R Srividhya, Financial Chronicle 7/5/12

source: http://www.mydigitalfc.com/commodities/trading-commodities-learn-ways-cut-losses-053

Commodity trading is prone to risk due to price fluctuations. Lately, some of the commodities trading in the futures market have been undergoing high levels of volatility. However, the market itself offers ways to mitigate losses and maximise gains in commodity trading.

“Futures trading offers high level of leverage as one can trade with the margin money. However, in commodities where daily level of fluctuation is greater than the margins, the investor can suffer heavy losses. In such cases, we always advise to limit the exposure. Further, there are orders which can be placed to mitigate loss and maximise returns,” said Santosh Kumar Narayanan, product-in-charge, zonal, JRG Wealth Management.

An order helps the investor decide when to enter and exit the market, and also decide at what price and time the position could be executed.

Limit order: This is mainly used to determine the price at which one wants to enter and exit a commodity. When the buy limit order is set, the broker will automatically buy commodity when the price arrives. Similarly, after having taken a position, one can set a limit order for selling the commodity and the order will be automatically executed if the commodity touches that price. This helps the investor to plan the returns he expects from a particular commodity trading.

Stop loss order: This is given to limit the losses in a position if the prices move down beyond one’s expectations. Stop loss order will help determine how much loss one can bear on a position. This also helps the investor when he is not constantly checking the price movement or is on a holiday.

Trailing stop loss: This order helps the investor set a percentage below the present market price. If the market price moves heavily down and goes beyond the set percentage, a sell order is triggered.

Generally, these orders expire in one day. If one wants to place orders for a specific time span, there are a few other orders available.

Good-till-cancelled (GTC) order: This makes the stop loss, limit of trailing stop loss order last till the expiry of the contract or till the contract is cancelled.

Similarly, one can specify the date for the contract to be executed. For this good-till-date (GTD) order can be placed along with the stop loss or limit order.

“Orders help one to plan the extend of losses and returns from a contract. But, one need not necessarily be able to buy or sell at the same price he had placed the order for. It also depends upon the availability of a seller or buyer at that price point. Once the order is triggered, it will be filled with the best possible price. This would be invariably lesser than the specified price in the order. But the investor can either wait to execute at the specified price or execute at the price available,” said Narayanan.

According to him, the awareness level about the orders is not adequate in the Indian commodity market. While an order can limit losses, it can also cap the returns in a bullish market. “Generally, investors are advised to use stop loss or trailing stop loss orders. The number of them who use the orders are gradually increasing,” he added.

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The concept of diversification is a fundamental aspect of managing one’s money

Rajesh Krishnamoorthy, Minr 18/4/12

source: http://www.livemint.com/2012/04/18210246/Why-your-adviser-should-tap-in.html

What certainly seems to be niche today, and a major reason why I wanted to bring this out in this column, is the opportunity outside India that is being tapped by our financial intermediaries. I have come across only a handful of advisers who are confident about their knowledge of markets outside India and by virtue of their willingness to go beyond their natural markets, have carved out a niche proposition for clients in the UK, the US, the Middle East and Singapore. Let us look at some interesting opportunities that financial advisers can tap into, which can be major value-add to the clients.

First things first—the concept of diversification is a fundamental aspect of managing one’s money. If advisers rise from day-to-day client portfolio management strategies and view it from a global perspective, a bulk of Indian investors has a huge single country risk in their portfolio. Yes—be it large-, mid-, small-cap stocks, debt funds or cash—the maximum (if not full) exposure is to Indian markets. No wonder we had many asset management companies file prospectus with the Securities and Exchange Board of India (Sebi) for feeder funds and Indian investors have, therefore, got an opportunity to diversify investments to Brazil, China, other emerging markets and more recently, the US. However, what is notable is that the Reserve Bank of India (RBI) has consistently kept increasing the limits on international investments by resident Indians—from a mere $25,000 to the current $200,000 per person, including minors, per financial year, under the liberalized remittance scheme. The latest statistics from RBI shows that Indians have wired out $1.16 billion under this scheme. Of this, about $600 million is for investments in property, gilt, equity and debt outside India. Have your advisor tapped this opportunity yet?

Those of you who have relatives or friends in the UK would have come across Qualifying Recognized Overseas Pension Schemes (QROPS). Simply put, here is an opportunity for your advisor to tap into pension investments for your friends and family from the UK. Under QROPS, you can source investments into many schemes. There are QROPS-dedicated platform services outside India that one can work with.

Singapore and Hong Kong have become financial centres of Asia and are increasingly looking towards giving the western centres competition. Hong Kong is a gateway to access Chinese markets. The interest in taking up official residence in Hong Kong is on the rise. To promote the same, the Hong Kong government had come up with the Capital Investment Entrant Scheme(CIES), wherein, if a client could invest HK$10 million (about Rs. 6 crore), he qualifies under CIES for residential status in Hong Kong. This money can be invested into permissible investments and the advisor can tie up with entities licensed by Hong Kong Securities and Futures Commission to facilitate the same under proper introducer arrangements.

Last but not the least is the non-resident Indian (NRI) pie. Many advisers assist NRIs to invest in India. However, very few assist the NRIs with investments outside India (including in the country they stay). In this context, what is noteworthy is that money flowing into India from many of the middle and high networth clients is like the tip of the iceberg. A large part of their wealth finds its way in non-Indian currency investments. To play in this league, one will need to hone skills to understand international markets, currency movements and cross-border tax regulations. Interestingly, for many countries like Singapore there is zero capital gains tax.

Indian investors are beginning to recognize that financial planning, advisory and wealth management services are not free. We must realize that in markets like the UK, the US, Australia, Singapore, Hong Kong and even the Middle East, the financial intermediation profession has certainly taken a different maturity curve with respect to fees for advice. The focus of discussions in our country should move to financial goals, service capabilities and fiduciary responsibilities of the advisor in that regard, rather than why pay fees! You pay for quality and expertise!

Rajesh Krishnamoorthy is managing director, iFAST Financial India Pvt. Ltd.

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Economic Times, 3/4/2012

source: http://economictimes.indiatimes.com/news/nri/nri-investments/an-nris-guide-to-indian-equity-markets/articleshow/12510373.cms?curpg=1

"The duty on Gold has just been doubled, looks like we NRIs can only look forward to investing in bank deposits now." This statement from my NRI brother got me thinking how come he never talks about investing in equities in India. NRI flows are largely restricted to bank deposits in India, with NRI deposits being as high as 5% to 6% of total deposits.

Now compare this to an average 1.5% to 2% of NRI investment through mutual funds or about 2% of the volumes on the stock exchanges by NRIs and we realise that most NRIs are not participating in one of the best performing asset classes in India over the long term. And more often than not, the reason simply is the lack of awareness of the process. To bridge this gap, here is a quick checklist.

REGULATIONS

Regulators permit NRIs to invest in most listed scrips (except for some restricted list by RBI) through the portfolio investment scheme route. This means that the only additional requirement for an NRI investor is to open a designated PINS bank account for investing in equity markets. A PAN card is mandatory to open an account. Further, NRIs aren’t allowed to do intra-day trading or trade on leverage.

CHOOSING YOUR SERVICE PROVIDERS

Since a designated bank account is mandatory, an investor needs to carefully choose the stock broker and the bank. Opting for an online account is most convenient. Not only can one transact at his/her own time (since time zones differ), but also get complete control over fund transfers and transactions. Some other points to consider should be branch service network, facility to place after-market orders, option to call and trade or speak to a dedicated equity dealer if required, access to equity research and dedicated customer service for nonresident Indian clients.

Ideally, your online trading account should not be restricted to only equity markets. Access to mutual funds, IPOs, listed bonds and debentures is a must to diversify your investments. Apart from the normal web-based platforms, reputed brokers also provide specialised tools and applications to track and analyse markets. These tools offer technical charts and details of specific stocks. And of course, with all of us addicted to our mobiles and iPads, a trading platform on these is a must. A mobile trading application can help investors track their portfolios better and ensure that no investment opportunity is missed even if you are trotting the globe.

OPENING AN ACCOUNT

This is what probably scares people the most. However, if the customer carefully chooses the broker, this should be a seamless process as most reputed brokers have tie-ups with banks to open PINS accounts. Additionally, regulations permit NRIs to open accounts even when they are not in India, provided the documents are attested by designated authorities abroad. The regulators have further simplified the process recently by significantly reducing the number of signatures required to open an account. Thus, it should not really take more that 8-10 days to get your account in place.

INVESTING

If the chosen stock broker provides access to research reports, then based on the risk profile investors should invest in a basket of quality companies across sectors. New investors should slowly scale up their investments and ideally start by investing in blue-chip companies.

If you are not an expert or unsure about which stock to buy, then consulting an equity dealer is not a bad idea. Another option for new investors is to consider investing in index exchange traded funds. ETFs not only offer the most efficient way of investing in equities but are also the best tools for passive investors looking to invest in India.

MONITORING AND REVIEW

Most online accounts offer a portfolio tracker to monitor your stock performance, returns and profits. Ensure that you review your portfolio at least once in a quarter and six months and, if required, make suitable changes in your investment strategy. I have ensured that my brother has now started investing in equities. I hope other NRIs too realise the potential of the Indian economy and start looking at shifting some of those billions in deposits to equities.

By B Gopkumar, executive vice president & head (Broking), Kotak Securities

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Miss to Mrs: what else to do when changing title

Here is a quick guide on how you need to go about it and the list of documents in which you would need to change your name

Bindisha Sarang, Mint 9/2/2012

source: http://www.livemint.com/2012/02/09215508/Miss-to-Mrs-what-else-to-do-w.html

Life changes after marriage and for many women along with a change of life also comes a change of name. Gwendolene Fernandes, a Mumbai-based teacher, is engaged and is about to get married in a few months to Anson Miranda, a musician and an information technology professional. Says Fernandes, “First I was wondering if I should replace my surname Fernandes with Anson’s surname Miranda after marriage or not. But then I thought I should change it, after all it’s a sign of unity, and also it’s cool.” While this 20-something will go for the traditional and most popular choice, these days many women choose to retain their last name and some add their husband’s last name to it: heard of Aishwarya Rai Bachchan?

While to change or not to change the last name is a very personal decision, but if like Fernandes, you do plan to change your name, you will need to get legal and financial documents updated accordingly. Here’s a quick guide to what you should do once you decide to change your name.

Change of name and marriage certificate

Says Kiran Telang, a Mumbai-based certified financial planner, “There are two ways to change your name. One is to apply for name changed in the state government gazette. If your name change is due to marriage, you can also apply for a marriage certificate at the office of the registrar of marriage.”

Keep in mind that it usually takes a month or two for the marriage certificate to reach you. Marriage certificate is the proof of registration of the marriage and a document that helps you get your new name updated across other financial and legal documents.

Though the time to get the certificate is almost the same, the process varies for marriages under the Hindu Marriage Act and the Special Marriage Act. As per the official portal of the Indian government, www.India.gov.in, “The Hindu Marriage Act provides for registration of an already solemnized marriage. The Act does not provide for solemnization of a marriage by the registrar. The Special Marriage Act provides for solemnization of a marriage as well as registration by a marriage officer.” Since the process varies slightly across states, we suggest you find out about the process in your state to apply for the certificate.

Permanent account number (PAN)

The next step is to ensure that you get a change of surname on your PAN card. These days it’s almost impossible to do any financial transactions without giving a copy of the PAN card.

Says Pankaj Mathpal, a Mumbai-based certified financial planner, “When there is a change of surname post marriage, you need to update your PAN card. The procedure is simple. It’s similar to applying for a new card, the only difference is that you will need to provide your old card number to the authorities. Your new PAN card will carry the old number, but with a new name.”

Keep in mind that you will have to submit your marriage certificate or a copy of the official government gazette, while applying for name change in the PAN card. Even a copy of a joint (with spouse) notarized affidavit will do, to get the PAN updated. Ensure that you inform your employer, chartered accountant and financial adviser about the change in the PAN card name so that your income-tax papers could get updated accordingly.

Banking relationships

The next step is to get all your banking relationships up-to-date with your new surname. Says Meenakshi A., head (operations), ING Vysya Bank Ltd, “In case of a woman needing name change after marriage, a marriage certificate is required to be produced for effecting the same in bank records. Banks as per their internal guidelines may seek additional documentation to authenticate the request.”

Generally, the marriage certificate and the joint notarized affidavit from a notary get the job of name change done in banks. When you visit the bank branch, remember to update the change of address along with the name change request. Here, the bank may ask you for your husband’s address proof as well such as a copy of his passport.

Telang says, “Once your bank statements have your new name and new address, it more or less works as an address proof.”

As far as the affidavit goes, it needs to state the maiden surname, the new changed surname, your photograph and signature as well as your husband’s signature. Usually this notarized affidavit and marriage certificate are needed to change surname on other documents. But keep in mind that getting a change of name at a bank is faster than getting it changed on the passport.

Credit report

Do ensure that you get the new surname on all your deposit accounts as well as any loan accounts. As far as credit report goes, this is one document where you get a respite from updating your name on you own. Meenakshi says, “Any changes in customer database, including name and address, get refreshed every month for all loan customers by the bank to Credit Information Bureau (India) Ltd.”

Passport

If you already have a passport and need to update your post-marriage new surname, you will have to apply for a re-issue of passport and not a fresh passport. Though the application process remains the same, the documents you will need to get a reissued passport due to name change will be different.

For instance, along with marriage certificate, you will have to submit the old passport in original with a self-attested photocopy and a copy of the husband’s passport.

Other documents

Other documents where you will need to update your new surname are driving licence, voter’s identity card and the like. Mathpal says, “As far as insurance policies go, if you are a nominee, ensure that the correct name is mentioned. You don’t want your old name mentioned as a nominee when you have already changed to a new name. That will only increase problems in the future.”

Also, with a new surname and a possibly new address, you will need to get your know-your-client information updated; name change across other financial investments, such as mutual funds and shares will follow.

Telang says, “If it’s a property that you own, get the name change updated. Say you own a house, inform the society about the change of surname.”

Ensure there is uniformity in all your financial documents. Of course it’s not as easy as it sounds and you probably have to spend a month or so to get all this done. But it’s best done sooner than later to avoid problems in the future. And if you are a man who wants to take your wife’s surname along with yours, the process still remains the same.

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Product costs, tax and inflation can reduce real returns significantly; look at these before buying a product

Deepti Bhaskaran, Mint 14/2/2012

source: http://www.livemint.com/2012/02/13210325/Three-faces-of-cost-you-must-r.html?h=B

Though investment brochures often scream attractive returns, the reality is a little different. The sad truth of many retail financial products is: what you see is not what you get. Cost manifests itself in many ways to eat into your returns. Here are the three faces of the monster that you need to recognize to decode the return.

Costs

The most visible face of the monster is in product costs. Typically, charges can be levied in two ways: one, a fixed sum; two, a percentage of the corpus or the value of the investment at the end of each year.

Fixed costs take out a certain pre-decided number from the corpus each time you invest. To understand this cost, let’s look at the National Pension System (NPS) that until recently levied a distribution cost of Rs. 20 for every investment made. Fixed costs fall heavily on small investments, so a distribution cost of Rs. 20 translated into 0.02% of Rs. 1 lakh investment, but 0.2% of Rs. 10,000. This anomaly has now been removed and the costs in NPS are 0.25% of the investment amount.

Costs defined in percentage terms can be levied in two ways. One, a straight deduction from the amount you invest and two, a deduction from the accumulated corpus or fund value. To illustrate a cost of 1% of the amount invested would mean that every year when you invest Rs. 1 lakh, the product will keep Rs. 1,000 and invest the remaining Rs. 99,000. But if the cost is a percentage of the fund value you will need to pay a little more. Let’s assume the fund grows at 10%. So at the end of the year a Rs. 1 lakh investment will become Rs. 1.10 lakh. A 1% cost of the fund value here would mean the company would keep Rs. 1,100 or Rs. 100 more in costs. Over a 10-year period, the first scenario will return Rs. 88,952 more.

Costs drag your net return down and the best way to find out what you get post-cost is to ask the agent or bank how much is the net rate of return of a product, even in an illustration. Says Veer Sardesai, a Pune-based financial planner: “If costs are not displayed or you find it hard to understand how they will affect your investment, just ask for the absolute amount that you will get on maturity, and then calculate the net return of the product. If you are comparing products, the maturity corpus can be a great tool to do so.” On the excel sheet, the IRR (internal rate of return) function can give you the exact rate of return. If you are not excel savvy, just google a compounded annual growth rate calculator and key in the details: amount invested, time period, and maturity corpus. It is the net return that you should concern yourself with. In the example above, a cost of 1% of the fund value translates into a net return of 8.90%.

Tax

This is the next big bite out of your return. Luckily for several long-term products, including Public Provident Fund, insurance-cum-investment plans, equity-linked savings scheme and Employees’ Provident Fund are EEE (exempt-exempt-exempt) in nature. In other words, the contributions, accumulations and maturity proceeds are tax-free.

But for products that get taxed on maturity, you need to look at post-tax returns. For instance, the maturity proceeds from a fixed deposit are taxable and hence even an attractive rate of 10% may lose its sheen after you factor in the tax that you need to pay, especially if you are in the higher tax bracket. For an individual falling in the 30.9% tax bracket, a 10% return gets reduced to a net return of 6.91% after income tax. Taking the example that sucked out 1% cost on corpus every year and gave a net return of 8.90% will further come down to 6.15% for the 30.9% tax bracket and 7.98% for the 10.3% tax bracket. If the product is not tax-exempt, you will need to calculate the post-tax return.

Inflation

Inflation is the silent killer. It slowly reduces the value of your investment without you even noticing it. The most attractive of returns can deflate if they are not inflation proof. In other words, your investment will still be buying you less if the rate of return is less than the rate of inflation. For instance, if you earn a net return of say 6% and inflation is at 6%, then the value of your investment would still be equal to the value of your money when you started because even as your money would have grown by 6%, the cost of consumables would have gone up by 6%. Your real rate of return or inflation-adjusted return needs to be positive to make any meaningful gains from your investment.

In the example above, a post-tax return of 6.15% will come down further to 0.15%, assuming long-term inflation tends to be around 6%.

It is after factoring in these costs that you can arrive at the effective rate of return of the product. Knowledge of what that return really means could be a game changer and recognition of various embedded costs can bridge the gap between the advertised rate and the truth underneath.

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