Prajna Capital - An Investment Guide

Instead of waiting till March to make tax-saving investments, take advantage of the attractive prices in the stock markets now Only two things, they say, are certain - death and taxes. Oddly, both topics are usually avoided in polite society. The annual ritual of year-end investing to save on taxes is almost five months away. So why bring up this dreadful talk about taxes now? It's not March already, by any chance, is it? No, don't bother to look at your calendar. It's only November. But there are attractive investment opportunities available today, if you plan to look at tax-saving equity options - equity-linked savings schemes ( ELSS ) or unit-linked insurance plans ( ULIPs ). The recent drop in equity markets has brought stock valuations down to compelling levels. Mutual fund NAVs have plunged, some by as much as 50 percent over the past three months. While this is obviously unfortunate for existing investors, it's extremely good news for those who are evaluating ...

The process of remittances abroad, and back, is cumbersome. Here’s how you can wade through without hassles Approach The Right Place Outward remittances or the process of sending money abroad is governed by many regulations. In India, outward remittances are made mainly through banks. At the outset, you need to remember that you just cannot trust any individual or a financial firm with the responsibility of sending your money. Experts recommend that you should always try to choose a bank with an international footprint, which will make your job easier. Choose Mode Of Transfer The next step is to choose the mode of transfer. One option is to get a Foreign Currency Demand Draft ( FCDD ). This draft will be denominated in foreign currency and should be drawn in favour of the recipient/ beneficiary. The beneficiary does not necessarily need to have an account with the same bank. The other option is to send money via wire transfer. Do not be puzzled if the bank official uses the word SWIFT ...

Some conditions that make it possible for NRIs to buy shares of companies here, and some procedures involved A non-resident Indian ( NRI ) is a citizen or person of Indian origin ( PIO ) who resides outside India. Under the Foreign Exchange Management Act 1999 ( FEMA ), a person who is not a 'person resident in India', as defined under Section 2(V) of the Act is considered as a 'person resident outside India'. A PIO could be a citizen of any country but should have held an Indian passport, his parents or grandparents should have been citizens of India by virtue of the Constitution of India or the Citizenship Act 1955, he should be the spouse of an Indian citizen, or should be a person referred to in sub clause (a) or (b). Investments by PIO in domestic securities are treated in the same as investments by NRIs and require the same approvals, while being eligible for the same exemptions. A NRI or PIO can open a demat account with any depository participant ( D...

Margin trading increases your buying power, but it enlarges your risk as well. When to give in to the temptation of this high-risk trading strategy, and when to avoid Double gain; Double pain. This is how the concept of margin trading can best be described. As the name suggests, margin trading enables you to trade with borrowed funds/ securities or, in other words, by paying only a part of the total investment amount. It is, in fact, a leveraging mechanism which enables you to take exposure in the stock market over and above what is possible with your own resources. However, while margin trading increases your buying power, it enlarges your risk as well. In a way, amplifying your gains and losses to the same degree. That is why it is still not a recommended way of trading, although the lure of big money has always drawn investors into the lap of margin trading. So much so that an increasing number of small investors are now giving in to the temptation of this high-risk trading...

It’s important to consider both qualitative & quantitative aspects when it comes to assessing the health of your bank. THIS is a typical nightmare sequence these days. You see an endless line of people spilling out of the bank, anxiously withdrawing their deposits and carrying money away in bags and suitcases. In a fit of worry, you join the line. But when you reach the front, the cash teller tells you they have stopped dispensing cash. In shock, you wake up, thankfully to realise that it was only a dream. There are numerous rumours that are going around about whether Bank A or Bank B is on a shaky ground. You’re wondering if you’re making the biggest mistake by not taking your money out. But before you take any hasty step, remember that you need to base your decision on something other than rumour. While this may be slightly tedious, HEALTH BAROMETER When it comes to assessing the health of a bank, it’s important that you take both qualitative and quantitative aspects into a...

Here are outlines of rules governing NRI investments in India Non-resident Indian ( NRI ) means a 'person resident outside India' who is a citizen of India or is a 'person of Indian origin' . Under the Foreign Exchange Management Act, 1999 ( FEMA ), a person who is not a 'person resident in India' , as defined under Section 2 (v) of the Act is considered a 'person resident outside India'. 'Person of Indian Origin' ( PIO ) means a citizen of any country other than Bangladesh or Pakistan, if he at any time held an Indian passport; or, he or either of his parents or any of his grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955; or the person is a spouse of an Indian citizen, or a person referred to in sub-clause (a) or (b). An investment by a PIO in Indian securities is treated just as investments by non-resident Indians and requires the same approvals, and enjoys the same exemptions. NRIs can pur...

THE LAST few months have seen tumultous movement in the stock exchanges forcing eager investors to play it safe. With interest rates from banks slipping, investors are prone to look at alternatives. In recent times, especially over the last few days, some banks have also taken the decision to hike interest rates with some offering as much as 9% for a one-year fixed deposit ( FD ). This move (of hiking interest rate) has happened due to a 0.25% hike in repo rate by the RBI (the repo rate is the rate at which banks borrow from the RBI). So is investing in a one-year bank FD the best way to earn some secure return? Not necessarily, aver investment experts. The product which many investors, be it high-networth individuals ( HNIs ) or retail investors could look at is the fixed maturity plan ( FMP ). FMPs are offered by mutual funds. “FMPs have come of age during the last fiscal. It has moved from a product being sold to corporate with even HNIs jumping into the bandwagon,” says the region...

PUT simply, the repo rate is simply the annualised interest rate at which banks borrow money from the Reserve Bank of India ( RBI ) over a short term. This is generally seen as a way of tiding over a short-term liquidity crunch that is experienced by banks. However, to understand how this works, we need to understand the word repo. Repo technically stands for the word repurchase agreement. Most banks generally have a certain amount of government bonds or securities in their possession. When banks are in need for money they borrow money from the RBI using these government bonds or securities as a collateral. There is however the assurance that the bank will recover these later when the borrowed money is returned. The cost of the transaction takes the form of the repo rate. The repo rate is dependent on factors such as the credit worthiness of the borrower, how liquid the collateral is and the rates of other money market instruments. What is reverse repo? The word reverse repo generally ...

A further drop in home loan interest rates is not expected as the inflation rate is under control now The unpredictable rate movements, the Reserve Bank of India's ( RBI ) moves and mixed response from the lenders has put borrowers in some confusion. The inflation monster which had pushed prices to unimaginable highs has finally been tamed. From as high as 12.91 percent this year, the inflation rate has almost come down to half of that. Does this mean borrowers can expect banks to reduce their home loan rates, if this trend persists? What is inflation? Inflation is an increase in prices and/or decline in purchasing power. An increase in the amount of currency in circulation results in a relatively sharp and sudden fall in its value, and rise in prices. It can also be defined as a persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of availab...

IN SIMPLE terms, foreign direct investment refers to the investment made by an entity (generally a company) in an enterprise located in a different country. By virtue of making this investment, the investor gains a certain degree of influence or control over the management of the enterprise. It is generally believed that to qualify as FDI, the investor should be in possession of at least 10% of the shares of the company and have access to voting power in the company. FDI can be both outward and inward. In the case of inward FDI, the investor can enter the country by incorporating a company, either by getting into a joint venture with an Indian company or setting up a wholly owned subsidiary. Alternatively, he could retain the status of a foreign company and simply set up a liaison, project or branch office in India. However, it is generally expected that FDI signals long-term commitment on the part of the investor as there is a lot of physical investment included. What are the benef...

IF ONLY life were as good as the ads portrayed it to be. You could travel to exotic locations, shop till you drop, indulge in the choicest delicacies — with nothing but that sleek plastic card in your wallet. In fact, freedom is the trump card that credit card companies always play up to sell their gold, silver and platinum cards. However, the reality is that when you come back home from that fancy vacation or shopping spree, at your doorstep will lie a bill that, as much as you try, you cannot wish away. And if you’re not the kind of person who cares for detail — remembers where or when you spent what — chances are that you may be paying more than you actually spent. To help you guard against fraudulent activities by credit card issuers (generally banks and NBFCs), COMMON ACHES If you’re one of those who haven’t given this a thought, here is a chance for you to find out if you are being victimised or not. You need to know that no bank has the right to forcibly issue a credit card. ...

AT A time when financial awareness remains a challenge, more investors find themselves saddled with hidden costs and there seems to be a penalty for any wrong step you take at a bank. What’s worse, most of the charges come without prior notice. The charges range from non-maintenance of quarterly average bank deposit, cash payment penalty on credit cards to cheque book usage, among others. From April 2007 to March 2008, such complaints increased almost threefold, to a staggering 490 cases, according to the Reserve Bank of India (RBI). QUARTERLY BALANCE MAINTENANCE You just can’t afford to be indiscipline while banking today. It carries a financial burden. There’s a big penalty to be paid if you fail to maintain the average quarterly balance. Not only you are liable to pay Rs 500-1,500 as fine, but also chargeable for speaking to a customer care executive. India’s two largest private banks, ICICI Bank & HDFC Bank, ask you to shell out Rs 50 each time you make a call to the custome...

The relation between the Fed’s interest rates and the markets here The US Federal Reserve has decided to leave the interest rates unchanged. However, it has expressed concerns on the escalating crisis. The unanimous decision left the benchmark overnight rates at two percent. The Fed has said, 'strains in the financial markets have increased significantly and labour markets have weakened further' . The central bank said it also remained concerned about the inflation pressures. The Fed said the downside risks to growth and upside risks to inflation are of significant concern to the committee. The move is expected to enable banks in the US to borrow money for the short term from the Fed as well as lend to each other at the same rate as before. In the past few months, the Federal Reserve had been cutting US short-term interest rates amidst concerns that the economic growth will slow down in the coming months. The effort was to stimulate economic activity and keep the country ...

The stock markets had been in a bearish phase since the last few quarters. However, the previous quarter's stock market indices registered a positive closing (up 1.5 percent). This is due to the sharp rally seen last month in the markets. Some experts are of the opinion that the markets have bottomed out. According to them the current rally has some steam left to take the markets upwards from the current levels. On the other hand, there are analysts who argue the current rally is just based on some initial data of economic recovery in the global markets and investors should watch further data points and market trends cautiously before assuming a bottom out in the markets. There are some important factors investors should track closely in the next few weeks. 1) Relevant global issues: Economic growth in developed economies The overall economic growth numbers of developed countries will be an important issue. Many large economies confirmed negative economic growth over the last c...

The markets rallied over the last few days and there was a bounce back. The market sentiments improved due to a drop in the rate of inflation, rate cut by the Reserve Bank of India (RBI), fuel prices cut, financial stimulus package announced by the government and some positive news from global markets. Currently, a rally in many beaten down sectors like banks, real estate and some select mid-cap stocks is on. Most of the stocks in these sectors have bounced back 20 to 30 percent from their yearly lows. However, analysts believe this rally is just a technical pull-back rally in a bear market. There are no clear and decisive signals that economic and business conditions are improving. Current, the rally is based on cuts and packages announced by the government and the RBI, and expectations that more measures will be announced. Analysts believe the relief measures announced by the government are too small to handle the slowdown and investors should not expect something very dramatic...

Since the second half of 2003, we have seen the longest bull run in the domestic equity markets. Investors created significant wealth over these years and in the process we all forgot the basic principle of investing - diversification. Although we all believe that investments in equity is the best tool to counter inflation, and we also believe the growth will take place over the long term, short-term jolts can be severe and can take away a significant part of the gains. The last six months have forced us to rethink the mistake that many of us made, namely, putting all eggs in one basket. Alternative investing is an effective diversification tool that has been much talked about, but seldom practiced, especially in a buyout market. It's the golden rule of investing, and is a critical part of a thorough financial plan to appropriately allocate assets that suit one's personal objectives, risk tolerance and time horizon. For most, a mix of traditional investments such as stocks a...

Foreign funds, non-residents may be able to trade in currency futures FIIs and non-resident Indians may be able to participate in the currency futures market in three-four months. The move that would provide the much-needed depth to the currency futures market in the country has been in-principally approved by the policymakers, a government official familiar with the development said. However, it has been decided that this should be allowed after few months after measures like higher exposure limits begin to have impact in form of increasing volumes. Currency future allows companies and others to hedge their risk against any fluctuations in the exchange rates and is a contract to exchange one currency for another at a specified date in the future at a specified price (exchange rate) that is fixed on the purchase date. Market regulator Sebi had on March 25 doubled the gross outstanding limit for small traders to $10 million and $50 million for brokers. Exchanges may also introduc...

WITH dismal share valuations causing bondholders to redeem, and not convert their foreign currency convertible bonds ( FCCBs ), which until early this year were regarded as one of the most preferred options for raising corporate debt, suddenly seem to have become millstones around the necks of issuers. It is the redemption pressure on cash-starved issuers, coupled with the need to preserve liquidity by mitigating further forex outflow, which seems to have prompted the Reserve Bank of India ( RBI ) to issue the circular permitting buyback of FCCBs. As per the circular, issuers can now buyback FCCBs under the automatic route up to any limit out of existing foreign resources or by raising fresh external commercial borrowings (ECBs,) if effected at a minimum discount of 15% on the book value. Further, FCCBs up to $50 million can be bought back with prior RBI approval out of rupee resources representing “internal accruals”, if effected at a minimum discount of 25% on the book value. I...

Analysis on the status of debt options in the present market conditions Considerable action was seen on the monetary policy front over the last six weeks. The Reserve Bank of India (RBI) announced sharp cuts in the cash reserve ratio (CRR) and the repo rate. There has been a 3.5 percent cut in the CRR - 1.5 percent cut in the last one month. This is one of the sharpest cuts in key monetary policy parameters in such a short span of time. The intention of the RBI and the government is to ease the liquidity crunch and provide a boost to consumer sentiments by way of low interest rates. The inflation rate is also coming under control due to the slowdown and dip in the rates of many essential goods such as crude oil, metals and manufacturing products. Softer monetary policy measures are expected to influence the returns from debt instruments, but investors should weigh different options carefully before making any changes in their portfolios. Outlook on debt options: Bank fixed deposi...

The events that unfolded last week were so extraordinary that the former Fed chief Allen Greenspan called it 'a once in a century occurrence'. In the latest Wall Street crisis investment bank Lehman Brothers filed for bankruptcy protection, the Bank of America took over Merrill Lynch and the Federal Reserve provided an USD 85 billion bailout for insurer American International Group, all of it happening almost at the same time. In fact, the story of Lehman Brothers was scripted in the mortgage market crisis last year. The firm was a major player in the market for sub-prime and prime mortgages. The company had a relatively small balance sheet, and was heavily dependent on the mortgage and repurchase markets for short-term funding. As the mortgage markets did not recover, the company had huge write-offs. Its efforts to raise capital failed. The company's expectations of being bailed out by the government did not work out. Lehman had reached its end, setting off a domino ...