Wealth: He Conomic Imes

HOW A PONZI SCHEME WORKS

THE ECONOMIC TIMES

wealth

PAGE 16

www.wealth.economictimes.com | Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, New Delhi, Pune | November 26-December 2, 2012 | 32 pages | ` 7

12

13

29

STOCKS

REAL ESTATE

TRAVEL

Firms with low working capital can be good bets

Don’t fall for warranties offered by builders

How Indians holiday

Find out the stocks and sectors with negative working capital that can make for attractive picks in the current scenario.

Property developers have started offering guarantees to buyers, but these may not be worth the premium that you pay.

Did you know Indians are one of the most vacation-deprived in the world? Find out other travel trends for 2012 culled from various surveys and studies.

ALSO INSIDE Financial planning PAGE 14 Be a Financial Wizard and win `5,000 PAGE 31

PLUS The week’s best stocks, mutual funds, loans, deposits and insurance.

The recent scam highlights the ease with which small investors can be defrauded. Here’s how to spot a Ponzi scheme and ways to avoid falling into the trap. PAGE 2

HOW SUBSIDIARIES CAN ERODE A STOCK’S VALUE

BEFORE YOU TURN A LOAN GUARANTOR

PAGE 10

PAGE 27

EIGHT QUESTIONS TO ASK BEFORE INVESTING PAGE 15

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02

Cover Story

The Economic Times Wealth, November 26-December 2, 2012

Don’t fall for

these

scams The Stock Guru scam shows how easy it is to defraud small investors. ET Wealth looks at the modus operandi of fraudsters and tells you how to avoid falling into the traps they lay out for you.

BABAR ZAIDI

I

n a story on Speak Asia in May 2011, ET Wealth had pointed out how the business model of the survey company was suspiciously similar to a Ponzi scheme. In the weeks that followed, the Speak Asia bubble burst and top functionaries were taken into custody for financial irregularities. Tucked away in a small corner of the story was information on another case of cheating: the Stock Guru scam by Ulhas Khaire. Earlier this month, the police arrested Khaire and his wife Raksha for allegedly cheating almost 2 lakh investors of `1,100 crore. These are only two cases in a minefield littered with scams and fraudulent schemes. Speak Asia went bust because it

made the cardinal mistake of appearing in the limelight. The company launched a multimedia blitzkrieg and tapped the upper layer of the urban market, thus inviting a scrutiny by the authorities. Other, similar survey companies continue to operate in smaller towns and semiurban areas without any hitch. Hundreds of unauthorised outfits are collecting money from the public by promising 40-50% returns. Awareness is the first level of defence against such scams. In the following pages, we look at some of the most common types of scams and tell you how you can avoid them. Some of these fraudulent schemes have obvious red flags. In other cases, the catch is more nuanced and you have to be more careful.

Take the projections of companies with a pinch of salt. For instance, teak plantation companies like to calculate the returns from trees based on the retail price of wood. So, if you own 100 trees and each tree yields around 40 cu ft of teak, you have about 4,000 cu ft of wood. The retail price of this wood can certainly fund your retirement, but you must remember that cutting the trees, transporting them to the factory, waiting for the wood to dry and mature, and ultimately sawing it into logs will incur their own cost. As a planter, you won’t even get 50% of the retail price for your produce. Keep this in mind when you invest in a plantation company. As Prime Minister Manmohan Singh warned, money doesn’t grow on trees!

Cover Story

The Economic Times Wealth, November 26-December 2, 2012

Don’t be

lured by supernormal

returns

T

he best way to double your money is to fold it in half and keep it in your pocket, goes an old joke. The victims of the Stock Guru scam may not find this amusing. Nearly 2 lakh small investors poured in an estimated `1,100 crore into the scheme, convinced that it would earn them 20% per month. Many of the victims were poorly educated and financial illiterates, such as Karnal-based Sandeep Sharma. This high school dropout claims to have lost `1.25 crore in the scam. However, even welleducated professionals and seemingly savvy businessmen did not question how Ulhas Khaire could pay 20% per month for six months and return the principal in the seventh month. “We were blinded by the greed of high returns,” admits Ankur Sachdeva (see picture). The Delhi-based businessman has spearheaded the efforts of

Stock Guru victims to bring Khaire and his wife Raksha to justice. Earlier this year, investors in the Gold Sukh scheme in Jaipur suffered the same fate. The scheme had promised to pay investors up to 150% returns in 18 months by investing in gold futures. It was obviously a sham and the scheme promoter, Narendra Singh, made off with `200 crore. However, the long arm of the law caught up with him in Vietnam, from where he was extradited to India. Singh died of a heart attack in a Jaipur jail in September this year. Similarly, there are stock advisory companies that promise to more than double your money in 3-4 months. A telemarketing executive will call you with a plan that turns your `10,000 into `30,000 in 3-4 months. Gujarat is a minefield of such investment advisory companies. Once you deposit the money in the bank account number given to

LOST

`11.6 lakh in Stock Guru

RAJESH MEHTA

Ankur Sachdeva, 33, Delhi He was initially sceptical about the high returns offered by Stock Guru and hesitantly invested `2 lakh in the scheme. When he got back `40,000 in a month, he poured in `10 lakh more.

“When they paid me the promised amount as per schedule, all my doubts vanished.”

03

you, they start sending you investment tips menace in the bud before such activities by SMS. It turns out that you can gain up to become full-fledged scams. `30,000 in 3-4 months if you act on those investment tips. Krishna Stocks and Radhe HOW TO AVOID BEING CHEATED Advisory are two such companies that have At the very basic level, the fantastic returns cheated investors in this manner. Though promised by the fraudsters should serve as a these firms have closed down, the fraudsters red flag for investors. It is virtually impossible are probably using a different name now. to churn out 10-20% returns every month. Unfortunately for investors, the authorities Only high-risk leveraged bets in derivatives step into the picture very late. Action can earn you such returns. Even then, is taken only after a large number there can be no certainty of income. of investors file a complaint. It is just not possible to be right 8 questions to Fraudsters usually operate in every time, all the time. This is ask before a tier II cities and smaller towns, something that Sebi wants stressed financial decision where financial literacy is low repeatedly. It is mandatory for Page 15 and people are not aware of the mutual fund ads and brochures to perils of pyramid schemes. In declare that the investments are Surat and Vadodara, a High Yield subject to market risk and that there is Investment Plan that offers up to 48% no assurance of returns. Two years ago, returns to investors (see visual) is currently when the Irda asked insurance companies to offer a minimum guaranteed return of as low inviting investments from the public. It only as 4% per year on their pension plans, there has a handful of investors right now, but in were howls of protests and companies due course, it will become bigger as more withdrew their pension products. Yet, join in. The authorities need to be more investors didn’t see anything wrong in the proactive in their approach and nip the

04

Cover Story

The Economic Times Wealth, November 26-December 2, 2012

Returns from different investment options in the past one year Sensex

12%

59%

Best performing Sensex stock (Maruti Suzuki) Gold

11%

Avoid

offers of easy money

members in the scheme. Speak Asia closed down operations last year and the matter is now in court. Not everyone loses money in these scams. The upper layers of the pyramid make money. Ghaziabad-based government school teacher Sudhir Sharma made almost `2 lakh from an investment of `33,000 in Speak Asia. However, Delhi-based Ashok Vishwakarma (see picture) was not so lucky. A late entrant to the Speak Asia pyramid, this 40-year-old has not earned a rupee from the `33,000 he put in the company three months before the bubble burst.

HOW TO AVOID BEING CHEATED Low-rated bonds

High Yield Investment Plan (Surat)

Supernormal returns offered by scamsters are red flags

14%

48%

Gold Sukh

100%

Stock Guru

240%

E

ver got an e-mail from the accountant of a deposed African dictator, who wants to transfer a large sum of money to a reliable person? Or an SMS announcing that your mobile number has been chosen for a lottery of a million pounds? These are common ploys adopted by Nigerian scamsters to trap gullible people. The victim is asked to remit a small sum for certain legal formalities. Once you pay up, the scamsters will ask for more. Every time you pay, you are digging a deeper hole for yourself. Finally, the victim loses his patience and stops paying and the parasites move to another host. In most cases, it is too late before the victim realises that he is being conned. A Hyderabad-based retired government employee was lured into depositing `55 lakh in nine different bank accounts over a period of eight months. She was told that she had won a lottery of 7 million pounds (`60 crore) but had to remit some fee for the paperwork and legal procedures for transferring the money to her account.

Another Hyderabad-based victim, S Haraiah, lost his entire life savings of `9 lakh to a similar scam. “I got an e-mail that the UK diplomat Dr Jeff Ken William was coming to India with 5,00,000 pounds (`4.4 crore) to deliver the prize,” he says. Besides lotteries and legacies of deposed dictators, the lure of easy money also tempts investors. Two years ago, there was a mad rush to join Speak Asia. The survey company was offering an income of `900 per week on an investment of `11,000. The investment was supposed to be recouped within three months, and then it was profits for the remaining nine months of the year. The survey itself was child’s play—answer a few basic questions on some products and services and your account gets credited with `450. The biggest draw was the referral bonus. You also earned rewards for every survey taken by the members you roped into the scheme. Incidentally, the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, prohibits any scheme that pays money for the enrolment of

A bit of common sense can help avoid such scams. Why would anybody want to share a fortune with you? There are no shortcuts to wealth. If anybody is offering you a million pounds, there has to be a catch. Nigerian scams and lottery frauds work on the principle of utmost secrecy. The victim is told not to discuss the matter even with close relatives and friends. Convinced that he is going to be rich soon, the victim surreptitiously does whatever the fraudsters ask him to do. Never act surreptitiously in money matters. Discuss financial deals with relatives, especially your spouse. When you join a scheme, make sure you understand how it will operate and generate the profits it has promised. Speak Asia was offering `900 a week for answering 10-12 dumbed down questions. The Speak Asia members never really knew how the company would make money. The company made a vague claim that its clients included ICICI Bank, Bata and Bharti, but later retracted. A big red flag is that the company had no physical presence in India. All transactions were being conducted online.

Radhe Advisory

600%

Ashok Vishwakarma, 40, Delhi

The Sensex, gold and bond returns as on 20 Nov 2012.

Stock Guru promise of 20% assured returns per month. The other basic check is to consider whether the scheme is approved by the regulator. All investment schemes must have Sebi approval. Stock Guru and Gold Sukh had nothing to show in this regard. Fraudsters try to mislead investors by uploading images of PAN cards and certificate of incorporation. But these documents don’t mean that the scheme has been approved by Sebi or any other government agency. A key telltale sign of fraud is that there will be no postal address or landline number of the promoter or the company. Online frauds operate through faceless, nameless entities. Even if the name is given, chances are that it is an alias. Khaire used as many as five names and aliases to defraud investors across the country. Though it is difficult to tell whether a person is genuine, find out the background of the company and the antecedants of the promoters before you invest in a scheme.

He entered the Speak Asia pyramid barely three months before the bubble burst. He has applied for a refund under a scheme offered by the survey company, but is yet to hear from them.

“I am more worried about facing the people who invested on my advice.”

LOST ASHWANI NAGPAL

`33,000 in Speak Asia

Cover Story

The Economic Times Wealth, November 26-December 2, 2012

05

Don’t

trust

anybody (especially brokers)

I

t’s not easy selling life insurance in India. Buyers often don’t see the value of spending on insurance and are more focused on returns and tax benefits. So, agents resort to misselling, enticing the buyer with half truths and saddling him with unsuitable policies. It’s a dirty game, but not half as bad as the tactics used by some of the really rotten apples in this field. Pune-based Padamsinh Harshe, 84, got a taste of this when he paid the renewal premium of the policy he bought for his daughter last year. His elder granddaughter is the nominee of the policy. The agent who came to pick up the cheque advised the Harshes to include the younger granddaughter as a nominee as well. He took a photocopy of her passport for the purpose. A week later, Harshe got two new policies issued in the name of his younger granddaughter. “We never applied for these policies. They forged her signature in the application form,” says Harshe. Worse, the existing policy lapsed because of nonpayment of premium.

This is not a flash in the pan. Patialabased Sham Kalra (see picture) was approached by an agent when it was time to pay the premium of the term plan he had bought last year. Instead of renewing the premium, the agent used the cheque to sell him another policy. As a result, his term plan lapsed because of non-payment of premium. The fraudulently sold policy was cancelled and the old one reinstated after ET Wealth wrote to the insurance company on behalf of Kalra. It’s common for agents to sell regular premium policies in the name of single premium plans. The buyer thinks he has to make a one-time payment, but ends up with a plan that has to be renewed every year. Rajendra Khosla, 78, has an even more bizarre story to tell. He wanted to invest in fixed deposits and gave signed cheques to the relationship manager from a bank. Six months later, instead of fixed deposit certificates, he got a premium notice for three policies that had been fraudulently sold to him. Even mutual fund investors have been

Rights of investors in collective investment schemes Any scheme that collects money from the public and offers profits, income, produce or property to the investors is a collective investment scheme. Though investors do not have day-to-day control over the operation of the scheme, they have certain rights as laid down by the Sebi.

INFORMATION ABOUT SCHEME Investors are entitled to receive a copy of the balance sheet, profit and loss account, and a copy of the summary of the yearly appraisal report from the company that is managing the collective investment scheme, within two months of the closure of the financial year. The company must publish the scheme-wise annual report or an abridged form in a national daily within two months of the date of finalisation of accounts. Also, scheme-wise unaudited quarterly financial results have to be published in a national daily within a month of the close of each quarter.

REDRESSAL OF GRIEVANCES For schemes launched after 15 October 1999, investors can write to Sebi if they don’t get a satisfactory response from the promoter of the scheme. They can also approach district consumer redressal forums in case the company fails to honour its commitments or if there is a deficiency in service. For bouncing of cheques, investors can move the courts under Section 138 of the Negotiable Instruments Act. However, if the investors do not have a right to land or produce and the investment is a deposit, the company’s failure to repay the money to investors would attract the provisions of Section 58A of the Indian Companies Act, 1956. Sebi has no jurisdiction over such deposits.

REGISTRATION STATUS OF ENTITIES Investors can find out about the registration status of collective investment schemes on the Sebi website. The regulator issues a press release giving the name and address of the entities which have been granted registration.

06

Cover Story

The Economic Times Wealth, November 26-December 2, 2012

Sham Kalra, 52, Patiala The premium renewal cheque he gave to the agent was used to sell him another policy with a forged application form. Meanwhile, his existing policy lapsed because of non-payment of premium.

“Now I cannot trust any agent even if he is from a reputed company.”

VICTIM of forgery by an insurance agent

Verify

claims before you buy

D

elhi-based trader Ashok Arora has an offer you can’t refuse. He’s selling the Japan Life Health Mattress for as less as `15,000. The mattress has magnets inside it and these help cure a range of illnesses from arthritis to diabetes. “It is brand new. Just a few years ago, these mattresses were selling for as much as `2-3 lakh apiece,” he writes on a free online sale portal. In Mumbai, DB Khandvelkar wants to sell the mattress he bought in 1998. “It helped cure my wife’s arthritis,” he claims. There is no medical evidence to show that the magnetic field created in the mattress has therapeutic effect. Yet, Japan Life mattress was once a craze. Fooled by Japan Life, victims such as Arora and Khandvelkar are now looking for bigger fools. Healthcare is a minefield for such product scams. Take the detox ioniser foot bath,

which claims to remove toxins from the body. You have to dip your feet in the container of salt water through which a low-voltage

conned by their agents. Two years ago, a Delhi-based senior citizen couple was cheated of `88 lakh by the relationship manager of a small brokerage house. The agent took cheques from Kulbhushan Suri, 76, and his wife Vinod Suri, 75, for investing in mutual funds, but used them to invest in his own name by filling up new application forms. After the scam was discovered, Sebi changed the rules, disallowing third-party cheques for investment in mutual funds. A similar rule can help prevent scams in the insurance space. Mutual fund cheques are made to a specific scheme. Irda must make it mandatory for insurance premium cheques to specify the policy number. This will be difficult but not impossible. Just like a credit card payment, the money would go to the specified account.

HOW TO AVOID BEING CHEATED The first rule is not to trust anybody. Not all agents are scamsters, but it is best to be safe than sorry. The Suris had been investing through the agency for more than a decade and blindly trusted the new relationship manager assigned to them. Khosla, too, was taken in by the calling card of the relationship manager. Till Irda makes it a rule, investors should take their own precautions. Never issue a cheque to anybody without explicitly mentioning the policy number and policyholder’s name at the back of the cheque. In case of new policies, write down the name of the plan behind the cheque. This will ensure that if you buy a single premium plan you are not sold a regular premium policy. If you are fraudulently sold a policy, you have 15 days to return it. As soon as you receive the policy documents, go through these in detail. Even before that, the company calls you to tell you about the plan you have purchased. If there is something amiss, cancel the policy immediately. Be sure to retain the postal evidence of having received the policy documents and the date on which you sent them back for cancellation.

current is passed. The water typically turns reddish brown. However, this has nothing to do with the toxins in your body. The colour is due to the oxidised iron on the electrodes of the device. The water would change colour whether or not a foot is placed in it. A Delhi-based distributor of such machines was ready to show testimonials from UK-based doctors about the efficacy of these detox ionisers. However, he quickly cut the line when ET Wealth asked whether any local doctor or agency could vouch for the treatment. The net is a handy tool for scamsters. They offer free products through websites and the victim is led to believe that all he needs to pay is the shipping charge. A personal loan at an unbelievably low rate of interest is another common lure. The victim is asked to deposit the application fee and processing charges in a bank account. Both are low value scams

Detox foot bath It supposedly removes toxins from the body when the user dips his feet in the container of salt water. The proof? The water turns reddish brown. The truth, however, is that the colour changes due to the oxidised iron on the electrodes.

with losses confined to triple digits. Things can become serious if you fall into a direct recruitment trap. Posing as HR managers of well-known companies (Maruti Suzuki, HCL Technologies, Indian Railways), scamsters write to victims saying that they have been shortlisted for an interview. The victim is asked to deposit a certain amount as security or told to pay for his air ticket. He is promised that the amount will be refunded when he appears for the interview. Some scamsters are more ingenious. A Chennai-based houseowner was swindled by a company, which wanted to instal a mobile phone tower on his property. He was asked to pay `10,000 for a viability survey.

HOW TO AVOID BEING CHEATED TV channels and the Net are flooded with ads of products and services. Before you buy, verify the claims made by the seller. Seek your doctor’s advice on healthcare products, especially medicines and supplements. A detox ioniser that does not work won’t harm you but a wonder drug supposed to enhance your physique could spell big trouble. The testimonials given by foreign agencies and doctors are probably fake. Don’t believe in recruitment offers from companies you haven’t applied to. Even if you have applied, a mail asking for money should be summarily deleted. No firm will ask for a security deposit or air fare from a prospective candidate. Call up the company directly to know if there is an interview.

Please send your feedback to [email protected]

Review Preview 1-week change (%)

Weekly wealth monitor 17.64 11

0.06

0.21 10-yr GoI bond yield

Balanced funds

-0.83 Equity funds

The top three STOCKS Blue Dart Express Strides Acrolab Sunteck Realty

10.2

8.3

-0.2

1-year change (%)

15.22

14.96 8.2

07

The Economic Times Wealth, November 26-December 2, 2012

0.25

Price (`)

Weekly % change

2,056.60 993.75 349.05

21.99 12.29 11.84 Weekly % change

WORLD INDICES Gold

Income funds

Sensex

Nikkei (Japan) Mexbol (Mexico) CAC (France)

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.

9,366.80 42,035.35 3,498.22

10-yr GOI yield is the average yield in the respective periods.

6.08 3.60 3.42

DEBT FUNDS

NAV (`)

Weekly % change

Escorts Income Plan Canara Robeco InDiGo Fidelity Global Real Assets

37.53 11.70 15.86

0.63 0.37 0.23

EQUITY FUNDS

NAV ( `)

Weekly % change

Goldman HangSeng BeES 1,654.21 Birla Intnl Eqty A 11.70 Fidelity Global Real Assets 15.26

3.96 3.82 3.11

Stocks are from the BSE-500. Debt funds are income funds. Source: ETIG Database

Market pulse Top news MUTUAL FUND

Mutual funds to levy brokerage fees The Securities and Exchange Board of India has allowed mutual fund houses to levy brokerage and transaction costs, with a ceiling of 0.12% for cash market transactions and 0.05% for derivatives dealings for execution of trades. According to the regulator, any payment towards brokerage and transaction costs over and above the prescribed limit will be borne by the AMC, trustee or sponsors. Besides this, mutual funds can charge additional expenses of up to 0.3% of daily net assets if the new inflows from places other than the top 15 cities are 30% of the gross new inflows in the scheme, or are 15% of the average AUM of the scheme, whichever is higher.

REGULATION

Sebi bans mini F&O contracts To curb excessive speculation by small investors, market regulator Sebi has banned trading in futures & options (F&O) contracts that had a minimum contract size of `1 lakh and were popularly called mini-derivatives contracts. Sebi had introduced these contracts on the two premier indices in December 2007. Sebi said that the bourses will not issue any fresh mini-derivatives contracts of this size, while the existing unexpired contracts may be permitted to trade till expiry and new strikes may also be introduced in the existing contract months. Exchanges have been directed to inform investors about the ban on mini-derivatives.

BULLION

RBI bans bank loan for buying gold The Reserve Bank of India (RBI) has notified a total ban on banks from advancing loans to their customers for purchasing gold in any form. This includes primary gold, bullion, jewellery, coins, bars and units of gold ETFs as well as gold mutual funds. The notification was issued after it was found that there was a significant rise in the import of gold into India in recent years. The surge in gold imports has been putting pressure on the country’s trade balance. However, the central bank said that the banks can provide finance for genuine working capital requirements of jewellers.

CURRENCY

`500, `10 notes to carry rupee symbol The Reserve Bank has announced that it will issue `500 and `10 denomination bank notes with rupee symbols soon. The `10 denomination banknotes to be issued with rupee symbol would bear inset letter ‘A’. Both the banknotes in the Mahatama Gandhi Series-2005 bearing signature of Governor D Subbarao will carry the year to printing ‘2012’ on the reverse, it said in a release. The design of the banknotes to be issued would be similar in all respects to the banknotes issued earlier in the 2005 series, the RBI added. The central bank said both the kind of banknotes issued by it in the past would continue to be legal tender.

As expected, the first two days of the winter session of the Parliament were washed out. The squabble over whether FDI in retail should be discussed with or without voting was the reason behind it. Each day that the Parliament is adjourned will raise concerns about the fate of bills pertaining to the economic reforms announced recently, such as the insurance bill and the pension bill. So, how the Parliament functions this week will be critical to the market. ■ This will be a volatile week because the futures and options cycle will end on 29 November. Anoth■

er major event is the release of GDP data on 30 November for the second quarter. According to consensus estimates, the economy is expected to grow only by 5.3% in the second quarter as compared to the 5.5% growth it showed previously. ■ Though crude oil prices cooled a bit due to the end of hostility in the Middle East, the Brent variety is still trading above the $110 a barrel mark. Another week has passed without any solution for the US fiscal cliff and Greece’s bailout. Each passing day without any solution to these major issues will increase the market’s nervousness.

Product launches MUTUAL FUND

MOBILE BANKING

Reliance Mutual Fund has launched portfolio SIP (PSIP) through which retail investors can invest in up to five different schemes of the fund house with a minimum of `6,000. They can invest monthly or quarterly and will have to define percentage allocation to each scheme. This will save them the trouble of writing multiple cheques for various schemes.

HDFC Bank has announced three new offerings for its Hindi speaking customers. A mobile app in Hindi for Android smartphones, Hindi SMS banking service accessible from all basic handsets and ‘Netsafe on Mobile’, a single-use virtual card for online shopping.

INSURANCE Aviva Life Insurance has launched Dhan Samruddhi, a traditional money back plan. The minimum age for entry is 13 years and the maximum is 55 years. The age of maturity is from 23-70 years and the policy term for the plan is 10, 15 and 20 years. Bajaj Allianz Life Insurance has launched Life Assure Insurance Plan, a unit-linked endowment plan with a minimum monthly premium of `1,000. The plan offers two variants—Sure and More—to cater to varying risk appetites of different customers.

STOCKS India Index Services and Products, a JV between the NSE and Crisil, has launched three new indices— CNX Low Volatility Index, CNX High Beta Index and CNX Alpha Index. The stocks have been selected from the top 300 companies on the NSE.

wealthwise

weekly calendar Tuesday NOV

27

India to sell `50 billion 91-day bills and `50 billion 364-day bills.

Friday NOV

30

Quarterly GDP data and fiscal deficit data to released.

08

Pick of the Week

The Economic Times Wealth, November 26-December 2, 2012

Berger Paints: Steady growth The company’s improved product portfolio and renewed focus on premium products will boost profitability. Berger Paints is also expected to show more profitability in erger Paints has reported muted numbers for the the future due to a steady change in the product mix. While second quarter of 2012-13, with its revenue and net the company continues to be the key player in the medium profit for the period growing by 13% and 8%, and economy products, it has renewed its focus on premirespectively, on a year-on-year basis. While the um products, which offer better margins. The company’s international operations continued to do well, the drag recent TV advertising campaign to increase brand recall in came from the domestic market. The delayed festive seathe premium products category is an example of this. The son is one reason for the slow sales growth in the second normal domestic consumer upgradation from distemper to quarter. The extended monsoon this year is another reason emulsion paints will also help Berger because decorative paints contribute to Paints because of a strong presence around 80% of Berger Paints’ domestic there. Though growth is expected to sales, and the rains significantly impactaccelerate in the future, the company is ed the sales of exterior paints. 11 still trading at a significant discount to 1 However, things have started improvBuy the market leader, Asian Paints. Moreing in the third quarter and the compaSell over, the underperformance of Berger ny has reported brisk sales in October. Paints in the past six months as comImproving consumer sentiments, along pared to the Sensex has brought down with the low base effect since the second 3 its valuation. half of 2011-12 was not that great, should help Berger Paints to report good num- Hold Selection methodology: We pick the bers in the second half of the current stock that has shown the maximum financial year. To augment its long-term increase in ‘consensus analyst rating’ growth rate, Berger Paints has launched during the past month. Consensus ratseveral new products in the past few Analysts are optimistic ing is arrived at by averaging all analyst quarters to widen its portfolio. The comsince the company boasts a recommendations after attributing pany also plans to double its production strong presence in the weightages to each of them (5 for strong capacity by the end of 2013 at a cost of domestic consumer market. buy, 4 for buy, 3 for hold, 2 for sell and 1 `140 crore. for strong sell). Any improvement in ratThe company has a wide distribution ing indicates that the analysts are becoming more bullish network under its belt, which is only 30% smaller than that on the stock. To make sure that we pick only companies of Asian Paints in size and depth. Since it has one of the with decent analyst coverage, this search will be restricted strongest relationships with dealers and painters across the to stocks that have been covered by at least 10 analysts. You country, Berger Paints will be able to grow without investcan see similar consensus analyst rating changes during the ing further in network expansion. This means that the past week in ETW 100 table (page 21). company should be able to report a sales growth of 20% in the future and, thereby, consolidate its number two posi—Narendra Nathan tion in the domestic decorative paint segment.

B

Analysts’ views

Actual

Research house

Advice

Consensus estimate

2010-11

2011-12

2012-13

2013-14

2,341

2,948

3,411

3,984

EBITDA (` crore)

211

263

363

444

Net profit (` crore)

150

180

212

253

EPS (`)

4.34

5.20

6.07

7.24

Revenue (` crore)

Relative valuation

Dividend yield (%) 0.98

PE 25.79

PB 6.25

Asian Paints

37.19

14.13

Kansai Nerolac Paints

25.23

4.94

1.13

Akzo Nobel India

20.56

3.02

2.13

Shalimar Paints

16.23

0.84

1.49

Berger Paints India

0.99

Latest brokerage calls Recomm date

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Buy

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Hold

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Neutral

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Accumulate

152

7 Nov

Dolat Capital Market

Accumulate

150

4 Nov

Elara Securities India

Buy

176

3 Nov

Firstcall India Equity Advisors

Buy

163

Advice

Relative performance

Target price (`)

138.51

117.91 100

Market price: `142.60 25 Nov 2011

Sensex

Berger Paints

23 Nov 2012

Performance of Berger Paints’ shares compared with the Sensex. The figures are normalised to the base of 100. Source: ETIG Database and Bloomberg

What experts advise

BUY Stock

Fundamentals

Market `) price (`

Target `) price (`

Comment

Monnet Ispat

Angel Broking

Buy

285

344

We recommend ‘buy’ since the company has reported robust top line and operating performance in the second quarter.

Petronet LNG

Prabhudas Lilladher

Accumulate

155

179

The recent correction in the stock price of the company provides a good opportunity to accumulate more shares.

BPCL

Motilal Oswal

Buy

321

400

BPCL is drilling at its prospective Brazil blocks and it could result in discoveries and further reserve addition.

Arshiya International

Karvy

Buy

122

200

We reiterate ‘buy’ since the company is expected to benefit from positive developments on GST implementation.

Commercial Engineers & Body

IDBI Capital

Buy

102

144

The company is expected to clock 34% annualised growth in revenues and 47% annualised growth in PAT over 2012-14.

Simplex Infrastructure

SPA Securities

Buy

178

243

We retain ‘buy’ since the company’s strong and good quality order backlog and risk mitigation provides comfort on long-term growth.

Market `) price (`

Target `) price (`

SELL Stock

Research house

Advice

Comment The stock is downgraded to ‘sell’ since it is trading at a valuation that is at a premium to other good quality NBFCs like Shriram Transport.

L&T Finance Holdings

Espirito Santo Securities

Sell

75

64

Educomp

Anand Rathi Securities

Sell

146

110

Educomp will find it arduous to scale up with about 56% revenue and 65% EBIT coming from school learning solutions.

AIA Engineering

Spark Capital Advisors

Sell

349

307

We downgrade to ‘sell’ due to margin headwinds, pricing pressure in the mining segment and higher operating expenses.

Your Queries

1

2

3

The Economic Times Wealth, November 26-December 2, 2012

4

09

6

5

PANEL MEMBERS PANEL MEMBERS 1. Taxation Vaibhav Sankla, Director, H&R Block

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

Q&A

6. Real Estate Gulam Zia, Executive Director, Retail &Hospitality, Research & Advisory Services, Knight Frank India

ET Wealth asks six experts to help answer readers’ queries on issues related to personal finance.

MUTUAL FUNDS I am 30 years old and want to start investing through SIPs of `1,000 each in Canara Robeco Tax Saver, HDFC Top 200, HDFC Balanced, UTI Equity and ICICI Pru Discovery Growth. I plan to remain invested for 15-20 years. Have I selected the right funds or do I need to change my portfolio? - Mohanraj

You are investing in a diverse portfolio, comprising highly rated and well-performing fund schemes. You should continue investing in these through SIPs. However, make sure that you regularly track their performance and make changes to the fund selection, if necessary, because a fund that is doing well may not necessarily continue to do so in the future as well. You must review the performance of the funds annually and at the time you plan to increase your investment in these.

The entire cost of the house was funded by you. Therefore, the rental income would be considered as your taxable income even if the lease deed is in your wife’s name. I owned stocks of Piramal Healthcare, which I submitted during a buyback offer and made a short-term gain. How will it be taxed? Can I set it off against short-term losses from shares for which I had paid the securities transaction tax (STT)? -Jitesh

Short-term capital gains from the sale of shares in a buy-back scheme are taxed as per the slab rate applicable to you. Shortterm losses incurred from the sale of equity shares on which STT has been paid at the time of sale can be set off against the short-term capital gains from sale of shares during a buy-back scheme.

INSURANCE

REAL ESTATE

I have two sons aged 6 and 2. I wanted to buy term insurance for them, but was told that no such plans are available. What should I do? - S Purushothanam

I bought a flat last year along with stilt parking space. The previous owner had enclosed a copy of his agreement, along with a letter from the builder, which said that the parking space was being allotted with the flat. Now, six months later, the society says I cannot buy the parking space as per a Supreme Court judgement and that it will be allotted on a priority basis. What should I do? - Bhushan Chandra

Term insurance plans are usually not available for children because they don’t need to be covered. It is the parents who need to guarantee that their child’s financial goals are protected in case of an unforeseen event. Hence, instead of taking a term plan for your child, you should buy adequate insurance for yourself.

TAXATION I bought a plot from the government at a concessional rate and constructed a house after taking a loan. After I repaid the loan, I replaced my name as the owner of the property with that of my wife. I have now given the house on rent. The lease deed has been made in my wife’s name and the monthly rent is being deposited in my bank account. Can the rental income be considered a loan given to me by my wife? - Sonu Patel

Under the Maharashtra Ownership Flats Act, the developer’s right is restricted to the extent of disposal of flats, shops and/or garages. The stilt parking space is not included in the floor space index, nor is it assessable for corporation taxes. The builder has no right to sell the parking space as it is neither a flat nor an attachment to a flat. In case the society has approved the said transfer, it cannot revoke its own decision.

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

10

Stocks

The Economic Times Wealth, November 26-December 2, 2012

Are subsidiaries eroding your company’s value? If a corporate entity is performing well, but its subsidiaries aren’t, they could drag down the overall profitability of the company.

How subsidiary performance reflects on a company Currently, the generally accepted accounting principles (GAAP) define a subsidiary as ‘an entity where the investor entity has more than 50% voting rights or majority of the board members’. However, the Indian Accounting Standards defines a subsidiary as that ‘which is in substance controlled by the investor entity, that is, it has the power to unilaterally govern the financial and operating policies’. According to the GAAP, a company should follow the following rules when it publishes consolidated financial results.

SANKET DHANORKAR

T

oday, most of the top corporate entities aren’t just a single unit. Like a tree’s roots and branches that spread far and wide, the subsidiaries of most companies span verticals, industries, countries, even continents. Each of these is a separate, legal entity with its unique identity and can be owned, either wholly or partially, by the parent company. The reasons for creating a subsidiary vary. It is either borne out of necessity (the nature of the parent firm’s business, expansion to other geographies, etc), is the result of acquisitions or forays in a How to file new line of business, or is formed purewealth tax ly as a legal wall to limit the liability of return one company if either firm fails. Page 14 Whatever be the reason, once a subsidiary company is formed, its stock is counted as an asset in the balance sheet of the parent company. So, ideally, a subsidiary should add value to the parent firm. However, this may not always be the case. Poor performance of the subsidiary could pull down the performance of the entire group of companies. Let us consider why it is important to evaluate the performance of the entire company, which includes all its subsidiaries, to get a real picture of the parent company’s health.

Why consider consolidated performance The presence of a parent-subsidiary structure means that many companies report two different sets of financial numbers—standalone and consolidated. Standalone numbers pertain only to the financial performance of the parent company. Consolidated numbers, on the other hand, include the financials of both the parent firm and its subsidiaries. Often, investors concentrate purely on the performance of the parent company on a standalone basis, ignoring the consolidated numbers. However, it is crucial to know how the company is doing on an overall basis, not just in isolation. Dipen Shah, head, private client group research, Kotak Securities, says, “It is important to get an overall view of company performance, especially if the subsidiaries are losing money.” For the holding company to report healthy performance, its subsidiaries need to be in good shape too. In many cases, while the standalone numbers portray strong financial performance, the figures on the consolidated front paint a

1

2 Weak consolidated numbers Standalone

Company

Consolidated

Standalone revenue as % of consolidated

Net sales

PAT

Net sales

PAT

Gammon India

5,533

87.04

8,080

-114.81

68%

Tata Power Company

8,052

1169.73

26,153

-968.29

31%

485

7.64

6,004

-1569.19

8%

12,639

545.56

13,415

-1358.54

94%

Shoppers’ Stop

2,166

64.26

3,082

-24.42

70%

GMR Infrastructure

1,091

120.30

8,473

-1058.84

13%

Shree Renuka Sugar

6,362

84.10

12,369

-30.20

51%

UB Holdings Videocon Industries*

Strong consolidated numbers Standalone

Company

Consolidated

Standalone revenue as % of consolidated

Net sales

PAT

Net sales

PAT

639

-120.73

3,163

321.52

20%

36

-71.00

1,109

98.84

3%

2,641

-80.91

4,303

45.69

61%

Max India

747

-15.44

8,546

237.88

9%

Mercator

548

-118.67

3,700

30.14

15%

2,837

-32.77

3,361

6.62

84%

Aban Offshore Essar Ports Jubilant Life

Usha Martin

Data is for financial year ending March 2012. * Figures are for calendar year ending December 2011. Net sales and PAT in ` crore. Source: ETIG Database

3

If a company holds more than 50% stake in a subsidiary company, the consolidated financial results of the company should add the revenue, expenditure and other items to its financial results for respective items. However, the profit should not be added as it does not belong only to the company, but also to the minority shareholders who own shares of the subsidiary, which should be shown as minority interest. If a company holds more than 20% stake in a subsidiary company, but less than 50%, its consolidated financial results should add the proportionate revenue, expenditure, profits and other items to its financial results in respective items. Say, company A owns 25% stake in company B. So, company B’s 25% revenue, 25% expenditure, 25% profit, etc, should be added to the respective items of A’s standalone results to get the consolidated results. If a company holds less than 20% stake in a subsidiary company, the consolidated financial results of the company should not be any different from its standalone results.

different picture. There are also instances where a firm’s standalone performance is weak, but seems healthy when the performance of its subsidiaries is taken into account. Strong financials of even one or two subsidiaries can lift the performance of the entire entity. By evaluating the consolidated performance of a corporate entity, investors can ascertain the health of not only the parent company but also its subsidiaries. Says Pankaj Pandey, head of research, ICICI Securities: “Consolidated financials should be considered when subsidiaries are contributing more than 20% to the combined revenues.”

Stocks Ideally, a company should be able to report a healthy set of numbers on both fronts, standalone and consolidated. However, if a company has subsidiaries that are consistently making losses and damaging the overall profitability, it may be a good idea to refrain from investing in such a company. Shah says, “Investors should avoid the stock of a company that is trading at high valuations, but whose subsidiaries are performing below par.” Also, any firm whose performance is being propelled purely by its subsidiaries needs to be watched cautiously. Here is a set of companies that are weak at the consolidated level. These have lossmaking subsidiaries that are pulling down the overall performance.

GMR Infra is a healthy, profitable entity on a standalone basis. However, it is suffering heavy losses when combined with its many subsidiaries. Being a project-driven infrastructure firm, the company creates separate subsidiaries for the projects it undertakes. Several of these projects, such as the Delhi International Airport, are still making losses, as are some of its overseas energy projects. GMR Infra’s operations in the power sector are facing tough times due to broader issues of non-availability of gas, non-realisation of receivables, etc. Currently faced with a debt of `35,000 crore, the company is planning a partial dilution of its assets to bring down the interest burden and loss.

purpose vehicle, Coastal Gujarat Power Limited, which raised a huge dollardenominated debt (`14,000 crore) to set up the 4,000 MW Mundra ultra-mega power project. However, the project has faced several problems—inability to raise prices due to the fixed price arrangement with its purchaser, increased interest burden on account of currency depreciation, etc. A higher tariff structure could be the only way out for the struggling project and erase some of the losses at the consolidated level.

Buy 2

Buy 2

UB Holdings Buy 4

Analyst calls Buy 0

CMP: `110

Sell

6

5

CMP: `38

CMP: `412

Hold

Sell

5

7

No of subsidiaries:

6

Hold

Sell

2

1

Subsidiary

CMP: `30

Hold

Analyst calls

Analyst calls

Shree Renuka Sugars

The huge losses from its direct-to-home (DTH) services operations and the problems of being a telecom operator resulted in a loss of `1,747 crore for the company in the previous fiscal. Videocon Industries is now planning to sell its DTH business and is reportedly in talks with rival firms. While its oil & gas exploration businesses are also in the red, it is because many of its foreign gas blocks are yet to become operational. These will start output only by 2015.

Gammon India

Shoppers’ Stop

Analyst calls

Subsidiary

No of subsidiaries:

26

Sell

0

1

Gammon International BV Hypercity Retail

51

-88.63

100

-2.25

Gammon Holdings BV Crossword Bookstores

Subsidiary

No of subsidiaries:

21

Holding (%) PAT (` cr)

Kingfisher Finvest (India)

100

-78.75

UBHL (BVI)

100

-18.28

UB Overseas

100

-3.07

The Vijay Mallya-led UB group’s holding company boasts some glamorous subsidiary/associate businesses, such as United Spirits and United Breweries, among others. However, one of these assets, the troubled Kingfisher Airlines, has been a major drag on the company for a while now. While the airline has ceased to be a subsidiary (it was converted into an associate company on 18 February this year), the holding company continues to have a significant exposure to the carrier in the form of numerous bank guarantees given on behalf of its subsidiaries and associate companies. As on 31 March, UB Holdings’ exposure to Kingfisher Airlines totalled `12,215 crore. Several of these guarantees have now been invoked by lenders to recover dues, but the UB group management claims that none of the guarantees will eventually devolve to the company. The recent deal with Diageo to sell a majority stake in group associate company, United Spirits, for $2.1 billion is not expected to do much to revive the ailing carrier.

GMR Infrastructure

Subsidiary Renuka do Brasil SA

NA

-494.9

Revati Agropecuaria

NA

-165.3

Ivaicana Agropecuaria

NA

-58.07

India’s largest sugar refiner, Shree Renuka Sugars, reports a healthy set of numbers on a standalone basis. However, since the acquisition of its twin assets in Brazil two years ago (at nearly the then prevalent market capitalisation), the company’s consolidated figures have gone haywire. Statistics clearly show how the overseas subsidiaries, which contribute to half the company’s revenues, have been a drag on the company performance. The consolidated profits have fallen from `703 crore in September 2010 to a loss of `30 crore for 2011-12. The company’s stock price has fallen sharply since the acquisition, while the debt on the balance sheet has doubled to `9,100 crore and the interest expense continues to eat into profitability. Analysts are, however, hopeful of improved operating performance from its Brazilian assets in the coming few years.

Sell

Buy 20

6

4

Subsidiary

127

Holding (%) PAT (` cr)

Delhi International Airport GMR Infrastructure (Cyprus) Homeland Mining & Energy SA

52.82

-1,085.4

61.2

-95.65

96.93

-60.58

100

-27.71

100

-27.86

73.76

-28.13

Buy 0

CMP: `169

Hold

Sell

0

1

Subsidiary Hold

Sell

14

12

No of subsidiaries:

21

Khopoli Investments

Holding (%) PAT (` cr)

No of subsidiaries:

30

Holding (%) PAT (` cr)

Videocon Global

100

-196.83

Videocon Telecommunications

99.9

-1,747.17

Videocon International Electronics 100

-46

100 -2,180.54 74

-174.15

100

-24.26

Tata Power’s standalone and consolidated figures show a stark contrast. While the company reported a strong `1,170 crore profit on a standalone basis, the poor financials of its subsidiaries resulted in consolidated losses of `969 crore. A chunk of the losses can be attributed to its special

NA: Not available. Current market price as on 20 November. Source: ETIG Database.

Gammon India is another infrastructure major bogged down by its many subsidiary assets and a pile of debt. The company’s foray in domestic real estate, which required heavy initial investments, is yet to pay off. This, coupled with the slowing order inflow in the infrastructure space, has compounded the problems for the company. It has revealed its intention to offload stake in its real estate assets as muted sales and higher financing costs resulted in a loss in the September quarter. Gammon’s overseas ventures are also facing tough times. Its Italian subsidiaries, which manufacture power and industrial boilers, as well as waste and environment management systems, are also a drag on the company. Profitability on a standalone basis has also been dented due to the rising costs and flat revenues.

Please send your feedback to [email protected]

Analyst calls

CMP: `98

Maithon Power

No of subsidiaries:

Holding (%) PAT (` cr)

Videocon Industries

Analyst calls

Coastal Gujarat Power

Hold

While apparel retailer Shoppers’ Stop has done reasonably well on the standalone front, its consolidated financials have been affected due to the poor performance of subsidiaries, Hypercity Retail and Crossword Bookstores. Though consolidated revenues have grown at a healthy clip of around 30% over the past few years, the company’s bottom line has gone into the red, with mounting losses in the hypermarket format. The aggressive rolling out of stores in the previous fiscal year have led to an increased cost structure and reduced operating margins. Till recently, strong growth in the flagship format was compensating for the losses in the hypermarket stores, but with the recent sluggishness in volume growth in the core business, the standalone profits have also shrunk 67% in the recent quarter. The festive season was expected to prop up revenues from Shoppers’ Stop, but the haemorrhage in Hypercity is likely to continue for a while.

Tata Power

Subsidiary

CMP: `18

68

Holding (%) PAT (` cr)

Analyst calls Buy 12

No of subsidiaries:

Holding (%) PAT (` cr)

Campo Puma Oriente SA Hold

11

The Economic Times Wealth, November 26-December 2, 2012

Videocon has transformed itself from a pure-play electronics maker into an energy and telecommunications conglomerate. However, this diversification has had an adverse impact on the company’s financials. The group is now saddled with debt amounting to `18,656 crore as of 31 December 2011, an increase of 58.5% from a year earlier. Videocon Telecommunications is the subsidiary that is causing a lot of strain on the company’s financials.

12

Stocks

The Economic Times Wealth, November 26-December 2, 2012

Firms with low working capital can be good bets A consistent negative working capital isn’t always a bad thing. In fact, investors can use this parameter to select sectors and companies that have high operational efficiency and are good investment picks. NARENDRA NATHAN

A

mong the several factors that investors can consider while picking stocks is the working capital of a company. This is because it can be an important parameter to judge its operational efficiency as it represents the liquidity available to it. Working capital is calculated by deducting the company’s current liabilities from its current assets. A positive working capital means that the company can pay off its short-term liabilities comfortably, while a negative figure obviously means that the company’s liabilities are high. However, since there are several exceptions to this rule, a negative working capital need not always be a bad thing. Let us consider why some companies have huge negative workBefore ing capital year after year. The answer is you turn a simple: because they can. loan guarantor Typically, large companies have a Page 27 consistent negative working capital since they have the muscle power and can demand longer credit periods from their fragmented suppliers. They are also able to make sales in cash or collect payments within a few days. Whatever the reason, the companies find it a beneficial position to be in. To understand this better, consider the analogy of a trader, who buys goods on a credit card that has a cycle of 45 days. If he can sell all his goods and collect the proceeds within a month, he can roll the money till the card payment due date. This means he can invest for the short term and make additional profit on it. The negative working capital phenomenon not only depends on the size of the company, but also on the kind of business. “Negative working capital is visible in companies with strong brand and consumer franchise, which is why it is mostly seen in the consumer sector,” says Vetri Subramaniam, CIO, Religare Mutual Fund. As is evident from the table, consumer-centric firms top the list of the BSE-500 companies that have Telecom companies have a high negative working capital as they take care the highest negative working capital.

Companies that top the list

of most of their costs at the beginning of their operations. Which sectors should investors consider? Current assets

Bharti Airtel

Current liabilities

Working capital

PE

PB

Div yield (%)

12,995

37,487

-24,492

33.61

2.38

0.32

Jet Airways

3,856

7,887

-4,031

-

-2.17

-

Kingfisher Airlines

1,625

5,419

-3,793

-

-0.17

-

Idea Cellular

2,608

4,997

-2,390

34.21

2.32

-

Hero MotoCorp

1,541

3,622

-2,081

16.19

6.88

2.44

MTNL

1,728

3,613

-1,885

-

0.65

-

Reliance Comm

12,026

13,747

-1,721

16.42

0.35

0.41

Tata Comm

3,752

5,450

-1,697

-

2.91

0.86

JP Power Venture

1,923

3,357

-1,434

23.15

1.70

-

JSW Steel

12,563

13,805

-1,242

7.83

0.94

1.04

All figures for working capital calculation in ` crore. Working capital data for previous financial year. Valuation data as on 19 November. Source: ETIG Database

On the sectoral front, telecom companies lead the pack. It may seem puzzling that a capitalintensive sector like telecom could have negative working capital, but it’s not difficult to understand this. Firstly, the sector does not require raw material. Secondly, most of the capital requirements like licence fee, spectrum cost, tower installation cost, etc, are taken care of at the initial stage. Finally, these companies collect money from prepaid customers in advance, and from postpaid customers, without much delay. Does this mean that the sector is a good investment opportunity now? “With several licences coming up for renewal, the 2G auction failure is good news for telecom companies. Though they are not very expensive at the moment, the growth rate has come down. So

investors can expect only about 10% upside from the current level,” says Anand Tandon, CEO, JRG Securities. Aviation is another industry that has a high negative working capital because airlines collect the money at the time of booking, months before they spend it to transport you. However, aviation isn’t a good bet now. “Since the sector is heavily in debt currently, the negative working capital may not be of much relevance,” says Subramaniam. The domestic aviation industry is also plagued by several other problems like over-capacity, high airport charges, high fuel cost, etc. Some industries are known for generating fast cash and the FMCG sector is the best example for this. Several FMCG companies have a high negative working capital. This may be because their strong brand loyalty helps them maintain a low inventory as well as generate speedy sales. Since these large companies have a high bargaining power, they are also able to extract favourable terms from their suppliers. The products are sold to the customers and the cash generated even before the company pays its suppliers. The additional cash generated can be utilised for other purposes. Though FMCG majors are fundamentally strong and well-managed companies, retail investors should avoid them for now because most of them are quoting at very high valuations. “Most FMCG stocks are overpriced now. However, if you want to invest for the long term, you can buy shares of ITC. Its original business, cigarettes, will continue to generate cash in the future. The other two businesses, food and hotel, where ITC is has been making investment for some time, should also generate significant cash in future,” says Tandon.

Other parameters The negative working capital can be used as a screening criterion, but it’s not the final stock selection tool. What are the other parameters that investors should consider? The most important is the ability to weed out capital guzzlers, especially from sectors that don’t offer very high operating margins. “Some capitalintensive businesses may have negative working capital. Investors should look at those where the need for fixed capital is also less,” says Tandon. “Along with the negative working capital, investors should also check whether the company can generate free cash flow,” says Subramaniam. This is calculated as operating cash flow minus capital expenditure. So, free cash flow represents the cash that a company has even after using the money required to maintain or expand its asset base. It is important for raising shareholder value as it allows a firm to pursue opportunities—develop new products or make acquisitions—without capital dilution.

Please send your feedback to [email protected]

Real Estate

The Economic Times Wealth, November 26-December 2, 2012

13

Don’t fall for warranties offered by builders Property developers have started offering warranties, but these may not be worth the premium you pay. papers. You are anyway entitled to warranties on products that come with the house, such as electrical wiring, switchboards, any of the top property appliances like CFLs and ceiling fans, developers in metro cities kitchen chimneys, exhaust fans and like Mumbai and Delhi bathroom fittings like branded taps. have come out with a new So, is offering warranties just a gimmick? marketing strategy to lure The builders want you to believe otherwise. potential buyers. They are offering warra“Most top developers want to protect their nties on the houses they sell, similar to those reputation, so they opt for branded offered by manufacturers of electronic material. The guarantees are a genuine appliances like TVs and refrigerators. The effort by builders, not a gimmick to sell their warranty period ranges from 1-3 years on all projects,” says Boman Rustom Irani, electronic appliances in a fully-furnished chairman & managing director of apartment, to as high as 10 years for Rustomjee Group. waterproofing of flats. The Maharashtra However, the fact is that when a home Chamber of Housing and Industry claims owner wants to use the warranty, he will that nearly 80% of its members are offering have to approach the manufacturers. The such guarantees across the country. developer could wash his hands off any However, is this warranty a convincing defects later. The only solace for buyers is reason to buy a flat at a premium? Most that the guarantee may mean it is a real estate experts don’t believe so. better product than an unbranded Here’s why. one. “Appliances covered by manHow ufacturer warranties tend to be of It’s the appliances, not Indians holiday a better quality,” says Ahuja. apartments Page 29 Most warranties being advertised by developers are for the appliances that come with a semi- or fully-furnished flat, not much on the construction-related aspects of the house. While offering appliances with apartments is nothing new, the only difference is that a few builders have started handing out the warranty cards to buyers when they take possession of the house. “The developer purchases these products from various companies, which offer their warranties. The builder merely passes them on to the customer as his own,” says Pankaj Kapoor, managing director of Liases Foras, a real estate research firm. A significant construction-related guarantee some developers have begun to offer is on the paint job. However, many reputed paint companies already offer a warranty of Cash discount is better 5-7 years, subject to a minimum quantity of While most such warranties are offered for paint purchased by the builder. The warranfully furnished premium projects and ty includes shade fading, growth of fungus projected as being free with the apartment, and algae on walls, flaking and peeling of if the builder offers these at a premium, ask paint. The company maintains records of for a cash discount instead. This may work the customer warranty electronically and to your advantage in two ways: you get to issues a warranty identification number. buy what you like, even at a lesser cost, and Even if the builder offers other construcsomething that suits your needs. tion-related guarantees, say, for waterBesides, the builder has low incentive to proofing, these come with the building, not buy the most energy-efficient appliances individual apartments. “In the case of since it is you who will pay the bills, not him. warranties on construction materials, the The motivation for the builder is minimising buyer should ask for relevant documents investments and maximising returns, and he from the developer and scrutinise the level is more likely to choose not-so-efficient of accountability implied,” says Om Ahuja, appliance at a lower cost rather than an CEO, residential services, Jones Lang expensive five-star one. The large number of LaSalle India. investors today is also a reason for minimising the cost on appliances. “When an apartment is being bought just as an No extra cost for developer investment or to rent it, the owner would The builder is only offering convenience in want the builder to install cheaper terms of providing access to guarantee AMIT SHANBAUG

M

appliances. This is because the maintenance cost is minimal if the flat is locked up, or the tenant will pay the charges,” says a Delhibased real estate expert.

Before you buy Another important factor to be kept in mind is whether the construction is suitable for all the fancy appliances on offer. For instance, a fully air-conditioned apartment requires

proper sealing of doors and windows and your electricity bill may go up if this is not done. Similarly, if the chimney in the modular kitchen is not powerful enough, you will have to spend more on getting it cleaned more frequently.

Please send your feedback to [email protected]

14

Financial Planning

The Economic Times Wealth, November 26-December 2, 2012

THE MONEY QUESTION How to assess the risk associated with various investments. Arpita Shankar and her husband have been investing for the past few years to realise their future plans. They have ended up parking their money in bank deposits because they were unsure of their risk appetite. They have already had to postpone their holiday due to lack of sufficient funds and are considering transferring some money to a high-return investment so that they can quickly generate money for their holiday and other plans. How should they identify the risk they can take with their investments? he Shankars’ willingness to take risks with their investments is essential for identifying different options suitable for their goals and plans. The first thing they need to do is to segregate their goals because each will be best served by a specific investment based on the risk, return and liquidity it offers. A good way for them will be to categorise the goals based on the time frame available. Fixing a time horizon for goals will help them decide how much risk they should take for better returns since some investments may give high returns in the long term, but may be volatile in shorter durations. They may be tempted to assign high-return investments to shortterm goals since they don’t have enough funds for these, but this can be risky and they may realise that the value of investments has dropped when they actually need the money. While selecting investments based on the time horizon of their goals, the Shankars must remember that a longer time frame alone does not make a fundamentally bad investment less risky. They must invest only in sound investments after evaluating their strengths and features. They must also consider the fact that the time frame of their goals will keep reducing and they should shift the investments to ones with lower risk as they start approaching a goal. By aligning their investments to the time horizon of their goals, they will ensure that the risk level is appropriate and does not put their savings at risk. In this manner, they can earn good returns without risking inadequate funds for their goals.

T

RAJ

SMART THINGS TO KNOW: CAS for mutual fund investments

1 A consolidated account statement (CAS) is a single statement that lists the transactions and holdings of the investor across mutual fund schemes of all fund houses under different folios, for a calendar month.

2

It is sent to the investor by the 10th of each month and includes information on the transactions carried out in the folios during the previous month as well as the account balances.

3 The purchase, redemptions, transactions, dividend payout and reinvestment, and switch transactions are included in the CAS. Non-financial transactions like a change in bank details, contact details, and nomination are not considered for inclusion in the CAS.

4 The PAN is used to identify investors for the purpose of consolidating transactions under CAS. The folios with the same holding pattern will be included in a consolidated statement.

5

The CAS is sent free of cost to investors, who must ensure that all the mutual fund folios are compliant and updated with PAN and KYC requirements. This will enable them to receive a consolidated statement giving details of all their transactions.

The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Sunita Abraham, Girija Gadre and Arti Bhargava.

Paper Work

Filing wealth tax return The Wealth Tax Act requires tax to be paid on the wealth held by an individual. Wealth is defined as unproductive assets, such as cash over `50,000, land, motor cars, gold, silver, utensils or bullion and ornaments, luxury cars. Tax at the rate of 1% has to be paid on wealth over `30 lakh, which is calculated according to the provisions of the Act, and a wealth tax return has to be filed. Individuals, Hindu Undivided Families and companies should file their wealth tax return in Form BA, which has to be signed by the assessee.

Due date The due date for filing wealth tax return is the same as the one applicable to an assessee for filing the income tax return. For individuals and HUFs, the due date is 31 July of the following financial year for which the return is being filed.

Documents The calculation for the value of each asset, according to Schedule III of the Wealth Tax Act, needs to be attached along with the return. The relevant documents supporting the valuation of the asset must also be attached with the return.

Filing return The wealth tax return needs to be filed with the income tax office ward/circle applicable for one’s income tax return. If a person fails to file the return and pays the applicable wealth tax, he is liable to pay interest at 1% for every month of delay.

Points to note  The assets transferred to a spouse or minor child or any other person without consideration are to be included in the net wealth of the individual.  Any one residential property can be excluded from the wealth of an assessee and a person is free to choose which property he wants to exclude.  The financial assets, such as investments in shares and mutual funds, are exempt from wealth tax.

Financial Planning

The Economic Times Wealth, November 26-December 2, 2012

15

How to avoid being cheated Ask and write down answers to important questions to ensure your financial safety, says Uma Shashikant. note, in rupees, how much interest will be paid to you and when. Seventh, insist on knowing what can go wrong. Several relationship managers are keen sellers and may only talk to you about the positives for the fear of losing you as a client. Kill this fraud by asking upfront about what can go wrong. If you are buying an IPO, you need to know that the share price may be lower than the purchase price. If you are taking a bond, you need to know that the credit rating might change. If you are investing in a mutual fund, you need to know that the returns depend on the market, and can be more or less than the market indices. Write down what you should look out for and ask where you will get the information. Make sure you know what happens if you do not pay the premium. Eighth, ask if you have to stay with the product for any specific period of time. What are your options if your situation changes? What happens if it does not? Does your credit card have a charge after the first year? Does your loan enable you to pay it earlier? Does your insurance policy allow you to draw some of the funds? Does your mutual fund allow you to redeem money, when needed? Write down this detail in brief, simple terms that you understand. Review this sheet with your financial adviser. If you invest in a team—which is a good idea—pool your sheets and review it. Product literature is filled with jargon; take your time to figure out the product on your terms, in your language. In this process, you will either understand the investments better, or you will be able to evaluate how competent and honest your adviser is. Either way, you win.

A

lot of people want to know about simple things they can do to protect themselves from fraud. They want to make informed decisions, but wonder if it means learning too many complex concepts and grappling with jargon. I would propose a simple approach. Before making a financial decision, take a sheet of paper and write down the answers to a few important questions. Do it yourself, or engage your adviser to provide the answers. Keep it brief, to the point. First, ask for the name of the entity whose product you plan to buy. I have met savvy, smart investors fumbling when asked the name of the issuer. A close friend insisted that the insurance he had bought was actually a mutual fund product by the same promoting bank. However, when he went through the papers, he sheepishly found out the truth. Many stock operators do not have membership with exchanges. Refuse to deal with them unless you find out about the registered broker in whose name your trade will be executed, so you know who you are dealing with. Ensure you have this name for all your papers, contract notes, documents or whatever you receive as proof of investment. Second, ask if the entity is accountable to any regulatory authority. The answer has to be Sebi, RBI, Irda, PFRDA or the government. If only the investors in Stock Guru had asked for this piece of information. There are elaborate laws on the type of firms that can raise money from the public and under what conditions. Unfortunately, none of the financial regulators have the resources to monitor and prohibit mushrooming operators. These fraudulent entities have to be checked by local police and booked under criminal law, even if they engage in financial frauds. The best recourse is to ask for the regulator’s name. It is mandatory for them to show you proof of their registration if you ask for it. Third, ask for the document that carries the name of the product and proof that it has met with approvals from a regulator. Do not go by printed pamphlets, advertisements, hand-outs, or presentations. Demand a copy of the offer document, an information memorandum, a detailed formal offer that has the name of the entity you have listed above. You don’t have to read the legalese, you don’t need a copy of this voluminous document, but you need to know it exists and that the scheme is not a concoction. Ignore messages that tell you to invest an amount, earn an assured sum, and save taxes. Ask for the name of the product, and ask for confirmation that it exists, and was created by an entity you can identify and confirm. Fourth, ask how your money will be used and how it will generate returns. Do not accept generalities. If it is an IPO, ask for the business of the company that is raising money. If it is a mutual fund, write down where it will invest. Will it be equity, debt or

The author is Managing Director, Centre for Investment Education and Learning, and can be reached at uma.shashikant@ ciel.co.in

GETTYIMAGES

Firms with low working capital can be good bets Page 12

gold? If you bought a bond of a finance company, write down its main business. If your money is being used to offer other loans, you know that your return will depend on the quality of those loans. You also need to ask how you can find out what happened to the money. Fifth, write down your obligations in full. If an insurance agent tells you that you have to pay a single premium, or for only five years, put it on paper. Then ask the agent to show you where it is written that you should pay only this much. Know the fee you have to pay. If the stock broker tells you that you can buy stocks worth `10 lakh when your bank balance is `2 lakh, ask how

the balance will be paid and when. If it is a futures contract, ask about the likely margin and how often you will have to pay. Sixth, ask what you will get, in complete detail. Do not accept any assurance from anyone. If the answer is that your return will depend on the market value of your investment, make a note. Ask how often you will know what the said market value is, so you can evaluate how the investment is doing. If there is a dividend, pen it down and remember that dividend is a discretionary payment. If it is bond, there are multiple variations of the payment you will get and how. So make sure you understand these choices and are able to

The Economic Times Wealth, November 26-December 2, 2012

The schemer trap

Repeat steps 1 to 3 a number of times. During step 2, in one of the cycles, break the pattern. Instead of returning the investment money and paying the promised return, escape with the money and start a new life.

Step 4

Convince a few people to invest money in the plan.

Step 1

Pointing to the historical success of the investment, convince more investors to place their money in the system. Typically, the vast majority of earlier investors return.

Step 3

Recent Ponzi schemes have used odd investment options to lure people into parting with their money.

After the specified time, return the money to investors along with the specified interest rate or return.

Step 2

The trick to trap investors

Graphics: CHANDER

Source: US SEC, THE NEW YORK TIMES

FOURTH ROUND 16 INVESTORS

THIRD ROUND EIGHT INVESTORS

SECOND ROUND FOUR INVESTORS

FIRST ROUND TWO INVESTORS

EMU

G O AT

TREE

he would have to come up with over a quarter of a million investors.

he will need 16 investors, and so on.

4 In the next month,

`800, so he has to find eight new investors. He will have to get more than `100 from each if he wants to keep skimming the money.

3 In the third month, he owes

needs to get `400 (four investors) in the second month to pay the returns promised.

2 Since the fraudster has pocketed `200, he

takes `100 each from the first two investors.

1 In the first month, the schemer

Such schemes are named after Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme in the 1920s. At a time when the annual interest rate for bank accounts was 5%, he promised a 50% return in 90 days. Ponzi bought a small number of international mail coupons in support of his scheme, but quickly switched to incoming funds to pay earlier investors.

Who was Ponzi?

Learn & Keep

CACTUS

Ignore excuses about the inavailability of information on an investment in writing. Read the prospectus or disclosure statement before investing. Account statement errors may be a sign that funds are not being invested as promised.

Issues with paperwork

Be suspicious if you don’t receive a payment or have difficulty cashing out your investment. Ponzi scheme promoters encourage participants to ‘roll over’ promised payments by offering higher returns.

Difficulty in receiving payments

Secretive and/or complex strategies

Avoid the investments that you don’t understand or for which you can’t get complete information.

Look for these warning signs Unregistered investments

Ponzi schemes typically involve investments that have not been registered with the regulators.

Every investment carries a degree of risk, and investments yielding higher returns typically involve more risk. Be cautious about any ‘guaranteed’ investment opportunity.

High investment returns with little or no risk.

Overly consistent returns

Such investments, especially those seeking high returns, tend to go up and down over time. Be suspicious of an investment that continues to generate regular, positive returns regardless of the market conditions.

Spotting a Ponzi Scheme

5 By the 10th round, he will need to find a new group of 1,024 investors. By the 18th round,

BIOFUELS LIKE J AT R O P H A

THE SCHEMER

How does it work?

The scheme is designed to convince people into placing money in a fraudulent investment by promising outrageous or consistent returns. Once the scamster has collected enough money, he disappears.

What is a Ponzi scheme?

16

18

Family Finances

The Economic Times Wealth, November 26-December 2, 2012

Sydney Williams, with wife Carol and son Keith.

NET WORTH OF THE WILLIAMSs Asset

Current value (`)

Real estate

50 lakh

Equity MFs

3.26 lakh

EPF

3.15 lakh

Gold

1 lakh

FD

80,000

Cash

35,000

Direct equity

9,200

PPF

5,000

Total

58.70 lakh

Liabilities

Current value (`)

Home loan

17 lakh

Car loan

3 lakh

Personal loan

1.5 lakh

Total

21.5 lakh

Approximate net worth

37.2lakh

`

“I feel that I may have made some mistakes. Hence, I want the advice of an expert on whether my investments are going in the right direction.” SYDNEY WILLIAMS

Williams’ cash flow

Funds needed to achieve goals

Inflow

Goal

Total monthly income `94,600

Sydney `52,600

Carol `42,000

Outflow Total monthly expenses `64,900

Household expenses

EMIs

`30,000

`17,400

`29,700* SIPs

A comprehensive plan has been mailed to the Williams.

Future cost (`)

Resources used

Insurance premium

Further investment (`/month)

Contingency fund

1

1.4 lakh

FDs, cash in bank

Second home

5

10 lakh

Nil

Keith’s education

16

40 lakh

Existing SIP

-

Keith’s marriage

25

25 lakh

Existing SIP

-

Retirement

30

4 crore

EPF

Investible surplus needed

Investible surplus

`9,000

Years to achieve

Cost of additional insurance (average) Total Surplus

`8,500 * Surplus will rise to `34,700 after surrendering the child plans and LIC term plan. ** Equity and debt are expected to give 12% and 9% annual returns, respectively. Inflation assumed to be 6%.

3,000 15,500

12,000 30,500 3,916 34,416 284*

Family Finances

The Economic Times Wealth, November 26-December 2, 2012

19

Prudent investors, balanced approach Minor changes in their plan and better risk coverage will enable the Williams to reach their goals with ease.

EXPERT ADVICE EXISTING ASSET ALLOCATION

4

% Cash

37% Equity

13% Gold

46% Debt

PROPOSED ASSET ALLOCATION

24

% Equity

64%

9% Debt

Real estate

1% Cash

2% Gold

Proposed asset allocation to be achieved over time.

RECOMMENDATIONS EQUITY FUNDS Current SIPs: Franklin India Taxshield, Canara Robeco Tax Saver, DSP Blackrock Equity, HDFC Mid-cap Opportunities, Reliance Gold Savings. Rationale: The Williams are investing in wellperforming SIPs and can continue with them.

SAKINA BABWANI

WILLIAMS’ GOOD MOVES ...

A

Investing across various asset classes. Having a high rate of savings.

n early start, a disciplined approach to investing and a balanced portfolio are the perfect recipe for financial success. The Williams know it well. They have invested 46% of their portfolio in debt, 37% is in equities, another 13% is in gold, and the cash in hand is close to 4%. “So far, I have invested on my own, but I feel that I may have made some mistakes. Hence, I want the advice of an expert on whether my investments are going in the right direction,” says 30-year-old Sydney. To add to the list of positives, their goals are realistic, which makes things easy for the young couple, who are set for a smooth journey despite the three loans they are servicing. Sydney lives at Kolhapur, Maharashtra, while his 29-year-old wife Carol resides in Pune with their three-year-old son Keith. Sydney is employed with a public-sector bank and takes home a monthly salary of `52,600, while Carol earns `42,000 as an MNC executive. The couple spend `30,000 every month on household expenses, while `1,500 is incurred on Keith’s education every month. They also spend `8,500 as insurance premium, while `17,400 is used to service three loans—home, car and personal. The couple had bought a house in Pune in 2010 for `17 lakh, for which they took a loan, and the EMI for this works out to `7,900. They also bought a car on loan in 2012 for `3 lakh, the EMI for which is `2,500. Apart from this, a personal loan of `1.5 lakh was taken in 2011. Sydney shells out an EMI of `7,000 to service this. Sydney also incurs a monthly rent of `6,000 at Kolhapur. However, this is a temporary expense as he will shift to Pune in two years. Despite these expenses and EMIs, the couple manages to save `29,700 per month, which must be invested to achieve the four primary goals: accumulating funds for their son’s education and marriage, retirement, and the down payment for a second home. According to Shiv Kukreja of Ojas Capital,

… AND THE BAD ONES

Buying inadequate life, health insurance. Not maintaining a contingency fund. to start with, the couple must build a contingency fund, which is worth at least three months’ expenses of `1.41 lakh. To achieve this goal in one year, they can allocate their fixed deposit and cash, which will amount to `1.15 lakh. For the remaining amount, they can allocate the surplus left after investing for other goals. The only visible chink in their financial plan is lack of adequate protection. Sydney has a traditional plan, which gives him a cover of `5 lakh, and a term plan of `50 lakh from LIC. Carol, too, has two traditional plans, which offer a combined cover of `9 lakh. For Keith, Sydney has bought two child plans as well, which provide a combined cover of `3 lakh. Given their current liability, Kukreja recommends that they buy a term plan of `1.5 crore for Sydney and `75 lakh for Carol immediately. This will cost them `3,000 every month. While they can continue with their traditional plans, they must surrender the child plan and discontinue the expensive term plan of `50 lakh, which costs `3,000 a month. This will free the monthly premium of `5,000, which can be added to the monthly surplus. The couple also relies solely on the health cover provided by Sydney’s employer. So, Kukreja advises them to purchase a family floater plan of `5 lakh, which will cost them `916 a month. After arranging insurance, they can plan for their goals. First, the couple wants to amass `40 lakh in 16 years to fund Keith’s education. For this, they can allocate their cur-

rent mutual fund investments. A monthly SIP of `7,000 in equity mutual funds is likely to grow to `29 lakh in 13 years. When they are three years away from the goal, they should park the amount in a fixed deposit or short-term debt fund to protect it from volatility. This is expected to grow to `37 lakh in the last three years. Also, they should continue with the monthly SIP of `7,000 during this period, but in debt funds. This investment is expected to generate `3 lakh. Next, the couple needs to plan for Keith’s wedding in 25 years. Again, their current mutual fund investments can be allocated to this goal. To build a corpus of `25 lakh, they can assign `1,500 per month, which is expected to grow to `19 lakh in 22 years. When they are three years away from their goal, they must move the corpus of `19 lakh to a fixed deposit or short-term debt fund and the amount will grow to `25 lakh. The couple wants to build a corpus of `4 crore in 30 years for their retirement. For this goal, they need to start a monthly SIP of `12,000 in equity mutual funds. This investment is likely to grow to `2.5 crore in 27 years. Meanwhile, their EPF contributions of `6,400 per month will build a corpus of `1 crore. As in the case of other goals, they must shift the equity funds to debt in the last three years. The couple also plans to buy a second house worth `30 lakh in Pune or Kolhapur in five years, for which they need `10 lakh as down payment. They need to invest `15,500 a month in short-term debt funds. Since Sydney works with a PSU bank, he can take a staff home loan, for which the EMI is likely to be around `20,000. Kukreja feels that in the next five years, the couple’s income will rise sufficiently for them to afford this EMI.

Financial plan by Shiv Kukreja, CFP, Founder & Managing Partner, Ojas Capital Need help with your family finances? Write to us at [email protected]

20

Stocks

The Economic Times Wealth, November 26-December 2, 2012

Formation

progresses. Since triangles are formed when the market’s interest in a counter falls, the volume also usually falls during this period. There are three types of triangles: symmetrical, ascending and descending. Since each has distinct properties, let us consider each one separately.

of triangles

GETTY IMAGES

These patterns are created when the market interest and the volume of a stock start falling.

NARENDRA NATHAN

A

fter dealing with several major patterns, we shall now consider the minor ones. Since most of the former occur at the end of a sustained bull or bear market, these are also known as ‘reversal’ patterns. On the other hand, most of the minor formations occur in the middle of an uptrend or downtrend and, therefore, are usually clubbed as ‘continuation’ patterns. However, traders should note that some minor patterns may act

as reversal as well as continuation, depending on the place at which they occur and the manner in which the final breakout takes place. The triangle pattern is the best example of this. Triangles are formed when the market loses interest in a counter. The market activity in any stock usually reduces when the direction of the move (up or down) is not clear. During this sideways movement, the volatility, or the trading range within which the price moves, also comes down. This explains why the triangle is the widest during the formative stage and narrows as time

Symmetrical Symmetrical triangles are formed when neither the bulls nor bears have an upper hand in a directionless market and can be identified when the stock makes lower highs and higher lows. If you connect these lower highs, you get a falling trend line. This resistance line is also known as supply line. Similarly, the uptrend line that is formed when you connect the higher lows is also known as support or demand line. As is evident from the HDIL chart, both these trend lines form a symmetrical triangle. The time taken to form this pattern is very important and usually takes 1-3 months. If it is formed in a smaller time frame, say 10-15 days, it is called a ‘pennant’. Though a symmetrical triangle is commonly considered a continuation pattern, there are instances when it acts as reversal pattern and, hence, one needs to wait for the final breakout—when the price goes above the resistance line or falls below the support line—to identify the direction of next move. For instance, a breakout on the upside when the market is in an uptrend, can be considered a continuation pattern. However, a downward breakout after an uptrend should be considered a reversal pattern. Similarly, an upward breakout after a downtrend is a reversal pattern, while a downward breakout after a downtrend is a continuation pattern. The symmetrical triangle formed in the HDIL chart is a continuation pattern and the price continued to drop after the downward breakout. Since the trading range comes down during the formation of a symmetrical triangle, the chance of a false breakout is high (any increase in volatility can result in the price going above or below these lines). To avoid this, one needs to introduce strict breakout rules. First, the breakout has to occur on the basis of closing, which means that any intra-day penetration of lines is usually ignored. Some traders also apply the price-based rule, that is, the price should move at least 3% above or below the breakout point; or the time-based rule, that is, the price needs to close above or below the breakout points for three consecutive days. Like any other trading pattern, the breakout should be supported by volume,

Ascending: Canara Bank

Descending: ABB

Symmetrical: HDIL

Such a triangle is usually formed in the middle of an uptrend and has a definitive bullish bias.

A mirror image of the ascending triangle, such a pattern is usually formed in the downtrend.

This triangle is formed when neither the bulls nor bears have an upper hand in the market.

1,000

800 900

200

800

400

30/11/2010

Descending A descending triangle is a mirror image of the ascending triangle and is formed when the supports are at the same level but the highs keep coming down, that is, form a falling resistance line. Descending triangles are formed when a group of investors wants to sell a large quantity, but only above a certain price level. Since these investors stop selling once the price goes below the threshold, this level acts as a support. There may even be instances of these sellers buying small quantities at that price to support the counter from falling below it. Once the sellers finish their quota, they withdraw the artificial support and the price starts tumbling. The descending triangles are usually formed in a downtrend and, therefore, are treated as a continuation pattern. However, one should pay attention if one notices a descending triangle in an uptrend because it can act as a trend reversal signal (see ABB chart). Irrespective of where it is formed, a descending triangle is a distribution pattern and, hence, has a bearish bias even before the breakout. However, it is better to wait for a final downward breakout before assuming trading positions. The other rules about volume, target, etc, are also applicable here.

Next: Flag, wedge and pennant

600

1/1/2009

Ascending Unlike a symmetrical triangle, the resistance line is almost horizontal here, which means that the highs need not be at the exact price and are close to each other. The lows, on the other hand, keep on increasing on a successive basis. This hint at the bulls slowly gaining control, though they are not able to break the resistance level. As is evident in the Canara Bank chart, an ascending triangle is usually formed in the middle of an uptrend and, therefore, can be considered a bullish continuation pattern. However, investors need to be careful about its appearance even in the middle of a downtrend because it can signal a possible trend reversal. Irrespective of the place at which it is formed, the ascending triangle indicates accumulation and, therefore, has a definitive bullish bias even before the breakout occurs. However, the downward breakout is not ruled out and, hence, traders should take positions only after an upward breakout is confirmed. The other rules mentioned for a symmetric triangle are applicable here as well.

100

700

200

100

especially when it is an upward breakout. An accelerated price movement, gap formation, etc, can also be considered as breakout confirmation. Once the breakout is confirmed, the next step is to identify the possible target price. This is arrived at by measuring the widest distance of the symmetrical triangle and adding/deducting this value to/from the final breakout point.

50

500 1/12/2011

16/11/2012

2/8/2010

30/12/2011

Please send your feedback to [email protected]

In This Section

smart stats 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.

RANK Current Rank

GROWTH%

PRICE ` Previous Rank

Stock Price

Revenue

Net Profit

VALUATION RATIOS EPS

PE

PB

Div Yield

PEG

RISK Downside Risk

RATING Bear Beta

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

136

Kansai Nerolac Paints

130

Jaiprakash Power

128

Cox & Kings

128

Prestige Estates

No. of Consensus Analysts Rating

109

See revenue column in the adjacent table.

Gateway Distriparks

1

1

127.30

74.11

65.52

65.26

10.60

1.88

7.75

0.16

1.11

0.69

19

Orient Paper & Industrie

2

2

76.05

81.64

47.56

44.18

6.95

1.39

2.63

0.16

1.22

0.65

13

4.92

Least Expensive Stocks

Dalmia Bharat Enterprise

3

4

142.25

22.45

119.86

123.57

8.33

0.41

1.02

0.07

1.71

0.36

6

5.00

The 5 stocks with the lowest forward PE.

Arshiya International

4

3

122.05

57.62

59.59

46.44

5.73

0.80

1.16

0.12

1.54

1.07

7

4.71

Gujarat Inds Power

5

5

67.65

19.99

44.14

46.75

8.60

0.71

3.70

0.18

1.08

0.81

10

4.50

Alok Industries

6

7

11.15

30.89

447.30

436.95

9.68

0.32

2.68

0.02

1.76

0.86

5

3.40

Indian Oil Corp Jubilant Life Sciences HPCL

7 8 9

6 9 10

259.05 200.55 279.65

14.54 31.10 7.54

77.02 3202.06 649.41

80.36 3199.55 634.47

14.85 222.06 54.58

1.04 1.39 0.72

1.94 1.48 3.02

0.18 0.07 0.09

1.00 1.35 1.38

0.24 0.35 0.42

38 17 46

4.53

23 ETW Funds 100 25 Insurance ranking Loans and deposits 26

3.66

JBF Industries

4.24 3.65

Arshiya International

10

8

250.05

18.03

109.06

110.52

10.84

0.69

1.80

0.10

1.46

0.98

7

4.57

Cox & Kings

11

18

133.65

127.58

751.50

870.20

44.30

1.55

0.74

0.05

1.81

1.60

16

4.75

4.91

Deepak Fertilizers Infinite Computer

Vardhman Textiles

4.13

Arvind

5.25 5.47 5.73

See PE column in the adjacent table.

Best PEGs

United Phosphorus

12

13

111.05

21.39

37.47

41.17

9.23

1.23

2.27

0.22

1.57

0.68

25

4.60

Oberoi Realty

13

16

275.30

106.81

76.48

77.57

19.71

2.44

0.72

0.25

1.38

0.51

30

4.40

Balkrishna Industries

14

14

246.90

40.44

39.70

39.88

8.99

2.18

0.61

0.23

1.33

0.11

20

4.80

Greenply Industries

15

12

292.00

33.98

104.88

104.82

12.55

1.96

0.69

0.12

1.39

0.47

6

5.00

Persistent Systems

16

17

475.50

36.98

41.16

34.57

12.87

2.27

1.26

0.37

1.08

0.26

37

4.51

Cairn India

17

15

327.35

58.89

27.22

27.13

7.83

1.29

1.53

0.29

1.38

1.00

55

4.07

Infotech Enterprises

18

27

186.25

32.54

52.78

52.38

12.81

1.79

1.73

0.24

1.36

0.52

15

4.40

Tube Investments

19

NR

166.35

31.96

46.03

41.40

11.51

2.37

1.81

0.28

1.26

0.42

8

5.00

EID Parry India

20

25

225.35

11.74

66.17

65.77

12.67

1.64

1.77

0.19

1.12

0.44

8

4.75

Ballarpur Industries

21

22

22.45

9.73

72.43

58.27

11.57

0.36

2.77

0.20

1.38

1.04

5

4.80

CESC

22

26

278.50

23.09

70.15

60.32

14.13

0.72

1.79

0.23

1.89

1.18

33

4.09

HEG

23

23

233.00

31.91

244.17

241.06

14.99

1.08

2.18

0.06

1.32

0.65

5

2.80

HSIL

24

20

123.00

33.56

33.27

33.05

8.71

0.84

2.43

0.26

1.82

1.18

12

4.83

Motherson Sumi

25

19

167.60

86.40

167.18

165.31

37.50

5.12

0.91

0.23

1.29

0.79

22

4.59

Income Generators

Graphite India

26

28

85.35

27.21

19.85

20.07

7.81

1.00

4.11

0.39

0.83

0.28

8

4.63

Top 5 stocks with the highest dividend yield.

Top 5 stocks with the least price earning to growth ratio. Dalmia Bharat Cox & Kings Enterprise

0.05

0.07 0.02

Alok Industries

0.06

0.07

HEG

Jubilant Life Sciences

See PEG column in the adjacent table.

PVR

27

21

244.10

51.64

100.09

86.94

26.17

2.27

0.80

0.30

1.42

0.44

12

4.67

Prestige Estates

28

29

156.10

108.97

416.26

419.52

58.27

2.39

0.75

0.14

1.96

1.25

24

4.54

Monnet Ispat & Energy

29

NR

285.15

60.71

36.87

36.88

7.03

0.76

0.88

0.19

1.47

0.48

6

4.17

Hexaware Technologies

30

33

101.45

52.74

39.64

36.64

11.28

2.97

5.60

0.31

1.62

1.08

29

4.07

CMC

31

37

1100.00

43.31

73.55

73.53

22.09

4.34

1.15

0.30

1.12

0.23

10

4.40

Hexaware Technologies | 5.60 Deepak Fertilizers | 4.39

J Kumar Infraprojects

32

31

224.00

52.96

34.89

34.98

9.32

1.45

0.98

0.27

1.20

0.68

6

4.50

Bharat Petroleum Corp

33

36

321.45

6.28

99.09

119.54

30.09

1.48

1.69

0.25

1.20

0.68

46

4.00

Sobha Developers

34

40

341.60

47.75

40.90

40.64

16.44

1.69

1.45

0.40

1.72

0.39

32

4.13

Power Grid Corp

35

32

119.75

37.88

32.84

32.68

16.71

2.34

1.77

0.51

0.96

0.79

47

4.40

Apollo Tyres

36

35

82.25

19.35

64.87

63.21

10.24

1.48

0.60

0.16

1.71

1.39

37

4.22

JBF Industries

37

34

127.25

10.89

44.13

35.25

4.13

0.57

6.30

0.12

1.21

0.53

7

3.14

Ipca Laboratories

38

38

444.80

32.80

55.74

55.71

20.22

4.44

0.95

0.36

1.42

0.42

34

4.79 5.00

JK Cement

39

47

303.10

7.53

53.68

58.77

12.13

1.39

1.64

0.21

1.88

0.66

8

NIIT Technologies

40

39

286.25

35.27

22.33

21.40

8.63

1.85

2.85

0.40

1.49

0.99

27

4.33

MAX India

41

NR

233.95

36.42

93.56

90.23

39.36

2.46

4.28

0.44

1.38

0.69

10

4.00

Jindal Saw

42

44

120.55

26.93

149.46

146.74

17.67

0.90

0.84

0.12

1.32

0.75

11

2.91

GMDC

43

56

209.50

32.01

42.75

43.34

13.33

3.17

1.47

0.31

1.19

0.86

10

4.80

Mangalore Refinery

44

51

61.45

13.84

59.83

89.50

12.05

1.51

1.61

0.13

1.56

1.21

11

4.09

KSK Energy Ventures

45

43

52.70

60.48

125.86

141.75

16.18

0.67

0.00

0.11

2.04

1.70

6

4.00

Chambal Fertilizers

46

41

65.65

1.35

126.47

126.62

17.19

1.60

2.89

0.14

1.54

1.46

13

3.85

Essar Ports

47

45

92.25

49.65

380.33

204.56

59.69

1.73

0.54

0.29

1.79

1.40

12

4.83

Chennai Petroleum

48

42

125.25

10.31

339.42

399.65

30.46

0.50

1.59

0.08

1.00

0.56

7

2.86

G E Shipping Co

49

46

253.35

10.23

57.00

57.30

12.19

0.64

2.60

0.21

1.33

1.03

7

3.86

Lupin

50

59

560.20

41.80

52.98

53.17

29.03

6.28

0.57

0.55

1.12

0.05

59

4.20

Geometric

51

53

103.40

38.25

63.85

63.12

11.03

3.50

1.53

0.17

2.06

1.31

5

4.40

Kansai Nerolac Paints

52

50

970.00

129.76

157.72

157.79

50.87

7.88

1.13

0.32

0.80

0.19

11

3.64

HeidelbergCement

53

57

50.00

75.03

233.53

232.98

39.03

1.40

0.00

0.17

1.76

0.62

5

4.20 4.35

KPIT Cummins Info

54

48

126.50

60.58

57.96

54.79

15.23

3.12

0.57

0.28

1.80

1.22

26

Jaiprakash Power

55

62

36.45

127.87

79.71

88.59

23.84

1.75

0.00

0.27

1.72

1.10

17

4.18

JSW Steel

56

60

718.65

19.14

259.79

274.41

29.67

0.97

1.05

0.11

1.92

1.83

50

3.10

Sterlite Industries

57

58

96.50

12.35

27.54

28.00

6.73

0.71

2.16

0.24

1.79

1.25

42

3.90

MindTree

58

49

665.25

30.42

48.88

42.67

12.40

2.79

0.68

0.29

1.22

0.83

41

3.90

Dishman Pharmaceuticals

59

55

113.05

25.02

92.94

90.21

16.18

0.99

1.03

0.18

1.97

1.78

18

3.67

Shree Cement

60

52

4261.45

32.75

249.79

252.25

56.76

7.63

0.47

0.23

1.19

0.49

40

3.90

IL&FS Transportation

61

65

182.70

25.90

15.00

15.19

7.19

1.29

2.16

0.47

1.34

0.98

26

4.50

Infinite Computer | 9.50 Gateway Distriparks | 7.75 JBF Industries | 6.30

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.

22

Smart Stats

The Economic Times Wealth, November 26-December 2, 2012

RANK

GROWTH%

PRICE ` Previous Rank

Current Rank

Stock Price

Revenue

VALUATION RATIOS

Net Profit

EPS

PE

PB

Div Yield

RISK

RATING

PEG

Downside Risk

Bear Beta

Least Risky

No. of Consensus Analysts Rating

Top 5 stocks with the lowest downside risk. Ajanta Pharma

62

54

368.90

39.35

50.98

51.35

11.26

2.92

1.00

0.22

1.65

0.54

7

4.00

PI Industries

63

63

510.20

46.02

29.67

29.38

12.29

3.93

1.17

0.42

1.70

0.38

11

4.91

GlaxoSmithKline Pharma

India Cements

64

67

82.90

15.00

25.88

26.01

9.45

0.65

2.39

0.36

1.89

1.48

40

4.08

0.71

Solar Industries India

65

68

959.85

38.14

44.84

40.38

16.35

4.09

1.04

0.40

0.91

0.41

5

4.60

Oil India

66

74

459.15

18.59

6.48

7.79

7.97

1.56

4.18

1.02

0.95

0.43

46

4.28

GSK Consumer Health

Ashoka Buildcon

67

64

205.00

50.06

23.81

25.99

8.65

1.05

0.00

0.33

1.48

0.94

10

4.60

0.84

Infinite Computer

68

66

148.85

37.55

22.08

20.92

5.47

1.28

9.50

0.26

1.82

1.36

7

3.71

JSW Energy

69

69

60.90

40.90

426.20

426.07

58.11

1.73

0.84

0.14

2.01

1.73

28

2.50

Kalpataru Power Trans

70

72

80.90

31.97

2.93

11.28

6.59

0.67

1.85

0.58

1.56

1.08

19

4.58

Solar Industries

Jaiprakash Associates

71

70

89.10

34.02

101.92

96.55

30.15

1.66

0.56

0.31

2.25

2.05

33

4.09

0.91

Kajaria Ceramics

72

73

245.65

37.94

61.79

62.47

22.11

6.34

1.02

0.35

1.29

0.86

10

4.50

NCC/India

73

78

41.85

12.50

69.82

69.72

19.69

0.40

0.71

0.28

2.68

1.54

33

3.91

Hindustan Zinc

74

83

131.40

15.26

18.25

18.48

10.18

2.09

1.88

0.55

1.31

0.53

48

4.29

TVS Motor Co

75

77

37.00

12.47

34.19

60.67

13.28

2.42

3.52

0.22

1.62

1.73

40

3.30

Mahindra & Mahindra

76

71

954.05

31.32

35.34

32.75

18.00

3.36

1.31

0.55

1.20

1.11

59

4.10

Amara Raja Batteries

77

76

256.50

35.60

50.43

50.52

20.45

5.34

0.73

0.40

1.32

0.78

18

4.50

Simplex Infrastructures

78

61

178.05

23.17

34.46

34.63

10.57

0.73

1.11

0.31

1.72

0.66

21

3.33

GSK Consumer Health

79

81

3050.00

33.98

43.31

42.89

36.11

11.21

1.15

0.84

0.84

0.25

30

4.53

McLeod Russel India

80

79

332.90

24.20

25.50

27.13

12.58

2.07

1.83

0.46

1.52

0.50

13

4.54

Grasim Industries

81

84

3181.20

20.04

19.67

18.69

11.13

1.73

0.69

0.60

0.99

0.50

37

4.65

Ambuja Cements

82

96

203.25

32.01

45.88

46.18

25.29

3.86

1.58

0.55

1.29

0.68

58

3.19

Eros International

83

80

184.20

40.01

29.10

32.75

10.67

1.90

0.00

0.33

1.42

0.99

8

4.88

GlaxoSmithKline Pharma

84

86

2002.25

24.39

78.87

77.67

39.62

8.76

2.23

0.51

0.71

0.32

29

2.90

Kansai Nerolac Paints

0.80 Graphite India

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

What is Hot Stocks whose analyst rating improved in one week.

0.25 Cox & Kings 0.15 Orient Paper & Industrie 0.07 Solar Industries India 0.07 Glaxo SmithKline Pharma 0.05 Jaiprakash Power

Cipla/India

85

93

381.70

29.69

41.00

41.13

26.79

4.01

0.52

0.65

1.01

0.33

51

4.16

VA Tech Wabag

86

NR

517.25

25.78

40.33

40.46

18.78

2.16

1.14

0.46

1.25

0.73

10

4.50

Pipavav Defence

87

NR

85.35

135.64

1804.48

1748.25

265.22

2.95

0.00

0.15

1.71

0.39

6

3.33

Glenmark Pharmaceuticals

88

90

444.10

31.68

49.00

48.80

26.09

5.00

0.45

0.53

1.31

0.55

39

4.44

Maruti Suzuki India

89

88

1493.30

35.95

49.35

47.40

25.66

2.75

0.50

0.54

1.40

0.70

62

3.58

What is Not

Aditya Birla Nuvo

90

91

975.20

19.21

46.48

37.37

12.46

1.48

0.62

0.33

1.31

0.92

8

4.50

Century Textiles

91

87

384.90

27.79

689.82

688.87

162.71

1.90

1.42

0.24

1.82

1.80

7

4.00

Stocks that have gone down in analyst rating in one week.

Deepak Fertilizers

92

75

125.75

14.32

3.46

6.81

5.25

0.92

4.39

0.77

1.12

0.94

10

4.80

Arvind

93

98

82.85

17.69

27.48

27.43

4.91

1.04

1.20

0.18

2.10

1.64

7

4.57

IRB Infrastructure

94

94

122.45

32.89

6.54

6.82

8.21

1.43

3.09

1.20

2.67

1.91

42

4.64

Exide Industries

95

92

139.90

33.24

50.39

54.45

26.64

4.42

1.14

0.49

1.37

0.31

39

3.00

Ashok Leyland

96

NR

26.85

21.84

17.81

16.45

12.32

1.66

3.84

0.75

1.51

0.92

54

4.06

Adani Ports & SEZ

97

99

123.35

59.10

41.92

41.13

22.50

5.13

0.81

0.55

1.78

1.17

32

4.56

Cadila Healthcare

98

95

821.40

37.88

35.22

35.25

25.73

6.52

0.92

0.73

1.22

0.21

51

4.02

HCL Technologies

99

85

636.45

22.87

33.57

31.47

18.11

4.47

1.60

0.58

1.09

1.04

67

4.15

Godrej Properties

100

100

627.90

85.67

122.75

86.95

44.94

3.40

0.48

0.52

1.02

0.63

22

2.32

Figures show improvement in rating on a scale of 0-5.

Chennai Petroleum -0.29 KSK Energy Ventures -0.14 Simplex Infrastructures -0.10 Hindustan Zinc -0.04 Shree Cement -0.02 Figures show dip in rating on a scale of 0-5.

NR: Not in the ranking. Data as on 23 November 2012. Source: Bloomberg

METHODOLOGY 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. Only big stocks: 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: We picked stocks that are tracked by at least five analysts. Only profitable and growing: We considered only those stocks that are

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

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. Rating rationale

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). 4. ... and so do the risks. Total weight: 10%. Two kinds of risks were considered. A 5% weight was assigned to downside risk and bear beta each (the lower, the better, in both cases).

2. ... but only at reasonable valuation. 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).

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.

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

3. Analysts’ views matter ... Total Weight: 20%—this consists of 10%

1. Growth is the key ...

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

Sun TV Network Price: 384.60 | % chg: 7.64

2

1

M&M Price: 954.15 | % chg: 6.67

3

Zee Entertainment Price: 204.20 | % chg: 5.69

4

United Spirits Price: 1879.10 | % chg: 4.89

5

HCL Tech. Price: 636.20 | % chg: 4.56

Stock prices in `, as on 23 November. Source: ETIG Database

Jet Airways Price: 505.75 | % chg: 27.91

2

1

Blue Dart Express Price: 1993.15 | % chg: 18.42

3

Manappuram Fin. Price: 35.65 | % chg: 8.69

4

Mahindra Holidays Price: 303.70 | % chg: 8.39

5

eClerx Services Price: 702.50 | % chg: 7.93

Compucom Soft. Price: 19.28 | % chg: 37.91

2

Heritage Foods Price: 529.10 | % chg: 31.45

3

Mudit Finlease Price: 138.30 | % chg: 27.47

4

Stampede Cap. Price: 90.75 | % chg: 27.46

5

Upasana Fin. Price: 16.11 | % chg: 27.45

Smart Stats

The Economic Times Wealth, November 26-December 2, 2012

ETW FUNDS 100 B E S T

F U N D S

T O

B U I L D

Y O U R

23

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 -7.42 JM Equity

-5.01 LIC Nomura MF Opportunities

-2.85 LIC Nomura MF Equity

-1.92 VALUE RESEARCH FUND RATING

NET ASSETS (` cr)

R E T U R N S 3-MONTH

6-MONTH

1-YEAR

( % ) 3-YEAR

Sundaram Select Focus Reg EXPENSE RATIO 5-YEAR

Equity: Large Cap ICICI Prudential Focused Bluechip Equity *



4025.37

5.97

17.21

Franklin India Bluechip *



4852.84

4.37

SBI Magnum Equity *



806.70

5.88

ICICI Prudential Top 100 *



373.88

17.76

9.89

—

1.83

14.85

15.13

7.86

4.88

1.82

15.34

19.75

7.41

2.25

2.26

4.61

13.73

20.42

6.98

3.19

2.27

Reliance Top 200 Retail



818.80

6.03

17.40

26.03

6.61

2.92

2.11

DSPBR Top 100 Equity Reg



3384.70

4.95

13.51

17.91

5.79

4.52

1.84

HDFC Index Sensex Plus



88.63

3.79

15.53

17.59

5.66

3.68

1.00

-1.79

9.89%

HSBC Dynamic

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

-9.26 LIC Nomura MF India Vision

Reliance Quant Plus Retail



144.03

3.43

14.30

17.37

5.61

—

2.42

ICICI Prudential Target Returns *



118.99

3.36

14.66

17.80

5.39

—

2.42

ING OptiMix Multi Manager Equity Option A

UTI Top 100 *



621.01

5.23

18.30

18.07

4.92

—

1.21

-4.87

Religare Business Leaders



28.82

5.82

18.06

16.53

4.77

—

2.50

Taurus Bonanza

Kotak Sensex ETF *



20.59

3.85

16.90

16.61

3.83

—

0.50

-4.4

Equity: Large & Mid Cap

Principal Growth 

119.12

4.51

16.71

22.14

10.59

9.28

1.25

Canara Robeco Equity Diversified



680.91

5.65

16.35

20.54

9.94

6.00

2.19

UTI Opportunities *



3035.75

6.03

15.85

20.43

9.70

7.44

1.86

Mirae Asset India Opportunities Regular



257.43

6.23

17.28

21.51

9.33

—

2.35

ICICI Prudential Dynamic



4056.37

4.76

12.32

18.01

8.70

6.12

1.82

Franklin India Prima Plus *



1834.08

6.94

17.63

18.47

8.63

4.49

1.90

10.59% The 3-year return of Quantum Long Term is the highest in its category.

-3.44 SBI Magnum MultiCap

UTI Equity *



2113.60

5.12

16.16

20.86

8.17

6.73

1.45



304.49

4.17

16.41

18.87

8.03

5.22

2.33

HDFC Growth



1226.22

3.68

13.35

16.49

7.72

4.38

2.00

UTI Dividend Yield *



3630.64

3.44

14.02

12.72

7.72

7.21

1.83

1.24

Fidelity Equity



2792.69

4.16

14.74

15.19

7.61

4.61

1.85

Birla Sun Life Special Situations

Fidelity India Growth



272.21

3.39

13.89

13.93

7.14

5.03

2.34

1.32

Edelweiss Diversified Growth Equity Top 100



14.63

4.88

15.08

20.35

6.57

—

2.29

L&T Opportunities

HDFC Equity



9887.21

5.76

13.96

17.88

6.48

6.39

1.78

HDFC Top 200



11591.05

5.83

15.45

18.31

6.01

6.71

1.78

Morgan Stanley A.C.E.



243.01

7.94

18.13

18.72

6.01

—

2.35

Kotak Select Focus *



361.14

4.68

17.42

19.15

5.85

—

2.33

-8.58 JM Core 11

2.01 L&T Contra

2.3 Birla Sun Life Equity

Equity: Multi Cap 

BNP Paribas Dividend Yield



Fidelity India Special Situations



Templeton India Equity Income *



Principal Dividend Yield



Tata Contra



Reliance Regular Savings Equity DSPBR Equity

85.56

5.19

14.42

14.58

10.65

14.53

8.04

16.88

20.39

644.75

5.24

17.27

25.23

963.31

5.46

18.76

102.95

8.44

16.75

88.21

5.74

12.15



2828.63

10.95



2536.78

5.09

Religare Contra



60.75

Templeton India Growth *



SBI Magnum Emerging Businesses *

9.59

2.50

9.73

7.26

2.50

9.16

4.11

2.19

24.57

8.71

5.50

2.00

25.03

8.09

3.17

2.49

15.49

7.46

4.94

2.50

23.94

28.40

6.62

7.01

1.85

-2.03

12.49

16.57

6.23

5.09

1.87

HSBC Midcap Equity

7.53

16.54

17.71

5.42

5.63

2.50

0.31

679.14

3.64

15.45

19.40

4.46

3.86

2.13

HSBC Small Cap



733.80

12.13

24.58

34.45

22.75

4.94

2.26

Sundaram S.M.I.L.E. Reg

DSPBR Micro Cap Reg



450.79

9.32

15.11

24.23

15.86

5.67

2.28

Reliance Equity Opportunities



3830.09

7.72

18.65

30.82

15.68

8.24

1.83

Canara Robeco Emerging Equities



37.91

HDFC Mid-Cap Opportunities



IDFC Premier Equity



Religare Mid Cap



ICICI Prudential Discovery DSPBR Small and Mid Cap Reg Tata Dividend Yield



Birla Sun Life Dividend Yield Plus



UTI Master Value * Sundaram Select Midcap Reg

-3.74 HSBC Progressive Themes

1.42

16.89

30.26

15.28

3.18

2.50

2267.14

5.63

3070.90

10.05

14.14

23.43

17.21

24.30

14.86

9.06

1.89

14.32

10.57

52.53

9.55

19.78

1.85

25.36

13.84

4.93

2.50

 

1985.21

4.68

1169.21

8.66

14.24

27.29

12.87

11.23

1.90

16.55

22.56

11.31

6.45

2.01

325.61

3.36

10.35

15.14

11.07

6.91

2.33

1279.73

5.36

12.15

14.87

9.34

10.39

1.99



636.89

7.09

13.07

13.41

9.29

4.12

2.18



2039.91

7.22

20.67

22.74

8.94

5.78

1.90

Equity: Tax Planning

2.23 Escorts Growth

11.23%



Canara Robeco Equity Tax Saver Franklin India Taxshield *

1993.76

6.04

13.91

29.43

10.54

5.01

1.90



456.12

5.13

15.19

19.53

10.41

7.84

2.29



853.26

5.13

15.47

17.11

9.90

5.24

2.10

ICICI Prudential Tax Plan *



1362.85

6.54

17.83

21.78

9.79

6.09

1.99

Religare Tax Plan



120.36

6.13

16.73

18.65

9.25

5.71

2.46

Fidelity Tax Advantage



1166.15

5.19

15.19

16.81

8.45

5.44

2.01

4.52 DSPBR Top 100 Equity Reg

3.68 HDFC Index Sensex Plus

3.2 ICICI Prudential Indo Asia Equity Inst

9.28 Quantum Long Term Equity

7.44 UTI Opportunities

7.21 UTI Dividend Yield

7.08 ICICI Prudential Dynamic Inst I

6.73 UTI Equity

10.65 ING Dividend Yield

9.73 Tata Ethical

9.73 BNP Paribas Dividend Yield

9.16 Fidelity India Special Situations

8.71 Templeton India Equity Income

The 5-year return of ICICI Pru Discovery is the highest in its category.

22.75 SBI Magnum Emerging Businesses

16.97 Religare Mid N Small Cap

15.9 Reliance Equity Opportunities Inst

15.86 DSPBR Micro Cap Reg

15.68 Reliance Equity Opportunities

Hybrid: Equity-oriented 5-year returns -5.46 JM Balanced

-2.69 Baroda Pioneer Balance

-2.4 LIC Nomura MF ULIS

Reliance Tax Saver

ICICI Prudential Top 100 Inst I

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

Equity: Mid & Small Cap

8.42

4.78

Equity: Multi-cap 3-year returns

Fidelity International Opportunities

ING Dividend Yield

Franklin India Bluechip

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

-5.89

Quantum Long Term Equity

4.88

-2.36 Escorts Balanced

-0.95 LIC Nomura MF Balanced

10.39 HDFC Balanced

9.99 HDFC Children's Gift-Inv

9.69 Reliance Regular Savings Balanced

8.76 HDFC Prudence

7.58 UTI CCP Advantage

Returns as on 22 November

24

Smart Stats

The Economic Times Wealth, November 26-December 2, 2012

ETW FUNDS 100 VALUE RESEARCH FUND RATING

IDFC Tax Advantage (ELSS)



Taurus Tax Shield



NET ASSETS (` cr )

R E T U R N S 3-MONTH

( % )

6-MONTH

1-YEAR

3-YEAR

5-YEAR

Top 5 SIPs

EXPENSE RATIO

144.27

7.20

21.21

21.03

7.91

—

2.43

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

85.75

5.58

17.39

17.70

5.92

4.04

2.50

Sundaram Select Midcap Reg

23.78

Equity: Banking ICICI Prudential Banking and Financial Services



Reliance Banking



Religare Banking



155.57

14.06

31.88

45.35

12.01

—

2.42

1728.60

13.14

26.58

33.93

11.99

12.62

1.93

44.94

11.56

28.41

36.45

11.23

—

2.50

SBI Magnum Global

22.84 Reliance Growth

22.57

Equity: Infrastructure

DSPBR Equity

21.32

Franklin Build India *



60.89

6.43

17.99

22.56

5.31

—

2.38

Canara Robeco Infrastructure



112.14

2.17

13.69

11.68

4.29

-1.54

2.47

PineBridge Infrastructure and Economic Reform Standard



86.80

5.03

17.02

8.76

1.11

—

2.47

Religare Infrastructure



37.63

4.43

14.78

7.04

-1.29

-6.06

2.50

HDFC Infrastructure



660.01

3.74

10.67

15.46

-2.80

—

2.18

HDFC Balanced



784.32

3.63

9.08

15.77

12.50

10.39

1.91

Canara Robeco Balance



192.00

4.62

12.51

18.96

10.12

6.55

2.38

HDFC Prudence



6032.60

5.37

10.46

17.16

9.93

8.76

1.80

Reliance Regular Savings Balanced



556.61

6.47

16.71

23.68

9.49

9.69

2.22

Tata Balanced



373.86

5.13

15.23

22.47

9.24

6.21

2.32

Birla Sun Life 95



537.20

4.71

14.57

15.09

7.63

7.48

2.24

UTI CCP Advantage *



75.29

5.59

16.09

14.63

5.37

7.58

1.39

Canara Robeco MIP

3423.37

3.15

6.48

14.97

7.75

11.46

1.56

Reliance MIP

Hybrid: Equity-oriented

HDFC Top 200

20.97 SIP: Systematic investment plan

% annualised returns

as on 22 November

12.5% The 3-year return of HDFC Balanced is the highest in its category.

Equity: SWPs Top 5 MIP schemes based on 3-year SWP returns. SBI Magnum MIP Floater

8.27 8.02

Hybrid: Debt-oriented Conservative Reliance MIP *



DSPBR MIP



290.89

2.54

5.47

13.72

7.28

7.69

2.09

Canara Robeco MIP



286.46

2.64

6.13

10.87

8.15

7.79

2.09

UTI Monthly Income Scheme *



346.65

2.82

6.50

10.86

7.05

7.77

1.79

Birla Sun Life MIP II Savings 5



309.81

2.43

5.64

10.69

7.56

10.39

1.33

HDFC Multiple Yield



96.20

2.16

4.92

9.82

8.94

9.32

1.75

L&T MIP



76.84

2.18

5.75

9.75

5.85

9.23

2.25

HDFC Multiple Yield Plan 2005



567.85

2.54

5.25

9.73

9.17

9.25

1.75

Birla Sun Life Monthly Income



403.96

2.72

5.75

9.72

6.93

7.83

2.05

12.72%

Templeton India Income Builder *



148.94

2.83

6.05

12.72

8.35

7.87

1.53

SBI Dynamic Bond *



2466.66

2.40

5.03

12.17

9.64

5.24

1.67

Birla Sun Life Medium Term



215.73

2.28

5.20

11.14

8.63

—

1.47

Birla Sun Life Dynamic Bond Ret



12125.20

2.48

5.20

10.91

8.13

9.63

1.14

The 1-year return of Templeton Income Builder is the highest in its category.

IDFC SSI Medium-term Plan F



1210.68

2.49

5.37

10.89

—

—

1.00

Birla Sun Life Short Term



1966.92

2.52

5.55

10.74

7.52

8.20

0.29

Debt: Income

IDFC SSI Medium-term Plan A



1210.68

2.38

5.16

10.52

8.41

9.30

1.38

ICICI Prudential Long-term *



537.63

2.35

5.33

10.17

—

—

0.76

Templeton India Income Opportunities *



2714.66

2.59

5.42

10.13

—

—

1.45

Religare Active Income Fund Plan A *



739.70

2.27

5.08

10.04

7.82

5.76

1.79

L&T Select Income-Flexi Debt Ret



126.56

1.96

4.27

9.16

7.72

—

0.93

BNP Paribas Bond Reg



431.92

2.25

4.83

8.96

8.56

—

2.00

ICICI Prudential Banking & PSU Debt



65.17

1.89

3.91

8.96

—

—

1.44

7.82 ICICI Prudential MIP 25 Reg

7.79 Birla Sun Life MIP II Savings 5

7.71 SWP: Systematic withdrawal plan

% annualised returns

as on 22 November

Debt: Liquid Lowest Expense Ratio 0.11 0.10

0.11

0.10

0.05

Debt: Gilt Short Term SBI Magnum Gilt Short-term *



27.31

1.99

4.41

10.04

7.09

7.10

0.86

UTI G-Sec Short-term *



19.67

1.76

3.92

8.98

6.23

5.95

0.74

Canara Robeco Gilt Advantage *



3.75

1.70

3.63

8.08

—

—

1.11

Edelweiss Liquid

Religare Overnight

Principal Cash Mgmt

Morgan Stanley Liquid

Edelweiss Liquid Inst

* Expense ratio as on 31 March. All equity funds including balanced equity funds sorted on 3-year returns; all others ranked on 1-year returns. Data as on 31 March

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%



30.34

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

Top 10%



Large Cap Cash Holdings

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

(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:

21.35

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 22 November Assets as on 30 September Rating as on 31 October Expense ratio as on 31 March

11.48 8.63

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.

Stock pick of the week Page 8

HSBC EdelDynamic weiss Equity Enhancer

ICICI Pru- Sahara Super dential Indo Asia 20 Equity

8.19

ICICI Prudential Focused Bluechip Equity

As on 31 October Methdology of selected Top 100 funds on www.wealth.economictimes.com

Smart Stats

BEST HEALTH INSURANCE

Rating methodology

                    No Star No Star        Recent Launch     NA NA NA  No Star

Apollo Munich and Bajaj Allianz plans score well across parameters

         No Star                        No Star NA NA NA  

     No star

Apollo Munich Easy Health Standard Apollo Munich Easy Health Exclusive Apollo Munich Easy Health Premium Apollo Munich Maxima Apollo Munich Optima Restore Bajaj Allianz Health Guard Family Bharti Axa Smart Health Premium Bharti Axa Smart Health Optimum Cholamandalam Standard Family Healthline Future Generali Health Suraksha Basic Future Generali Health Suraksha Gold Future Generali Health Suraksha Silver HDFC Ergo Health Suraksha ICICI Lombard Family Protect Premier ICICI Lombard Health Advtg. Plus Family Floater

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

Religare Health, a new launch, gets an excellent overall rating



10

20

Premiums for 2 adults, eldest member 45 years

3 lakh

5 lakh

3 lakh

5,267 6,282 N/A 21,500 6,848 7,466 4,250 N/A 7,195 4,806 6,008 5,407 5,582 5,790 3,207

8,226 9,459 11,824 N/A 8,637 10,375 N/A 9,000 9,304 7,804 9,755 8,779 10,880 N/A 4,348

6,500 7,476 N/A 21,500 8,452 10,222 5,450 N/A 11,679 5,562 6,952 6,258 6,718 7,153 4,469

5 lakh

9,969 11,465 14,331 N/A 10,469 16,139 N/A 16,002 14,479 8,667 10,834 9,751 12,206 N/A 6,683

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

6,489 7,905 N/A N/A 8,436 8,712 5,550 N/A 7,947 5,607 7,010 6,309 7,209 7,632 N/A

5 lakh

10,501 12,075 15,094 N/A 11,149 12,105 N/A 12,370 10,674 9,105 11,381 10,243 14,064 N/A N/A

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

5 lakh

7,550 8,683 N/A N/A 9,816 11,926 6,890 N/A 12,135 6,489 8,112 7,300 8,345 8,995 N/A

11,796 13,567 16,958 N/A 12,270 18,829 N/A 19,410 17,216 10,111 12,640 11,376 15,389 N/A N/A

30

40



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.

Parameters considered

Product features: Features are assigned a numerical score based on product benefits, customer availability and flexibility.

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

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. For detailed methodology, visit i-save.com.

Buying Guide

Premiums of family floater health insurance plans of all companies

Premiums for 2 adults, eldest member 35 years

 

Price: Lower premiums get higher scores. Premiums are compared across multiple age bands (young, middle and mature) and multiple covers (`1-10 lakh).

 Service scores and ratings based on IRDA data / public disclosures by companies for 2009-10 and 2010-11. 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 7 September 2012. The ratings, since last published, include two additional products and premium changes to two existing products.

PREMIUM RECKONER

Ratings: : i-save Health Insurance Ratings use a relative rating methodology to rate health insurance products on a 0-5 star scale. The product ratings are a weighted aggregate of the product price, product features and company service data, each rated on a relative 0-5 star scale. The star ratings assigned correspond to the following:

Superior

                        No Star No Star       No Star      

Overall rating

Excellent

   No Star                        No Star No Star     No Star  No Star   

Service rating

Average

Apollo Munich Easy Health Standard Apollo Munich Easy Health Exclusive Apollo Munich Easy Health Premium Apollo Munich Maxima Apollo Munich Optima Restore 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 Chola Family Healthline Standard Cholamandalam Chola Family Healthline Advanced Cholamandalam Chola Family Healthline Superior 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 Religare Health Religare Care 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 Tata AIG MediPrime United India Family Medicare Universal Sompo Family Floater

Features rating

Below average

Price rating

No star

Product name

Coverage: Comprehensive. All health insurance products (family) 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.

Good

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.

`) Insurance cover (`

25

The Economic Times Wealth, November 26-December 2, 2012

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

8,258 9,497 N/A 29,000 10,736 9,956 6,680 N/A 10,202 6,408 8,011 7,210 8,837 9,475 N/A

5 lakh

11,796 13,567 16,958 N/A 14,070 13,834 N/A 14,925 12,728 10,405 13,006 11,705 17,288 N/A N/A

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

9,438 10,854 N/A 29,000 12,270 13,629 7,990 N/A 14,665 7,416 9,270 8,343 9,973 10,837 N/A

5 lakh

13,494 15,519 19,398 N/A 15,337 21,520 N/A 21,890 19,520 11,556 14,445 13,000 18,571 N/A N/A

* Premiums as applicable for Delhi taken into account. For the complete list of family floater health insurance premiums visit www.wealth.economictimes.com  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.  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.

 Health insurance protects you against

rising healthcare costs and financial uncertainty arising from hospitalisation due to accidents or illnesses.  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.  Some companies now provide

guaranteed renewals for life.  Most policies have an exclusion period

(usually 2-4 years) for certain 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, sub-limits, etc. * 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

26

Smart Stats

The Economic Times Wealth, November 26-December 2, 2012

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. Cheapest Personal loans

Tenure: 1 year Indian Bank UCO Bank IDBI Bank Yes Bank ING Vysya Bank

What `10,000 will grow to

9.25 9.10 8.75 8.75 8.70

10,958 10,942 10,904 10,904 10,899

Tenure: 2 years City Union Bank Development Credit Bank Indian Bank Lakshmi Vilas Bank Tamilnad Mercantile Bank

9.25 9.25 9.25 9.25 9.25

12,007 12,007 12,007 12,007 12,007

Tenure: 3 years City Union Bank Dhanlaxmi Bank Indian Bank Karur Vysya Bank Tamilnad Mercantile Bank

9.25 9.25 9.25 9.25 9.25

13,157 13,157 13,157 13,157 13,157

Tenure: 5 years City Union Bank Tamilnad Mercantile Bank Oriental Bank of Commerce Dena Bank Deutsche Bank

9.25 9.25 9.10 9.00 9.00

15,797 15,797 15,682 15,605 15,605

Top five senior citizen deposits Interest rate (%) compounded qtrly

Tenure: 1 year Indian Bank UCO Bank Yes Bank Dena Bank IDBI Bank

What `10,000 will grow to

10.00 9.60 9.50 9.25 9.25

11,038 10,995 10,984 10,958 10,958

Tenure: Above 2 years Indian Bank City Union Bank Development Credit Bank IDBI Bank Indian Overseas Bank

10.00 9.75 9.75 9.75 9.75

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

Tenure: 3 years Indian Bank City Union Bank IDBI Bank Indian Overseas Bank Karur Vysya Bank

10.00 9.75 9.75 9.75 9.75

13,449 13,351 13,351 13,351 13,351

Tenure: 5 years Axis Bank City Union Bank Dena Bank IDBI Bank Indian Bank

Cheapest Auto loans

INTEREST RATE (%) Bank of Maharashtra

INTEREST RATE (%)

11.50 - 13.50

Dena Suvidha

13 - 14

Bank of India

13- 15.5

Central Bank of India

13.25 - 15

ICICI Bank

14 - 18 11

12

13

14

15

16

17

18

19

20

21

22

10.50- 10.55

SBI

10.50 - 17.25

Allahabad Bank

10.75 - 11

Union Bank

10-95 15.75

Central Bank of India

11.-12 9

10

11

12

13

14

15

16

17

18

19

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

Cheapest Home loans

Cheapest Education loans

10 YEARS

20 YEARS

Minimum loan: `50,000; Maximum loan: `2 lakh Interest rate (%)

Interest rate (%)

Up to `10 lakh State Bank of India HDFC LIC Housing Finance Allahabad Bank Bank of Baroda Up to `30 lakh State Bank of India HDFC LIC Housing Finance Bank of Baroda Bank of India

10.00 10.25 10.25 10.50 10.50

State Bank of India HDFC LIC Housing Finance Allahabad Bank Bank of Baroda

10.00 10.25 10.25 10.50 10.50

10.00 10.25 10.25 10.50 10.50

State Bank of India HDFC LIC Housing Finance Bank of Baroda Bank of India

10.00 10.25 10.25 10.50 10.50

Margin money: 15%

15 14

10.50 12.50%

13

11.50 13.50%

11.25 13.25%

10.95 13.20%

12.00%

12 11 10

Central Bank of India

United Bank of India

Allahabad Bank

State Bank of India

Dena Vidyalaxmi

These are average rates for the entire tenure

Postal Deposits

Minimum Invt. (`)

Interest (%)

Monthly Income Scheme

8.50

Recurring Deposits

8.40

Savings Account

4.00

National Savings Certificate (5 yr)

8.60

National Savings Certificate (10 yr)

8.90

1,500

Maximum Investment (`)

Tax Benefits

Features

Single 4.5 lakh Joint 9 lakh

5 year tenure; monthly returns 5 year tenure; monthly returns

Nil Nil

10

No limit

5 year tenure

Nil

50

No limit

`10,000 interest tax free

Nil

100

No limit

No TDS

80C

100

No limit

TDS applicable

80C

200

No limit

Available in 1, 2, 3, 5 years

80C

1,000

15 lakh

5 year tenure; minimum age 60

80C

1 lakh a year

15-year term; tax-free returns

80C

-

Till retirement

80C

Time Deposit

8.20 - 8.50

Senior Citizen Saving Scheme

9.30 payable quarterly

Public Provident Fund

8.80

500

Employees' Provident Fund

8.60

-

Sec 80 C benefit: Investments up to `1 lakh in specified securities qualify for deduction.

9.75 9.75 9.75 9.75 9.75

16,187 16,187 16,187 16,187 16,187

Home loan Base rate (%)

Tenure: 5 years and above City Union Bank Tamilnad Mercantile Bank Oriental Bank of Commerce Dena Bank Deutsche Bank

Interest rate (%)

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

As on 22 November 2012

10%

10.25%

State Bank Axis of India Bank

State Bank of Mysore

9.75%

Top five tax-saving FDs

10.45%

10.45%

10.50%

10.50%

10.50%

10.50%

Punjab National Bank

Bank of Baroda

Bank of India

9.25 9.25 9.10 9.00 9.00

15,797 15,797 15,682 15,605 15,605

BANK

Dena Bank

10.50%

10.50%

10.50%

10.50%

United Bank of India

IDBI Bank

956

836

@ 10%

2,125 2,224

1,322 1,435

1,075 1,200

2,379

1,613

1,400

10

Bank of Maharashtra

Canara Bank

Central Bank of India

Corporation Bank

Union Bank of India

Allahabad Bank

Andhra Bank

INTEREST RATE (%)

1213

5

10.50%

Allahabad Bank

2,028

@ 15%

10.50%

Cheapest Gold loans

@ 8%

@ 12%

10.50%

What `10,000 will grow to

Your EMI for a Loan of `1 lakh

Tenure

Bank of Maharashtra

LOAN AMOUNT: `5 LAKH

Interest rate (%) compounded qtrly

LOAN AMOUNT: `2 LAKH

Top five FDs

15

772

Central Bank of India

965 1,101

909 1,053

Syndicate Bank

1,317

1,281

20

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

10.50- 14.50 11.50 - 12.50 11.75

Dena Gold

12 - 13.75

Tamiland Mercantile Bank

25

12.25 - 15.25 9

10

11

12

13

14

15

16

17

18

19

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

Banking

The Economic Times Wealth, November 26-December 2, 2012

27

Before you turn a guarantor... It is important to understand the financial liabilities you will incur since you may have to pay the dues if the borrower were to default.

amount as the debtor,” says Mohan. A bad credit score could make it difficult for you to borrow when you want to take a loan yourself. This is because the lender will determine your borrowing capacity only after taking into account the loan for which you are a guarantor. “This doesn’t mean that you will not be given a loan at all, but banks will definitely be cautious while assessing your repayment capacity,” says Madan Mohan, credit counsellor, Disha Counselling Centre. This is why experts advise that if you do need to be a guarantor, agree for loans with shorter tenures instead of long-term ones such as home loans. Not only will your responsibility end sooner, but the loan value will also be usually lower in a short-term loan than in a long-term one. The only exception to this rule is if you need to guarantee a home loan. This is because if there is a default, the lender can always recover its dues by selling the asset. However, in cases where there is no asset as in the case of an education loan, the bank will force you as the guarantor to repay the loan in case of a default, and if you are unable to pay the EMI, it is entitled to recover the dues from your estate. This is why banks ask guarantors for a collateral too.

SAKINA BABWANI

H

as your best friend decided to take a bank loan and asked you to be a guarantor? Before you feel weighed down by obligation and agree to become one, consider the consequences. For, according to a ruling passed by the Supreme Court in May this year, if a debtor defaults, it is the guarantor’s responsibility to repay the entire loan. The apex court ruling was passed on a case filed by one Ganga Kishun of Uttar Pradesh, who had stood guarantor for a loan taken by his friend, Ganga Prasad, who died without clearing the loan. The Supreme Court held Kishun liable to pay Prasad’s dues as he had been the guarantor for the loan. So if you don’t want to land in a problem, it is important to doublecheck the borrower’s financial record and repayment ability. Here are the other things you should consider before you agree to turn a guarantor. The responsibility of repaying the debt doesn’t automatically fall to the heirs. It’s the guarantor’s obligation to pay if the debtor defaults or dies. “Before you take the onerous responsibility of being a guarantor, you must check the credit score of the borrower and ensure that he is creditworthy,” says Suresh Surana, founder, RSM Astute Consulting Group. You should also ensure that you have the financial wherewithal to shoulder the additional liability that will come in case the debtor defaults. The bank will not immediately begin to pester you the first time a borrower is unable to pay an EMI. It will first send him a notice. If the debtor continues to default on three payments, the bank will send him a registered notice. It will send a legal notice to the debtor and the guarantor only after the borrower does not pay the EMI for more than four months. Depending on the terms and conditions of the agreement, the bank may initiate legal proceedings against the debtor and guarantor simultaneously, or independently.

Do you gain from warranties offered by builders? Page 13

Know your liability

4. Students taking education loans, especially to study abroad.

Situations where a guarantor is needed

How it impacts you Many people agree to become loan guarantors believing that their responsibility is limited to ensuring that the debtor pays his EMIs on time. However, a guarantor is not only bound to pay the loan amount if the debtor defaults, but the transaction could impact his credit score and loan eligibility too. If the borrower defaults, it will negatively affect your credit score. “This is because as a guarantor you are as liable to pay the loan

3.

1. The borrower has a dubious payment record.

2.

The loan applicant has a transferable job or one that involves frequent overseas travel, doesn't have a permanent address or changes addresses often.

The value of the security is lower than that of the loan. In case of a home loan, the bank may ask for a guarantor if it fears that the value of the mortgaged property will fall in the future.

You cannot choose to limit your liability as a guarantor. The sole purpose of getting a guarantor for a loan is to ensure that the bank doesn’t lose its money in case of a default by the debtor. In fact, if you are willing to pay the EMI, you won’t even be able to ask the lender to tweak it in terms of the interest rate or tenure. So, do not go by the creditworthiness of the debtor alone. Check your own financial capability 5. before signing on the dotted line. Loans above Take into account your own `10 lakh for financial goals to see if you will small and require a loan in the future. medium One way to lessen your enterprises. burden is to ask the borrower to get another guarantor. Of course, if a default occurs, you will have to pay, but in this case, the EMI could be split between the two guarantors. Another way to protect yourself is to insist that if the borrower has taken a long-term loan, he should take a loan payment insurance. So, if the borrower dies, the insurance could be used to pay the loan.

Please send your feedback to [email protected]

28

The Economic Times Wealth, November 26-December 2, 2012

My Enterprise

Rewardz of persistence After reviving a defunct firm through VC funding, Jayaraj has finally profited from loyalty programmes. ASHWANI NAGPAL

Bijaei Jayaraj 38 years Company

Loylty Rewardz Headquarters

Mumbai Seed capital

`8 crore Source of funds

Venture capital Current turnover

`14 crore Expected turnover

`25 crore

I consider the venture capital funding of `8 crore my lucky break because without it I couldn’t have breathed new life into Loylty Rewardz.

Infrastructural and technological issues were our biggest challenge and affected execution. So, we focused on hiring techies to overcome this hurdle.

Next on the cards are centres in Hyderabad and Chandigarh. Our expansion plans expect us to earn `25 crore in the next fiscal year.

T

hirty seven seconds. That’s the time it took to make a business pitch for venture funding to help resurrect my dream and dead company, Loylty Rewardz. Set up in mid-2006, the one-man venture operating from my home at Powai, Mumbai, aimed to be a one-stop shop for all activities related to the development and management of loyalty programmes for corporates. This was done by analysing consumer behavioural patterns and installing appropriate rewards. However, I realised I couldn’t run it alone and execution was a problem. So, the company didn’t take off as expected and I was forced to shut shop within a couple of months. I realised that cash is the life blood of any start-up and 90% of the companies fail for this reason, not because the ideas aren’t good or they aren’t profitable. So, in October 2006, I was forced to take up a job, joining MasterCard as head of relationship building with the State Bank of India group. This was my second run at the corporate carousel. After completing my MBA from the Indian School of Business (ISB), Hyderabad, in June 2002, I was picked up by Jet Airways. A year later, I was heading their loyalty programme, Jet Privilege, in Mumbai. At the time, this was the largest customer loyalty programme in India and, recognising the potential this presented for an entrepreneur, I registered Loylty Rewardz in June 2006, quitting my job a month later. However, I refused to accept failure, believing that I had bought myself time to put things in place. In February 2008, while serving the notice period at MasterCard, I happened to return to my alma mater to participate in an initiative, where aspiring

on hiring techies to overcome this hurdle. entrepreneurs could meet venture capitalWe also consistently ploughed back every ists to gather funds for their businesses. spare paisa into the business in the initial Here, I met the managing director of years. This steamlining helped us break VentureEast and got a chance to outline my even and generate revenues of `5.5 crore in idea while walking with him from the atrium 2010-11, and `14 crore in the last fiscal. To to the auditorium. Thirty seven seconds grow aggressively, we raised another round later, he was interested enough to schedule of funding worth `17.5 crore through Cain a meeting the same evening, and the next and Partners, in September 2011. thing I knew, I was signing the official Today, we have associated ourpapers to receive my first round of selves with 11 leading banks, funding to the tune of about $1.5 Are including Punjab National Bank, million (`8 crore). I consider this subsidiaries Central Bank, Union Bank, my lucky break because without eroding your Bank of India, Federal Bank and it I would not have been able to company’s value? Page 10 Citibank. Our 127-strong team breathe new life into Loylty cumulatively manages loyalty Rewardz. programmes for close to 175 milAfter quitting MasterCard in lion debit and credit card users in March 2008, I focused on my busiIndia. We have offices in Mumbai, ness, setting up office in a rented space Delhi, Chennai, Kolkata, Bangalore, and at Andheri (east). To begin with, I invested have recently opened one in Kochi. Another half the funding in infrastructure and technew development is the accelerated accrual nology for large programmes. Of the platform we’ve created, Max Get More, remaining funds, about 20% went into which is offered through 1,500 outlets operational costs and 30% on employee across India. salaries—I hired my first batch of employees Next on the cards are centres in Hyderin July-August 2008, and by the end of the abad and Chandigarh before the year ends. year, we were a team of 18-19. Our first cusWe expect to earn `25 crore in the next fistomer, Deutsche Bank, signed on with us cal through these expansion plans. We also for their customer loyalty programme, Freintend to reach out internationally to counquent Flier Airline Agnostic, in Octobertries like Malaysia, Singapore, Thailand, November 2008. Three months later, the Hong Kong and Philippines. In fact, we have State Bank of India came calling for a debit already acquired a subsidiary in Singapore. card loyalty programme, but this one went While we continue to dream big, I believe live first (in April 2009). In the first year of that execution is the key to a successful busioperations, we earned just `5 lakh, but ness and many things need to be integrated there has been no looking back. for the best-lain plans to become a success. Of course, there were several challenges. For a bank’s loyalty programme that was (As told to Milan Sharma) supposed to reach a consumer base of 55 million people, infrastructural and technoPlease send your feedback to logical issues were our biggest challenge, [email protected] which affected execution. So, we focused

Travel

29

The Economic Times Wealth, November 26-December 2, 2012

How Indians holiday Here’s what various surveys and studies reveal about the vacationing trends among Indians this year.

SUSHMITA CHOUDHURY AGARWAL

Why Indians don’t vacation

D

id you know that India is the fourth most vacation-deprived country in the world? Or that 47% of Indians feel compelled to check their e-mails even on these rare holidays? The good news is that they don’t really count their pennies when they do manage to travel—the top 10 favourite overseas destinations in 2012 have witnessed hotel price hikes of 9-59%. Here’s a look at other such revelations culled from various surveys and studies conducted this year.

37% I like to accumulate vacation days for trips I may take in the future.

Not all Indians avail of the holidays sanctioned 36% 28%

27% Holidays sanctioned

23% 20%

Holidays taken

19% 15%

13% 9% 2%

8%

1-10

Days 0

11-20

Where youth travelled Bromance hot spots Amsterdam

6.3

18.1

51.3

21-20

30+

If I don’t schedule vacation time far enough in advance, I never seem to be able to take all of it.

22% 22% 21% I can get money in exchange for my unused vacation days.

I feel important work decisions will be made without me.

My work is my life and it’s hard to get away.

As in 2011, this year too Indian employees were most likely to fear that important decisions would take place in their absence. The number of paranoid employees in the country is 22%, while in the rest of the world the corresponding figure is 10% or less. This, despite the fact that the percentage of Indian bosses supporting an employee’s vacation has moved up from 72% last year to 76% in 2012. In fact, Indian bosses have emerged as the most supportive, second only to Brazil. Also, the overall trend has shifted from ‘not being able to plan’ to ‘saving/accumulating vacation days in exchange for money or future use’ this year.

The study, conducted online among 8,687 employed people across 22 countries, found that the median number of holidays given to Indians dropped by five days to 20 this year. Says Manmeet Ahluwalia, marketing head, Expedia India: “In India, while the bosses have softened their stance on leaves compared with last year, we still rank second globally among those logging in during a vacation, with 47% checking regularly and 39% checking sometimes.”

Source: Expedia.com 2012 Vacation Deprivation Study

Hike in hotel rates no deterrent

Las Vegas

Don’t know/ Not sure

42%

Girls-only dream trips

17% 15% 14% 9%

Companies that lowered grade of airline travel. Companies that lowered average room night allowance.

19.4

Hotel deals Top holiday destinations

Cost cutting in business travel Companies increasingly recommending use of remote meeting tools.

4.9 Spain

Goa

It is difficult to coordinate with the travel partner.

23%

Source: Expedia.com 2012 Vacation Deprivation Study

1%

Thailand

31%

Companies that suggested use of public transport, instead of cabs.

Companies that reduced daily cash allowance.

As per TripAdvisor, 59% of business travellers from over 1,300 respondents admitted that their firm had introduced travel cost reduction measures in the past year. Says Nikhil Ganju, country manager, TripAdvisor India: “Over one-third respondents confirmed a decline in trips this year from 2011.”

Source: India Business Travel Survey (2012) by TripAdvisor

Destination Kuala Lumpur

2012 2011 % (room rate in ` in first half) change 6,594 4,160 59%

Rank Destination

Hong Kong

8,812

6,950

1

Bangkok

Dubai

7,628

5,991

27%

2

Singapore

New York

12,936

10,464

24%

3

Dubai

Bangkok

4,501

3,814

18%

4

New York

Las Vegas

6,649

5,769

15%

London

11,311

10,055

12%

CHENNAI

4,867

4,397

11%

Pattaya

3,811

3,468

10%

Singapore

9,182

8,413

9% 9%

5 6

London Pattaya

27%

7

Hong Kong

8

Las Vegas

Phuket

5,713

5,225

9

Kuala Lumpur

MUMBAI

7,005

6,555

7%

10

Phuket

NEW DELHI

6,233

5,990

4%

KOLKATA

5,620

5,504

2%

Thailand

9.3 Las Vegas

Paris

10.7 42.5

15.4 Goa

Spain

`21,999

... was the average spend on a holiday by a family of three, in 2012. According to Goibibo’s latest research findings, this figure has increased by 15% over the past two years. Currently the preferred package duration is four nights, with 33% of the travellers booking it through the portal.

22.1

Men and women may come from different planets, but the youth, across genders, just want to have fun. The Bollywood influence when it comes to destination choices continues unabated. The only difference in the line-up is that while Amsterdam appeals to boys, girls want Paris.

Source: MakeMyTrip.com

This is the projected air fare increase in India in 2013. According to the latest American Express Global Business Travel survey, this hike will be the highest in the Asia Pacific region, prompted largely by the current volatility in the domestic air industry.

8%

How to avoid being cheated Page 15

Given that seven of the top overseas destinations for Indian travellers in 2012 were via short-haul flights, you would think the vacationers were trying to cut corners on travel budget. Not true. This is because the average hotel rates in each of these destinations jumped up by 9-59% (comparing first half of 2011 with the corresponding period this year). However, in 2012, given the rupee’s slide, Indians preferred to vacation within the country, where the room rates have risen by 12% on an average.

Source: Hotel Price Index report by Hotels.com

30

Your Feedback

The Economic Times Wealth, November 26-December 2, 2012

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.

THE ECONOMIC TIMES

wealth

FRO THE WM EB

November 26-December 2, 2012

www.wealth.economictimes.com

Greed, not mis-selling, results in excessive funds The cover story ‘Do you have too many funds?’ highlighted an increasingly visible trend in the world of mutual fund investing. Over the past few years, the average number of funds in investors’ portfolios have risen and, most of the times, it has done little to help them. While the companies may be at fault since they launch a new scheme every week, I feel this is more a case of the investors’ greed than mis-selling. Unlike Ulips, buying an extra mutual fund does not entitle you to tax benefits. People usually follow the logic of ‘the more the merrier’ and this brings down the overall returns. In fact, a friend had 15 funds in his portfolio simply because he wanted one fund from every fund house. The story explained well that what you select, not how much you select, decides the returns from your portfolio. This is one area where people need to be educated better, especially the first-time investors. Payal Chatterjee, Mumbai

Real estate still the safest investment

Pick mid-cap stocks for future bull run

Commodity investment to pick up soon

The story ‘Is this a good time to buy property?’ provided an interesting insight into the world of real estate. Over the past few years, real estate seems to have lost much of its sheen, thanks to the flawed practices of companies, saturation in the larger market and increasing popularity of other investment avenues. However, I still believe that realty remains one of the easiest and safest places to invest in the market. The article is bound to be of immense help to the people who are considering buying property. However, considering the high prices, I think the younger generation is likely to prefer to live on rent.

The story ‘Time to raise stock holding’ once again proved the point that stock investing remains a longterm bet. In the past five years, the Sensex has seen several ups and downs. The current situation presents one more opportunity to pick future winners, but I think the good picks are in the mid- and small-cap segment. Of late, there has been little to cheer in the large-cap segment, with most of the companies quoting at high premium despite corrections. Moreover, the returns on large-cap stocks have hovered in the 10-12% range, making them unattractive. In such an event, the people who pick good mid-cap stocks will benefit the most from the next bull run.

I have been highly impressed by Naveen Mathur’s fortnightly column on commodities. His analysis is precise and easy to understand and helps readers like me, who are firsttime investors in the commodities market. Considering the developments in this sector, it is surprising that it is has not yet caught the attention of investors. While it is clear that unlike other investments, commodities require a lot more attention, the returns are equally rewarding. In the next few years, I see the interest in commodities picking up and a lot of retail investors getting into it. I hope ET Wealth comes up with more investment strategies for investors in the commodities market.

RN Singh, Delhi

Shivendra Amarnath, Kolkata

Pratap Gupta, Delhi

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.

>> 8-10: You are a smart investor and know the tricks. Try to fine-tune your portfolio. >> 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.

Bigger, Better, Smarter: Read to find out how to make the most of the small savings schemes that have been revamped and interest rates that are no longer fixed. Is a bank account better than fixed deposits and liquid funds? Find out how the `10,000 exemption on bank interest has changed the investment equation. Do you gain from gold SIPs? Scan the article to understand how fresh incentives on gold savings schemes offered by jewellers may not offer any real advantage. Go on a holiday to save tax: If you are entitled to leave travel allowance, you can claim it to reduce your tax. Find out when and how to claim it before you catch your next flight.

All these stories are available at www.wealth.economictimes.com

LEARN & KEEP Also take a look at:  Calculate your

income and tax.  Will you overspend

this festive season?  Turning 18: How a

Test your MQ

Give yourself one point for every correct answer

BEST OF ARCHIVES

How big should be your contingency fund? The amount you stash away for unforeseen events depends on various factors. Take this quiz to find out how much you need.

major child can help save tax.  Choose your asset

allocation.  Time your finances.

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

MOST READ OF THE WEEK Do you have too many funds? Read the story to know why too many mutual funds or stocks will make it difficult to track your investments and bring down your returns.

1

You need a guarantor to borrow more than `10 lakh to start a business.

2 3

Investments in shares and mutual funds attract wealth tax.

4

Any insurance policy can be returned within 15 days of receiving the policy documents.

5 6

Sebi has no jurisdiction over deposits in a company.

7

Investors must pay a monthly fee to receive the consolidated account statement of investments in all mutual funds.

Y/N

8

Capital-intensive businesses can also have a negative working capital, making such companies good stock picks.

Y/N

9

A Ponzi scheme generally involves an investment that is not registered with the regulators.

Y/N

Please send your feedback to [email protected], or you can write to us at Times House, 7, Bahadur Shah Zafar Marg, New Delhi-110002

10

A triangle pattern is seen in a stock’s movement when the market’s interest in it begins to fall.

Y/N

Note: The letters have been edited for grammatical errors and better reading.

Y/N Y/N

Property developers are currently offering only construction-related warranties to home buyers. Y/N

A corporate entity’s under-performing subsidiary does not affect its overall profitability.

Y/N Y/N Y/N

Is this a good time to buy property? Buying a house has high aspirational value in India. A study by ArthaYantra compares property prices and rentals in seven top cities. Click better images with your phone’s camera: Peruse the piece to pick from photo apps and editors that can help you enhance the quality of your pictures. Time to raise stock holding: The market will continue to move up for a while, say experts. Go through the story to know why any correction should be used to buy shares.

YOUR FEEDBACK

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

Last Word

The Economic Times Wealth, November 26-December 2, 2012

31

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 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.

Last week’s winner SRINATH HR, BANGALORE

Last week’s question

I have been investing `5,000 in mutual Winner funds for the past three years, but the `3,000 returns have barely beaten the market. I need a corpus of `2.5 lakh for my brother’s education in a year and was thinking of using my mutual fund corpus. However, since it is performing badly, I am considering redirecting my investments for the next year to a recurring deposit so that the returns are ensured. Since the markets are improving, my wife thinks I should continue with the SIPs. Please advise. PN Hari, Mumbai

Sreenath’s solution One should not expect returns from mutual funds in the first three years and invest in these for the long term. So you should continue investing via SIPs, but you need to review your portfolio. As far as funding your brother’s education is concerned, it makes sense to go for an education loan from one of the nationalised banks. The interest rates are attractive and you will also have the option to start repaying the loan after your brother completes his education. By that time, your mutual fund investments would have also given good returns, making the repayment easier.

Solutions from the following were also useful Bal Govind, Noida Prakash Chandra, Mumbai Solution: Given that you require a Solution: Since you need the money corpus of `2.5 lakh in a year, it is for your brother’s education, the advisable to move your current corpus preservation of capital is more from mutual funds to either debt or important than returns. You can put your mutual fund corpus of Winners liquid fund, as it is a short term about `1.8 lakh in a bank fixed `1,000 requirement. In the future, you must avoid investing in mutual deposit for one year, which will each funds for short-term goals. Also, it give you a post-tax return of `1.95 makes sense to invest in RDs, instead of lakh, assuming an 8% return. I mutual funds, for the goal. However, if suggest you open a recurring deposit in your brother can avail of an education a bank with `5,000 per month for 12 loan, then continue with your mutual months, which will give you a post-tax fund investments and redeem the funds return of `61,000. So, at the end of one that are not performing well. year, you will have `2.56 lakh.

This week’s situation

I am 27 years old, earning `50,000 a month and saving `15,000. Next year, I want to study abroad and the course cost is `21 lakh. My current investments are worth `4 lakh. By March 2012, my EPF corpus will grow to `1 lakh and my father will give me `2 lakh. I can get an education loan of `7.5 lakh without collateral. These will add up to `14.5 lakh. How can I fund the balance amount? Should I take a personal loan or put off my MK Singh, Delhi plans by a year? Send your solutions to [email protected]

MONEY-MAKING VENTURE

Taking the organic route to success A Chennai-based couple has used an environment-friendly detergent to average sales of `1 lakh a month. S VARADHARAJAN

MILAN SHARMA

T

here’s nothing new about people leaving lucrative MNC jobs to start their own ventures, but how many are enterprising enough to quit without knowing what they want to do or how to go about it? Meet Chennai-based Preethi Sukumaran and Srinivas Krishnaswamy, spouses-turned-business partners, who opted out of the corporate rat race on the same day, 31 January 2009, with one sure idea: to work on an environment-related concept. “After graduating from IIM in 2001, we both worked in various FMCG MNCs for eight years. So, we were confident about brand building, marketing and handling the venture, but weren’t sure about the product itself,” says Krishnaswamy, who graduated from IIMBangalore, while his wife is from IIM-Calcutta. So, the couple, who got married in 2003, decided to see the world while waiting for inspiration to strike. Indeed, it was during their year-long travel across

India and Europe that they figured out how to integrate their personal quest of sustainable urban living with a business venture. The solution was to create a basket of sustainable, organic goodies. On returning home in 2010, the duo researched the market for organic products, and zeroed in on organic washing detergent as their first product. “In 2009, we had started using soapberries for washing our clothes and realised that not only were they environment-friendly compared with the usual detergents, but were equally, if not more, effective,” says Sukumaran. Within the organic product universe, the humble detergent had remained on the sidelines despite contributing heavily to soil and water pollution. “Till that time, the players in this market were small and unorganised, so we decided to launch organic washing detergent,” she adds. In May 2010, they finally figured on a name, Krya, meaning mindful action, and by October 2010, the company had been registered. The couple did not set up the venture in the traditional way, that

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is, first launching and then promoting it. In fact, they did the reverse. “After registering our company, while we were looking at sourcing our product, working on the website design and other back-end issues, we started a Facebook page and a blog. Over the next six months, we interacted online with a lot of people, telling them what we were planning to do and how

we were going about it,” says Sukumaran. Before long, the couple got an active Net community. They also finalised the soapberries they wanted to use and struck a deal with an organic farm near Guntur, Andhra Pradesh. “The latter would process and manufacture the product and send it to our office in Chennai,” she adds. By the time the product was launched in May 2011,

Krya had built a potential customer base without spending much—`6 lakh for the entire process, from idea inception and registering the company to renting a 250-sq-ft office space at Mylapore, Chennai, and launching the product. Currently, the business is averaging sales of about `1 lakh a month. A more encouraging sign has been the re-trials and recommendations from their customers. “As of now, we not only sell the product, but also offer after-sales service. As more people use it, the awareness will increase,” she adds. They are now working on product packaging, keen to source vegetable ink for printing the brand name and launch other products like dishwashing soap, in January 2013, followed by skincare products in 2014. The company expects to break even by the end of the financial year, which hopefully, will allow the founders to finally start taking home a salary.

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