Financial planner Dilip Samant underlined the importance of savings and talked about investment options and how to pick the right ones, at a Moneylife Foundation workshop
"It's not how much you earn that is important, but what matters is how much you save and for how long," Dilip Samant, Mumbai-based columnist and financial planner with Golden Investments, said today.
"You spend around 200-250 hours a month to earn money, but your spending continues for more than 720 hours every month," he said. Therefore, "saving is important, to strike a balance."
Mr Samant was addressing the first seminar conducted in Marathi by Moneylife Foundation on financial literacy. To underline the importance of saving, he described the case of Chandulal Shah, founder of Mumbai's Ranjeet Studio, who despite being rich and a millionaire at one time, ended up on road side mainly because of a careless attitude with regard to his earnings and practically zero savings.
He elaborated on the basics of understanding the financial circle, from bank accounts and transactions, various types of insurance, loans, to savings and investments, emphasising a right and timely approach and the need for due diligence before buying financial products.
He also described various investment options like fixed deposits, mutual funds, equities, gold and silver, as well as real estate, as the way to provide for future needs.
Mr Samant explained the documentation required to open a bank account, the types of bank accounts, advantages and disadvantages, interest rates, income-tax rules, penalties and the security of funds with banks. He also talked about credit and debit cards and cautioned people to be careful with the ATM PINs.
He discussed various investment platforms such as banks, cooperative societies and even bhishi (chit fund schemes).
Mr Samant also dwelt on home loans and education loans, and how to go about getting the loan from a bank. He assessed and explained the pros and cons of investment in real estate, and elaborated on investing in a new house, newly built property and housing under construction. "Always carefully assess the monthly EMI and read the loan document in detail," Mr Samant advised the participants.
On insurance, he explained the different types of policies-life, education and health insurance-and how to select the right policy. "The attitude of insurance as an investment is a wrong approach. One should have a policy just to take care of future uncertainties," he said.
Mr Samant said it was very important to know when, where and how to invest and he gave an in-depth presentation with examples ranging from fixed deposits to gold and the risks and advantages associated with these. "Make your money work for you. Just keeping money is not an option; but investing it rightly is the wise thing to do," he said.
Focusing on the returns on investment, he compared various options in the context of the impact of inflation. "Historically, the returns on fixed deposits are negative due to inflation. The real interest on fixed deposits erodes due to the price rise factor," Mr Samant said. He supported his argument with detailed figures of investment and returns over various time periods.
He examined multiple options like jewellery, gold exchange-traded funds, gold savings funds and e-gold/silver. He also discussed equities, mutual funds and systematic investment plans, again with examples that made it easier to understand.
One of the participants raised the issue about multi-level marketing schemes that promised double returns and gave such returns initially. Responding to the participant's question about how investors could guard against being lured by such investment proposals, Mr Samant said, "Any scheme promising such huge returns and not under the scanner of any regulator such as the Reserve Bank of India and the Securities and Exchange Board of India, should be avoided."
On the issue of MLMs, Yogesh Sapkale, deputy editor of Moneylife magazine, also warned against investing in these schemes. "Savings bank deposits give about 4% interest, fixed deposits close to 9% and Employees Provident Fund about 10%. So anything that promises returns more than 10% and seeks to get a large number of people to invest, should be strictly avoided," Mr Sapkale said. He mentioned that the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, was helpful in dealing with such schemes.
Nifty to move between 5,500 and 5,700
Optimism associated with the Greek government securing a crucial vote of confidence for its austerity plan, a necessity to secure a fresh bailout, led the global and Indian markets higher during the week. The domestic market gained 3% this week, making the second weekly gain in succession. However, overall in the April-June quarter the market lost 3%.
Gains in the oil & gas sector, after the government hiked retail fuel prices on 24th June, led to a positive close on Monday. Riding on positive sentiment, the market added modest gains on Tuesday. The positive developments in Greece led the market higher for the next two days.
The market settled lower on Friday, led mainly by huge losses in Reliance Industries. The Sensex closed the week up 522 points at 18,763 and the Nifty settled 156 points higher at 5627. The Nifty is likely to move sideways in a range of 5,500 and 5,700.
BSE Fast Moving Consumer Goods and BSE Realty (up 4% each) were the top sectoral gainers, while BSE Oil & Gas was flat. There were no losers in the sectoral space.
Hindalco Industries (up 8%), Sterlite Industries, State Bank of India (up 6% each) BHEL and HDFC (up 5% each) were the major gainers on the Sensex. On the flip side, Bharti Airtel (down 2%) and Reliance Industries (down 1%) were the main losers this week.
For the period between 1 April 2011 and 30 June 2011, Hindustan Unilever (up 20%) and Hero Honda (up 18%) were the best performers, whereas Reliance Infrastructure (down 22%) and DLF (down 21%) were the biggest losers.
Food inflation fell to a one-and-a-half month low of 7.78% for the week ended 18th June, with vegetables, pulses and potatoes cheaper. In the previous week, food inflation as measured by the Wholesale Price Index stood at 9.13%. In the comparable period last year it was over 20%.
The latest numbers on price rise of food items are the lowest since the week ended 7th May, when inflation was at 7.47%.
On the other hand, the HSBC Purchasing Managers' Index (PMI)-a headline index to measure the overall health of the manufacturing sector-posted 55.3 in June, down from 57.5 in May, and the slowest since September 2010.
June data showed a substantial rise in input costs for Indian manufacturers, driven by higher prices for raw materials. Output prices also increased at an above average rate, but the latest increase was the weakest in seven months as pricing power was restricted by strong competition for new business.
On the corporate front, the government has given its approval to Cairn Energy to sell a stake in its Indian unit to Vedanta Resources, subject to new riders. The Cabinet Committee on Economic Affairs headed by prime minister Manmohan Singh approved the sale with the preconditions that Cairn, or its successor, has to treat royalty payments on the Rajasthan oilfields as recoverable from oil sales.
Also, Cairn India will have to withdraw arbitration proceedings it has initiated disputing its liability to pay Rs2,500 per tonne oil cess on its 70% share in the fields.
On Friday, UK-based Vodafone agreed to pay over $400 million more to its Indian partner Essar for buying its 33% stake in the joint venture Vodafone-Essar. With this, Essar closed the deal to sell its stake at $5.46 billion, as against $5 billion decided earlier.
Essar held a 22% stake in the joint venture through its Mauritian arm and the remaining 11% through an Indian subsidiary.
On the global front, the Greek government won a vote of confidence in parliament with more than half the 300 MPs backing the socialist government of prime minister George Papandreou. The result clears the way for a new financial bailout for the debt-ridden European nation.
China's official purchasing managers' index (PMI) fell to 50.9 in June, down 1.1 point from 52 in May. The continuing drop in PMI implies that China's economic growth will continue to slow down on the back of the rate-tightening initiatives by the government.
The Bulls have succeeded in warding off the bear threat. But as the market nears crucial resistance levels, we could see some profit taking that could result in the Nifty correcting
S&P Nifty close: 5,627.20
SHORT term: Up; MEDIUM term: Sideways; LONG term: Up
The S&P Nifty gained (2.85%) this week as the Bulls succeeded in pushing the Nifty through some crucial resistance levels. The volumes were marginally better than the previous week. The sectoral indices which led the recovery were BSE FMCG (up 4.24%), BSE Reality (up 4%), BSE Metal (up 3.94%), BSE CGS (up 3.93%), BSE Bankex (up 3.71%) and Power (up 3.37%), while the laggards were BSE CDS (up 1.59%) and BSE Oil & Gas (down 0.05%).
One can see from the weekly chart (above) that the S&P Nifty has closed above the recent high of 5,605 points, thus putting an end to the short term decline, at least for the time being. Despite the smart recovery, the histogram MACD continues to be below the median line, implying that the intermediate trend is still down or at best may turn into a sideways trend. Though, it's a bit early at this stage to conclude this.
The sharp rise witnessed in the previous week due to desperate bear covering, saw the Nifty complete the 50% (5,570) and 61.8% (5,658) retracement levels of the fall from 5,944-5,195 points. Contrary to my expectations (of the Nifty retracing the decline from 5,944 points) the Nifty seems to be retracing either the fall from 6,181 or the entire decline from 6,338 points, which gives upside targets of 5,688 (50% of 6,181-5,195, already completed), 5,767 (50% of 6,338-5,195), 5,804 (61.8% of 6,181-5,195) and 5,902 (61.8% of 6,338-5,195).
We saw the Nifty close above the 20 wema pegged at 5,580 points, the first major hurdle for it to cross, but the trendline resistance (in purple) pegged at 5,725 points is the next hurdle to watch out for from an intermediate term perspective.
Here are some key levels to watch out for this week.
The Bulls have succeeded in warding off the bear threat which was looming large a couple of weeks ago. However, as the market nears crucial resistance levels, we could see some profit taking by traders which could result in the Nifty correcting the recent rise from the low of 5,195 points.
We saw the Nifty exceed our maximum expectations of hitting 5,658 points (it reached 5,705 points), but fell marginally short of the trendline resistance mentioned. For the Bulls to maintain their advantage of the last two weeks they must defend 5,420 points (in lows), this week.
At this moment the Bulls certainly hold the edge, but traders should be cautious in the 5,700-5,770 points range, as this is an area of resistance where the Nifty could become overbought in the short term. For those looking for buying opportunities, wait for a dip to the gap area between 5,558-5,566, but a decline close to the 5,420-5,450 range would be the ideal entry point. One thing is certain, that the onus has now shifted on the Bears to defend their castle.
(Vidur Pendharkar works as a consultant technical analyst and chief strategist at www.trend4casting.com.)