At a Moneylife event, where all the seats were booked, Debashis Basu, explained in detail all the things that a saver needs to know about how and when to invest in stocks and bonds
With the BSE Sensex near its all-time high, and with bonds yields currently above 8.50%, is it the right time to buy stocks and bonds? At a Moneylife event titled, ‘Get the Price, Value and Timing Right!’, Debashis Basu, editor and publisher of Moneylife, explained all that a saver needs to know about how and when to invest using a methodical approach.
In the first part of the session, Mr Basu captivated the audience by explaining how over the past few decades scientists have made stunning discoveries about the way the human mind decides about risks, rewards and chances of win or loss. “They have found that our brain is not consistent, efficient and a logical device we think it is,” he explained. He further elaborated on how these discoveries make us aware of our behavioural biases and become better investors.
As the markets were moving sideways for most past of the last three to four years, fund houses have been constantly pushing debt funds as safe products. However, as Moneylife has pointed out many times in the past and reemphasised in the section on when to buy bonds and bond funds, the returns from debt funds can be volatile and low. When comparing the returns to fixed deposits, debt funds may not always be a better option even post-tax. How the returns from debt can be better by having a sense of timing. Mr Basu explained how one could time their bond investments by analysing bond yields.
Many investors seek, and blindly follow, tips and advice that are freely available. Most do not follow the process or have the discipline to cross-check the facts and invest with conviction. An average investor has generally no clue about what he is buying or selling. In an exclusive session on stock, Mr Basu explained how to pick the right stocks at the right time and exit profitably. During the course of the session, he explained different valuation metrics, like the cash value dividend yield, enterprise value multiple, etc to pick stocks. By giving historical evidence, Mr Basu showed how investors could time their buying and selling using different metrics.
The session included a lively interaction where Mr Basu not only answered the query of participants but also gave them information on different books and websites which the participants could read up on and hone their investing skills. The participants were also given an exclusive preview of Moneylife’s path-breaking new service that will equip savers with a select list of products and timely information they need. The participants of this event also received an exclusive discount for subscribing to this new service.
Smart saving and smart investing is all about buying the right product at the right time. If you missed out on this event, not to worry, Moneylife will be conducting many more sessions such as this in future. Keep yourself updated on such events and new services, click here to become a Moneylife member.
On World Consumer Rights Day, customers, who have been cheated by banks and their relationship managers and are willing to wage war for justice have something to cheer. Well known Singer-actor-author Suchitra Krishnamoorthi has reason to celebrate Friday after the Hong Kong and Shanghai Banking Corporation (HSBC) suddenly called her for a discussion and settled her case in less than 24 hours and handed over a cheque. Moneylife Foundation, which has relentlessly pursued this case with the Reserve Bank of India (RBI) knows that HSBC officials were summoned by the banking regulator, which had also made its displeasure clear. This was in addition to the show cause notice served to HSBC last year by the Securities & Exchange Board of India (SEBI), which covered the mis-selling and hefty churning of Ms Krishnamoorthi's portfolio causing a loss of just under Rs30 lakhs in fees and loads alone.
We understand that the amount that HSBC paid out may cover Ms Krishnamoorthi's entire loss, but thanks to the terms of the settlement agreement, we will never know whether it included interest and compensation for the harassment and mental stress over the past five years, when she found that the so-called expert wealth managers from the bank had misguided her on almost every investment -- a dubious smart loan for her home, unit linked insurance products and churning of mutual funds. Ms Krishnamoorthi had availed of help from Disha Financial Counselling, where R Gopalakrishnan had helped her crystallise her loss. This was then presented to the RBI as well. Moneylife had also helped crystallise the exact loss caused by the churning of her mutual fund portfolio.
Here is a narration of how the story unfolded over the past two years:
Moneylife published an expose' in April 2012 on how HSBC looted Ms Krishnamoorthi for over five years by promising an extravagant assured return of 24% from mutual funds as well as insurance.
Last year in November, market regulator SEBI sent a strongly-worded notice to HSBC asking the lender to explain why its acts in handling the portfolio of Ms Krishnamoorthi were not in violation of its regulations governing fraudulent and unfair trade practices and violation of the code of conduct governing mutual fund distributors.
Whenever she complained about losses in her account, the standard reply from HSBC Bank was that the relationship manager has been fired and that the bank will make up for the losses with judicious investments. Needless to say, the losses were never made good.
The modus operandi for HSBC in this case had been a combination of toxic churning of the portfolio management system (2% entry load on every purchase made by it on behalf of client), insurance products promising 24% returns, insisting on her taking a loan instead of withdrawing funds without even disclosing that the client was entitled for a smart loan.
The officers of HSBC Bank also informed her that “portfolio management is one of the prime businesses of HSBC Bank other than banking” and assured her “a minimum of 24% pa return” on her investments. However, following her complaint to the officials of the bank, she had told Moneylife that HSBC Bank was claiming that they had not acted as portfolio managers but merely advised on the management of her wealth.
This also is a case of systematic looting and exploitation of emotionally vulnerable who had received Rs3.6 crore as part of a settlement in September 2006. The money was supposed to be the means of livelihood for herself and for her daughter. The bank used confidential information about the hefty deposit in her savings account and began to market its toxic services to her. Since bankers are seen as trustworthy, she believed that her relationship manager was advising her correctly.
The end result after five years was Rs83 lakh—direct loss from investment, about Rs28 lakh in commission to HSBC, Rs8 lakh (50% of investment) lost from an insurance policy, Rs10 lakh (again, 50% of investment) valuation decline in insurance policy still in force, Rs4.5 lakh tax paid on redemption of short-term mutual funds (including Rs1.85 lakh penalty to the Income Tax department due to non-disclosure of gain by HSBC to the client) and Rs58 lakh interest on home loan earned by the bank. Of this, only the interest component on the loans seems to have been seriously disputed by the bank.
Moneylife reviewed Ms Krishnamoorthi’s mutual fund transactions and found massive malpractices by HSBC
• Her mutual fund portfolio was continuously churned resulting in high transaction costs in the form of entry loads and exit loads. While several transactions led to huge losses for her, HSBC was the gainer of commissions.
• Out of the 75 transactions made, nearly 60% of the transactions were in equity schemes kept for a period less than one year. Here investments were made in schemes like HSBC India Opportunity Fund and HSBC Mid-cap Equity Fund, both of which have been underperformers. Apart from these, majority of the investments were made in balanced schemes of HDFC Mutual Fund, ICICI Mutual Fund and Sundaram Mutual Fund.
• The worst part of the transactions came around the market peak in November 2007 where nearly Rs3 crore was invested across five schemes on a single day which included over Rs1.67 crore invested in three sector schemes—ICICI Prudential Infrastructure Fund, Sundaram CAPEX Opportunities and Reliance Diversified Power Sector. Nearly Rs50 lakh was invested in Sundaram CAPEX Opportunities which has a current corpus Rs200 crore.
• The investments from all sector schemes were withdrawn between June and August 2010 at a loss of nearly Rs40 lakh, almost half her initial investment. The schemes from ICICI Mutual Fund and Sundaram Mutual Fund went down by nearly 50%. The other schemes were also withdrawn at a value 15%-30% lower resulting in a total loss of Rs86 lakh. These schemes included JP Morgan India Equity Fund (a poorly-performing scheme) and IDFC Premier Equity Fund.
• Surprisingly, in the whole portfolio there was not a single debt scheme and just one liquid scheme— HSBC Cash Fund. Ironically, commissions paid on debt schemes and liquid schemes are much lower.
• Ms Krishnamoorthi says an entry load amounting to over Rs29 lakh was deducted from her investments. If the bank had opted to only invest her amount of Rs3.60 crore in performing equity schemes for the long term, without any further buying or selling, the entry load of 2% at that time would have worked out to just Rs7.20 lakh.
When Ms Krishnamoorthi wished to surrender her insurance policies, HSBC refused to act for her by contending that they no longer had any tie-up with Tata AIG and that it was not their business to get client’s money back that they had recommended in the first place.
“It took my chartered accountant six months to authenticate the figures of losses—as not only was the HSBC team adept at covering its paper trail. They also very conveniently refused/ evaded furnishing me the documents to which I am legally entitled for over a year—giving me one silly excuse after another like mismatch of signature/ officers being on leave,” she told Moneylife.
Unfortunately, in several such cases, banks tend to get away scot-free because the consumer is conned into signing a number of documents based on misplaced trust in their bankers. For instance when Ms Krishnamoorthi took her issue up with the Banking Ombudsman, the bank replied stating that she had signed on all the letter of instructions (LoIs) to carry out the transactions in her account. The manner in which bank officials discharge their fiduciary duties was not even taken into account.
On 18 April 2013, Moneylife Foundation had presented a memorandum to RBI Governor (http://foundation.moneylife.in/?page_id=2000 ) on unchecked mis-selling by bank relationship managers. It says, “Banks’ relationship managers have been particularly brazen in recommending financial products to their customers while completely disregarding their financial situation. It is commonplace to hear of a senior citizen being conned into investing in a mutual fund, unit-linked insurance plan or a hybrid-derivative product on the promise of higher returns. In many cases, private bank executives go over to their homes and persuade them to break secure fixed deposits and invest the money in unit linked insurance products (ULIPs) with the false assurance that these are as safe as fixed deposits and offer a higher return and security.”
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