Archive for January, 2007

ULIP costs – lining advisors pockets

10 comments Written on January 30th, 2007 by
Categories: ULIP
Kartik Jhaveri writes about how you can lose a lot of money by blindly following insurance advisors. ("How Mr. Singh lost 24 lakh just like that"). In brief, Mr. Singh bought a ULIP policy paying Rs. 3 lakh per annum as premium, and ended up paying his advisor 18% of his first years premium - a hefty Rs. 54,000. He could have reduced this by only paying the "minimum premium" of Rs. 20,000, says Jhaveri, and put the remaining sum as a top up contribution. The charges in this case would have only been Rs. 6,800 - that saves Singh about Rs. 47,000.

That 47,000, invested over 28 years, would yield Rs. 24 lakh at 15% p.a. So effectively Mr. Singh lost that chance. So greedy advisors have, says Jhaveri, lined their pockets at Singh's expense, and even advised him to stop payments of premium after three years, as these are no longer mandatory. In essence, bad advise cost Jhaveri Rs. 24 lakhs.

Unfortunately you cannot blindly follow Jhaveri's advice either here. Firstly, for a premium of Rs. 300,000 p.a. for 28 years, the minimum sum assured should be Rs. 42 lakhs (0.5 x Term x Premium) - Jhaveri says 15 lakhs is the insurance amount. Let's ignore that and take 42 lakhs instead.

Also, IRDA has regulated the amount of "top up" contributions one can pay, to a maximum of 25% of regular premium. If any more top up is paid, the sum assured will have to increase to 125% of the portion of top up greater than 25%. What that means is: If Singh had taken a Rs. 20,000 premium policy (28 years), his sum assured would have been a minimum of Rs. 280,000. If he pays a top up of Rs. 280,000 (whatever was left beyond the Rs. 300,000 annual payment made otherwise), then this would be considered as a single premium, and sum assured would increase by about Rs. 345,000, making the total sum assured = 625,000.

Every year of such top up, the sum assured will increase (each top up is considered to be a single premium). But still, this is a better option than a fixed premium of Rs. 300,000 per year, because of the much lower charges.

Unfortunately, insurers don't even allow you to pay large top ups. I assume this may be because of the extra complexity in having top ups increase the sum assured; whatever be the case, you can't easily avail of this option.

But there is a better option - Take term insurance and buy an ELSS mutual fund. (Read my article on this) This is a far more transparent option, and will have much much lower costs as explained in that article. In fact, you will end up spending a lot lesser on fees and costs, you will have a much more visible networth (just multiple the daily NAV with the no. of units you bought) and you will get the same tax exemption. The extra effort is in writing two cheques instead of one.

Advisors will always be greedy and try to maximise their revenue, at your expense. "Caveat Emptor" (buyer beware) applies to all of you who buy a product, and buying insurance from an advisor is like asking a shopkeeper which soap to buy. What kind of advice do you think you will get?

Advisors are biased, period. You must question every thing that they tell you about, and do your own research. Even if they are friends of family - it's not their money, it is yours.

If you have already bought a ULIP, you can minimise your losses and still quit. Read "ULIPs: Stay or Get Out?".

Also read: ULIPs: A good invesment?

Posted in ULIP

Info Edge Q3 results: Wayward?

No Comments » Written on January 29th, 2007 by
Categories: Results
Info Edge (Naukri) is out with Q3 results. It has made 8.1 cr in profits on a revenue of 38 cr. in the quarter. They made revenues and profits of 84 cr. and 13.3 cr. in FY 2006. In the nine months of FY 2007, they have already made 99.9 cr. of revenues, and 16.9 cr. profits.

But the EPS calculation wrong. I don't know whether I have missed anything out, but they have 2.7295 cr. shares, and they made 8.158 cr. of profit. Their results shows EPS as Rs. 3.3 per share for the quarter, but if you divide 8.158 by 2.7295 you get a figure of Rs. 2.99. They've reported an EPS of 3.3.

I had noted in my IPO analysis that they had not released Q2 results. And they have still not released it to the stock exchanges. But from this nine month results we can see the difference - Q2 saw revenues of 32.62 cr. and profits of 3.56 cr. (EPS of Rs. 1.3) That means, sequentially, profits and EPS was as follows:

Q1: 5.22 cr. (EPS post dilution: Rs.1.91)
Q2: 3.56 cr. (Rs. 1.3)
Q3: 8.1 cr. (Rs. 2.99)

This is a little wonky - an up quarter, a down quarter and then back up. The second quarter is not a bad quarter in India for their business- I hope there is no manipulation and that they've not taken away some of the Q2 numbers and put it in Q3 just to impress the market.

Total diluted EPS is Rs. 6.2 (wrongly reported at 7.42) in the first nine months. If they make the same profit in the last quarter, their EPS will move to about Rs. 9.2 for the year. Current market price is Rs. 742, that means the company is valued at a P/E of 80, which is higher than that of most other software companies listed in India.

From their release it's possible to also discern results of Q4 2006 - which seems to have yielded 24 cr. of revenue but only 2 cr. of profit last year. This means it's not been a strong quarter last year, and the next quarter may yield lesser revenues and profits than this one. So looking forward P/E may be even higher than 80.

Overall, I think this company is overvalued because a) it's the only internet product player and b) there is very little floating stock available. In about a year, some of the stock that is locked in will come into the market, and that will provide some much needed liquidity and perhaps some less absurd valuations.

I'm not impressed yet, and my call is to stay away. I'd pick this stock at a value of less than Rs. 300 only, though the next few quarters will tell us what the real growth is.

Note: I recommended a "do not buy" to this IPO, which was oversubscribed 12 times at the retail level and 55 times totally. It as priced at Rs. 320, and the current price is now more than double the IPO price. I must concede that I found it overpriced even at Rs. 320, but obviously the market has lapped it up. I still find it overvalued tremendously. Whatever it is, my valuation is way below market, so note my advice knowing that I have underestimated the share price earlier.

Posted in Results

Firstsource Solutions IPO

16 comments Written on January 26th, 2007 by
Categories: IPO
ICICI OneSource (now Firstsource Solutions) has an IPO between Jan 29 and Feb 2 (2007) with the following details:

Price: Rs. 54 to Rs. 64.
Shares: 6.93 cr. shares (6 cr. new shares, .93 sale by existing shareholder)
Dates: Jan 29 to Feb 02, 2007
Total post issue capital: 41.62 cr. shares

Valuation: P/E of 28
The total valuation of the company, post IPO, at the higher band is Rs. 2664 cr. The last nine months have shown a 62 cr. net profit. This means a nine month EPS of Rs. 1.75 per share, which when annualised gives us an EPS of Rs. 2.33 per share. This means, at the higher band, the valuation is a P/E of 27.47.

Now is this cheap? Let's take a look at WNS Global Services, India's second largest BPO (after the privately owned Genpact). Net profit of WNS are about $6 million in the Jul-Sep 06 quarter, annualised at $24 million. In rupees, that is 108 cr., which is about twice the size of Firstsource. Revenues of WNS are about $350 million annualised, which is twice firstsource's size. WNS is priced at about $30 per share, which is a P/E of 60. Assuming that the market leader gets a 20% higher pricing than others, the P/E of Firstsource should probably be at 45-50 levels. Which is nearly double the IPO offer.

What's the IPO money being used for?
Remember that 93 lakh shares are for sale by an investor, so that much money won't be available to the company. At the higher band, the company will get Rs. 400 cr. Let's see how it proposes to use the money.

Firstly, 180 cr. of the proceeds will be kept for acquisition. This is good news, because there needs to be some consolidation in the BPO space.

Secondly the company intends to invest in a new facility in Chennai which should be ready by March 31, 2007, at a cost of 14.26 cr. Another 32 cr. has been earmarked for other locations.

The company intends to repay a loan of 45 cr in 2008. This may or may not involve a pre-payment, but in the light of interest rates going up, I feel they might prepay.

Expenses and working capital: The remaining money - about 130 cr. at the higher band - is kept for issue expenses and working capital. Unfortunately no cap has been placed, percentage wise, on the expenses, and this is a small source of worry.

Competition
Firstsource has been ranked #5 among non-captive BPOs in India, after Genpact, WNS, Wipro BPO and HCL BPO. Genpact is private and the Wipro and HCL BPOs are arms of a larger public software company. WNS is the only other public company, but its financial results for the December 06 quarter will only be available on Feb 13. That's after this IPO closes, so we have to compare earlier figures.

As I've mentioned, the P/E of 27.5 on the last nine-months, on an annualised basis, is attractive and much lower than WNS's valuation. I believe that the issue is very conservatively priced, and shareholders can expect a much higher P/E of about 50 or so. The CAGR of Firstsource, from 2004 has grown from 60 lakh to 24 cr in 2006, with the first 9 months of 2007 yielding 62 cr. That's a growth of over 100% yearly, indicative of a good growth story.

Advantages
Multi-location: There are already delivery centers in the US, UK, Argentina and one more coming up in Philippines, which is a lower cost country than India and also has the important distinction of being able to serve Japanese companies easily.

Inorganic growth: Acquisition of customers will happen also by buying out other companies, which, along with the organic growth they have shown, will show a faster increase in revenues and profits.

Not just voice: While some other companies focus on the now commoditised voice delivery (phone agents), Firstsource has moved into other areas including check processing, loan servicing, marketing analytics and compliance. This is a better margin business and less commoditised, plus requires a greater skillset and knowledge base. So competition in that sector will only be from large players, a significant advantage and entry barrier.

Recent acquisition: Firstsource recently acquired BPM, a US based BPO which will add revenues and income to the company, visible perhaps in this quarter onwards. Results upto December 31 in the offer document Firstsource has provided results upto December 31, 2006 in the offer document. This is commendable. In recent IPOs, like Info Edge, there were no recent results available for comparison, in fact Info Edge has not even declared it's July to September 06 quarterly results to the stock exchanges! In that respect I like it that Firstsource has chosen to be as transparent as possible.

Recent shares sold
Recently, shares of Firstsource Limited have been transferred to Galleon, an institutional investor, at a price of Rs. 62 per share. This is less than the price of Rs. 64 at the upper band, but Galleon has agreed to pay the difference if the actual price of the issue is greater than Rs. 62. This is showing serious confidence in the company, plus the strong ethical stand that this share sale will not be at a lower cost that what other general shareholders will pay.

Prior to this there were some option conversions to Westbridge (a PE firm) which being option conversions were created longer back and only exercised recently. Such transfers do not reflect today's price, but of the price when the option was created which is longer back.

I had mentioned in my earlier IPO analysis of Info Edge (Naukri) that in their case, they sold to institutions at Rs. 245 - a far lower amount than paid by shareholders at Rs. 320 - that such lower valuation sales to institutions immediately prior to the issue amounts to taking money away from other shareholders. In this case though, there is no such problem.

Dependence on a few clients
Five clients account for about 50% of income in the last nine months, and losing such clients will cause revenue losses. But this will probably change with the IPO money being used for expansion and acquisitions. Any organic or inorganic growth is likely to keep the dependence down, and stabilise the business.

Recommendation I recommend a buy for this IPO. Subscribe at the higher end of the band. I think this is one of the stronger and more capable players in this space and will yield good results.

But subscribe on the last day of the IPO, looking at oversubscription. If the issue is more than 5 times oversubscribed, you should probably look at buying in the secondary market - though if you don't mind locking your money for a while, you should apply in the primary market as well. I'll post the subscription statistics here on Feb 1.

Posted in IPO

The lack of irrational exuberance

1 Comment » Written on January 25th, 2007 by
Categories: Commentary
The stock markets are at their all time high - but is it time to sell now? Everyone's talking about a correction around the corner. That FIIs will sell out. That interest rates are rising to huge levels. That inflation is now over 6%! That all these factors will lead to a slow down in India and the "fundamentals" are going to be hit big time. What do I think?

Actually high inflation means strong growth. Interest rates are control measures. We are complaining about 9% interest now? It was more than 9% in 2002, when the bull market started...and slowly came down over a few years. This year, interest rates will stay at this level or a little bit higher, but the US Fed will drop rates by around 100 basis points in 2007,and we will follow suit in 2008. So the lower interest rate regime will return next year.

One big issue is whether liquidity will remain. But man, that is such a moot issue today: MFs are getting more and more money every single month and the data in the markets is showing very strong money flows into equity. Remember SLR and Repo/Reverse Repo largely suck out debt liquidity which actually moves money into equities. In simple terms it means that more and more people are investing in Indian stocks, either directly or through Mutual funds.

Lastly, behavioural patterns. Short term movements have always reflected investor sentiment, and today there is only pessimism and skepticism in the streets. Ask anyone what will happen to the Sensex, everyone says it will crash. The problem is, if that is the feeling, then it will not crash. For a real bust, there needs to be exuberance, irrational exuberance. The kind that we saw in May 2006.

Irrational exuberance is where everyone around you is talking about the stock markets. Dinner conversation hovers around how someone made 5% on a daily basis, just buying a stock in the morning and selling it in the evening. Everyone's talking about the next level - that it will reach crazy, insane highs and no one can ever stop this juggernaut, and that anyone thinking otherwise must be nuts.

Right now that is not the case.

What I see and hear around me is: Fear. No one wants to invest at what seems to be the height of the markets - after all, no one forgets a May 2006 too fast. Yet, unless people get irrational, markets don't crash on their own - it takes overleveraged traders and greedy investors to topple a market. These guys are still not in the market right now - at least, I haven't seen too much of them.

Other than exuberance, external factors can influence a major fall. Like BJP losing elections in 2004. Or a regulatory scam where they stop markets. Or a war. You can't predict that anyway, and by the time you can, it's too late.

So let's focus on the issue: No irrational exuberance yet. Everyone's a skeptic. Everyone's a muh-bola-bear. This is the time for smart investors to buy, and buy into the right shares. In fact, there will be small, healthy corrections every few days - choose that time to buy.

What's the right share? Well, I bought BHEL at 2120 on Jan 15; simply believing that a strong order book deserves a better valuation. It's up at 2448 today, and has announced STELLAR results post market time, and a 1:1 bonus, so I assume it's going to up itself on Monday. That's already a 15% return in 15 days, and most likely I will sell if the share moves beyond 2800 within three months.

Now, BHEL was a smart move. But I've made a seemingly dumb move too - I bought Dr. Reddy's Lab (DRL) at Rs. 790 a couple days back. It's at 762 or so now, a 4% loss! But I still like that share - I think it's being offered at a ridiculously low valuation, so I'm holding till about 1000 or more.

What's my point? That there are some good stocks out there that are worth buying. Especially in the face of the recent stellar results everyone has announced. Heck, even Reliance is an amazing buy at these prices (remember, it has a sub 20 P/E, and has consistently grown at more than 25% in the last three years).

And in the same vein, there are bad stocks. There are stocks like GMR Infrastructure which are still being given an 100 P/E or so after their last results. This is crazy. I will hold my opinion on Naukri (Info Edge) until their results are out, but even they have a ridiculously high valuation. All real estate stocks are at insane levels. Don't buy such companies.

But do not believe the skeptics right away. The sun has not set on the bull market. Not in this year. I have bought an exchange traded fund, the NiftyBEES, which tracks the Nifty- I believe that within three years, I will see a return of 50%. Individual stocks of course, are bigger growth stories than that; I'm buying my picks.

Posted in Commentary

Small Investors: Learn the ropes

12 comments Written on January 24th, 2007 by
Categories: Uncategorized
Dhirendra Kumar at Value Research Online has an interesting post about Small Investors in India. He says that the Indian retail investor is overhyped, and we focus too much on small investors profiting from the markets. Every few days people complain that the "small investor" is staying away, and that is seen as a bad thing by all. Kumar questions why it's bad at all.

I must say I agree with some of his arguments that we have overhyped the small investor participation. In fact what's wrong, Kumar says and I agree, is that everyone wants the small investors to actually profit, regardless of how stupid their investments were!

Someone recently wrote in to say that they had invested Rs. 50,000 in the Cairn IPO. They didn't expect to get full allotment, because they expected an oversubscription. Yet, the issue was undersubscribed (or close) and they got all the shares - which are underwater by about 15% today! The thing is: if this person invested in the stock for listing gains, which is what many investors think of IPOs as, then that has plainly been a bad strategy. In fact, investing for listing gains itself is a bad strategy, no matter how successful it has been in the past; the cost of the money involved is not even worth it!

Why should the market reward such investors? In fact such people are gambling, and we all know that losers outnumber the winners in any gamble.

Having said that I don't like one statement made by Kumar:

For the small investor, the only safe way of participating in the markets is indirectly, through a mutual fund or some similar structure where their money is being managed by someone else who has a good track record that is transparently known.
I don't believe this is the right thing to say. A small investor can be, or become an ultra-smart investor, sometimes even better than the highly acclaimed fund managers of our mutual funds. I think telling all small investors to go down the mutual fund route is as stupid as telling them to invest blindly in stocks. Safety, in todays world, comes only when you know what you are doing - in fact the more you know, the safer your investments are. The saying goes, "The harder I work, the luckier I get".

What I think is that small investors have two choices:

1) Learn about investing, both in stock markets and mutual funds. Learn about simple stuff like stock exchanges, market prices and how to buy and sell. Then, learn about WHAT to buy - choosing the right stocks - and WHEN to buy - choosing the right price and time to buy them. Finally, the most important lesson: When to SELL.

This is not rocket science, regardless of what Kumar says. Stock investing is as logical as making a cup of coffee - you just have to do it a few times before you figure out how to get it right. Sometimes you will burn your coffee, and sometimes you will add too much milk.

Investing can be done in two hours a week. You don't have to be a full time practitioner to understand investing, reading books and visiting online sites like www.fool.com will help you start the process.

The idea is to invest slowly, and over a few years build a good portfolio. Don't blindly buy mutual funds either - even that requires a little bit of effort and thought every month. Analyse your portfolio every week or month to see where you are.

Unfortunately there are very few tools that help you do this in a simple way. Heck, time for software developers to start thinking!

2) If you can't do the above, or don't have the time to bother, simply buy mutual funds. Don't invest on "tips" or for "listing gains" or such. Don't invest the money you have saved for education, or to pay back loans. And never borrow to invest.

And don't fall for advertisements on TV or print. Like one of the advertisements themselves says: "Dikhave pe mat jaao, apni akal lagao".

I think the small investor is our future. The myth of the small investor is the word "small". The number of retail investors today add up so much that the word "small" is really not applicable. Like Seth Godin says, "Small is the new Big".

Posted in Uncategorized

Mutual Fund Dividends: Playing with your own money

14 comments Written on January 22nd, 2007 by
Categories: IncomeTax, MutualFunds
Some mutual funds offer dividends and then put up big advertisements about them, to the lines of "XXX mutual fund offers 260% dividend on [a future date]". They expcct you to buy the fund before the date of dividend, and think you will get really excited about the dividend. But should you be?

Some background
If you don't know what dividend means, read this article first.

Mutual funds are collective investment vehicles, with a fund manager investing your money for you. Dividends are payouts by the mutual funds to investors. Now dividends are PART of the net asset value, so after the dividend the net asset value goes down by the amount of dividend!

Assume you have 100 units of a mutual fund whose NAV is Rs. 50. This fund declares a 50% dividend (50% is always on the face value of Rs. 10, so this means Rs. 5 per unit)

What do you get? 100 units x Rs. 5 per unit = Rs. 500. The Net asset value will now go down by Rs. 5 per unit, and will now be Rs. 45. So your units will be worth Rs. 4,500 and the cash you get will be Rs. 500, so your net value still stays Rs. 5,000!

Unlike mutual funds, in stocks, things may be different. Dividends are paid out of cash profits of a company, so when a company declares a dividend it is far better (because the cash of the company may not be taken into consideration in its market price). So when a company declares dividends, it may be worth considering because of the hidden value that has now been recognised in the form of dividends.

Mutual funds have no such "unrecognised" value - Net Asset Value means the current value of ALL assets of the mutual fund! This is calculated by multiplying the number of shares or instruments held by their market prices, adding any cash holdings, and subtracting any liabilities. There is no "hidden" value in the fund that you can cash on.

But aren't dividends tax free?
Yes, equity funds (that have more than 65% in the equity market) declare tax free dividends. But investing in a fund purely for dividends is stupid, because it's your own money coming back to you. Plus, you have to pay entry loads.

If you still think dividend are great, I have a proposal for you. Give me Rs. 100,000, out of which I will take Rs. 2,250 as charges (2.25%). Out of the remaining Rs. 97,750 I will give you Rs. 50,000 as dividend! The remaining Rs. 47,750 is with me for you to take whenever you want. Do you like this idea?

Obviously not. It's just like throwing away Rs. 2,250. But if I am a fantastic fund manager, you may invest because I may give better returns than anyone else! In that case, I should be investing the money, not giving it right back to you. So, choose funds that you think will perform well, that have done well in the past, and that seem to have the risk-reward equation that you are comfortable with. Don't invest for dividends.

Dividend stripping laws
Some of you may think, in the above example, that "If I buy some units for Rs. 50, then get a dividend of Rs. 5, I can immediately sell the units for Rs. 45. Then I will tell the tax department I made a loss of Rs. 5 per unit, and that loss will offset any short term gains I made elsewhere. I'll get the dividend tax free so technically there is no loss. I'll gain on the income tax I would have otherwise paid!".

The Income Tax Department was not born yesterday.

There is a rule that specifically disallows short term losses if you buy three months before a dividend date and sell within 9 months after. This is the "dividend stripping" law, so you can't take advantage of dividend declarations for tax saving.

And what about this 1000% dividend and so on? Remember that a fund cannot declare a dividend greater than it's NAV! If a fund's NAV is Rs. 140 per unit, it cannot declare a dividend of Rs. 150 per unit.

So what is this 1000%? It's based on the face value of a mutual fund unit, which is usually Rs. 10. So 1000% means Rs. 100, and 50% means Rs. 5. The unit of the fund may be much higher than Rs. 100 or Rs. 10!

ELSS funds?
Well, there is a small advantage in getting dividends in locked schemes like ELSS, where funds are locked in for three years. Read more about it: Beware of dividend pushers.

Overall, be aware of what dividends mean in mutual funds. Don't jump in salivating at the prospect of a dividend: it is just your own money coming back to you with no extra gain.

Posted in IncomeTax, MutualFunds

Can I really save Rs. 33,660 in tax?

4 comments Written on January 21st, 2007 by
Categories: Commentary, IncomeTax, MutualFunds, TaxSaving
Mutual funds advertise that you can save upto Rs. 33,660/- per year if you invest in ELSS mutual fund schemes. Does this always apply to you? The short answer is : NO.

Let me tell you when you will save Rs. 33,660.

Let me assume your income is Rs. 15,00,000. (Fifteen lakhs) per year.

If you didn't do ANY 80 C investments, here is how your tax is calculated.

First Rs. 135,000 : no tax
Next Rs. 15,000: 10% tax = Rs. 1500.
Next Rs. 100,000: 20% tax = Rs. 20,000.
Remaining Rs. 12,50,000= 30% tax = Rs. 375,000.
Total: Rs. 396,500.

Since your income is above Rs. 10 lakhs a year, you have a 10% surcharge on tax = Rs. 39,650.

Tax then = 396,500 + 39,650 = 436,150
Add 2% surcharge and you get a payable tax of Rs. 444,873.

If you put in Rs. 100,000 in ELSS funds or other 80c instrucments, net taxable income becomes Rs. 14 lakhs. Tax calc is:

First Rs. 135,000 : no tax
Next Rs. 15,000: 10% tax = Rs. 1500.
Next Rs. 100,000: 20% tax = Rs. 20,000.
Remaining Rs. 11,50,000= 30% tax = Rs. 345,000.
Total: Rs. 366,500.
Add 10% surcharge and 2% cess to get a payable tax of Rs. 411,213.

The difference between the two options is Rs. 33,660. This is only if your income is greater than 10 lakhs in the financial year. (The actual figure you need to be above is Rs. 11 lakhs, since after you invest 1 lakh in 80C instruments, you will have a net taxable income of Rs. 10 lakhs)

So how much can I really save?
Your income may be different, so the rule of thumb is: If your total income is greater than 10 lakhs, you can save upto Rs. 33,660 in tax.

For incomes above Rs. 3.5 lakhs but less than 10 lakhs the maximum tax that can be saved is Rs. 30,600. The funda there is - Rs. 3.5 lakhs minus Rs. 100,000 in ELSS (or 80C instruments) yields a net taxable income of 2.5 lakhs, which is the limit on that tax slab.

And below 3.5 lakhs and upto Rs. 2 lakhs (2.35 for women) you can save between 30,600 and 15,300 (depending on how much your income is).

If your income is below Rs. 2 lakhs (2.35 for women) you will save lesser than 15,300 (again, depending on your income). In fact in this bracket, you should not invest Rs. 1 lakh in ELSS, only that much required to bring your tax to zero.

Posted in Commentary, IncomeTax, MutualFunds, TaxSaving

LinkFest #7: Inflation, Home Loans and Loads

2 comments Written on January 19th, 2007 by
Categories: MutualFunds, Readings
Read Home Loan agreements before signing (Rediff)
The three authors of this fantastic article tell you important gotchas about Home Loans - the fine print of the agreement is pitched against you. Be it reset clauses on fixed rate loans, ambiguous and aggressive definition of "defaulters" or simply by removing your negotiating power with the builder by directly giving them money, home loan documentation is set up to work against you. Obviously, coming from the financer, this is expected, but you can object and get certain clauses altered or in some cases, removed.

Will you sign a document, quoted as from Citibank, which has: "The bank shall at its sole discretion alter the terms of this agreement by written intimation sent to the borrower by courier. Any amendment proposed by the borrower shall be valid only if made by a written agreement signed by both the parties.". No changes by sole discretion to ANY agreement can be allowed - that's equivalent to signing a blank cheque.

Inflation surges to 6.12% (Economic Times)
Inflation this week has moved up to 6.12%. This is very high and will be of serious concern in the Finance Ministry and the RBI. Now you can surely expect a rate hike in the next RBI meeting on Jan 31 - this may adversely affect banks, real estate development companies and companies where debt is very high.

Load Factor (Value Research Online)
Never understood what an Entry Load or Exit Load is? Look here for a fairly comprehensive understanding of loads. What the author missed here was information about what funds are truly no-load, the Vanguard kind that revolutionised the mutual fund industry in the US. Answer: None. Nearly every single fund we know has a load, either on entry or exit.

Earlier Linkfests: 1, 2, 3, 4, 5, 6

Posted in MutualFunds, Readings

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