Prajna Capital - An Investment Guide

In the last decade or so, the stock market has moved towards paperless trading. For investors, who used to burdened with reams of stock certificates, a demat account has become a necessity. Not having a depository or demat account has now become the biggest entry barrier to investing in equities. It is no wonder that more and more entities (commodities futures and spot market) are moving to the dematerialised form of trading. A demat or 'dematerialised' account holds shares in electronic form, thus saving you the bother of holding shares in paper form. DEPOSITORY FUNCTIONS A depository is similar to a bank. It holds shares, which belong to investors, in electronic form. The investor has to open an account with the depository, through a Depository Participant ( DP ). The DP is an intermediary between the depository and the investor. In India, there are two depositories, viz., National Securities Depository and Central Depository Services. A number of banks (HDFC Bank, ICICI Bank...

Elderly citizens can invest in the Senior Citizens Savings Scheme as it offers triple benefits of safety, liquidity and regular periodic income THE search for safe investment avenues offering regular income begins as one approaches the retirement age. Schemes that offer capital appreciation coupled with security are the most desired. Being guided by such a principle, the Government of India had announced a special scheme known as Senior Citizen Savings Scheme or SCSS in 2004 to cater to such needs of the senior citizens. In a short span it became very popular with people, however, attractive rates on bank fixed deposits last year overshadowed the scheme. Now, with falling deposit rates, the scheme could make it to the limelight again. However, the biggest shortcoming of the scheme is that the interest earned on it is taxable. If the interest income in a year is more than Rs 10,000, then the TDS (tax deducted at source) is cut. However, with the recent amendment an investment up ...

If you delay informing the bank, you may end up with a huge balance. Unless, of course, you have covered the card against fraud WHAT’S the first thing you should do if you lose your credit card? Just call up the bank’s 24 hour call centre and deactivate the card. This should take precedence even over your attempt to track your wallet in the lost trail. This is because very few banks in India offer protection against fraudulent use of credit cards. Of course, you can breathe a little easy if your bank insures your lost card from any misuse. Standard Chartered Bank, for instance, has tied up with Tata AIG General Insurance Company to launch the ‘Plus Extended Protection Plan’ last week. This product, which has to be bought separately, will cover the card customers from any possible fraudulent use of the cards prior to reporting the loss. “We receive several lost card reports in a month. The product will ensure protection to our customers against any fraudulent use. The insuranc...

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 impending realignment of NSE indices on the basis of free-float market capitalisation has put index funds and exchange traded funds in a spot of bother. According to mutual fund analysts, the exchange-proposed changes in stock weightages will result in widening of tracking error in index funds. Index funds are passively-managed funds wherein the fund manager attempts to mirror the performance of a benchmark index, by investing the corpus in the index components in proportion to their weightage in the index. Tracking error is the difference between returns from the index fund to that of the index. Lower the tracking error, closer are the returns of the fund to that of the target index. Funds with tracking error lower than 1% are good performers, according to mutual fund analysts. The NSE-proposed shift in stock weightages could deviate fund returns (from index returns) in the range of 6-10%, industry sources said. There could be some tracking error as weightage realignment ...

Asset management companies ( AMCs ), which invest the pooled funds of retail investors in securities, are said to provide more diversification, liquidity, and professional management than individual investors can themselves manage. But a look at the stocks held by 28 asset management companies show that one-third of their assets is invested in only 10 stocks. Their favourite 10 being: RIL, SBI, Bharti, ONGC, ICICI Bank, Infosys, Bhel, L&T, HDFC Bank and HDFC. AMCs of fund-houses such as Morgan Stanley Investment Management, Benchmark Asset Management, Deutsche Asset Management and LIC Mutual Fund Asset Management have invested funds to the tune of Rs 200 crore to Rs 1,100 crore in these 10 stocks. This means that this type of top-heavy form of AMCs' equity portfolio could be affected by a swing in just a few stocks. As per latest data, AMCs held maximum assets in form of shares in RIL (Rs 4,592 crore), followed by SBI (Rs 3,855 crore), Bharti (Rs 3,508 crore), ONGC (Rs 2,995...

Eleven banks participated in the mock test carried out by the Bombay Stock Exchange (BSE) for the new IPO payment facility recently permitted by SEBI. The first IPO in which the facility will be used is that of 20 Microns, which opens on Monday. This facility, called the Application Supported by Blocked Amounts (ASBA), allows banks to block IPO application money in the applicant’s bank account till the time of allotment of shares. Only that amount proportionate to the share allotment will be transferred from the account. The markets regulator has said that ASBA will be operationalised from Monday. . This coincides with the opening of the IPO of 20 Microns, the first issue in which the ASBA process will be used by investors. Interface tested “BSE has successfully tested its interface with 11 banks for participation in the ASBA (Application Supported by Blocked Amounts) process,” said a BSE news release. The 11 banks that participated in the mock test were Bank of Baroda, Corporation Ban...

INDIA, like many other economies, has embarked on a long, difficult road to check runaway prices. It’s now evident that policymakers will hike interest rates till it hurts and pulls down demand. The central bank as well as the government are willing to sacrifice a bit of growth to douse inflation — an issue that has captured the collective imagination. On Tuesday, the Reserve Bank of India hiked the benchmark short-term rate by 50 basis points, about 25 bps more than what the market had expected. Bonds and equities reacted sharply. Soon, home loan seekers and corporate borrowers will feel the pinch, since borrowing money will now be far more costly. RBI has not only raised the benchmark repo rate — the rate at which banks borrow from the RBI — from 8.5% to 9% with immediate effect, but has also hiked the cash reserve ratio ( CRR ) for banks by 25 bps — a measure that will drain Rs 9,000 crore from the banking system. Given the outright hawkish policy stance, it’s clear that RBI will no...