Letter from the Editor
There are times when fixed-income instruments do well and there are times when they don’t. Are we witnessing a period when inflation and interest rates are unlikely to decline and, hence, fixed-income products appear to be better options? When volatility of equity markets is making investors jittery, gold is going sideways and real estate prices are under pressure, do fixed-income products offer a window of opportunity to earn steady returns with low probability of capital erosion? In our Cover Story, we list various fixed-income avenues where you can park your money, from fixed deposits to fixed maturity plans to corporate bonds. Turn to page 28 and delve into our deeply researched Cover Story on the world of fixed-income investing.
In her Different Strokes section, Sucheta finds that personal-debt recovery has mushroomed into a profitable, but shady, business. She gives an overview of the business and how it is operated as well as what borrowers ought to be careful about. Unfortunately, not much has been done to regulate the ‘debt doctors’. In her Crosshairs section, she balks at SEBI’s brazen lack of accountability even as it shoots angry letters to us as we exposed the lack of transparency in our Cover Story on PMS.
In our Fund Pointer section, we analyse three well-known mutual fund schemes, namely, HDFC Equity, HDFC Top 200 and Reliance Growth. The first two are managed by Prashant Jain, one of the top mutual fund managers in the country. These were sure to beat their benchmarks all these years. However, all three have performed dismally so far this year. Turn to page 24 to find out why.
Moneylife Foundation conducted 15 events and drew over 1,100 attendees during this monsoon season in Mumbai which is now nearing its end. It recently conducted a successful full-day workshop for students of Centre for Management. We plan to line up some interesting events over the next few months. Please do write with your suggestions and become a member of the Foundation, if you are not one. It’s free.



Suiketu Shah

4 years ago

Goes to show you might have the best fund managers managing mutual funds but there is no guarantee of success.Expertise is one thing,intention is another and the intent of most mutual funds is to fool the retail investor.It is best to rely on moneylife mutual fund list in the magazine which is far better than any Prashant Jain's in India.

US Fed leaves stimulus unchanged at $85 billion

Tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labour market, the US Fed said

The US Federal Reserve has left its $85 billion per month stimulus programme in place, against broad expectations that it would reduce it as the economy grows.


Fed policy makers instead cut their growth forecast for this year and next, suggesting the economy is feeling the impact of Government spending cuts and continues to struggle to break free from the Great Recession.


The Federal Open Market Committee (FOMC) said that although the economy appears to be holding up amid Government “sequester” spending cuts, it “decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.”


In addition, it pointed to the impact of a sharp rise in interest rates since May as possibly already slowing the economy.


“The committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall,” it said in a statement at the end of a two-day monetary policy meeting.


“But the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labour market,” it added.


The Fed had been widely expected to begin reducing the bond-purchase programme, aimed at pulling down long-term interest rates, after Fed Chairman Ben Bernanke predicted in May that the stimulus operation could be tapered late this year.


For most analysts, the debate was only over how much the quantitative easing (QE) bond purchases would be cut — with the guesses from $5 billion a month to $25 billion a month.


But the FOMC decision was not a departure from what Bernanke has stated publicly. He has consistently said the taper of the QE programme could begin sometime late this year, if the economy continued to gain broadly.


The FOMC acknowledged that the economy is still expanding “at a moderate pace,” and that labor market conditions — a central focus of current Fed policy — have improved in recent months.


However, it noted, the jobless rate at 7.3% in August “remains elevated.”


The US Federal Reserve has cut its economic growth forecasts for this year and 2014. The US economy was expected to grow between 2.0 and 2.3% this year, instead of the 2.3-2.6% range seen three months ago, the Fed said.


For 2014, gross domestic product growth was trimmed to 2.9-3.1%, from the June estimate of 3.0-3.5%.


The central bank’s unemployment outlook improved slightly for this year and the next.


The 2013 jobless rate was estimated between 7.1% and 7.3%, the Fed said, while in 2014 it would fall to 6.4-6.8%.


The central bank shaved a tenth point off both years’ low-end estimate.


Tame inflation forecasts continued to remain well below the Fed’s 2.0% target for price stability.


The 2013 estimate for core inflation, stripping out food and energy price changes, was unchanged at 1.2—1.3%. The rate was not expected to climb as high as 2.0% until 2015. For the first time, the Fed provided forecasts for 2016.


GDP growth would slow to 2.5-3.3%, while the unemployment rate would fall to 5.4-5.9%. Inflation in 2016 was projected at 1.90-2.0%.


According to the updated forecasts, most Fed policy makers see the first hike in the federal funds rate in 2015.


The FOMC said, after a two-day monetary policy meeting, it was leaving its key rate at an ultra-low 0-0.25%, where it has been since 2008.


The policy makers said they would keep it in this exceptionally low range, where it has been since late 2008, as long as the unemployment rate remains above 6.5% and inflation does not threaten.


Depositors Apathy

I would like to say a big thank you to the Moneylife team for the most useful “Survey on bank charges" (Moneylife, 5 September 2013). I would like to put our relevant comments as under:


1. As far as a large number of depositors not being aware, or keeping track, of their right to know the bank service charges is concerned, it is unfortunate. This is a part of the larger consumer malaise. In spite of NGOs and activists’ exhortations, supported by the government campaign Jago Grahak Jago, consumers, in almost all segments, do suffer from lack of awareness. It is high time consumers develop this awareness, instead of blaming the government authorities or such defaulting service-providers.


2. From our own experience, we do not agree with the defensive statements of the BCSBI (Banking Codes and Standards Board of India) or the chairman AC Mahajan—that they are unable to act for lack of ‘authority’. In fact, in 2007, BCSBI was vested with powers (by the regulator Reserve Bank of India—RBI) to be the ‘monitoring authority’ to vouch for the ‘reasonableness of service charges’. BCSBI has completely abdicated its responsibility and duty on one pretext or the other. On a specific complaint to decide/ monitor the ‘reasonableness’ of a specific service charge of a bank, the then senior vice president of BCSBI obfuscated with a wrong or irrelevant answer, despite the fact that BCSBI was the designated monitoring authority for ensuring reasonableness. Later, IBA (Indian Banks Association) was entrusted with the task of considering a cap/ ceiling on some basic banking services in 2010. What we asked was just to decide if the charge was reasonable.


We again wrote to RBI asking if BCSBI was divested of this ‘monitoring authority’. RBI replied in October 2011, “These instructions/ authority of monitoring have not been cancelled/ modified so far.” Who is speaking the truth was thus a mystery for us.

So we again wrote to BCSBI president, in November 2011, asking them to do the necessary task of just “monitoring, as to the reasonableness of the charge”, but the BCSBI did not reply.


In our reminder to RBI, we asked why the ‘empowered authority’ BCSBI was not responding to our ‘monitoring’ request. RBI finally closed the issue by simply reiterating what it wrote earlier that the ‘designated monitoring authority” is still BCSBI.


Is this not deliberate abdication of the duty? Or, are they also in league with the IBA and are encouraging the ‘profiteering’ of their member banks?


Agreed that BCSBI has no power to punish or take action against the defaulting bank, but they could have at least ‘monitored the reasonableness’ and given their finding to the complainant. If the monitoring found the charges unreasonable, it should have referred the matter to the bank or RBI for necessary action. But it did not.


ASCI (Advertising Standards Council of India) is also a toothless body for taking action against “misleading or false advertising.” But, at least, it decides if the advertisement in question is against the ‘code of conduct’ and advises the advertiser to stop/ withdraw such advertisement.


But BCSBI totally neglects its duty to ‘monitor the code of conduct’ to be followed by banks. What is the need of such a body then? It is a sheer waste of public money.


3. As far as the charges for return of cheque, RBI has recently clarified that the bank is not supposed to levy ‘service charge’ if the cheque is returned on any ‘technical ground.’ Those grounds have been mentioned in its circular and are also available on RBI’s website. The concerned account-holder should verify if any technical reason applies to his case and yet the bank has charged. Then, he is definitely entitled to get the charge reversed.


4. As far as the varying practice and confusion on calculation of minimum balance is concerned, it is also clearly specified. If the ‘quarterly minimum balance’ (QMB), say, is Rs5,000/-, then the average of the all days of three months should be taken to check if it has gone down to less than Rs5,000/-in any quarter. In the case of banks which keep minimum balance on monthly basis, it has to be average of the number of days in that particular month. If the depositor finds that this is not followed, he/she must immediately take up the matter with the concerned bank.


5. The finding that the bank service charge for NEFT transfer is applicable only for a sum beyond Rs1 lakh is not correct. Banks do charge for any transaction through NEFT. For instance, ICICI Bank charges for transfer through net (to any other bank account in India) as under:

Up to Rs10,000 – Rs2.50 + ST

Rs10,000 to Rs1 lakh -  Rs5 + ST

Above Rs1 lakh Rs15 + ST.

This information is given on their website and notice board.

Mohan Siroya, by email


Irrational Endorsements

Celebrity endorsements have been used to advertise products/services. Earlier, these endorsements related mainly to products like hair oil, toilet soaps, shaving creams, perfumes, etc. Today, the product portfolio has undergone a major transformation. Amitabh Bachchan sells everything from hair oil to pens to Maggi noodles. Hema Malini endorses a brand of water filter. Kajol endorses Rin, Diapers and wrinkle-free cream. There is a host of actresses who endorse shampoos. Shah Rukh Khan endorses watches.


Mr Bachchan and his daughter-in-law have also been endorsing jewellery brands. In the process, these celebrities end up earning large sums of money, while the consumer ends up shelling more from his pocket as the manufacturer/seller would have factored all these costs in their pricing.


Of late, celebrities have gone one step ahead and begun promoting financial services. While Hema Malini is a brand ambassador for Bank of Rajasthan, Juhi Chawla is asking people to become customers of Dena Bank. What rankles is the manner in which some celebrities are endorsing financial products like gold loans.


Take the case of Manappuram gold loan. Akshay Kumar and Mohanlal have been reportedly paid Rs5 crore each for endorsing this brand while other stars, like Venkatesh (Telugu actor), Puneeth (Kannada actor) and Vikram Kenny (Tamil actor), have been paid sums exceeding Rs3 crore each for endorsing the brand.


As a consumer, I have a question to ask. Tomorrow, if this company goes bust, and if its promoter becomes insolvent, will all these celebrities compensate the victims?


The point that I am trying to make is: Why are corporates hell-bent on celebrity endorsements when their financials are not so good? Has any research been done that correlates celebrity endorsements to increased revenues? If not, how can they be so sure that spending a fortune on celebrity endorsements is going to increase their bottom line? Lastly, there has to be some accountability that needs to be fixed on celebrities for endorsing ponzi schemes, chit funds, gold loans, etc. The celebrities need to be socially responsible before they endorse something that can probably wipe out a citizen’s lifelong savings. Is there no statute/ legal body in India that can actually provide a framework for celebrity endorsements in case of financial services?


Can Moneylife’s legal expert throw light about the scenario prevailing in Western countries?

Valliyur Satyavageeswaran, by email


Excellent Article

This is with regard to “Fish for Undervalued Stocks” by R Balakrishnan. Excellent article. I am enlightened.

Samir Roy


Annuity to the Corrupt

This is with regard to “Food Security Bill passed. What about food supply security?” by Yogesh Sapkale. Madam Sonia has hammered the first nail on the coffin of India, just to ensure another victory in an election. Every few years, food output will fall. Grains will be imported, giving an annuity to the corrupt.

R Balakrishnan


It is a Farce!

This is with regard to “Portfolio Management Schemes: Will Your Portfolio Blow Up?” by Debashis Basu & Jason Monteiro. Thanks for the interesting article on PMS. This is a farce. Most bank employees have no idea of PMS and relationship managers who handle your account ‘personally’ are novices. They have no training. It would be in the interest of the public, who are keen to take advantage of the investments in shares, to read and gather information. The public could do so simply by reading unbiased journals like Moneylife and then take their own decisions. As a start, they would do well to invest in dividend-paying blue-chip companies and not indulge in trading. Then, they must keep a daily watch on the price movements, keep records and read selected newspapers that write on such matters, for additional information. Brokers are only concerned with making money in commissions for themselves. One must avoid them like the plague!

Dr Anantha K Ramdas


Liquid Estate for Family

This is with regard to “LIC agents likely to recommend less suitable product: Harvard Study.” Term insurance covers risk of death. Endowment policy covers risk of death and also provides for life after retirement. Modern investment gurus, who tom-tom term insurance, often ignore this aspect. Endowment policy creates liquid estate for the family, when the proposer pays the first premium which no other asset class does. Life insurance is first-class investment!

Rajendra Athalye


Sceptic Investors

This is with regard to “Why traditional Indian investor is not interested in equities and other products” by Vivek Sharma. While investing in stocks, being gullible is a major handicap. Sceptics tend to survive and prosper; to be sceptical is a necessary pre-condition for becoming a better investor.

Nilesh Kamerkar


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