6 steps to financial planning for women

(Source : Equitymaster.com)

The most arduous of journeys begin with a small step. When it comes to something as important as planning for child’s education and marriage, that small step means setting yourself an important objective. To put it plainly, the fundamentals of investing are no different for women; so you have to plan your investments, execute the investment plan and track it regularly. If this sounds a little complicated, don’t worry, we have simplified the process for you.

Step 1: Define your objectives

The most important thing to do while you sit down to plan your finances is ask yourself why you want to invest. For a married woman with kids, the answer could be child’s education or child’s marriage. For a woman whose kids are already married, the desire to invest could stem from a dream to set up a small boutique, for instance. For a woman who is yet to get married, it could be for her marriage. So you could have a variety of objectives; when you get down to penning them down you will notice that the list is a lot longer than what you had bargained for.

When we began compiling a list of likely objectives for women we came up with some interesting options:

1. Saving for your own marriage 5 years from today.
2. Saving for your child’s education 15 years from today.
3. Saving for your child’s marriage 20 years from today.
4. Saving for a small business that you want to set up at a later date.
5. Saving for an overseas trip, maybe even a pilgrimage 5 years from today.
6. Saving for a gift for your spouse or parents.
7. Saving for your retirement 30 years from today.

This seemingly long list could be even longer when you take into consideration objectives that are peculiar to you. Some of the more popular investment objectives like saving for child’s education and marriage we have discussed in detail in ‘Plan for your children’s future.’

Once you have the investment objectives in place, the next step is to prepare an investment plan to achieve those objectives. This may sound daunting, but it isn’t, when you consider that it’s your investment consultant who has to draw up the investment plan and your role is limited to giving him inputs in terms of your investment objective, appetite for equity-linked investments, investment time frame, tax-efficient returns and the like.

Step 2: Identify the investment consultant

Since your investment consultant has such an important role to play in helping you achieve your investment objectives, it is important that you ‘connect’ with the right consultant. If you have been reading the newspapers even cursorily, you would have observed several instances of agents getting their clients to invest in unsuitable investments only to boost their commissions without a thought to the client’s investment objective and risk appetite. In the long run, this could have a ruinous impact on your investment plan. To make your job simpler, we have prepared a checklist to help you select the right investment consultant:

1. Both insurance and mutual fund consultants need certification before they begin advising clients. Insurance agents must be certified by the IRDA (Insurance Regulatory and Development Authority), while mutual fund agents must be certified by AMFI (Association Mutual Funds in India). The agent must have the certification on his person, so it’s relatively simple to affirm whether your consultant is qualified.
2. Does your investment consultant offer a complete investment solution? Or is he the type who only collects the application form, cheque and submits it to mutual fund/life insurance company? Remember you are looking for an investment consultant not a delivery boy. An investment consultant should be competent enough to understand your financial objectives and chalk out an investment plan that can best help you achieve them.
3. It is critical that investment consultants are objective and unbiased in their advice. Being objective means placing the client’s interest over your own. How do you discern that your agent isn’t taking you for a ride? There are ways to find out. For instance, if you are a low-risk investor and your agent recommends a sector-specific mutual fund or an aggressive ULIP (Unit Linked Insurance Plan) then you can be sure that your investment objective is being sacrificed to fill his pockets. The investment consultant should be faithful to the plan that he has prepared for you and his advice must revolve around it.
4. Value-add investment services is another area that your consultant must treat as priority. Tools and calculators, stock and mutual fund alerts, portfolio tracker, research on mutual fund schemes and life insurance plans are some of the value-added services that investment consultants provide. Of course, there are few consultants who do this, but those are the ones you must identify. Some of these tools are web-based and should appeal to women who are net-savvy.
5. Even after you have taken the insurance policy or invested in a mutual fund scheme, you relationship with the investment consultant continues. You may need feedback on your investment, account statement, premium cheques to be submitted to the life insurance company, follow-up on dividends on your mutual fund investments and the like. It is the responsibility of the mutual fund agent to provide prompt after-sales service and resolve these issues efficiently.

Step 3: Preparing an investment plan

Once you have identified the investment consultant, you must get down to actually implementing the investment plan keeping in mind the investment objectives. For this you need to bare your ‘financial’ soul and tell him exactly what you want to achieve, the time frame over which you want to achieve the investment objective, the amount of money you want to invest in equities (this is important because equities can give a push to your savings, but also carry higher risk). If you find this a little too detailed and even unnecessary remember it’s important for the consultant to know this so that he can prepare a well-defined investment plan. It’s a bit like telling your doctor everything so that he can prescribe the right medicine.

Step 4: Executing the investing plan

After preparing the investment plan, your investment consultant will help you execute it. This involves, for instance, taking the child insurance plan for your child’s education/marriage, or the diversified equity fund to build a corpus to buy property after 10 years. All the investments and insurance options that have been outlined in your investment plan have to be bought. Of course your consultant will help you with it, but it pays to be personally involved upto a level.

For instance, to the extent possible fill the application forms yourself so you learn about the relevant details. While filling the insurance application form, you have to give a true and fair picture of your medical history, accurate information on your weight and height and other details of this nature. Giving inaccurate information on these points could lead to rejection of claim at a later date. Your investment consultant is unlikely to know these details better than you, so personal involvement is necessary. Likewise, appointing a nominee is common across mutual funds and life insurance, so ensure you have those details correctly filled in.

Step 5: Review the investment plan

Setting the investment plan in action is an important step towards achieving your financial goals. But to ensure you stay the course, a regular review of the investment plan is necessary. Of course, this will also be done under the guidance of your investment consultant. There could be several reasons why your investment plan may need to be adjusted from time to time. One instance is when stock markets change course over a period of time, they disturb your asset allocation. So you may have to redeem some of your equity investments or buy more of them depending on how much risk you are willing to take.

As you approach the milestone (child’s medical admission or marriage), you need to get out of equity investments since equities are risky in the short term. That money should be invested into short-term debt, which is relatively safe. Again, all this may sound very complicated, but your investment consultant is the one who will keep his eye on such events and will make necessary adjustments to your investment plan. On your part it helps to be informed since it’s your money on the line.

Step 6: Redeem your investments

As the event you have been saving for, is upon you, you need to redeem your investments. With a mutual fund investment this involves signing on the redemption slip and having your consultant submit the same to the mutual fund. In case of a life insurance policy that you have taken, it involves having your consultant submit the policy documents to the life insurer and follow up for the maturity proceeds. Then you will need to sit down with your consultant and understand the taxation issues involved with the redemption of your investments.

As you can see, setting financial goals, outlining an investment plan, executing it, reviewing it, is not really a difficult task. It may be time consuming but it’s certainly not difficult. With a systematic and disciplined approach to investing and by identifying the right investment consultant, financial nirvana could be closer than you think.

Infrastructure: Plethora of opportunities

Source: Equitymaster.com

It is a widely acknowledged fact that a world-class infrastructure is a necessity for faster and consistent growth of any economy in the world. And this applies for India too if it has to become a major world economic power. Thankfully, this realisation has started to creep into the minds of those who control the reins of power in India, which has consequently initiated the transformation of India into a land of opportunities, as far as the infrastructure sector is concerned. The potential here is enormous, as many infrastructure segments i.e. roads, ports, rail and air, are being opened up for private participation and investment. However, amongst these, the pace of reforms has varied significantly, due to commercial and regulatory issues. Consequently, the progress and opportunities varies across segments, some of which have been highlighted in this write-up.

Roads - Readying for the ride
Roads occupy an important position in India’s transportation system, as they carry nearly 70% of freight and 85% of passenger traffic in the country. Presently, India’s road network spans a distance of around 3.3 m kms. The focus of successive Governments on improving road connectivity across the country has brought about significant investments in road development in the last few years. As per the National Highway Authority of India (NHAI), total of 23,546 kms of roads would be constructed in the next two years. One of the most important programmes under the NHAI is National Highway Development Programme (NHDP). The NHDP consists of the Golden Quadrilateral, North-South and East- West Corridor, Port connectivity and other projects. Beside this, there are two Non-NHDP Projects, which include Pradhan Mantri Bharat Jodo Pariyogna (PMBJP) and the other is Pradhan Mantri Grameen Sadak Yojana (PMGSY).

The government recognises the importance of private participation in development of roads in the country .It has thus framed requisite policy measures to encourage private investments in the sector. Some of the private sector participants in the road development are L&T, HCC and IVRCL. Besides this, in order to promote the involvement of private sector in the construction and maintenance of roads, the government has now decided to offer large number of projects on build-operate-transfer (BOT) basis. The importance of BOT in the national highway segment can be gauged form the fact that they carry more then 40% of the traffic even though they constitute just about 2% of the total road network in the country.

Ports - Anchoring for growth
India occupies strategic location on the global maritime map. Indian ports handle 95% of India’s foreign trade in terms of volume and 70% in terms of value. The traffic handled at ports has been growing steadily over the past decade .The government has fixed an ambitious target of US$ 150 bn for exports by FY09 (current US$ 100 bn) to double India’s share in world exports from the current 0.8% to 1.5%. Futher the Ministry of Shipping has projected India’s port traffic to grow to a level of 850 MTPA by 2012 (from about 500 MTPA currently), which has necessitated major capacity expansion by Indian ports. Deregulation in the ports sector (100% FDI is allowed) and favourable terms of BOT have attracted domestic and foreign players to this sector. Further, private joint venture partners are being included to improve the operating efficiency of Indian ports.

Railways – On the right track
Indian Railways is the largest rail network in Asia and the world’s second largest under one management. The scope of public private partnership is enormous in railways, ranging from commercial exploitation of rail space to private investments in railway infrastructure. In order to have an integrated development of transport system, National Rail Development Programme was launched in December 2002 envisaging an investment of about US$ 3.5 bn in the next 5 years. The programme envisages removal of capacity bottlenecks in critical sections of railway network.

Civil Aviation - Ready to take off
Currently, the airport infrastructure in India is relatively less developed as compared to other means of cargo/passenger transport in the country. Despite the fact that the cargo carried by air in India constitutes less than 1% of the total cargo exported, it accounts for almost 30% to 35% of the total value of exports. Further, the importance of air transport cannot be undermined, as tourism is India’s second largest foreign exchange earner. Further, with domestic air travel becoming more affordable, thanks to increasing competition consequent to the opening up of this sector, air traffic in India is witnessing rapid growth. Though the entry of low-cost air carriers has been a key factor that triggered this growth in civil aviation, India’s economic upswing, increased FDI in various industrial sectors leading to higher business travel and the growing popularity of India as a tourist destination has all necessitated higher investments into the domestic aviation sector to meet the increasing traffic, which is projected to continue to rise 6% CAGR over the next decade.

India, as one of the fastest growing economies in the world, has recognized the need for all round development in the important infrastructure sectors. With increasing political consensus towards reforms, clear policies and regulatory framework pertaining to investments in and development of infrastructure are being put in place. India, having established conducive policies for foreign investment, both with respect to centre and state projects, has gradually opened up as a preferred destination for infrastructure financing. Further, with innovative options of participation, there are now tremendous opportunities available in most of the sectors

How expensive is your mutual fund investment?

(Source personalfn.com)

Historically, mutual fund investors in India belong to the ‘NAV returns’ variety. The first and last question on their minds is ‘what return has the fund given?’ Rarely, if ever, do they ask questions like ‘how much is the fund charging me? What goes into the expenses? Is it possible for the fund house to lower the expenses?’ We believe that it’s about time mutual fund investors began asking such questions; else there is a chance that they will never notice what fund houses are getting away with.
That is not to suggest that fund houses are getting away with daylight robbery. However, it pays to be aware of what the fund is charging investors. How much of the expense adds discernible value to the investment (in terms of a fund management fee), how much goes into pampering greedy mutual fund agents/distributors and banks by way of exorbitantly high commissions that add little value to the investor but add a lot of value to the distributor’s bank balance. It’s nice to be aware of these facts and then see if you still love your mutual fund investment the same way.
First it’s important to understand the structure of a mutual fund before you begin to appreciate how expenses are charged. While there are several entities involved in a mutual fund, like the Sponsors, Board of Trustees, Asset Management Company (AMC eg. HDFC Standard Life Asset Management Co. Pvt. Ltd.) and the mutual fund scheme (eg. HDFC Equity Fund), the last two are the most important elements in the context of our discussion. The AMC launches mutual fund schemes. The AMC and the mutual fund are two distinct entities. They have distinct revenue streams and expenses.

AMC’s recurring expenses
Expense---------------% of weekly net assets

Fund mangement fees ------------1.25%
Marketing/Selling Exp. ------------0.80%
Audit Fees ------------------------0.15%
Registrar Fees --------------------0.12%
Trustee Fees ----------------------0.11%
Custodian Fees --------------------0.07%
Total Recurring Exp. ------------2.50%

(The Recurring Expenses Table has been sourced from the Offer Document of an existing AMC)

As is evident from the table, the expenses of the AMC typically comprise of fund management expenses, marketing fees and audit fees among other expenses. Investors must note that these are expenses the fund incurs on a recurring basis (annually) to operate the mutual fund. This is over and above the entry/exit load which is a one-time fee. The entry load is usually a distribution expense that the AMC passes on to your mutual fund agent. Then there are expenses a fund incurs at the time of the NFO (New Fund Offer), which are distinct from the recurring expenses in the table above. The NFO expenses are one-time in nature, with a ceiling of 6% (of net assets), and as per SEBI (Securities and Exchange Board of India) guidelines are to be amortised over 5 years.
The recurring expenses are indicative and the actual expense could be different. Nonetheless, the AMC is not permitted to charge over 2.50% (for the first Rs 1,000 m or Rs 100 crores) to the fund. If the actual expenses exceed that figure, the AMC will have to bear the excess cost. In other words, the excess expense will shift from the mutual fund to the AMC.
There are well-defined expenses and net assets guideline formulated by SEBI. These guidelines set limits as to what the AMC can charge the fund at a particular net asset level. The below-mentioned table spells out the relationship between expenses charged and the net asset level.

Average weekly Net Assets
Net Assets ---------% limit
First Rs 1,000 m ------2.50%
Next Rs 3,000 m ------2.25%
Next Rs 3,000 m ------2.00%
Over Rs 7,000 m ------1.75%

As the table highlights, expenses are charged slabwise based on the net assets. For instance, an Rs 8 bn fund (Rs 800 crores), will incur expenses in 4 slabs. Likewise a Rs 6 bn will incur expenses in 3 slabs.
Having understood this, it is important to understand what is in it for the AMC. After all the mutual fund investor is happy to clock a return. The mutual fund has the AMC taking care of its expenses. What’s in it for the AMC?
There is one expense – fund management expense that is of particular relevance to the AMC. This is expense for the mutual fund, but revenue for the AMC. To put it very simply, the fund manager (along with his team of analysts) is an employee of the AMC. The AMC charges the mutual fund a fee for lending the expertise of the fund management team to the mutual fund.
We mentioned earlier that all the expenses in the ‘Recurring Expenses’ table are based on actual incidence of charge/cost. There are two exceptions to this viz. fund management charges and marketing/selling costs. Fund management expenses are charged by the AMC based on SEBI guidelines that define how much they can charge at a net asset level. These charges are not based on the actual cost (i.e. salaries of the fund management team).

Fund management expenses for equity funds
Net Assets ---------------% limit
Upto Rs 1,000 m ------------1.25%
Next Rs 1,000 m and above --1.00%

Unlike custodian and registrar expenses for instance that are based on actual costs incurred by the AMC, fund management expenses are charged by the AMC based on the net asset base. These are expenses that the AMC is ‘entitled’ to charge by SEBI, irrespective of the actual expenses ‘incurred’.
The fund management expenses are very important for the AMC. It is the AMC’s only revenue stream. It is the fund management expense from which the AMC declares a profit after accounting for all expenses like salaries for its employees (which include fund managers and analysts among others), rent and administration expenses.
Equity funds can and do charge as high as 1.25% (of net assets) as fund management fee to the mutual fund. Long term debt funds are also mandated to charge a maximum of 1.25% (of net assets), but rarely do so. The reason is the returns on equity funds and debt funds are widely disparate. Equity funds give disproportionately high returns over the long term so a 1.25% fund management charge barely impacts the NAV return.
Debt funds on the other hand generate returns that are so competitive that it is nearly impossible to absorb a 1.25% fund management charge. Remember, in the books of the investor, long term debt funds are pitted against each other, as well as against comparable investments like fixed deposits and small savings scheme – National Savings Scheme (NSC), Post Office Time Deposit. So if debt funds want to attract investors’ monies, they have to trim all costs including fund management charges. Given that the total recurring expense for long term debt funds hovers in the 1.75%-2.00% range, there is very little scope to charge the entire 1.25% fund management charge to the fund. So with most debt funds, the 1.25% fund management charge is a lot lower. The percentage varies across funds, but it’s below 1.00% in most cases.
This also explains why AMCs prefer to own a larger share of equity assets than debt assets. Equity assets draw a much larger fund management fee, which has a direct impact on the AMC’s profitability. That tells investors a lot about the mad rush to launch equity NFOs (new fund offers) that has been on display for quite some time now.
Charging of marketing/selling expense is also subject to a degree of discretion. Usually, the AMC charges marketing/selling expense to the mutual fund on the basis of actual cost. Any excess over and above the 2.50% limit (for equity funds and 2.25% for long term debt funds) must be absorbed by the AMC. However, if marketing/selling expenses exceed the AMC’s initial budget, but fall within the 2.50% limit, it has the discretion to charge the excess to the mutual fund rather than take the hit on its own books. However, the AMC is more likely to take the hit for the excess marketing/selling cost on its own books, rather than charge it to the mutual fund. The reason being the competitive investment environment where a lot of investors select one mutual fund over the other based purely on NAV returns. So in a way, AMCs are constantly in a race to cut costs so they feature higher up in the NAV rankings. For reasons explained above, the race is a lot more intense when it comes to debt funds.
In the midst of this, investors should remind themselves of the initial NFO expenses that we mentioned briefly at the beginning of the article. As per existing guidelines, these expenses are to be amortised over a period of 5 years. These expenses form part of the recurring expense ceiling on equity funds (2.50%) and debt funds (2.25%). So AMCs cannot amortise the NFO expenses over and above the recurring expense limit.
As investors would have gathered, it’s a matter of choice for the AMC whether its wishes to beef up its own profitability or lower costs for the mutual fund. Since uncompromising investors have their eye on NAV returns and not on the AMC’s net profit, it seems like an easy decision for AMCs how they must allocate expenses. However, as we have seen, it’s not always that obvious. AMCs can cut the fund management charges on equity funds (from the maximum of 1.25%), but rarely do so. They prefer to do that only with debt funds because the environment demands such cost-cutting.
That is why we believe that investors must get a lot more aware and question AMCs on why they charge such high expenses when they can very well cut down on them to add to the investors’ returns. Investors in developed markets like the US for instance, have already driven AMCs into getting cost conscious and making them impose rigid ceilings on several charges, including fund management charges. It’s time for the domestic mutual fund investor to take his cue from his US counterpart.

Shamken Multifab Ltd

Industry : Textiles weaving
BSE Code : 514152
NSE Code : Doesn't trade in NSE
LTP (Rs.) : 3.85
Market Lot : 1
Face Value : 10

This is a turnaround story which has brought about a change in its profits. Here are the results for this company.

Net profit(in Rs. millions):

01 Jul 05-30 Sep 05 --- (-19.71)
01 Apr 05-30 Jun 05 --- (-21.59)
01 Jul 04-30 Sep 04 --- (-131.11)

This company can be bought for some short term gains.

Sanjivani paranteral Ltd.

Industry : Pharmaceuticals
BSE Code : 531569
NSE Code : Doesn't trade in NSE
Business Group : Not Applicable
LTP (Rs.) : 47.65 [BSE]
ISIN No : INE860D01013
Market Lot : 1
Face Value : 10
Market Cap : 25.48 Cr

This is a turn around company.It is trading at a very low PE compare to other company in this industry , the results for this year would show how good the stock is .

The results of this company:

Net profit
Mar '05: 2.77
Mar '04: 0.16
Mar '03: 0.09
Mar '02: 0.02
Mar '01: 0.25

Markets down for the 2nd day

The markets crashed during the final trading hour, as participants resorted to across-the-board selling. A steady downtrend was witnessed in today's trading session, as investors continued to book profits at higher levels after the massive gains witnessed recently, which saw the major indices hit all-time highs. Stocks from across sectors ended in the red. However, select aluminium, engineering, media, software and telecom stocks managed to buck the trend.

BSE ended at 9170 down 72 points and NSE ended at 2785 down 20 points.

Wise Investments - First Post

This blog has been started with an intention of posting some of the investement ideas that I pick up. Hope this helps you make more money.