.25

11,119 11,092 11,092 11,065 11,065

Tenure: Above 2 years Lakshmi Vilas Bank Axis Bank IDBI Bank Karur Vysya Bank Punjab & Sind Bank

10.50 10.40 10.25 10.25 10.25

12,303 12,279 12,244 12,244 12,244

Tenure: 3 years IDBI Bank Lakshmi Vilas Bank Punjab & Sind Bank United Bank of India Axis Bank

10.25 10.25 10.10 10.10 10.05

13,548 13,548 13,488 13,488 13,469

Tenure: 5 years IDBI Bank Tamilnad Mercantile Bank United Bank of India Corporation Bank State Bank of Travancore

10.25 10.25 10.10 10.05 10.00

16,587 16,587 16,466 16,426 16,386

Interest rate (%)

ICICI Bank

What `10,000 will grow to

10.00 9.75 9.50 9.50 9.50

INTEREST RATE (%)

14-18

Axis Bank

14.5-21

Syndicate Bank

15.5

HDFC Bank

15.5-22

Punjab National Bank

15.75 14

16

18

20

22

24

HDFC Bank

11.5-13.75

ICICI Bank

11.5-17

State Bank of Travancore

12-12.75

SBI

12.25*

United Bank

12.40-14.40* 9

10

11

12

13

14

15

16

17

18

Cheapest Home loans 10 YEARS

Up to `10 lakh Axis Bank Bank of India State Bank of India Indiabulls Housing Finance LIC Housing Finance

Cheapest Education loans

20 YEARS Interest rate (%)

Interest rate (%) 10.75 10.75 10.75 10.75 10.80

Up to `30 lakh Indiabulls Housing Finance LIC Housing Finance State Bank of India Axis Bank Bank of India

Minimum loan: `50,000; Maximum loan: `2 lakh Margin money: 15%

Axis Bank State Bank of India Indiabulls Housing Finance LIC Housing Finance Bank of India

10.75 10.75 10.75 10.80 11.00

17 16

14

10.75 10.80 11.00 11.00 11.25

Indiabulls Housing Finance LIC Housing Finance State Bank of India Axis Bank State Bank of Mysore

10.75 10.80 11.00 11.00 11.25

12.7514.75%

12.7514.75%

15

13.0014.00%

13.0013.50%

12.6013.35%

13 12

United Bank of India

Bank of Baroda

Bank of India

Syndicate Bank

Tamilnad Mercantile Bank

These are average rates for the entire tenure

Postal Deposits

Interest (%)

Monthly Income Scheme

8

Kisan Vikas Patra

8.41b

Minimum Invt. (`)

1,500

Tax Benefits

Maximum Investment ( `)

Features

Single 4.5 lakh

6 year tenure; monthly returns

Nil

Joint 9 lakh

5% bonus after 6 years

Nil

100

No limit

Money doubles in 8.7 years

Nil Nil

Recurring Deposits

7.50c

10

No limit

5 year tenure

Savings Account

3.50

50

1 lakh

Interest tax free

Nil

National Savings Certificate

8a

No limit

6 year tenure

80C

100

Time Deposit

6.25-7.50

200

No limit

Available in 1, 2, 3, 5 years

80C

Senior Citizen Saving Scheme

9d

1,000

15 lakh

5 year tenure; minimum age 55*

80C

Public Provident Fund

8b

500

70,000 p.a.

15-year term; tax-free returns

80C

a. Compounded half-yearly; b. Compounded yearly; c. Compounded quarterly; d. Payable quarterly; *Also available with public sector banks Sec 80 C benefit: Investments up to `1 lakh in specified securities (maximum of `70,000 in PPF) qualify for deduction.

Base rates are reference rates for all floating-rate home loans.

As on 17 November 2011

10%

16,386 16,187 15,991 15,991 15,991

10%

10.5%

10.65%

10.60%

10.70%

10.70%

10.75%

10.75%

10.75%

RBI guidelines say banks cannot refuse to shift a borrower from the BPLR system to the base rate system. BANK

State Bank of India

Axis Bank

Your EMI for a Loan of `1 lakh

State Bank of Mysore

United Bank of India

Corporation Bank

Dena Bank

Bank of Maharashtra

IDBI Bank

Punjab National Bank

Bank of Baroda

@ 8%

2,028

1,213

956

836

@ 10%

2,125 2,224

1,322 1,435

1,075 1,200

965 1,101

909 1,053

2,379

1,613

1,400

1,317

1,281

@ 12% @ 15%

Tenure

5

19

* These are floating interest rates while the others are fixed interest rate

Home loan Base rate (%)

Top five tax-saving FDs Tenure: 5 years and above Tamilnad Mercantile Bank City Union Bank IDBI Bank J & K Bank State Bank of Travancore

Cheapest Auto loans

INTEREST RATE (%) 10.50 10.25 10.25 9.75 9.75

Top five senior citizen deposits Tenure: 1 year Lakshmi Vilas Bank City Union Bank Tamilnad Mercantile Bank Corporation Bank IDBI Bank

Cheapest Personal loans

LOAN AMOUNT: `5 LAKH

Tenure: 1 year Lakshmi Vilas Bank City Union Bank Tamilnad Mercantile Bank Karnataka Bank Karur Vysya Bank

Interest rate (%) compounded qtrly

LOAN AMOUNT: `2 LAKH

Top five FDs

10

Choose this calculator to check your loan affordability. For example, a `5-lakh loan at 12% for 10 years will translate into an EMI of `1,435 x 5 = `7,175

15

20

772

25

All data sourced from Economic Times Intelligence Group ( [email protected])

32

Smart Stats

The Economic Times Wealth, November 21-27, 2011

REAL ESTATE

Vadodara

Ahmedabad ET Wealth and Magicbricks track the rentals and prices of residential property in metros, tier I and tier II cities. For those who Mumbai dream of building their own house, a construction cost index Pune comprising price changes of four key raw materials of construction Goa is also calculated. The information on this page rotates by regions, covering every region of the country once in four weeks.

Mumbai

Ahmedabad APARTMENTS

Locality

Capital value (`/sq ft) Affordable Premium

Worli

Locality

Capital value (`/sq ft) Affordable Premium

APARTMENTS

Rental value* Affordable Premium

Locality

West 57

66

Bopal

2,750

3,050

7

8

NA

NA

79

98

Bodakdev

4,100

4,850

10

12

Central 13,450

15,650

36

44

Prahlad Nagar

3,850

4,600

10

12

10,450

12,400

29

33

Naranpura

3,150

3,600

NA

NA

North NA

NA

41

48

Ghatlodia

12,150

14,150

27

31

South

Suburbs

Pashan

4,050

4,650

11

13

Warje

4,350

5,000

9

11

NIBM Road

3,950

4,550

10

12

Kondhwa

3,300

3,950

9

11

North 3,250

3,450

8

9

Aundh

5,450

6,400

14

16

Balewadi

4,450

4,900

10

11

SG Highway

3,250

4,000

8

10

East

3,950

4,600

10

12

Viman Nagar

4,750

5,350

13

15

Kharadi

3,850

4,300

9

11

Thane(West)

6,400

7,700

18

21

Satellite

Kharghar

5,150

6,000

10

12

* Rent in `/sq ft/month

* Rent in `/sq ft/month

Rental value* Affordable Premium

South

Goregaon (West) South

Capital value (`/sq ft) Affordable Premium

West

21,400

Santacruz (East)

Chembur

Bangalore, Chennai, Hyderabad, Kochi

Pune

17,200

Central

Wadala

NEXT WEEK: SOUTH ZONE

APARTMENTS

Rental value* Affordable Premium

West Mahim

Nagpur

Rent in `/sq ft/month

Market update: A section of builders is planning to raise prices by up to 10% after the festive season.

Market update: The state government is considering a proposal to allow builders more FSI for residential projects in the city.

Vadodara

Nagpur

Goa APARTMENTS

APARTMENTS Locality

Laxmi Nagar Wardha Road Dharampeth Swavlambi Nagar Friends Colony

Capital value (`/sq ft) Affordable Premium

4,300 1,750 4,050 4,300 2,850

5,650 1,900 5,100 4,400 3,150

Locality

Rental value* Affordable Premium

8 8 NA NA

APARTMENTS

Rental value* Affordable Premium

Locality Affordable

Premium

Akota

2,900

3,150

8

10

Siolim

2,700

4,000

10

Gotri

2,150

2,400

8

10

Caranzalem

5,650

5,900

Hari Nagar

2,400

2,900

8

10

Saligao

6,900

8,700

Old Padara Road

2,750

3,200

NA

NA

Dona Paula

5,800

7,050

Race Course circle

2,850

3,450

NA

NA

Porvorim

NA

NA

NA 8

* Rent in `/sq ft/month

Market update: Approval of new projects is likely to be affected after the fresh controversy over mining leases approved by the government.

* Rent in `/sq ft/month

Market update: The NHAI has started acquiring land for the Mumbai-Vadodara expressway project. This is likely to boost real estate demand in the outskirts in future.

Market update: Supply of premium residential projects has slowed down considerably as builders are now focusing on the affordable segment.

CONSTRUCTION INFLATION

Capital value (`/sq ft)

10

NA

7

Capital value (`/sq ft) Affordable Premium

15 10

Most locations in the above mentioned cities have both affordable as well as premium buying options. This also includes prices of resale property.

Bricks & tiles Steel: long

5 0 Grey cement Sept 2010

Stone Sept 2011

The trendlines show the rate of inflation according to the Wholesale Price Index (WPI) for specific construction materials.

7.52% 12.61% Bricks & Tiles

Stone

0.53%

0% Steel

Grey Cement

Figures are year-on-year change in prices as on 30 September 2011

Smart Stats

33

The Economic Times Wealth, November 21-27, 2011

BEST HEALTH INSURANCE

Rating methodology Coverage: Comprehensive. All health insurance products (individual) whose prices and features data is available in the public domain have been covered. Some plans may have been excluded on account of not being comparable with the peer group as they may be targeted towards a specific customer segment.

Every week ET Wealth brings you the rankings of one financial product done by i-save*. In this issue we look at the best family floater health insurance plans available in the market.

Ratings: : i-save Health Insurance Ratings use a relative rating methodology to rate health insurance products on a 1-5 star scale. The product ratings are a weighted aggregate of the product price, product features and company service data, each rated on a relative 1-5 star scale. The star ratings assigned correspond to the following:

Apollo Munich plans score reasonably well across all parameters

     No star

Superior product Excellent product Good product Average product Below average product Low rating



High scores on all parameters get HDFC Ergo and ICICI Lombard plans High product ratings 0



10

20

 

30

40

 Superior

        No Star                     No Star NA NA  

Excellent

Overall rating

Good

Service rating

                 No Star No Star            NA NA  No Star

Average

Features rating

                     No Star No Star      No Star     

Below average

Price rating

   No Star             No Star        No Star No Star    No Star  No Star  

Apollo Munich Easy Health Standard Apollo Munich Easy Health Exclusive Apollo Munich Easy Health Premium Apollo Munich Maxima Bajaj Allianz Health Guard Family Bajaj Allianz Insta Insure Bharti Axa Smart Health Basic Bharti Axa Smart Health Premium Bharti Axa Smart Health Optimum Cholamandalam Family Health Insurance Future Generali Health Suraksha Basic Future Generali Health Suraksha Gold Future Generali Health Suraksha Silver Future Generali Health Suraksha Platinum HDFC Ergo Health Suraksha ICICI Lombard Family Protect Premier ICICI Lombard Health Advantage Plus Family Iffco Tokio Base Plan Iffco Tokio Wider Plan Max Bupa Heartbeat Silver Plan Max Bupa Heartbeat Gold Plan Oriental Happy Family Floater Silver Oriental Happy Family Floater Gold Reliance Healthwise Policy Standard Reliance Healthwise Policy Silver Reliance Healthwise Policy Gold Royal Sundaram Family Good Health Star Health Family Optima Star Health Medi Classic Star Health Wedding Gift Tata AIG Wellsurance Classic Plan Tata AIG Wellsurance Supreme Plan United India Family Medicare Universal Sompo Family Floater

No star

Product name

50

60

70

80

90

The relative position on the distribution curve highlights the overall ranking of the product relative to its peer group based on a comprehensive product score of its price competitiveness, features and flexibility, and servicing capabilities.

High scores on all parameters gets Royal Sundaram an Excellent product rating

Parameters considered Price: Lower premiums get higher scores. Premiums are compared across multiple age bands (young, middle and mature) and multiple covers (`1-10 lakh). Product features: Features are assigned a numerical score based on product benefits, customer availability and flexibility.

 Where a company has recently commenced operations, service scores have not been considered for rating; where service scores could not be calculated due to lack of publicly available information, service stars are marked 'NA'.  i-save ratings are at a product level and provide a relative ranking to products in their peer group. They do not take into account personal or individual financial needs, circumstances or objectives. It is important to review and compare benefits, exclusions and limits on sub-benefits for each product.  i-save ratings are not financial advice or guidance or a recommendation to purchase, hold or terminate any policy. Data as on 15 November 2011.

Servicing capabilities: Scores are awarded to customer servicing and claims settlement statistics. These are not product-specific and the data published by Irda for the past two years is used to compare and allocate a relative numerical score, adjusted for age.

High scores on all parameters gets United India a Superior product rating

For detailed methodology, visit i-save.com.

PREMIUM RECKONER Premiums of family floater health insurance plans of all companies Premiums for 2 adults, eldest member 35 years

Premiums for 2 adults, eldest member 45 years

3 lakh

5 lakh

3 lakh

Apollo Munich Easy health Standard 5,170 Apollo Munich Easy health Exclusive 6,167 Apollo Munich Easy Health Premium N/A Apollo Munich Maxima 21,106 Bajaj Allianz Health Guard Family 7,329 Bajaj Allianz Smart Health Premium 4,172 Bajaj Allianz Smart Health Optimum N/A Cholamandalam Family Health Insurance 7,272 Future Generali Health Suraksha Basic 4,718 Future Generali Health Suraksha Gold 5,898 Future Generali Health Suraksha Silver 5,308 Hdfc Ergo Health Suraksha 5,480 ICICI Lombard Family Protect Premier 5,684 ICICI Lombard Health Advantage Plus 15,000 Iffco Tokio Base Plan 3,498 Iffco Tokio Wider Plan 4,506 Max Bupa Health Insurance Heartbeat Silver** 8,413 Max Bupa Heartbeat Gold Plan ** N/A Oriental Insurance Happy Family Floater(Silver) 4,611 Reliance Healthwise Policy Standard 5,915 Reliance Healthwise Policy Silver 8,232 Reliance Healthwise Policy Gold 12,285 Royal Sundaram Family Good Health 5,103 Star Health Family Optima 4,395 Star Health Medi Classic 3,750 Star Health Wedding Gift 11,366 Star Health Wellsurance Supreme Plan 9,557 United India Family Medicare 4,748 Universal Sompo Individual Health Insurance 5,280

8,075 9,286 11,607 N/A 10,185 N/A 8,835 10,177 7,661 9,576 8,618 10,681 N/A N/A 5,230 6,739 N/A 15,352 6,883 9,866 13,762 20,582 9,503 6,530 N/A 15,398 N/A 7,102 7,475

`) Insurance cover (`

6,381 7,339 N/A 21,106 10,035 5,350 N/A 8,256 5,460 6,825 6,143 6,595 7,022 15,000 4,387 5,823 11,218 N/A 5,504 8,212 11,446 17,108 5,751 4,809 N/A 11,846 15,903 5,676 6,331

5 lakh

9,786 11,255 14,068 N/A 15,843 N/A 15,709 11,445 8,508 10,635 9,572 11,982 N/A N/A 6,560 8,807 N/A 21,009 8,217 13,317 18,593 27,828 13,337 7,197 N/A 16,192 N/A 8,491 8,971

Premiums for 2 adults + 1 child, eldest member 35 years 3 lakh

6,370 7,760 N/A N/A 8,552 5,448 N/A 8,458 5,504 6,881 6,193 7,077 7,492 N/A 4,057 5,311 9,530 N/A 5,305 7,074 9,853 14,717 5,750 4,622 4,219 11,620 N/A 5,319 7,057

5 lakh

10,308 11,854 14,817 N/A 11,883 N/A 12,143 11,836 8,938 11,172 10,055 13,806 N/A N/A 6,067 7,943 N/A 17,156 7,920 11,814 16,490 24,673 10,376 6,999 N/A 15,960 N/A 7,954 10,042

Premiums for 2 adults + 1 child, eldest member 45 years 3 lakh

5 lakh

7,412 8,524 N/A N/A 11,707 6,764 N/A 9,601 6,370 7,963 7,166 8,192 8,830 N/A 5,061 6,792 13,012 N/A 6,199 9,667 13,484 20,164 7,012 5,327 N/A 12,469 N/A 6,358 8,052

11,580 13,318 16,647 N/A 18,484 N/A 19,054 13,312 9,926 12,408 11,167 15,107 N/A N/A 7,569 10,159 N/A 24,103 9,254 15,955 22,286 33,368 14,235 7,771 N/A 16,887 N/A 9,509 11,458

Premiums for 2 adults + 2 children, eldest member 35 years 3 lakh

8,107 9,323 N/A 28,468 9,773 6,558 N/A 9,643 6,291 7,864 7,078 8,675 9,301 N/A 4,616 6,115 10,664 N/A 6,000 8,324 11,604 17,344 6,333 4,754 4,500 N/A 11,570 5,888 8,858

5 lakh

11,580 13,318 16,647 N/A 13,580 N/A 14,651 13,496 10,214 12,768 11,490 16,971 N/A N/A 6,904 9,146 N/A 19,412 8,956 13,919 19,436 29,092 11,164 7,583 N/A N/A N/A 8,806 12,641

Premiumsfor for22 Premiums adults++22children, children, adults eldestmember member eldest 45years years 45 3 lakh

9,265 10,655 N/A 28,468 13,379 7,844 N/A 11,463 7,280 9,100 8,190 9,790 10,638 N/A 5,736 7,763 14,326 N/A 6,894 11,385 15,889 23,772 8,198 5,636 N/A N/A 19,250 7,038 9,826

5 lakh

13,247 15,234 19,042 N/A 21,125 N/A 21,489 15,883 11,344 14,180 12,762 18,231 N/A N/A 8,578 11,610 N/A 26,416 10,291 19,121 26,719 40,017 15,079 8,466 N/A N/A N/A 10,528 14,018

* Premiums as applicable for Delhi taken into account.  Premiums sourced from quotation engines on each individual company website. Premiums are inclusive of service tax except in cases where this information may not have been available at individual websites.  The lowest 5 premiums in each column are highlighted. However, given the nature of health insurance and varied benefits and exclusion related terms, it is important to review what each product does or does not offer.

Buying Guide  Health insurance protects you against

rising healthcare costs and financial uncertainty arising from unforeseen hospitalisation due to accidents or illnesses.  Treating an illness that requires prolonged

medical care can sometimes be expensive, so consider carefully how much cover will be adequate for you.  It is always better to start your health

insurance cover at an early age:  With age the risk to our health

increases, making insurance more expensive too.  Most companies now provide

guaranteed renewals for life.  Most policies have an exclusion period

(usually 2-4 years) for certain illnesses.  When deciding how much health

insurance to buy, take into account the cost associated with the treatment of major illnesses.  Do not restrict your cover just to meet

your tax-exemption limit.  Compare products not just on price, but

also on features, benefits, age till when renewability is available, day care procedures, sub-limits, etc.  Read the key features and the terms and

conditions carefully. Also, check for policy exclusions.

* i-saveTM ratings have been sourced from i-save.com, a unit of MAGI Research and Consultants Private Limited which analyses and rates financial products

34

Your Queries

The Economic Times Wealth, November 21-27, 2011

QUESTION OF THE WEEK 1

2

3

Q&A

4

6

5

PANEL MEMBERS 1. Taxation Vaibhav Sankla, Founder Director, ADROIT

2. Mutual Funds Dhirendra Kumar, CEO, Value Research

3. Insurance Pankaj Mathpal, CFP, Managing Director, Optima Money Managers

4. Banking VN Kulkarni, Chief Counsellor, Abhay Credit Counselling Centre

5. Real Estate (Legal) Dhiraj D Jain, Partner (Real Estate), SNG & Partners

6. Real Estate Gulam Zia, National Director (Research & Advisory), Knight Frank India

ET Wealth brings the collective wisdom of six investing experts to help answer readers’ queries on issues related to personal finance.

TAXATION I sold a residential flat, and within two years, I invested the long-term capital gains in a new flat. Can I claim tax exemption if I sell this flat within three years of the date of possession and reinvest the total amount or more in the same financial year in another flat that is ready for possession? - G Tulsiani

If you sell this house within three years of its purchase or construction (if you constructed the house), then the short-term capital gains from the sale of the new house will be increased by the amount of exemption (on the long-term capital gains) claimed earlier. Besides, the tax exemption schemes (on reinvestment in a house or specified bonds, etc) are not available on short-term capital gains. Therefore, you will end up paying the capital gains tax on the short-term capital gain. Avoid selling the new house within three years of the date of its purchase unless you are willing to pay income tax on the enhanced short-term capital gains arising from its sale. We bought a plot of land in 1993, and later constructed a house on it. Now we have disposed of the property and the sale will be concluded in this financial year. Will we have to pay short-term or long-term capital gains tax on the sale proceeds? How much tax do we need to pay and what are the ways in which we can save tax? Do investments in government-notified infrastructure bonds qualify for saving capital gains tax? We don’t intend to reinvest the proceeds in a self-occupied house. - S Sargaonkar

If the construction on the plot of land was completed at least three years before the date of sale, the gains would be considered long-term capital gains. You can claim deduction under Section 54EC by investing in capital gains tax-saving bonds within six months of the date of sale. The deducted amount will be lesser of the capital gains and the amount invested in bonds within the six-month period. One cannot invest more than `50 lakh in such bonds in a financial year. Therefore, if the sale has taken place after October 2011 and the longterm capital gains are over `50 lakh, you

can invest `50 lakh before 31 March 2012. The remaining capital gains, restricted to `50 lakh, can be invested after 31 March, but within six months of the date of sale.

INSURANCE I bought a Ulip from ICICI in 2007, which was discontinued after Irda’s new regulation on Ulips. So far, I have paid a premium of `4 lakh in four instalments. I am paying a premium allocation charge of 4%, fund allocation charges and mortality charges. In the existing policies, the premium allocation charges have to be paid only once and the charges are lower than those for my policy. Should I continue with the Ulip? -S Manogar

Considering that you have already paid high charges for your policy in the initial years and these charges are comparatively low in the subsequent years, it is advisable to continue with the policy instead of buying another unit-linked plan.

MUTUAL FUNDS I am 23 years old and invest in ICICI Prudential Focused Bluechip Equity and ICICI Prudential Dynamic funds. Are these the right funds for my age? - Amit Bhatla

Both the funds are highly rated. Collectively, they are suited to form the core of your portfolio and you should continue to invest in them for the long term. However, make sure that you track the performance of these funds against their peers. I want to build a corpus of `50 lakh for my four-year-old son in 12-15 years. Please suggest some good funds I can invest in. - Yatin Shelar

You can accumulate `50 lakh in 12 years with a monthly investment of `15,600, which earns an annualised return of 12%, or `12,500 earning an annualised return of 15%. You can invest equally in the Value Research growth portfolio, comprising BNP Paribas Bond Regular (debt: income), Fidelity Equity, HDFC Top 200, ICICI Prudential Dynamic (all large & mid-cap funds);

and Reliance Equity Opportunities, a mid & small-cap fund. These funds collectively have a 70% equity exposure and will help you achieve your long-term financial goal. I am 22 years old and have invested through monthly SIPs of `2,000 each in Fidelity Tax Advantage, Franklin India Taxshield, ICICI Prudential Focused Bluechip Equity and HDFC Prudence. I also have a SIP for `1,500 in HDFC Top 200. I want to build a corpus of `10 lakh in 3-4 years. Can I achieve it with this portfolio or do I need to make changes? - Jagdish Kumar

Your monthly investment of `9,500 every month will accrue to `5.87 lakh in four years if it earns an annualised return of 12%, or `6.27 lakh, if it earns an annualised return of 15%. Your portfolio comprises highly rated funds and you should continue investing in these regularly. To achieve your goal, increase the monthly investment in these funds. However, remember that when you make SIP investments in tax-planning funds, every instalment is locked in for three years from the date of investment. So you will be able to redeem only those units that have completed the mandatory threeyear lock-in period.

LOANS & BANKING I had some fixed deposits in Canara Bank, but missed the maturity date and went to the bank after a month-and-a-half to get these renewed. During this period, the bank rate went up, so the officials transferred the proceeds of the matured FDs to fresh FDs with higher rates from the day I renewed them, but refused to pay even the savings account rate for the overdue period. What are the options for me? -MK Mukhopadhyay

According to the rules, when deposits are not renewed or payment has not been received on the due date, they are transferred to overdue deposits. The bank may allow interest for the overdue period provided the deposit is renewed with effect from the date on which it matured for payment. The rate of interest allowed does not exceed the rate applicable to the period for which the deposit is proposed to be

My 18-year-old son is a British national and has an OCI card. He is studying in India. Which is the best insurance plan for him? Should I go for a term plans or an endowment policy? What should be the policy period, cover and the company from which I should take insurance? - Deepak

Ideally, insurance is for people who are the sole earning members in their families, so that the cover can take care of their dependants in case of an eventuality. Your son may not need a life insurance policy if he is a student. Moreover, insurers may not offer a high cover for his life in the form of term insurance or any other policy if he doesn’t have an income from his own sources. Instead, you should check if you are adequately covered and assess the need for life insurance for yourself based on your financial goals and current net worth.

renewed, as on the date of maturity. The rate you would have got would probably be less if you had renewed with effect from the date of maturity. There is no provision of paying interest at the savings bank rate for overdue deposits but banks provide the facility of automatic renewal on due date. I want to invest in a long-term fixed deposit of the State Bank of Bikaner & Jaipur (SBBJ). What will be the impact on the deposit if the bank is merged with the State Bank of India? Will the SBI honour the terms and conditions agreed upon at the time of inception of the FD? - S Thekedar

Even if the bank is merged with the SBI, the new entity will honour the commitments given by the SBBJ. Neither will the tenure be reduced nor will the SBI render the terms and conditions of the fixed deposit null and void because the old bank ceased to exist. In 2010, I had closed my bank term deposits before maturity to invest the amount at higher rates of interest offered by the bank. While doing so, the bank didn’t follow my instructions to close the accounts after 180 days; instead, it closed them on the 178th day, depriving me of the benefit of nearly `7,500. The branch hasn’t responded to my queries and has only offered verbal assurances. What can I do? - S Vijayendra

If you have given instructions in writing and the branch has not acted as per your instruction, it is construed as deficiency in service. You can first take up the matter in writing with the bank’s nodal officer. If the issue is not resolved and/or if you do not receive any satisfactory reply within 30 days from the date of receipt of your letter, you can file a complaint with the banking ombudsman.

Ask Experts Have a question for our experts? Post it at [email protected]

My Enterprise

The Economic Times Wealth, November 21-27, 2011

35

Being paid for good advice Intellecap, a microfinance advisory, has grown to a `30 crore venture with four subsidiaries in nine years. S M BASHA

Vineet Rai 41 years Age at starting business 30 years Company name Intellecap Headquarters Hyderabad Seed capital `1 lakh Source of money Parents-in-law, personal savings Turnover after first year `12 lakh Turnover in 2010-11 `30 crore

I

n a country where advice is abundant and free, making a career out of it may seem like a risky proposition. Fortunately for me, the gamble paid off. My microfinance advisory, Intellecap, has generated a turnover of `30 crore this year. The journey, however, hasn’t been easy. Born in a middle class family in Uttar Pradesh, I graduated from the Indian Institute of Forest Management (IIFM), Bhopal, in 1994 and was picked up by the Ballarpur Paper Mills at Boinda in Orissa. I was responsible for the distribution of raw material (wood/ bamboo) used in making paper. After three years in the paper industry, I moved to IIM Ahmedabad in 1997 to work on the research for the Biological Diversity Act of 2002. My job was to engage with a panel of experts, which would advise the government on the access and beneficiary methods related to the Act. A year into this, the Gujarat government approached me to take charge of the Gujarat Grassroots Innovations Augmentation Network (GIAN), an incubator for grassroot rural innovation and development in the state. I accepted the offer because after living in a forest for three years and being exposed to extreme poverty, I could relate to the need for encouraging rural enterprise. As the CEO of GIAN, I was responsible

I set up the firm in March 2002, but got the first project later that year when I bumped into a man who wanted to start a fund and make social impact.

By 2003 we were almost bankrupt and, ironically, it was free advice that bailed us out. A friend suggested we start advisory services for microfinance, and the tide turned.

A milestone came in October 2007, when we got an equity investment of $8.4 million from a London-based firm. We used the funds to set up infrastructure and hire people.

ed into a man, who wanted to start for identifying, nurturing and a fund and make a social impact. launching micro-level enterprises From this project, we earned `12 for poverty alleviation. lakh in six months. However, While working with by 2003, we were almost farmers, I realised that Do you bankrupt. At this point, merely providing capital need to pay tax the company was still a was not enough. They on receiving two-person show. had no knowledge or exa gift? Page 17 Ironically, it was free perience in handling advice that bailed us out. businesses, and needed In December 2003, Vijay guidance and manpower Mahajan, a friend and exto ensure optimum utilisation colleague from IIM-A, suggested I of funds. This sparked off the idea foray into advisory services for for Aavishkaar, a social venture capmicrofinance. That’s just what I did, ital fund, which I set up after and the tide turned. In March 2004, quitting GIAN in 2001. we got our first client in microSimultaneously, I was mulling the finance through references. It was a possibility of building an intensive Website for World Bank support system that would help social entrepreneurs build and Microfinancegateway.org. That execute their business plans with year the company raked in `30 lakh the help of ‘intellectual capital’. and our turnover was `50 lakh. This was the genesis of Intellecap. The same year, Intellecap got its In February 2002, I shifted base to co-founders. Aparajita Agarwal, Mumbai, and a month later, the whom I knew from my IIFM days, company was born with a seed joined in late 2004, along with capital of `1 lakh. This money came Anurag Agarwal from TA Pai from my savings and those of my Management Institute, Manipal. In wife, along with some help from my 2005-6, Shree Ravindranath, also in-laws. My wife is a 50% stakeholdfrom IIFM, Manju Mary George er in the company. Our first office? from the Institute of Rural Our home at Kandivali. Management, Anand , and Atreya Getting paid to dole out advice Royarpalou, an IIT-ISB alumnus, was easier said than done, and we came on board. This core group managed to bag our first project introduced fresh vision, our advice only in late 2002 for a small social was branded valuable and we fund called Tungari Manohar Social earned `1.5 crore in 2005-6. Venture. It happened when on an The next milestone came in Ahmedabad-Mumbai flight I bumpOctober 2007, when the company

received an equity investment of about $8.4 million (`42 crore) from Legatum Global Development, a Dubai- and London-based private firm, which invests in microfinance initiatives and had hired us to work for them earlier. After 18 months of negotiations, we received the funds and used much of these to set up infrastructure and recruit people. Till 2008, microfinance institutions remained our strong point, but then we started focusing on social sectors like organic agriculture, health, education, etc. Today Intellecap has four more firms— Intellecash (2009), a non-banking microfinance firm; Intellecap Inc (2009), a US-based subsidiary; Intellecap Software Technologies (2011), a technology solutions company, and Intellecap Growth Finance (2011), a non-banking finance company focussing on small and medium enterprises. Recently, we shifted our head office from Mumbai to Hyderabad to maximise cost efficiency. Our short-term goal is to acquire a subsidiary of a UK company and then have a footprint across the globe. We also want to generate a turnover of `100 crore in the next three years. (As told to Milan Sharma)

Please send your feedback to [email protected]

36

Spending

The Economic Times Wealth, November 21-27, 2011

Which is the right laptop for you? Are you planning to pick a laptop and don’t know where to start? It's easy to be waylaid by the variety of features available, but a smart buy is one that fits your needs and gives you value for money. Milan Sharma looks at the laptops that will suit the requirements of different user groups.

Students Portability is the key for students who want to lug their laptops to college and between lecture rooms. They are likely to need a device that can be used for browsing, editing documents and preparing college reports. Of course, it should also be handy for some fun— chatting with friends, watching movies, uploading photos and listening to music. Netbooks are a good choice and reasonably priced too. These have single/dual core processors, such as the Intel Atom, and 1-2 GB RAM, which can handle most computing functions, such as the Samsung NP-NC110 and the MSI Wind Netbook series. A hard disk drive of 160-320 GB takes care of most storage needs and the netbook’s small size and light weight (about 1 kg) make it easy to carry. The only drawback is that these have small screens, usually 10-13 inches, and no optical drive. However, the presence of 2-3 USB ports takes care of any data transfer needs. Netbooks have a VGA port (some have s-video or HDMI too) so that you can hook them to a bigger LCD screen/monitor. If you want to cut down on cost, don’t install a paid operating system. Instead, download a free one, such as Linux.

Price: `13,000-24,000

Home/small office users If you plan to use the laptop only for browsing, it may be better to go for a 13-inch netbook. However, if you are going to run some software, make budgeting spreadsheets for your house or small business, and edit photographs or home videos, you will need a laptop with more computing power. Opt for one with a faster dual/quad core processor, a 2-4 GB RAM and a hard disk drive (HDD) of 320-500 GB, such as laptops from the Lenovo IdeaPad series and Acer Aspire series. The HDD is usually 5,400 or 7,200 rpm, which signifies how fast the data can be transferred and applications launched. A higher number indicates better speed for copying files and booting up, but even 5,400 rpm will be sufficient for you. An integrated graphic card will be adequate for your needs, so don’t pay more for a separate one. You could pick a laptop with a 15-17 inch screen so that you can watch movies and play arcade games.

Price: `30,000-65,000

Professionals and business travellers Office-goers need faster processors that can handle multi-tasking smoothly, including document editing, huge balance sheets and project presentations. So, a laptop with a quad core processor and 4 GB RAM will be the best. It will be useful if the RAM is upgradeable as you may require more computing power after a couple of years. An optical drive with a DVD writer is necessary, so that you can burn data on DVDs and give these to clients or colleagues when needed. You will also need a bigger screen, 14-16 inches, for better readability. Though an integrated graphics card will work well, you can opt for a laptop with a separate card of 512 MB or 1 GB. If you travel frequently, you will need all the above in a smaller package. Your best choice is an ultraportable laptop, especially one which weighs less than a kilogram. You can pick one from the series of Acer TravelMate or Dell Latitude. These look similar to a netbook as they are small and lack an optical drive, but have faster processors, higher RAMs and are more hardy. Avoid laptops with glossy screens as these make it difficult to read the text in sunlight and brightly lit spaces. Some ultra-portables will cost more as they have integrated mobile broadband modems and extra security features to protect and preserve data.

Price: `35,000-75,000; `55,000-1.2 lakh (ultra-portables)

Gamers & photographers The need for heavy-duty editing software and games means you will require the top computing power available. So get a laptop with the fastest processor, such as Intel’s i7 Core processor. It’s necessary to have a graphic card like Nvidia’s GE Force N260 with a dedicated memory of at least 1 GB. If money isn’t an issue, opt for a solid state drive (SSD) rather than an HDD. Though SSDs are more expensive and offer less space, they are also faster and more durable. The laptop should have at least 4 GB RAM and DDR3 memory (this is faster than the DDR2 version). It will be beneficial if the laptop has a faster clock speed of 1,066 MHz rather than the more common 667 MHz. Gamers can pick a laptop from Dell’s Alienware series, while artists may prefer to pick from Apple’s MacBook Pro series.

Price: `70,000-1.3 lakh

Spending

The Economic Times Wealth, November 21-27, 2011

37

When the warranty on a product may be invalid A product warranty comes with strings attached. Here’s what you should keep in mind while taking one. play devices, but if the screen has a crack, the warranty could be dismissed. Also, not all parts are covered under warranty. “In the case of a washing machine, the warranty for the circuit is only for a year, while it is longer for the motor. Most consumers believe that the motor is more essential even though the circuit costs are high at `4,0005,000,” says Kumar. Even when the company is willing to repair or change the parts that are covered, you may have to pay for labour charges. “During the warranty period, only the parts replaced or repaired are free of cost, but service charges are always payable,” states the Videocon service manual listing the warranty conditions. In case you are eligible to get the product repaired/replaced during the warranty period and the company is arbitrarily refusing to do so, you can approach the consumer courts. However, even to challenge a company’s denial, you need to know the conditions and maintain the relevant bills and papers. “Proper paperwork and all details regarding the product transaction, service and operation are required,” says Patel.

The warranty may be void if…  You do not have

the original bills stamped by the dealer.  You are not the first

buyer and the bill is not in your name.  You have not used

the product according to instructions.  The repair or serv-

icing has not been done by company authorised centres.  The serial number

on the product is missing.

KHYATI DHARAMSI

W

hat is the warranty period? How often have you asked this question while buying a product? The dealer, of course, delivers the usual spiel on the number of months or years that you will be guaranteed prompt and perfect service by the company. What he doesn’t mention, and you don’t bother to read, is the fine print on the warranty paper. These are the strings that could sour the perfect deal you believe you have just clinched. If you are lucky, the product will function smoothly during its entire lifetime, but if it breaks down within the warranty period, don’t assume you can get it repaired or replace it unconditionally. Though companies agree to replace the parts in the product, the cleverly worded warranty document states that doing so will be at the discretion of the company. Apart from this, there are conditions that can result in the warranty being void. One of these is that the warranty card should have the signature and stamp of the dealer/seller along with the date of purchase. You must also check that the serial number is correctly entered in the card. Be careful if you are buying a pre-owned product as most companies state that the warranty is applicable only to the first buyer. So, if you plan to gift a gadget to someone, make sure that the bill is in his name, so that he can make use of the warranty when needed. While buying products from international markets and duty-free shopping zones, check that the warranty is valid in India too. “There are very few brands that offer a

How to apply for balance transfer of a home loan Page 18

global guarantee. So, you may buy a product abroad because it is 20% cheaper, but may lose out on the warranty,” says Purnendu Kumar, vice-president, retail and consumer goods at Technopak. Next, you should go through the usage instructions and repair guidelines carefully. If you do not adhere to these, it can lead to the warranty being cancelled. For instance, Godrej Locks says that the warranty is valid only if a professional from the company has installed the lock. Acer India states that the warranty may be claimed only by those customers who have registered their purchase with the company (either online or through their Website) within 15 days of receiving the product. Some products need to be serviced regularly, such as water purifiers and cars. Their warranty will be valid only if you get this done through the authorised service agent/centre. “If a part is not replaced according to the design specifications, it can cause further damage to the unit, which will not be covered by the company. So, further warranty after repair by unauthorised agents is void,” says SK Jain, VP, sales & services, Onida. To prove that you have always serviced the product at the authorised centre, you should maintain records of past service as well as bills. The physical appearance of the product can also influence the validity of the warranty. “If there is physical damage to a part of the product, it can still be taken as a reason to reject warranty even if it not relevant to why it is not working,” says Harshit Patel, director, TechShop.in. So you may file a complaint that your LCD monitor is unable to access plug-and-

DO YOU NEED AN EXTENDED WARRANTY? Companies have started offering extended warranties, which can be taken separately if you want to cover the product for a longer period. “Extended warranties protect the consumer from high expenses in case an expensive part needs to be replaced. He is insured against all kinds of failure at a very nominal cost,” says Jain. However, experts suggest caution while opting for extended warranties as the conditions for warranty and extended warranty differ. The list of parts covered is further reduced in the latter. “For instance, in a fan there is a motor, ball bearing and capacitor. No company will give a warranty of more than a year for the capacitor, but it will be willing to provide an extended warranty for the ball bearing. However, the induction coil is the most important part and is very costly. There may or may not be an extended warranty for the coil,” says Kumar. Also, extended warranties may turn out to be futile expenses. “The companies that provide these are banking on the fact that the product is good in quality and will survive the extended warranty period provided the user has kept the product in pristine condition,” says Patel. The company may also account for the fact that consumers may not maintain the invoices or warranty cards, which will automatically eliminate any warranty claims. However, some experts suggest that as the cost is hardly 1% of the price of the product, it may be better to opt for the extended warranty for expensive items, which you plan to retain for a significant period of time.

Please send your feedback to [email protected]

38

Your Feedback

The Economic Times Wealth, November 21-27, 2011

THE ECONOMIC TIMES

Readers’ response, online and in print, to ET Wealth stories has been overwhelming and enlightening. We pick some that add information and perspective to our articles from previous issues.

wealth

FRO THE WM EB

Monday, November 21-27, 2011

www.wealth.economictimes.com

Start saving for retirement at an early stage The story ‘7 golden rules for retirement’ helped highlight the ways in which one can ensure a sufficient corpus for the sunset years. This has become especially important in the past 15 years because of the rising inflation and increased life expectancy. Gone are the days when the EPF corpus and fixed deposits took care of most of our expenses after retirement. Today, the entire EPF corpus can be wiped out in less than 7-8 years if people settle in big metro cities. Not only have the medical and commuting costs increased, but the spike in education cost means that people have begun to dip into their EPF corpus, cutting into their retirement funds. More the reason then that retirement planning should begin the moment one starts earning because prior to marriage, there is a greater scope for saving due to the rising income and lesser liabilities. Also, as the story shows, the longer you invest, the bigger your corpus. Pranav Singh, Mumbai

Market recovery to take some time

Need to emulate Oberoi Realty

Debt funds are the flavour of the season

The story ‘More hurdles on the way’ does not indicate a smooth journey for the Indian companies in the near future, which is a cause for concern. More importantly, since the overall recovery of the markets depends on macro-economic factors, such as global conditions and zooming interest rates, it is clear that these are beyond the control of the companies. As the story points out, despite an increase in revenue, the firms have barely benefited as they have been unable to pass on the costs to customers, who continue to suffer from high inflation. Does this mean that India Inc will not be able to post good results till the end of next year, pushing down the country’s performance further?

The article ‘Stocks with high future earnings are a good bet’ did well to point out the potential winners amid the current market turmoil. What was more interesting was the selection of a real estate company among the four winning stocks. Considering the problems that the real estate companies have been facing, it was heartening to note that Oberoi Realty is a zero-debt firm. This also highlighted the fact that sometimes individual companies are responsible for the mess that the sector finds itself in. Oberoi Realty has shown that a company doesn’t need to perform extraordinarily to gain investors’ faith. A robust bottom line and strong fundamentals are enough to raise its stock among investors.

The story ‘Tweak your debt funds’ provided relevant and practical information on how to manage one’s debt fund invesments in the prevailing market uncertainty. It will help the readers ensure that the current market conditions do not erode their debt portfolios. The rising interest rates have made short-term funds a very attractive proposition, and rightly so. In fact, considering the returns that these funds have generated in the recent past, I will not be surprised if they find an increased share in retail investors’ portfolio. They may not match the equity funds in terms of returns, but compensate for this by providing assured returns, which means that they will gain further favour in the coming months.

Vinay Acharya, Chandigarh

Vijay Thakur, Patna

Narayan S, Chennai

Test your MQ Are you a savvy investor and an informed spender? Take this quick test to find out your money quotient (MQ). All the answers are in the stories that have appeared in this issue of ET Wealth. So you don’t need to be a financial wizard to know these things. You just need to be an ET Wealth reader.

Give yourself one point for every correct answer >> 8-10: You are a smart investor and know the tricks. Try to fine-tune your portfolio.

1

Gold or silver jewellery received as wedding gifts is taxable.

Y/N

2

The securities transaction tax is applicable on the sale as well as purchase of mutual fund units.

Y/N

3

The expense ratio of index funds is higher than that of index ETFs due to additional operation expenses.

Y/N

4 5

All the parts of a product are covered under its warranty.

Y/N

6

You can now invest up to `1 lakh a year in the PPF but the tax benefit will be available on only `70,000.

7

The new interest rates announced for small savings schemes are only for the financial year 2011-12.

Y/N

8

The National Savings Certificates will now come in two maturities—five years and 10 years.

Y/N

9

Housing finance companies are allowed to charge a prepayment penalty if the borrower transfers the loan to another lender.

Y/N

The relative strength index measures a stock’s movement by comparing the magnitude of recent gains to recent losses.

Y/N

>> 4-7: Your money quotient is average. You know the basics but you have a lot to learn. >> 0-3: You have a lot of catching up to do. Remember it’s never too late.

10

A negative cash flow from investing activities is always a bad sign for a company.

Y/N Y/N

BEST OF ARCHIVES Paperwork can impact returns: Updating paperwork is as important for financial planning as investment management and asset allocation. Read more to know why. Add extra cover to your office mediclaim: To make sure that your parents’ medical needs are covered, you need to look beyond your employer’s health plan. Go through the story to find out how to do this. Take your business online: An essential aspect of promoting your business is to have a strong presence on the Internet. This article tells you how to build and run your Website. Can you earn from surveys? Online survey companies are luring members with promises of easy money. Scan this story and to check what you should know before you get hooked. All these stories are available at www.wealth.economictimes.com

LEARN & KEEP Also take a look at:  Pick your investing

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allocation.  7 ratios for stock

What’s your score? Your credit history can determine the interest rate for the loan you take. Here’s how you can check your score.

picking.  Can you afford the

house you like?

The Learn & Keep section is available at www.wealth.economictimes.com

MOST READ OF THE WEEK 7 golden rules of retirement: Follow the simple canons of investing and saving listed in this story to make sure that you have enough money to retire in comfort. Should you slash your property price to make a sale? Go through the article to know if, when and by how much should you cut down the price of the property you want to sell . Tweak your debt funds: Read this story to know why a big portion of your debt investment should be in short-term funds and why you should start shifting to longer-duration schemes now. What households are doing with their savings: Given the current uncertainty, the households focused on two asset classes— gold and bank deposits—the first six months of this year. Read the story to know more. YOUR FEEDBACK Please send your feedback to [email protected] ,or you can write to us at Times House, 7, Bahadur Shah Zafar Marg, New Delhi-110002 Note: The letters have been edited for grammatical errors and better reading.

Answers:1.No 2.No 3.Yes 4.No 5.No. 6. No 7. Yes 8. Yes 9. Yes 10. Yes

Last Word

The Economic Times Wealth, November 21-27, 2011

39

Financial wizards of the week Bring out the planner in you and suggest a strategy for a financial problem to one of our readers. The winners will receive INDIATIMES gift vouchers worth

`5,000 and will be crowned the ET Wealth Financial Wizards of the week. The decision of ET Wealth regarding the winners of ‘Financial Wizard’ will be final. The vouchers will be e-mailed to the winners. Allow at least 30 days for the despatch of the voucher.

Solutions from the following were also useful

Last week’s winner

K BHASKAR, Chennai

SATISH CHOUDHARY, DELHI

Solution: A prepaid card is a cash card and Solution: You are right as a prepaid card does not provide any credit facility. It is makes you learn the virtue of saving first advisable to go for a credit card if your and spending later. On the other hand, son can control his spending. credit cards tend to make you spend However, you need to remember Winners beyond your means. The other thing that if he spends more than his `1,000 you need to keep in mind is that while payment capacity and defaults your son may be working and earning each even once, he will have to pay a now, he might want to quit later to heavy interest and penalty. I would concentrate on his studies. If this is the advise your son to go for a credit card, but case and he overspends, you will have to confine his spends to the amount he can step in and pay his bill. If you do not want pay. He should also try to pay the full such a situation, you should advise him amount by due date in order to avoid any to have a credit card only after he has a levying of interest. fixed income.

Last week’s question

Winner I have an 18-year-old son, who has joined college recently. He earns `3,000 by `3,000 teaching on a part-time basis. He wants to pick up a credit card, but I think a prepaid card will be more suitable for him as he will not overspend. However, he says that if he has a credit card he will learn to control his expenses, and in case he overspends, he can pay from his income. Please advise. Suranjan Sinha, Kolkata

Sudipta Datta, Mumbai

Choudhary’s solution Considering that your son has a monthly income, he should opt for a debit card, which will work like a prepaid card because he will be able to spend only the amount that he has in his account. More importantly, he should start a monthly recurring deposit of `1,000, so that in due course, he acquires the habit of compulsory saving. This will give him a sizeable amount after he completes his college as it can earn more than 8% interest per annum. In my opinion, getting a credit card may prompt him to indulge in a spending spree given his age, and this should be avoided. Also, if he defaults on his credit card payment, it will impact his credit rating, which may not be good for any future transactions.

This week’s situation I am a 32-year-old software engineer and earn `90,000 per month. My father retired recently and has `60 lakh as PF corpus. We plan to buy a house worth `40 lakh. I want to take a home loan of about `30 lakh, but my father says that he can pay the entire amount and, instead of EMI payment, I can contribute this amount to monthly expenses and invest the P Ashok, Kolkata remaining in mutual funds. Please advise. Send your solutions to [email protected]

MONEY-MAKING VENTURE

The art of profiting from bicycle trips Pankaj Mangal left a marketing job to take up bicycle tours, which help him earn nearly `50,000 a month. AMIT KUMAR

T

ill last year, Bangalore-based Pankaj Mangal was a regular, runof-the-mill corporate executive with cookie cutter credentials: an engineering degree, followed by an MBA in marketing, both from Ahmedabad. In mid-2009, he got a job as a marketing analyst for Mu Sigma, an analytics firm, with a monthly salary of `60,000. Little did he know that an innocuous weekend getaway would change his life completely. In June 2010, 28-year-old Mangal went for a cycling trip to Bhimeshwari, about 120 km from Bangalore, and was bowled over by the novelty of it all. “After riding for around 60 km, as my friends and I sat down for a breather, we had an epiphanous moment: why not share this new and unique experience with others? We realised that a bicycle can be a revelation of human potential and endurance,” says Mangal. Within a month of returning from his journey, he founded the Art of Bicycle Trips, India’s first bicycle tour company. Though the company was officially registered in July 2010 and Mangal started publicising it through his blog, Art of Bicycle Trips remained a second profession, a side business, for about a year. That did not mean he did not devote any time to it. On the contrary, he

ture on a full-time basis,” he admits. On the other hand, there was the promise and potential of Art of Bicycle Trips. Besides, sticking with the marketing job meant that he could not take his entrepreneurial venture beyond Bangalore. This clinched the matter for him. According to Mangal, though he doesn’t focus on any specific target audience, “nearly 30% of the clients are foreigners, 25% NRIs, 20% north Indians and about 10-15% comprise the city’s local population”. The company, through its Website, www.artofbicycles.com offers not only city cycling tours, but also longer trips to the Nilgiris, Kerala, Western Ghats and Goa. The tour prices vary from `950 for a five-hour trip around Bangalore to almost `2 lakh for a 14-day trip. This includes the wheels and protective gear, accommodation, food and a guide. Depending on the length of the trips, he employs 2-5 part-time helpers. He has 15 bicycles and plans to increase these soon. The company has been growing at a fast pace of nearly 200% annually. The frequency of longer trips, which generate the highest revenue, has also increased. Mangal is planning to organise 50 such trips in the next year and generating a revenue of about `1 crore by the end of 2012-13. The business helps him make about `50,000 per month on an average, and though it is lesser than what he earned in his corporate job, he’s not complaining.

worked actively to bring his passion to life. To begin with, Mangal bought five up-market bicycles, costing `20,000 each, which was financed from his own savings. Then he scaled up the marketing drive, and drawing upon his education and work experience, he thought of a unique way to spread awareness about the company. He organised a small film festival, with cycling-oriented movies, at a performance art centre in Bangalore. The idea worked, and immediately after the screenings, people began signing up for tours. Expectedly, Mangal’s weekend diary was soon chock-a-block with cycling trips within and outside Bangalore, where his guests picked up fascinating details about the places they visited while rediscovering their love for cycling. As the number of clients rose, donning two hats proved increasingly difficult. So, in April 2011, Mangal decided to give up his lucrative career to focus exclusively on his new enterprise. “It was a tough decision as I was leaving a well-paid job and taking up this venN NARASIMHA MURTHY

The Economic Times Wealth, published by Bennett, Coleman & Co. Ltd. exercises due care and caution in collecting the data before publication. In spite of this, if any omission, inaccuracy or printing errors occur with regard to the data contained in this newspaper, The Economic Times Wealth will not be held responsible or liable. The content hereof does not constitute any form of advice, recommendation or arrangement by the newspaper. The Economic Times Wealth will not be liable for any direct or indirect losses caused because of readers’ reliance on the same in making any specific or other decisions. Readers are recommended to make appropriate enquiries and seek appropriate advice before making any specific or other decisions.

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