Family Relationships
Please refer to Mind Your Broker by Sucheta Dalal (MoneyLIFE, 24th April). I would like to narrate a real-life story. One day, a senior citizen walked into my office; he was emotionally disturbed and upset about something. As a member of a regional stock exchange, and hailing from a family having its roots in the share-broking business from as early as the 1930s, we retain the habit of personally meeting new clients/first-time investors, before we hand over their affairs to our dealers. Used to this ‘bad’ habit, I met this gentleman, who was in his 70s, and I spent almost an hour with him. This was his story: He retired from military service about two decades ago and has all his savings in his bank account. Fifteen years ago, his bank manager, whom he trusts, suggested that he apply for a new issue and he did. Although he was allotted a small number of shares, he soon found there were no trades in the stock after the stock market crashed in the 1990s.

A couple of years ago, his neighbour, a trader, told him that the stock was trading again. He then approached a big broking outfit, which is a big advertiser through newspapers and magazines and has huge public hoardings, convinced that it was the right firm to help him encash his investment. He was also impressed by the office interiors and the reception he got at the firm. But his comfort was short-lived. Things changed the moment they assessed the unimpressive size of his portfolio. He was made to wait in the lounge for a very long time and had to make several visits before he could finally open a demat account in order to dematerialise his shares. He was made to sign a lot of papers without proper explanation and cursed himself for entering the capital market. As a senior citizen, he was also apprehensive about the many signatures taken from him.

He was terribly upset at how he was treated by the firm with nationwide branches. Somebody suggested that he try out a ‘small broker’; hence, he came to me. He was happy that he could finally speak directly to somebody responsible and knowledgeable -- the broker himself. I put him on to my dealer after explaining to him about the purpose of the demat account and the latest procedures to open a broker trading account.

Two days later, after collecting his payment from our office, he walked into my room, visibly moved and in tears. He blessed me and my wife, who is a post-graduate and works with me. He was very happy about the way we handled his account. He told us that, at one stage, he wanted to get out of the equity markets due to the earlier experience and, after this interaction, he would like to reconsider his decision. This is not “chicken soup for the equity soul”… it is a real incident. In a country with less than 1% of its population investing in stocks, this breed of smaller traditional brokerage firms, who were instrumental in creating the equity markets in India, are doing a wonderful job to retain and bring small investors to the markets. But in a world that thrives on media glitz, nobody has recognised this fact. I am glad that your magazine has done it.

Traditional broking houses act more responsibly because of their long-term relationships with clients. In some firms, the relationship dates back a few generations and they are close family friends. Brokers are a part of the investors’ family and attend their family functions. This also helps them jointly plan their investment needs and set goals, based on the family’s needs. These brokers try to be more sincere in advising clients because, if things go wrong, they are answerable to the investor as well as his extended family that calls them ‘uncle’ and ‘bhaiyya’. Thank you, once again for recognising the need for and the usefulness of smaller and traditional broking houses.
Nagappan V, (trading member) director, Madras Stock Exchange and chairman, Federation of Indian Stock Exchanges, by email

MINDLESS REGULATION
I am an avid reader of MoneyLIFE. The magazine really covers a lot of problems faced by small investors. So I just thought I will mail you this story. I live in a small village in Karnataka where I have a stock-broking office. I come across problems that investors face when they want to open demat accounts, since they hold shares in physical format. They ask me questions like how is it possible that a telephone bill can be an address proof for opening a bank account but not for a demat account. I have no answers.

One of my friends wanted to open a demat account. He resides at Bengaluru and wanted his permanent address in his hometown as his address, since his parents are settled there. He had a telephone bill as proof of address but it was in his father’s name. Strangely, the CDSL does not allow this. It needs proof of address to be in the name of the person opening the account. Since PAN is now compulsory and it contains the investor’s father’s name, isn’t it logical to allow the phone bill in the name of the parent to be a valid proof? I hope you put this view across to SEBI.

I suggested that he should open a bank account by providing the telephone bill and now his new passbook was ready and his demat account was opened as well. SEBI needs to look into these small matters that cause a lot of hardship to new investors.

Working in a rural area has opened my eyes. One of my clients gave me a cheque for Rs2,000 drawn on a bank in his native place (since we can’t take cash and a cheque has to be given from a designated account of the client) which was five kilometres from my town. When I deposited it in my bank, the proceeds were credited after 15 days with Rs80 as collection charges. Unbelievable but true. And, the less said about the recent Reliance Power IPO, the better. While one client got his refund twice, two others got it after a good 100 days and that too without interest.

Anyway, keep up the good work you do through your magazine. I am happy to see that the genuine concerns of the investing fraternity are taken up by MoneyLIFE.
Gopinath Prabhu, Guru Nivas, Main Road, Ujire 574240, Dakshin Kannada District, Karnataka

INTERESTING VIEW
This refers to your cover story “U Turn on D Street”. Everything that goes up has to come down and vice versa. It applies to the Sensex also. Moreover, when international crude oil has touched $135 a barrel and inflation, rather than growth, has touched double digits, our economy will be affected and tested because these are tough times. The money managers’ advice on various issues made for interesting reading. Hopefully, retail investors will learn a lesson or two from their perspective and not panic
Bal Govind, Bareilly, by email

MISLEADING RESEARCH by broker
The last issue of MoneyLIFE was terrific. Blue Star is at a tired stage and AurionPro is risky, although it has a good management and performance. XL Telecom is surely a buy with a one-year view. In the past two issues, you have provided research on quality stocks such as Nava Bharat, Genus and XL. I expect you will cover Omnitech, Mercator, Bhagwati and Brigade, etc, in future. No other magazine covers such a range. In the cover story, it was fun to read Tushar Pradhan’s views. But if FIIs have not sold too much and mutual funds are also heavily invested, there is more worry because the market has great digesting power -- it can eat billions in a single day.

Sucheta Dalal, as usual, pointed to the rigging in Khoday India through doctored research. Khoday was the top pick of many brokerages. There are many such stories. Once Prabhudas Liladhar hurriedly brought out a report on Glory Polyester after the crash in January; it was then trading at Rs120. Within a few months, the price halved. The scrip was apparently kept stable during the market correction in January and the stock was distributed to aam aadmi in February and March when the market had stabilised. Its EPS for FY08 is just two rupees.
Santosh Mhamunkar, by email

NO HOMEWORK
This refers to the informative column “Outdoor Training” (MoneyLIFE, 3rd July). Many professionals work from home where there is no office atmosphere and work culture. There is also interference in the form of social visits by friends, acquaintances and relatives. This invariably disturbs the work environment of an office place and also disturbs family life. It can also affect one’s health, since the office runs round the clock. You feel, at times, that you have not worked hard enough for the day. Actually, such a feeling arises because you are working and living under the same roof. Every human being needs a change of place now and then. The office should never be situated at home. Get an office near the house -- either owned or rented.
Mahesh Kapasi, New Delhi, by email

UTI’s response on scup
We refer to your article on ‘SCUP: The Unanswered Questions’ (MoneyLIFE, 3 July 2008) and thank you for guiding investors who approach you to submit redemption forms. Senior Citizen’s Unit Plan (SCUP) was terminated at the close of business on 18 February 2008 in accordance with the established business principles and in the interest of the unitholders to avoid any capital erosion and after due consideration of all the facts and circumstances and with the approval of Government of India and SEBI. A public notice was issued in Business Standard on 8 January 2008 and individual letters have also been sent to each member. The advertisement also appeared in the following newspapers on 26 January 2008: Lokmat, Lokmat Samachar, Lokmat Times, Dainik Jagran, Dainik Bhaskar, Gujarat Samachar, Sambad, Ananda Bazar Patrika, Daily Ajit, Asomiya Pratidin, Dina Thanthi, Vijay Karnataka, Malayala Manorama and Eenadu. We have retained the interest of investors who have completed the age of 58 years, by continuing hospitalisation medical cover through New India Assurance Co Ltd. Investors who have any query can contact us on the toll-free number at 1800221230 or can SMS at 5676756 or email to uticustomercare@ uti.co.in. We assure our quick reply and guidance to each member on the basis of the details provided like membership certificate/folio number. We would like to express our thanks for the interest taken by you to explain the details to the investors and to provide guidance to them.
KP Ghosh, VP, Department of Investor Service, UTI, by email

HELP US TO HELP YOU
MoneyLIFE offers its readers a unique service -- of helping redress individual grievances on a best-effort basis. However, we have limited resources to devote to this effort and can only pursue complaints that come to us by email. We request readers to please send us crisp complaints with all the facts on email (not as an attachment) and send us the supporting documents only if we ask for them. We cannot handle physical letters. -- Editor

HOW TO REACH US
Letters to the Editor can be emailed to [email protected] or
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The Editor, MoneyLIFE Magazine, 7 Nagree Terraces, Soonawala
Agiary Lane, Mahim (W), 400 016 or faxed to 022-24442771.
Letters must include the writer’s full name, address and telephone no.
and may be edited for clarity or space.
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Systemic Roadblocks
I have often argued that India has rushed in to adopt several technology-intensive online systems that are shutting out large sections of the population who are not tech-savvy or do not have access to infrastructure available in urban centres. Even for those who can use online systems, the experience is often very frustrating.

Our cover story this time outlines the problems unleashed by e-filing of tax returns. Similarly, the capital market has been transformed by automation but the retail investor population has shrunk. Unfortunately, successive chairmen of the Securities and Exchange Board of India (SEBI) have been too busy pushing the automation agenda to bother about those who can’t keep up. The five-year bull-run and the gush of foreign investment allowed them to do so.

This issue of MoneyLIFE has two letters exemplifying the travails of retail investors wanting to access the capital market. The first is about the mindless application of Know Your Customer (KYC) rules often frustrating the opening of demat or trading accounts. Gopinath Prabhu, who runs a brokerage firm in a small town near Mangalore, says his friend’s demat application was rejected because he could not produce proof of residence as the house was in his father’s name. Prabhu asks a common sense question: if the submission of a PAN is now mandatory and the PAN card states the father’s name with the same address as in the application, why shouldn’t the telephone bill in his father’s name be an acceptable proof? After all, India has a joint family system.

Ironically, the same telephone bill allowed the friend to open a bank account in the same town and, as Prabhu suggested to him, the bank account allowed him to obtain a demat account. In effect, he found his own solution to the mindless, bureaucratic obstacle. But can’t the process be made less frustrating? We have written to SEBI and will wait for an answer.

Similarly, investor participation in the primary and secondary market is hampered for want of market infrastructure. Vijay Samant has written several letters to SEBI pointing to the fact that several initial public offerings didn’t have a single bidding centre or a banker to the issue in the entire state of Goa. Investors determined to apply had to send their applications to Mumbai, wait for refunds and fork out hefty bank charges for outstation cheques.

Prabhu also writes about how it took 15 days to clear a cheque of Rs2,000 from his client, from which the bank deducted Rs80 as collection charges. That both these cases pertain to prosperous states of India, with strong investment ethos, reflects the poor reach of the domestic market infrastructure.

Then there are cases like the one mentioned by Nagappan V of the Madras Stock Exchange (see Letters to the Editor), where a retired military officer is frustrated by the callous treatment meted out to small investors by large brokerage franchisees. In one of our earliest issues of MoneyLIFE, I had written about another retired brigadier, who was about to be cheated by his broker (but was saved by our intervention), when he tried to encash some long-term holdings to raise money for his wife’s medical treatment. In that case, a broker of the Mangalore Stock Exchange was masquerading as a member of the Bombay Stock Exchange where he operated as a sub-broker. In this case, even caveat emptor (buyer beware) would not have helped in the absence of a centralised, exchange-wise broker list being available to investors. We took up this issue with the regulator a couple of years ago but nothing has changed.

Instead, brokers caught in wrongdoing can now get away by filing consent terms and paying a paltry fine without admitting or denying guilt. The practice is borrowed from the Securities Exchange Commission of the US, but unlike it, SEBI’s website provides no details of the charges against the brokerage firm, leaving an investor clueless about the gravity of their misdemeanours. Indian investors can only hope that when foreign investment interest begins to flag, our policy-makers will pay attention to domestic investors’ needs

Ms Dalal is the Consulting Editor of MoneyLIFE. Subscribers get free help in resolving their problems with select providers of financial services. She can be reached at suchetadalal @yahoo.com

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Famous Bets & Prediction Markets

Ted Seides is a principal at Protégé Partners, a money management firm in New York. Some time...

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