In your interest.
Online Personal Finance Magazine
No beating about the bush.
Obviously, one of the biggest queries in volatile times like these is regarding short-term trends and most experts were hard pressed to offer definitive answers, especially in view of the uncertain macro-economic scenario, soaring crude prices, spiralling inflation and rising fiscal deficits. Nilesh Shah of ICICI Prudential painted a rather gloomy picture by narrating the story of the ant and grasshopper with a cynical twist to depict the Indian situation. It basically says, the ant toils in summer to stock up for the cold hard winter when food is scarce while the grasshopper lazily basks in the sunshine. Come winter, the grasshopper is hungry and in danger of perishing, so NGOs, political parties and the government rush to rescue it from the consequences of its own foolishness and kill the initiative of the hard-working ant. In the Internet version, the ant migrates to the US and becomes a silicon valley billionaire!
Nilesh Shah used the story to illustrate how the shoddy government approach of handling larger issues is what puts India on the backburner. For instance, he said, many countries are oil importers and hurting from the steep rise in oil prices, but our myopic political response has aggravated the pain and caused the economy and shareholders of oil companies to suffer.
“Unless oil prices decline, we are at the risk of losing one year of returns. While higher oil prices lead to higher inflation, the populist pressure to keep oil prices artificially low, by issuing oil bonds, is increasing the fiscal deficit and at some point of time corporates and citizens will have to pay the price for this,” says Shah. Meanwhile, the market has lost momentum and, although earnings may still continue to grow because of the hard work of people and managements, our politicians and bureaucrats will make sure that the country ends up getting de-rated because of bad policy decisions. Unless oil prices correct, things can get worse for the Indian market. The only silver lining is that many people are sitting on cash and, if external factors do not deteriorate, the market may stabilise at the current level, opined Shah. Crucial advice from Shah includes not falling in love with your stocks, not waiting to exit at the top and not making the mistake of following the crowd.
Sanjoy Bhattacharyya, formerly with HDFC Mutual Fund and now with New Vernon, a hedge fund, said that 95% of the time it really doesn’t matter what the market is going to do tomorrow; it is important to hang around and wait for the correct opportunity to buy. If you cannot give much time to choosing your stocks and monitoring them, passive products such as index funds are much better for you. The much-touted research- based investing is not of much use, according to him.
Bhattacharyya had some unconventional suggestions for investors who spend time taking cues from business television or their brokers. Knowledge of history, psychology, philosophy and anthropology is far more important than knowledge of accounting or economics or computer science, says he. The three most important factors that lead to failure in investing are a sense of comfort, excitement and sensibility. Another point to be careful about is consensus. He feels that consensus brings down your returns. In order to earn better returns, it is always good to stay away from the crowd, although this may be riskier. “Investors need to keep in mind that economic cycles are not easy to ride,’’ said Bhattacharyya.
The economic outlook is uncertain; above 8% inflation, rising crude oil, huge sundry subsidy bills and farmers’ loan write-off have added to the fiscal deficit. The market is now reflecting this uncertainty. In the previous issue, we had mentioned 15,000 as one of the key levels to watch out for. At the time of writing this article, this level has not yet been breached on a weekly basis,...
Read on to find some solutions to the terminated UTIMF‘s Senior Citizens Unit Plan
Acouple of weeks ago, the Dainik Hindustan carried my article on the termination of UTI Mutual Fund’s (UTIMF) Senior Citizens Unit Plan (SCUP). I was shocked to receive over a dozen letters from readers across the country saying that they did not know about the termination of the scheme which had raised Rs254 crore from around 17,800 investors. In fact, its marketing pitch was to bring “sunshine” in the autumn years of their lives with an assured-returns scheme that also offered a comprehensive insurance cover in collaboration with New India Assurance.
Meanwhile, UTIMF’s Asset Management Company (AMC) is planning a public issue to raise Rs2,000 crore and get listed on the stock exchanges. Its pre-IPO advertising campaign claims that it was UTI which taught ordinary Indians the language of the stock market. It is another matter that most investors credit Dhirubhai Ambani with introducing them to the share bazaar while the erstwhile Unit Trust of India was seen more as a government-guaranteed fixed-income scheme offering tax benefits and steady returns.
In any case, investors attracted by the IPO campaign need to understand that UTIMF is a different entity – with no government guarantees and only half its former size. Further, an AMC earns only a percentage of the corpus it raises under different mutual fund schemes. Its income is unrelated to the performance of its schemes. This means that even in a bull market, its income can decline if it fails to attract investors. That is why AMCs, in general, attract a price of just under 5% of their assets under management (AUM) or total corpus when they are sold.
Let’s get back to SCUP, which was marketed under the slogan: “Makes your old age worry free, once and for all” but was summarily terminated. Nita Kulkarni of Jalgaon is among those who ask, ‘what do I do now’? So let me answer some of the questions raised by readers and offer possible solutions. First, SCUP was terminated at the close of business on 18th February at the prevailing NAV of Rs23.22 per unit “after deduction of premium amounts”. A public notice appeared in Business Standard and letters were sent to individual unit-holders. Clearly, many investors have not received the letter and are unaware that their money is simply lying in UTIMF’s coffers without earning interest. They need to hurry and claim redemption by submitting their unit certificates. UTIMF does not say how many investors have not claimed redemption proceeds so far. However, its investor department is working proactively to help investors to complete redemption formalities, switch to other schemes or understand options.
Remember, UTIMF is categorical that unit-holders are not entitled to any interest, costs or compensation after February. So, the first thing to do is move swiftly to collect your money by submitting the duly signed original membership certificate. If you plan to reinvest the money in another UTIMF scheme, please fill the option form that is available.
Subodh Mittal, who is 65, wants to know if he will still benefit from SCUP. Well, everybody above 58 will continue to get hospitalisation insurance cover because of an agreement with an insurance company. Some unit-holders have chosen a ‘Floater Medical Policy’, available for a brief period at a specially negotiated rate.
S Prakash is one of those investors who have heard nothing about the termination of SCUP. Others like him must write to UTIMF immediately and those who have not received their money after submitting their certificate can write to me with their certificate and folio number and I will forward it to the UTIMF investor cell. Better still, they can write directly to UTIMF or contact its toll-free helpline at 1800 22 1230, or SMS it at 5676756 or email it to [email protected] Dainik Hindustan reader Rajiv Gupta of Agra, for instance, asks whether UTIMF’s action amounts to a breach of contract. Well, some investors in Pune, led by investment advisor Stephen D’souza, think so and plan to file a case. Those interested can contact him at [email protected] and join the litigation.
Ms. Dalal is the Consulting Editor of MoneyLIFE. Subcribers get free help in resolving their problems with select providers of financial services. Go to www.moneylife.in/subscribe for more details