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Posted by VRIDHI on 04/04/2015
By Vivek Karwa
Q: Iam Sawaan from Bengaluru aged little less than 36 years and want to plan for my Retirement at age 60. Iam confused about investing. Iam working in a good mnc pharma company in a demanding technical area and sure will have demand for my services till I retire. I can invest Rs.5000 a month with an increase of around 12% to 15% till I retire.
I have heard from lot of experts that equity markets can give good returns but my family members say that it is gambling. If I invest, some scam or bad news may arrive which can erode all my capital. Should I choose fixed deposits over equity market? Can I invest in Sensex or investing in individual companies is necessary? Can I invest every month? Please ask the best expert in your panel to solve my confusion.
Your case is not typically different from many others. I find no fault, with the fallacy in the thinking of your family members, since they have been brainwashed that equity markets are a source of gambling. Let’s leave alone the common people who spread wrong news, since I consider it’s not their fault. Many of the learned politicians and academicians think that markets destroy wealth!
People who talk like this basically don’t want the public to be self dependent. If society remains dependent on them they can rule over us forever. And sorry to say most of the academicians who speak in this tone, be a school teacher or be a premier business school professor are just theoretical.
Iam myself a trainer, and know few souls who teach Portfolio Management and off record mention that they invest only in FD’s! I just tell them: Sir by faking your knowledge you are fooling yourself and not the students! At some point of time people (just like you Sawaan) will learn the truth. I would in fact suggest that anyone having doubts in the area of Personal Finance should call or write to us, we experts get mental satisfaction in helping others.
O.K. Let’s come back to the point of you investing Rs.5000 a month for nearly 24 yrs from today with an increase of 12-15% yearly. Let’s cut down the rhetoric of Anti-Market people and talk some facts and numbers.
Your question made me do some Fact Finding which Iam happy to share with you and the public at large. With these Fact’s people can reconcile their wrong thinking and come to an understanding what they have been missing, rather, what they have lost by not practising what they have been preaching!
Since you have little over 24 years to go, also you had asked if you can invest in Sensex (I call it Index… Sensex or Nifty), Yes you can invest in an Index through an ETF (Exchange Traded Funds) or an Index Mutual Fund, I have taken the Sensex closing data from Jan’1991 till date. Assumption is, had a person started around 24 yrs back with same time frame as yours. Next assumption is: he started investing Rs.1000 a month. Not considering any increase for our easy calculation purposes. Check the table below on how he would have kept on accumulating Sensex units over the period.
During the period he would have invested totally Rs.2.91 Lacs and value of the same would be approximately Rs.16.70 Lacs today. That’s phenomenal isn’t it? During the period had you hired a good adviser who could have guided you to do little adjustments, he would have enhanced your returns further! Had the investor chosen Fixed Deposits instead of the Index the value in his hands, post tax would be peanuts! At 7% post tax returns FD would have fetched just Rs.7.36 Lacs. The returns out of Index investment is totally Tax Free! Meaning you can enjoy whole of Rs.16.70 Lacs yourself!
Show this data to anyone who curses the market! During this period we have seen worst of scams, and worst of news as well. We just require discipline in market during ups and downs.
Your next query was on investing in Index or Stocks! You can choose any. As said earlier you can choose to invest in Index through ETF’s. Index itself has delivered very good returns till now, though it is considered to be safest among the equity investments.
Had you invested in one of the popular diversified equity mutual fund (name not mentioned purposely to avoid marketing it) you would have generated Rs.46+ Lacs today! During the period had someone invested in good quality individual stocks on monthly basis, he/she could have earned few crore of Rupees by now! Again not being stock specific since I don’t have the exact figures available right now with me.
So clear all your doubts on the equity markets. Choose a good adviser who can guide you buy good quality companies month after month! Be a Disciplined Investor. In Mutual Funds they are called Systematic Investment Plans or the SIP, I would term investing monthly in direct stocks as Systematic Wealth Creation Plan or the SWC. Honestly, I have coined the word SWC myself! So don’t wait, start investing today! Happy Fearless Investing.
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Posted by VRIDHI on 28/03/2015
by Vivek Karwa, Certified Financial PlannerCM
150324 – Don’t know how many noticed the recent movements in the market. For quite some time, in fact it was many times mentioned, in the previous articles that the Sensex should test the 30006 mark on the higher side. The recent high made on 4/March/2015 was 30025 on Sensex and then we saw a correction. We have seen a low of 28158 till now and market seems to be stabilizing in this area. We should see a good support at 28000 and then another good support at 27800 in the short term, best support comes at 26200 on Sensex.
Markets generally move based on news flow. We had several news events over last 45 days and the situation seem to be drying up now, hence the profit booking. As the old saying goes: buy the rumors sell the news, hence the market is now consolidating, and will look forward to more news.
We started with the Railway Budget and first time since I have started tracking the budget saw No New Trains introduced. The vision was very clear that it makes no sense to just announce new things and then keep them undone. It actually made sense to clear the back log and improve the amenities which the passengers like us actually expects.
As usual the critics criticized the rail budget as a mere piece of vision document. The answer to them lies exactly in what they are saying. The budgets till now actually lacked any kind of vision for the corporation which is used by crores of people daily and employs the highest number of people.
Then came the finance budget, the budget was highly awaited and tracked by everyone, being the new governments first full year budget. Agreed that it’s a people unfriendly budget in the short term but will turn out to be a huge boost in the long run.
Both the rail and the finance budget were first misunderstood by the markets on the first instance. That’s why the markets saw a correction after each budget, then after realizing the hidden agenda in it, the markets gave thumps up. The Sensex and the Nifty movements clearly tells us this thinking!
There are many positives happening now. These things have to start reflecting on the ground. Have a belief that in next 12 – 18 months the Indian economy will be in much stronger position and the same is clearly voiced by all rating agencies. The growth projections have already been raised up by the global rating companies.
The first half of the budget session of the parliament has passed off. The data says it was one of the most productive sessions of the recent history, though there were many attempts to throw the government in to the policy paralysis state which some of us have actually become used to. This sends the signal to the global investors that the Indian politicians mean business (hopefully) and thus many bills are being passed within one session.
The Insurance Bill, Mining Bill and the Coal Bill are the major ones which has attracted the attention of the world. Insurance bill has been wandering around the corridors of the parliament for many years and finally has been disposed off for good. This sector alone is supposed to attract more than 35000 Crs in next 3-5 years.
Investors should gauge all such things with positive outlook and use opportunities to add good quality companies in their portfolios. Sensex hopefully should test the range of 33600 – 35000 in the current year 2015 and to reach those levels support from good quality stocks is pertinent. Happy investing and wish you a profitable new financial year.
This Article will be Printed in the Investors Digest Magazine of TamilNadu Investors Association (SEBI Recognized)
Disclosure:- It is safe to assume that the author may have interest in the sectors recommended in this news letter. Seeking personal advice from your Financial Advisor is recommended before acting on any of the substance given herein. The numbers, figures, etc., presented may have been taken from various sources.
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Posted by VRIDHI on 08/03/2015
Taxation, policy decisions make India one of the most complex markets in the world to make and sell alcohol
P.R. Sanjai | Ashish K. Mishra, 4/3/15 Mint
If Abanti Sankaranarayanan is exasperated, she does a pretty good job of not showing it. As managing director of Diageo Plc. in India, it is not like Abanti, 45, hasn’t said this enough; in meetings with government officials in various states, myriad excise officials and also with the central government and internally to employees—being in the business of making and selling alcohol in India is tough.
But then when she says this, with a straight face, as straight and matter of fact as the expression can be, the penny drops: “Every day, Diageo as a group has 748 touch points with the government.” Every day. 748 touch points.
And nobody understands this better than V. Raghunath, general manager at United Spirits Ltd’s distilleries at Kumbalgodu in Bengaluru. A stout, unmistakably jolly man, he has what can be called a living nightmare of a job
“It is like a James Bond movie,” he says. “Every single truck that goes out of a distillery or bottling plant to a warehouse of state beverage corporation, you will spot an excise inspector sitting in the truck.” What’s in the truck? Alcohol. Why is the excise inspector in the truck? To ensure that the law of the land prevails.
Nobody steals. Nobody tampers. Every case is accounted for. Raghunath, who has worked for the last 25 years across six states in the country, can’t help but find humour in the situation.
“It is like a handing over a tonne of gold or a month-old baby to another party,” he says. “There is an excise guard in the truck until it reaches the border. Another excise guard gets into the truck as the truck starts moving to other state.
” It is a simple affair. State A’s excise officer gets out, hands over the documents to the excise inspector of state B and then takes the next available line bus or auto rickshaw back home. Clearly, a job well done.
To understand the complexity of the operation, here’s a fun fact. The Kumbalgodu plant on Mysore Road produces 600,000 cases of alcohol every month. That’s 20,000 cases a day. 40 trucks a day.
That’s not all. Transportation is just one small part. The big one is documentation. And maintaining files for approvals. “There are 100-200 steps to obtain allotment of spirits from a distillery to our plant for blending and bottling,” says Raghunath. And to be able to do that, Raghunath has to plan months in advance. “A concerned employee will spend at least one hour out of his eight hours just to follow up with excise commissioner offices to obtain necessary approvals,” he adds. So much so that the distillery office enters transactions in pencil first to avoid mistakes.
At the Kumbalgodu plant, we request Raghunath to give us a tutorial on some of the paper work and the procedures. A concerned officer walked in with five fat files.
Let’s begin. Typically, a distillery secures necessary approvals to get spirits from a factory in 12-15 days if it is within the state and 30 days if the factory is in another state.
So a distillery gets sanction from its regional offices to procure the prescribed amount of spirits from a factory, which in turn will give a consent letter to the party to sell. The consent letter will then go to the local excise office. This letter will have to contain details including opening stock, closing stock and various other points. The local office will then issue a recommendation letter to the distillery. But not directly.
It goes to the next level in the office. That of either the deputy or joint commissioner’s office of excise to get necessary endorsements. The letter goes through post. And this letter will have prescribed trips from the clerk to deputy superintendent to deputy commissioner and back again. The officer concerned explains that there are at least 24 to-and-fro file movements. And only when it is approved will it go to the local excise office by post.
“If there is a ‘query’, then life turns ugly,” says Raghunath. Which means another round of back and forth. All through snail mail. Finally, this letter will go to the state beverage corporation, which will issue an OFS, or order for supply. An OFS will order supply of spirits to the bottling plant from a designated factory. And then it is the excise guard’s turn to take over. And track everything. All over again.
Twenty nine countries
For most industries, permissions and clearances are needed when setting up a plant, whether greenfield or expansion. In alcohol, it is for business as usual.
“Any analyst will tell you that for alcohol, India is one of the most complex markets in the world,” says Abanti. “I’m not commenting on whether such a high level of regulation is right or wrong. I’m stating the facts as they are and therefore it is not easy to do business. We operate not in one country but 29 different states.” Needless to say, alcohol is a state subject, where every state has its own policies, procedures and excise tax structures with very little harmony between them.
Let’s try and understand a simple business decision—prices. Of let’s say, Johnnie Walker Black Label. Price in Delhi is x, in Haryana it is 0.8x; Maharashtra is y and in Daman, it is 0.6y. Because of taxes.
Now, what often happens is that the state where the prices are higher will say this price doesn’t work for it. Because they don’t want the price to be any higher in their state, because in the neighbouring state it is lower. All thanks to a different tax structure. “That alcohol can flow through porous borders between Delhi and Haryana is a genuine concern,” says Abanti. “But the price of that is paid by manufacturers.
” Let’s take another simple business decision—labelling on bottles. And this really gets the goat of all manufacturers. Twenty-nine states put together can’t come to an agreement on a single labelling standard. Which means that Diageo, to take just one case in point, must customize labels.
“So in 2013, we had Punjab saying we want a holographic label,” says Abanti. Sure. But Diageo also wanted its Drink Responsibly branding on the label. Of course, Punjab said no. “Now one particular state said ‘no, don’t have it’, for whatever reason. So this brings complexity,” she adds.
And that’s not all. There’s a much larger tug of war when it comes to policy decisions. Case in point—the inclusion of alcohol to adhere to the standards of the Food Safety and Standards Authority of India (FSSAI). Industry spokespersons argue that to begin with there were no standards and the move was ad hoc. Sonjoy Mohanty, secretary general at International Spirits and Wines Association of India (ISWAI), says that alcohol was never a part of food regulations.
“The attitude was ‘I want A, B, C, D on the label; if you don’t do it, your imports won’t get cleared’,” says Mohanty. And that’s what happened. In September last year, Diageo and Pernord Ricard suspended shipments to India temporarily.
“It is a very peculiar situation,” says Mohanty. “Because FSSAI is a central government authority. And alcohol has to follow what state excise says. So suddenly you’ve created confusion and no one wants to give an inch.” Needless to say, manufacturers lobbied heavily to get FSSAI on board with international labelling standards. But it didn’t go anywhere. “If you caught us to put down the collective hours we put, it is mind-boggling,” says Abanti. “But there was no outcome. So you are trying to fix a broken house and only if you could get 29 people in one room. There is a certain ad hocism without consulting or engaging with the industry. Like now this or nothing else.”
Missing the GST bus
It is no secret that the industry desperately wanted alcohol to be a part of the proposed goods and services tax (GST). And countless man hours went into its lobbying; ISWAI, for instance, had 93 meetings across the board with the states and the centre. But to no avail. “The government is all agog and in a hurry to bring GST in,” says Mohanty. “Not for a single moment have they paused to see the pitfall of excluding the alcohol industry.” Let’s understand this better.
Being a part of GST would ensure that the entire manual permission ecosystem would move to electronic. By industry estimates, the number of 748 touch points would have gone down to almost 30. And at the retail end, it would have made life easier for restaurants and retail outlets selling alcohol. For instance, currently the restaurants and hotels that serve alcohol generally attract three different taxes: state sales tax or value-added tax (VAT) on alcoholic beverages, state sales tax or VAT on food and non-alcoholic beverages, and the service tax levied by the centre on 40% of the invoice amount, which is deemed to be a charge for the services provided to the customer. “Now that we are not part of GST, think of the complexity at the retail end where an outlet is selling both GST and non-GST items,” says Mohanty. “To put it simply, sandwiches and alcohol.”
It is another matter altogether that most states didn’t want in because they feared that they would lose the ability to control, regulate and tax the alcohol industry. And then, they didn’t want an electronic audit trail. According to the World Health Organization, almost 50% alcohol sold in India is non-commercial (350 million cases) which varies from state to state, but GST was a great chance to address it. “Now we have lost that chance forever,” says Mohanty. “It is just sad that nobody wants to talk or openly discuss the alcohol industry because it is seen negatively. But this issue is more relevant for ‘Make in India’ today than ever.”
VRIDHI’s View: The article was really fun to read but then at last you feel how complex the law is! The Alcohol has always been lobbied hard by the state governments and hence will remain out of the GST when it comes in effect from 1/4/2016. No wonder Alcohol is Big Business and there are few states which depend on revenues from it for funding their electoral promises. State CM’s can atleast come together through the platform of Niti Aayog and make the process of liquor business more smooth. States should realise that if the rules are made simple and straight forward, the cash books out of liquor business will only swell further. Use the platforms like Niti Aayog immediately. If Make In India has to be successful, doing business has to be made simpler. Hope atleast this govt. will make things easy.
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Posted by VRIDHI on 24/02/2015
Starting early is the easiest and smartest financial lesson. Even leaders of the industry agree
Vivina Vishwanathan, Mint 9/2/15
Anyone who has just joined the workforce for the first time has a list of things to spend on—from clothes to gadgets, and more. Saving and investment rarely feature in this list. This may sound boring and even unimportant, but if you don’t want to be financially lost, you must plan your finances. Here are a few things you can do with your income in the early stages of your career.
When it comes to growing your money, the earlier you start saving and investing, the easier it will be to build a corpus. “You should understand the power of compounding. Unfortunately, people don’t understand it and how starting early will enable lower investment savings,” said Dilshad Billimoria, director, Dilzer Consultants Pvt. Ltd.
Say, you are 25 years old and plan to retire at 60. If your current annual expense is Rs.10 lakh, the expenses in your first year of retirement would be Rs.77 lakh, assuming annual inflation of 6%. So, you will need a corpus of Rs.10.7 crore at age 60, for which you need to invest Rs.28,000 per month till retirement age and earn return of 10% on it. If you delay and start investing only when you turn 30, you would need to save Rs.35,365 per month. So, the later you start, the more you need to save.
Identify goals later
You may be wondering, why invest when you don’t have goals. Imagining about retirement or any other kind of long-term goal is difficult when you are in your 20s. “Many financial commitments come in the form of events. The older you get, the more difficult it gets to catch up to the expenses. People don’t think about this in their 20s,” said Leo Puri, managing director, UTI Asset Management Co. Ltd.
How does one overcome this difficulty?
“It is a simple thing. Generally, your financial goals will include retirement, buying a house, marriage, children, their higher education and marriage, your higher education, travel and spending on gadgets or white goods. Even if none of these make into your list right now, they will soon creep in,” said Suresh Sadagopan, a Mumbai-based financial planner. Even if you don’t have a goal, keep a part of your salary aside to be used for future needs.
Once you have decided to save a certain portion of your income, the next step you may assume is to invest. It’s not. the next step should be buying health insurance so that medical liabilities are taken care of. “Life insurance can wait. But you should take medical insurance immediately. You may think that your employer will take care of it. But health issues can occur any time, say, when you are in between jobs. Consider taking health cover of at least Rs.3 lakh, which will cost you under Rs.4,000 per annum,” said Sadagopan. You don’t want to dip into your savings or investments when you have an option to hedge.
After health insurance comes investing. You must remember that over time, money loses value due to inflation and taxes. So, leaving all your money in a savings account is not prudent. Of course, that doesn’t mean that you invest in any product that gives you higher returns than a savings deposit. You should calculate the returns you get after factoring in inflation and tax. “People don’t understand the difference between real return and nominal return. They misunderstand nominal return to be the real return. Always remember to factor in inflation when you are investing,” said Vivek Dehejia, professor of Economics at Carleton University in Ottawa, Canada.
So, which product to choose? Since you have time on your side, you are in a better position to take risk.
“Equity-oriented products are a good option. But you should invest at least 40% of your money in lock-in products such as Public Provident Fund as it will help you build financial discipline,” said Sadagopan.
You can create a corpus by investing in short-term products such as debt funds or even bank fixed deposits. This will help build financial discipline.
Though you should save and invest regular, it doesn’t mean that you can’t indulge. “You can buy a new gadget or go for a vacation, but it doesn’t mean that you go overboard with you credit card and spend more than you can afford,” said Sadagopan.
If you have basic understanding of financial products and how they work, you will be able to make the right decisions about your money life. Doing so will earn healthy returns.
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