RBI Monetary Policy Review June 2013

RBI Monetary Policy Review June 2013 from Karvy Private Wealth

Invest Options in Gold

If you intend to invest in gold especially now when it is trading at historic levels of 1600-1800 $/oz.

However, from the asset allocation point of view, some portion of one’s portfolio should be in gold. Accordingly, let us explore the different avenues available today to invest in gold.

a) Physical gold from Jewelers/banks

Buying physical gold from jewellers has been the traditional way since centuries. And within physical gold, jewellery has been the most common form of purchase. The balance, in relatively small quantities, has been the gold coins and bars. 

b)  Gold ETFs
Gold ETFs are mutual fund schemes that invest only in gold. Thus it is as good as holding gold; except that it is held electronically. Generally 1 unit of Gold ETF is roughly equivalent to 1 gram of gold and hence its price is also roughly equal to price of 1 gram of gold. You can buy a minimum of 1 unit of Gold ETF.

c) Equity-based Gold Funds:
These are mutual fund schemes that instead of investing directly in gold buy the equities of companies engaged in mining, extraction, processing and marketing of gold.

d) e-Gold
Launched recently by the National Spot Exchange, e-gold is also an electronic form of holding gold except that herein you are directly the owner of gold whereas in Gold ETF the Asset Management Company is holding the gold (of course, on your behalf).

Unlike Gold ETF, e-Gold also offers the facility of physical delivery. However, given the additional costs involved viz. delivery charges, VAT and octroi, it may be better not to opt for physical delivery.

e) Gold Futures
This is just a short term product useful mainly for trading in gold and not investing in gold. Hence, it is kept out of the purview of this article.

Source:  http://www.moneycontrol.com/news/gold/many-ways-to-investgold-which-is-best-option_641164.html 

Various benefits Senior Citizen can avail

When one retires one wants to lead a peaceful and hassle-free life but more often than not, because of ignorance, most senior citizens do not avail of the various benefits offered to them and unduly undergo unnecessary harassment. According to the data available with the Ministry of Social Justice and Empowerment in India, the number of senior citizens, which was 70.69 million in 2001, is expected to go up to 173.18 million in 2026. The Ministry of Social Justice classifies anyone above 60 as a senior citizen.

However, the simple definition of senior citizens is interpreted differently by different organizations. An insurance company considers a person who is 55 as a senior citizen. However, the income-tax department defines a senior citizen as someone who is 65. This creates problems for senior citizens dependent on deposit interest or pension income. Though most of them retire when they are 58 or 60, they have to wait for five to seven years before they can enjoy the benefits of higher tax concession. There are, however, various organizations such as the Dignity Foundation that specializes in giving justice to the elders who are currently lobbying for a single age cut off for senior citizens.

Being a senior citizen, the first thing that one needs to address is finances. The following is a chronicle of how being a senior citizen can make an impact on your personal finances.

Income-tax: Income-tax is one area where the benefits provided to senior citizens start at Rs 2.25 lakh (the highest bracket). But the qualifying age for this is 65 years. Here, the government not only allows more money for them, but also makes leeway for bigger deductions. Medical insurance is one such example.Senior citizen’s policies are more expensive and the government does consider this. As a result, the deductible amount for senior citizen’s insurance policy is Rs 20,000. This is Rs 5,000 higher than what a younger person would pay. As a senior citizen if you fall in the highest tax bracket, this would still amount to a tax saving of Rs 1,500.

The income-tax department has also kept the basic exemption high. For men, there is no tax on the income of Rs 150,000. But senior citizens are exempted from tax if their income is less than Rs 225,000. This translates into savings of Rs 7,500 in taxes.Even if you compare the exemption limit of women senior citizens with a younger one, the tax benefit works out to Rs 4,500. The basic exemption limit for women is Rs 1, 80,000.But before you qualify as a senior citizen for the purpose of tax, there are other areas where you can take advantage of much earlier.

Bank Deposits:This is an area where the elderly get to earn more on their investments. Banks offer a higher rate of interest on fixed deposits to senior citizens. The offering is 0.5-0.75% more than the prevalent interest rates. The minimum age to get a premium on your deposit is 60.A younger age group person can also enjoy this benefit if he opens a joint account with a senior citizen. But the deposit needs to be in the name of the elder one.Let’s look at the mathematics behind this offering. If an Eighty-seven-year-old Mrs. M. Bafna says that she avails of the additional interest benefit on Fixed Deposits that range from anywhere between 0.25% to 0.50% over and above the ones offered to all those who do not come under the senior citizens’ category.Elderly person invests Rs 50,000 for a 3-year-tenure at an interest rate of 9% as a regular rate and 9.5% for senior citizen, on maturity, the person will get Rs 965 more. If a senior citizen opts for quarterly payout of interest, then he earns Rs 750 more.

Government employees (Central as well as State) get some relaxation on retirement if they open a deposit with nationalized banks. Public sector banks give interest at par with senior citizens, if government employees invest the money received from the employer within three months of getting the cheque.

Senior Citizen Savings Scheme: The annualized interest rate in the Senior Citizens Savings Scheme (SCSS) is 9%. The entry age for this scheme is the same as the one required for Fixed Deposit, that is, 60. But the government has given some leeway for retirees. A person who is retiring and has crossed 55 years of age is allowed to invest in this scheme, if the money is invested within a month of receiving the amount from the employer. The tenure of this deposit is five years.

Business Without Ethics

Gandhiji’s Belief – A Universal Truth In his book Moral Sentiment, which preceded Wealth of Nations, Adam Smith explained how foundational to the success of our systems the moral foundation is: how we treat each other, the spirit of benevolence, of service, of contribution. If we ignore the moral foundation and allow economic systems to operate without moral foundation and without continued education, we will soon create an amoral, if not immoral, society and business. Economic and political systems are ultimately based on a moral foundation.

To Adam Smith, every business transaction is a moral challenge to see that both parties come out fairly. Fairness and benevolence in business are the underpinnings of the free enterprise system called capitalism. Our economic system comes out of a constitutional democracy where minority rights are to be attended to as well. The spirit of the Golden Rule or of win-win is a spirit of morality, of mutual benefit, of fairness for all concerned. Paraphrasing one of the mottos of the Rotary Club, "Is it fair and does it serve the interests of all the stakeholders?" That's just a moral sense of stewardship toward all of the stakeholders.

I like that Smith says every economic transaction. People get in trouble when they say that most of their economic transactions are moral. That means there is something going on that is covert, hidden, secret. People keep a hidden agenda, a secret life, and they justify and rationalize their activities. They tell themselves rational lies so they don't have to adhere to natural laws. If you can get enough rationalization in a society, you can have social mores or political wills that are totally divorced from natural laws and principles.

I once met a man who for five years served as the "ethics director" for a major aerospace company. He finally resigned the post in protest and considered leaving the company, even though he would lose a big salary and benefit package. He said that the executive team had their own separate set of business ethics and that they were deep into rationalization and justification. Wealth and power were big on their agendas, and they made no excuse for it anymore. They were divorced from reality even inside their own organization. They talked about serving the customer while absolutely mugging their own employees.

Future of Gold

Made Governor of the Central Bank of India, d. Subbarao, tremendous efforts to dissuade the citizens of his country from investing in gold, and on the back of the pressures posed by imports of gold standard on the value of Indian rupee. Attention fans of shares and securities critical to invest in gold by saying that he lost any intrinsic value and is subject to theft, which is a source of concern to its owners.

And gold was made to its investors an annual return of 25% over the past five years, but in recent months has been subjected to the low value of 4%. Based on this, is there a reason to invest in gold?

Experts respond positively to this question, but they argue that investing in gold may be done only as insurance against the collapse of the other categories of assets. Says Lakshmi Iyer, head of investment products and fixed income in a box “Cuttack” common: “We believe that the difficulty in curbing inflation and performance moderate stocks and asset classes are included for the debt securities may induce many small investors to turn to gold, as a category of investment.” She adds: “The variability of the underlying market for foreign currency and the possibility of monetary expansion to some of the major currencies around the world, may push in turn also to the expected improved performance of gold, but it is a bad idea if you think that gold can be a substitute for other assets such as equities and fixed income. It For his part, says Kapil Narang, Chief Executive Officer, Foundation Ameriprise India: As long as you do not seek to achieve a return in the short term, we believe that we are always investing in gold should be part of a very diverse portfolio. “ And continued with saying, look to gold as a tool to ensure backup save the value when passing other categories of investment periods of volatility.

The record high for the price of gold increased by 30% during the last year is the very reason financial planners to advise investors not to do a large bet on the yellow metal. Says Aditya Daddy, a partner at Foundation The Tipping Point, a consulting firm financial: “We have passed the stage in which he was possible advice to invest in gold as a tactical, and we are now advised the investor that ensures its investment portfolio represented 5% of the precautionary measure of exchange against inflation Financial because the price of gold following the rate of inflation. “ He adds that those who actually chose to allocate 10% of their portfolio of gold, and then increased its share of the portfolio to 15% following a high price, they can sell part of gold and increasing the share of assets fell in value recently.

Although the above justify continued investment in gold, but that does not represent good news for women, it is not permissible to buy gold jewelery and consider it as an investment in gold, because the cost of production of jewelry and drop the price when the sale does not keep the profit margin mention of gold in order to an investment. Daddy says that even if the collection of gold for a future occasion such as marriage, it is the most logic to buy the metal through electronic funds traded in the financial markets, a form of non-physical forms of gold. He adds: “Even if you were buying gold in the form of alloys, there is still a difference between selling price and the repurchase price. And the best option is to invest in gold through funds traded in the financial markets, then sell when needed, and then do buy gold material.”

Has increased the spread of funds traded in the financial markets and investing in gold significantly, with the number of accounts in these funds from 147 047 in March of 2010 to 428,769 in September 2011, a high convergence rate of 192%. The total amount of gold owned by the fund rolling company AMC, an Indian company for asset management, has risen from 19 tons in March of 2011 to 28 tons in September and to 33 tons in December 2011, an increase of 74% during the nine months.

Upon observation of these popular enjoyed by ETFs investing in gold, I decided Exchange of India National (NSE) to do trading session private funds traded invested in gold, after the completion of trading cash and derivatives at half past three pm will be held on 24 April. At the time that can be traded funds, gold during a session of regular trading that are open in the ninth hour and a quarter of the morning and closed at half past three in the afternoon, is the resumption of trading funds, gold in the fourth and a half from that date to continue until eight o’clock pm, in order to enable investors to invest in gold until late in the evening. It was also decided not to impose fees on the implementation of the trading funds, gold transactions during the day, ie twenty-fourth of April.

IPOs need to be priced right

The year 2012 has seen nine public issues so far. Of these, three, or one-third, have been withdrawn and one is yet to be listed. Of the remaining, four are trading at a discount and only one is above par. In 2011, 44 initial public offerings (IPOs) and three follow-on public offerings (FPOs) entered the market. And 11, or less than 24 per cent, are trading above issue price.

Price is the reason for investors to stay away from IPOs. There is a general sense of apathy among investors after having lost money in IPOs. This explains why the primary markets are in a bad shape. That the secondary markets are not doing well, either, is not helping investors. Markets, over the last 18 months, have not returned money to investors. Assets under management of equity funds have faced redemption pressure during this period.

The only way to rejuvenate the primary market is to get the IPO price right. So, what is the 'right price'? This is a difficult question and calls for some effort and sacrifice from the promoters and merchant bankers. The sacrifice would be in terms of the company's valuations, since if the amount raised is low, merchant bankers would earn that much lesser.

Every company tapping the capital markets has a peer group. The company and its business model would be comparable with this group. A fair price would be based on the company's earnings per share (EPS) compared to that of the peer group, with a discount (as an unlisted company comes with risks).The complaint of overpricing of IPOs against merchant bankers and promoters stems from the fact that the fees paid are linked to the company's valuation. Higher valuations fetch higher fees for bankers. So, merchant bankers push through a higher price for the IPO, with the help of media hype. Naturally, post-listing, the issue bombs.

SEBI does not allow future projections to be disclosed. Looking at the past numbers and peer group, one gets enough indications of a company's potential. To extrapolate the financials after a year of listing is easy. But one appreciates there are reasons like market conditions, which make predicting the forward price difficult.

It is easier to predict the performance of the company and its earnings. Analysts have been doing this regularly, with fairly decent accuracy. If the performance and earnings of a company are predictable and one has a decent peer group comparison, why can't the right price be arrived at by calculating backwards?Before SEBI, the Controller of Capital Issues (CCI) was the regulator. Merchant bankers had to explain to CCI why their issue commanded a higher valuation. There was a procedure and formula laid down for calculation of premium. One does not want to revisit the days of CCI. But further deterioration of the primary market is imminent, if the present overpricing regime continues.

In all, 181 listed entities would be floating issues worth Rs 27,000 crore by June 2013. Only then can the promoter shareholding be brought below the threshold limit of 75 per cent. If PSUs are also considered, the number grows by another Rs 12,000-13,000 crore. The combined figure of Rs 40,000 crore excludes fresh offerings from both private and government companies. With such a big pipeline, investors need to be choosy and pick only those with the right price.

The future will demand fair pricing from promoters and merchant bankers. These two also have to ensure they are available for discussion on the company's performance after listing. At the end of the day one should only invest in performing companies.

India among the Top 5 Billionaires

Nothing hits the headlines more than news about billionaires and their wealth as people never miss to garner information on the rich

As per the 2011 Wealth Report here is a list of 5 countries with most billionaires.

1. USA
Number of billionaires: 396
Total Population: 307,006,550

The US has the largest and most technologically powerful economy in the world, with a per capita GDP of $48,000.

The United States is the largest importer of goods and third largest exporter, though exports per capita are relatively low.

The global economic downturn, the sub-prime mortgage crisis, investment bank failures, falling home prices, and tight credit pushed the United States into a recession by mid-2008.

2. China
Number of billionaires: 72
Total Population: 1,331,460,000

Since the introduction of market-based economic reforms in 1978, China has become the world's fastest-growing major economy and the world's largest exporter and second-largest importer of goods.

It is the world's second-largest economy, after the United States, by both nominal GDP and purchasing power parity.

Much newsprint has been dispensed recently discussing China racing past Japan to become the world's second-largest economy.

The second quarter of 2010 saw China's gross domestic product standing at $1.34 trillion and Japan's at $1.29 trillion.

3. Russia
Number of billionaires: 58
Total Population: 141,850,000

Russia has a market economy with enormous natural resources, particularly oil and natural gas.

It is the 10th largest economy in the world by nominal gross domestic product and the 6th largest by purchasing power parity.

Another problem is modernisation of infrastructure, ageing and inadequate after years of being neglected in the 1990s; the government has said $1 trillion will be invested in development of infrastructure by 2020.

4. India
Number of billionaires: 47
Total Population: 1,155,347,678

The Indian economy is the world's ninth-largest economy by nominal GDP and fourth largest economy by purchasing power parity.

India has become one of the fastest growing economies, and is considered a 'Newly Industrialised Country'.

However, poverty, illiteracy, corruption and inadequate public health still remain the country's major challenges.

5. Germany
Number of billionaires: 43
Total Population: 81,879,976

Germany has the world's fourth largest economy by nominal GDP and the fifth largest by purchasing power parity.

It is the second largest exporter and third largest importer of goods.

Germany has been the home of many influential scientists and inventors, and is known for its cultural and political history.

Source - Rediff.com
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Petrol prices likely to increase by Rs.1.82 !!

India again encounters a hike in petrol prices by Rs. 1.82 a litre after a recent hike in petrol by Rs. 3.14 a litre on 16^{th Sep} 2011.

Though the pricing of petrol was freed from government controls in June last year, state-owned oil firms 'informally' take directions from the oil ministry. It remains to be seen if the government will concede to the demand of oil companies just before the winter session of Parliament.

State-owned oil companies Indian Oil, Hindustan Petroleum and Bharat Petroleum last hiked petrol prices by Rs 3.14 a litre on September 16 when the rupee was ruling at about 48 to one US dollar. The local currency has depreciated further and is now trading at over 49 against the American unit.

Crude oil is hovering at around $108 per barrel in international markets. At current exchange rate, petrol price of Rs 66.84 per litre in Delhi corresponds to about $102 per barrel equivalent of crude oil price. The loss on petrol at present is Rs 1.50 per litre and after including local levies; the desired increase in retail prices is Rs 1.82 per litre.


An official from the Oil ministry said, “It may happen. We will see."