Short Term Mutual Funds- The saving grace amidst all the confusion

I was just going through the Economic Times website for some new scoops to write about this morning when my eyes fell on this rather interesting article, to say the least. The article stated that in case you had invested your money into liquid mutual funds scheme some six months ago, then the right time has to reap the benefits was now, since statistics show that the last six months have depicted an average rate of return close to 4% on the investments in short term money market instruments. The analysis was conducted on 14 different types of open-ended mutual fund schemes which are continuously opened for subscription and redemption purpose.

It is normally seen that liquid funds offer lower returns as compared to other avenues. This is mainly due to the reason that these funds are available at low degree of risks. Linking to the soaring interest rate regime, short term mutual funds topped the charts in terms of offering positive returns. Next came the 'debt and debt (income)' mutual funds, with the only other scheme yielding positive returns in the last six months being the GILT funds, that invest only in government securities of different maturities.

Let's take a look at the general scenario over the past few months; funds that are exposed to equities haven't performed that well since the stock market crash in January. The average six month returns of equity funds (278 schemes) stood at (-)9.59% while the same for Exchange traded funds, Balanced Funds, Sector Funds and Index funds ranged between (-)16% to (-) 19%. Monthly income plans (MIP) funds, designed to give regular rate of return to the investors, have also done reasonably well when compared to equity linked schemes.

So where does that leave the investor? After considering all the above-mentioned factors, would he still be willing to risk his savings in the stock market for a mere increase of 4%, which can easily be had by any FD (add to that the reassurance of not losing out on any money)? I really don't know. Because the way things are going, it really seems like 2008 is going to be a very difficult year for the Indian economy. My advice : Put money in stock only if you are a long term player, and figure something else out for your short term needs, if any, because the Sensex is definitely not in the giving mood these days.

Are we over with the financial crisis?

Probably the much awaited part of the year has turned up. A slump in world oil- prices along with appreciation of US dollar has made everyone to think over whether the undergoing burgeoning pressure faced by the world has come to a standstill. Are we really over with the financial crisis? Economists all over the world have projected global economic conditions have will remain difficult for some time. However, future prospects seem good as it is predicted that economy will recover due to growth in China and rest of Asia. It is viewed that equity markets would regain strength over time, but it is not possible to tell when it would occur. I strongly believe that there is nothing to worry about as this phase of continued difficulty due to lower growth along with higher inflation will pass out eventually just like economies the world over have faced similar situations over different periods of time, if not worse, and have recovered.

The latest stats indicate that emerging economies like Brazil, India and China have been performing well and it is expected that the global economy will grow at 4 percent over the next fiscal year. Some economists have argued that lower oil prices will have a deflationary effect on the world economy, since this will in turn lead to high consumer spending as well as exports. In most likelihood, it is order to suppress this phenomenon that governments all over the world have decided to hike the interest rates for loans as this move will pose a large impact on consumer demand. So does that mean that after oil prices drop, the situation would return back to, well, normal? This is a rather tricky question to be answered so soon, since we have all been witness to how many times the stock markets, the foreign exchange, loan rates, and practically everything fluctuate so dramatically in the last few months. But yet, all we can do is hope.

Insurance Plans- Choose what Suits You

Usually, one holds an insurance portfolio that consists of only a term cover and a Mediclaim policy. A family takes refuge of an insurance policy mainly to finance its needs. Different persons have different needs and to satisfy these, insurance companies have come up with different plans, and continue to update on the same. It is essential to keep revising and improving insurance covers just as we re-examine our investment portfolio time to time. While buying any insurance policy, one must focus on the number of dependents as well as the amount of financial protection they are provided after the demise of insured person.

Although there are host of insurance plans suiting all age groups and purposes like children's education plan, retirement plan, life insurance, etc., one must choose the one that suits him the best, since the basic motive behind offering these plans remain the same, i.e., providing maturity benefits to the person till the end of policy term or death benefit to the dependents of the person in case of his demise.

In my viewpoint, it is better to opt for multiple policies as one can take the advantage of latest insurance products available in the market. These days, people are more inclined towards taking Unit Linked Insurance Plans (ULIPs) as these investment cum insurance plans aim at offering excellent returns. Another plan waiting to offer you the best is the term insurance plan, which works out best if you have dependents. Not only is this plan cheap, but also provide a comparitively larger cover than most insurance policies. Another category of insurance, endowment plans, are sought after those who are very skeptical towards taking risks and want assured returns, although the premiums are higher than term insurance plans. The latest scheme to hit the financial circuit is a combo of term and ULIP plans which returns back your premium but not the insured amount has recently hit the market, and is also a good option.

It is a good point to note that insurance as an instrument has undergone a drastic change in terms of its

relevance for the common man. Earlier, this was seen as just a kind of a reassurance in case things went otherwise, (life insurance, accident insurance). However, with the expansion of the investment market and the diversification of insurance plan options, the same is now also an attractive medium for savings . Hence, keeping that in mind, I sincerely believe that one should reconsider his investment portfolio as well while looking towards adding on more investment options.

Sleepless Nights for Tata Nano

Recently, in a press conference, Tata Group Chairman Ratan Tata announced to withdraw from Singur project, if the ongoing distress continues. With this announcement, the dream project has turned into a nightmare for the team members who worked diligently to make it a successful venture. Earlier, it came as a bit of a surprise when Ratan Tata introduced his plans to locate the people's car plant in West Bengal. The industry experts were of the opinion that Tata's plans to make Nano a showcase for the state would usher industrial progress in the otherwise investment-starved state. But, ever since the issue was put forth before the public, it became a topic of controversy among majority of political leaders and environment activists. That the project needs the eviction of already residing farmers from there had created much hype among the people. The question which raised several eyebrows was from where the farmers would then earn a living for themselves. And the Tatas had no answer. Soon, the matter was taken to the court and became more and more violent.

For the Tatas, the Nano is much more than merely a Rs1 lakh car. After all, the Nano upholds the reputation of the company and the failure of Singur project would result in the loss of huge amount invested by the company. Moreover, the move will irreversibly hamper the future industrialization of the state and could take it back to an age of industrial vacuum. In my viewpoint, industrialisation is crucial for the development of social infrastructure and the development of the state must not suffer at the hands of political differences. The withdrawal of Singur project would send wrong signals to the investors and will take back the state to 70's era when the state witnessed large scale immigration of its industrial units due to lack of investment opportunities prevailing there.

As per the latest updates, Tata Motors have decided to work out on a business plan so that the company is not 'financially hit' if Nano project is withdrawn from Singur. As per the current proposal, the company has informally announced that it will provide additional businesses to Nano vendors who had invested in the project. The additional business plan includes the expansion of market for company's upcoming cars like the Indica Vista. I think that this crucial decision is sure to allow the vendors to recover the portion of losses if the Singur project is withdrawn. Tata Motors has also requested its vendors not to create a hype as everything will soon be under control. However, I firmly believe that not all is going down well for the Tatas as well as the town of Singur, which was looking forward to its first signs of rapid industrialization. Let's see how the story unfolds. As for now, we can only ke[p our fingers crossed.

Inadequate Credit Monitoring hits card repayments

The recent trend in the market has shown a spurt in late credit card repayments mainly due to inadequate credit monitoring system in India for large players like Citigroup. According to official statements, the bank's Asian credit card operations have been performing well, except in India. According to an article in the Economic Times, bank officials have blamed this rise in delinquencies as a result of the lack of robust credit monitoring operations in India, and have voiced their opinions over the lack of an authorized bureau for this purpose. However, even credit card providers are not entirely innocent in this matter

In today's cut-throat competition, in order to lure customers, credit cards are being issues free of charge by negotiating on the requisite attention that needs to be paid heed. It is not uncommon to receive a call from any DSA or bank informing you that you are now 'eligible for their gold/platinum card and asking if you would be interested in the same (many times they don't even ask, and ramble on regarding the documentation and benefits) initially, Citibank was the premier player in the credit card domain. However, with the passage of time and the gradual expansion of market, many other players like HDFC, SBI, etc. encroached upon its space, which eventually led to banks giving cards free of cost and not being completely transparent with charges like annual maintenance fee and the likes. Recently, even the RBI has taken strict action and issued guidelines against banks that have been issuing unsolicited cards.

At present, CIBIL(Credit Information Bureau of India) is the country's one and only functional credit Bureau where the banks can report delinquent customers there. However, at present, majority of the banks are not satisfied by the way it has been performing. In the wake of all this, the finance ministry also had announced the setting up of a private credit bureau in the country along with the RBI earlier this year, which had prompted foreign players like Experian to come to India. In recent news, even IDBI Capital and CARE (Credit Analysis and Research) have collaborated in their efforts to set up a credit information bureau. However, while all these moves are towards the benefit of the economy, I would like to point out that this is just the begining for these initiatives, and much has to be done to ensure the smooth functioning of the same. Hopefully, we will soon make headway into this area, which is all the more essential in today's circumstances, when we so desperately need a stable economy.

Who is going to benefit from revised pay scales?

Recently, the Sixth Pay Commission adopted the revision of salaries of the government employees ranging from 25% to 50%. While this is the general average for all, the hike is exceeding 75% in case of high-ranked officials like IAS officers and the likes, clearly defining the government's ecstatic mood after the vote of confidence for the nuclear deal was passed. This revision, spanning through all three classes, namely, high, middle and low, of the Government service structure will benefit 1.86 lakh employees across the country in total. Apart from salaries, government employees will also enjoy substantial allowances for purposes like transport and others. However, while computing increments, these allowances will not be considered as part of salary.

The revised pay scales will not only act as a favor to central government employees but will also add an estimated amount of Rs 4500 to 5500 crore to the exchequer this fiscal year in the form of personal income tax. Since the increased pay would go into buying goods and services, the government will earn more revenue in the form of indirect taxes. Although the increased payout will add to the burden of the Central Government, but it is expected that one-fith to one-fourth of this amount will come back to government exchequer in the form of personal income tax and indirect taxes.

However, coming to the corporate sector, it is expected that none of the companies will be favouring an unexpected hike in salaries this year. This is because sectors such as automobiles, banking, IT and retail have been hardly hit by domestic inflation. Market experts are of the opinion that the average rate of increase in salaries across sectors is going to slow down this year. However, in my viewpoint, the future seems bright as majority of the companies are expecting salary revisions to be implemented in year 2009 with performance of the individuals acting as the major evaluator. Further, big market players like ICICI bank and Maruti Suzuki are gearing up to make changes in the compensation structure to be implemented from next year. Just wait and watch.

Mutual Funds- A Promising Investment Option

The market is continually facing volatility which has led to panic among the investors. Further, constantly fluctuating global economies have had their share of impact on the sentiment of the Sensex, hence making it difficult to take a call on any particular stock . Many investors who had placed their money directly in equities after the phenomenal bull run of last year have suffered heavy losses. Several stocks which were trading at all time highs have tumbled to their yearly lows in a matter of months. In this regard, equity oriented mutual funds, which are currently hovering around at very low NAVs, are the right opportunity for long term investors to invest and get handsome results.

The main advantage that mutual funds offer is that of a diversified portfolio investment which reduces the risk because all stocks do not decline at the same time and in the same proportion. A gullible investor hardly achieves anything in the course of direct stock market trading whereas the same amount of money invested in top- performing MF schemes fetches him handsome returns. For instance, if I invest only in FMCG and due to some government policy, the entire sector crashes temporarily, I would have to wait until it comes up again to recover my investment. However, had I invested the same amount in a top-performing MF (which is not difficult to find out, courtesy all the popular business publications that give you all the data) I might have not only recovered my investment, but also earned a handsome return. Many of you might be believing that mutual funds, although safe, do not give as profitable returns as direct investment into equities. While I do agree with you to some extent, there are also many mutual funds that give a result of 40% on an average, which is not a bad investment by any means. What's more, you are almost assured to get back your investment, since your money is being handled by industry analysts who are often very accurate. This option is particularly beneficial to the service class, who don't have the time to analyze market trends, and yet want to invest in stocks. Hence, investing in a mutual funds is far more beneficial not only in the present turbulent circumstances but also in general, since the scope for getting a handsome results is now at par with investing directly in equity.