Rs. 150 Coins Will Be Here

On the occasion of  taxation in India being 150 years old , the finance ministry would be releasing a Rs.150 rupees coin .

This would be the first time that Rs.150 denominated coin would be released and only about 200 of such coins would be released

So in case you happen to lay your hands on one , make sure you do not spend it and hold on to it , as someday it may be worth a lot lot more.

As a tax payer not really sure if this is a occasion to celebrate , it could be,  if i could get hold of one of these new coins

MOAT

A MOAT is a deep, broad ditch, filled with water, that surrounds a castle and it would contain not just water , but there could be crocodiles and snakes in it too. The intent of having a moat was to keep away the enemy or to make sure that the enemy has to try really hard and has to encounter lot of casualty to reach the castle and wage a war against a empire.

In modern age there are no empires , just that , empires have been replaced by Business Empires .

Every modern day business dreams of creating a "MOAT" around it , so that

• It is not too easy for somebody else to start a similar business
• Even if somebody did start a similar business , they cannot price the product as profitably.

a MOAT can be any competitive advantage like

• A extremely well recognised and customer loyal Brand ( Nestle,TITAN )
• A Financially intensive business , which needs huge investments ( RIL )
• A massive distribution network ( ITC, HLL, GAIL )
• A High technology industry protected by Patents ( Bosch )

Look for companies like these ,because of the MOAT that they build around them , they can keep competitions away , and hence can have better profit margins.

And we have found that companies with MOAT do return phenomenal return , if investor has the patience and conviction to stay with them

 Image : FreeDigitalPhotos.net,Photographer: Nick Coombs

Chanakya ...On Governance

This is a amazing episode from Chanakya .Please do watch the entire episode .

Today were are confronted with very high levels of corruption in public life  and in this episode we see that a student of Political Science is asked question about governance

When asked "Whom should we protect wealth from ?"
The student answers "Wealth must be protected from Thieves and Nobel Men "  

Nobel men ...our current day politicians , ministers , chief ministers .

When the king, annoyed by his answers asks the student , "As per the scriptures , what is the position of a King ?" ... to the utter astonish of the king the student answers " King is nothing more than a salary drawing public servant "


These very same questions are something which current day people in power find it hard to come to terms with.

There is a saying "Power corrupts , and absolute power corrupts absolutely" to be in public life and maintain a high level of integrity is not a joke

I think another way for people in public life to be dispassionate , would be to be spiritual and keep reminding one self of these words from Adi Shankaracharya from his "Bhaja Govindham"

"maa kuru dhana jana yauvana garvam harathi nimEshaath kaala "

Meaning :
"Do not be proud of wealth, friends, relatives and youth,when your time( death ) comes you would lose all of this in a moment"

Our political would not have to look far to know this , death of AP chief minister Y.S.R is all that they would need to remember.

 In this age of greed , there is only one way to be happy ...
"Contentment is better than Riches"

Do we understand compounding

State Bank of India , is coming out with a Bond Issue and one of the Investment Option is a 15 Year bond with 9.95% interest rate . When I mentioned this to a friend of mine , his immediate reaction was , wow this is better than PPF ( 15year , 8% ) . This made me think , how little we understand compounding

These are how the SBI bond issue and PPF are different , I would be considering just the duration and Interest rate and keeping all other issues like tax superiority of PPF out of this article for now

• SBI Bond provides 9.95% interest and PPF provide 8%
• SBI Bonds provide simple interest , which means interest calculated each year would be returned to the investor , where as the PPF provides annually compounded interest  , which means interest calculated would be added to the principal and this new principal would be considered when calculating the interest for the next year 

So if you invest Rs.1,00,000 in the SBI bond , you would be earning Rs.9,950 each year so at the end of 15 years you would have earned Rs.1,49,250 ( 9,950 x 15 ) , so along with original invested amount , you would have Rs.2,49,250 

Now if the same Rs.1,00,000 was invested in a PPF , you would have Rs. 3,17,216.91 at the end of 15 years that is about Rs.68,000 more and this "more" is due to compounding . try the Calculator

Please also note that all returns from PPF is absolutely tax free and your initial Principal is also Tax Deductible under sec 80C , where as the entire return from the SBI bond issue is tax able.

This SBI issue is a good investment , i would recommend you to go ahead and invest , but please do not make the mistake of comparing the PPF with the SBI bond , as PPF is head and shoulder above all debt investment options that you have in the Indian market .

But also remember that compounding is double edged sword , that is, if you have a home loan, it is compounding that makes the amount you borrowed grow so quickly and by the time you close the loan you would have paid nearly twice or more the amount you had borrowed.

Compounding is something we learnt in class eight but, it may take us a lifetime to understand how powerful a tool this is .

In case you still did not understand how compounding works , try harder to understand it , make it your partner in investing and you would have no regrets.
Image : FreeDigitalPhotos.net,Photographer: graur razvan ionut

Provident Fund

Provident Fund is a blessing in disguise for people who struggle to save . It is a ideal case of  "Automated Investing" or what you say investing on "Auto Pilot" .

But the Provident Fund is not without its share of problems. Since it is to a great extend at the mercy of the government , it remains extremely non transparent .

My experience has been that it has nearly been four years since i got my Annual Statement from the PF office , this makes a subscriber like me, extremely uncomfortable . And when we finally get a statement I struggle to make sure that the amounts shown on the statements are correct

Now here is a solution , This is only for subscribers with PF accounts in Bangalore. The PF number in Karnataka has this format KN/Establishment Code/Employee No.

Find your PF amount

Use the link above and enter the details , you may most probably see the amount in your PF account.

I only wish PF

• Someday have a small exposure to equity, may be a Index Fund  
• Someday be like a online bank account into which i can login and check anytime
• Someday have a unique number which would not change with my employer.

Would this "Someday" ever come or will this just remain my wishfull Someday

Image: i owe credit to the photographer

Reliance mutual fund has launched "Reliance Gold Savings Fund". Since Gold ETFs were launched the uncertainty in purchase and sale of gold as a investment has been removed and investor could invest in gold without being concerned with the purity of gold, how to store the gold safely and also where to sell it finally.

But investing in gold ETF had certain drawbacks.

• Investor needs a Demat Account
• Investor needs to approach a broker to buy ETFs ,
• If the investor is not a regular stock investor , these would have just added to the investors overhead expenses.

 Now the investors have an alternative ."Reliance Gold Savings Fund". This is a fund of fund , which means it invests in other mutual funds. and this Reliance fund will invest only in Gold ETF

Pros

• Investor does not need a demat account
• Investor does not need to approach a broker
• Investor can start a SIP in gold investment

Cons

• Invests only in Reliance Gold ETF , though there are other Gold ETFs in the market
• Annual charges of ETF and Annual charges of "Reliance Gold Savings Fund" need to be borne by the investor

I would have liked if the "Reliance Gold Savings Fund" had kept its mandate open to invest in any Gold ETFs , but it has not done so . I'am not comfortable with this because , this means my investment is entirely concentrated with Reliance Mutual Fund and this fund house is currently not in pink of health

I would suggest investors to wait and watch , i'am sure other AMCs would come up with similar offerings , where the ETF invested into may be across different Mutual fund houses and not concentrated

Download "Reliance Gold Savings Fund" details here

Image : FreeDigitalPhotos.net,Photographer: dan

The illusive wealth

In Hindusim , the benevolent goddess of wealth is "Goddess Lakshmi" and every picture of the goddess you would come across would picture the goddess either standing or sitting on a Lotus , a symbolism for how carefully she needs to be taken care of .

Have read a lot about people who win lottery or who have come to suddenly inherit a fortune and have found them self unable to handle this sudden wealth and let it slip through , We also find with lots of celebrities from world of sport and music , they find them self simply incapable of handling wealth.

This is just not only with individuals but also about companies and businesses . Here is a list of companies in BSE Sensex 1986,

ACC, Bombay Dyeing, Ballarpur Industries, Ceat Tyres, Century Spinning, Food Specialities (now Nestle), Great Eastern Shipping, GSFC, Glaxo,Gwalior Rayon (now Grasim), Hindustan Aluminium (now Hindalco), Hindustan Lever(now Hindustan Unilever), Hindustan Motors, Indian Hotels, Indian Rayon, ITC, Kirloskar Cummins, Larsen & Toubro, Mahindra & Mahindra, Mukand, Pieco Electronics (now Philips), Premier Automobile, Reliance Industries, Siemens, TELCO (now Tata Motors), Tata Power, TataSteel, Voltas, Zenith.
This list was from here

These were cream of the stock market in 1986 and we find that in 25 years , we find that only 15 of those companies are still considered to be good investments .

This means that in about a generation 50% of the companies have not been able to generate wealth in a manner they were expected to or have lost wealth.

It is not just about individual companies , we find entire sectors have fail to generate wealth, like textile and totally new sectors, like IT have generated phenomenal wealth.

So challenge in wealth creation ,is not just about creation but also about sustaining wealth . and only thing that can help you to sustain wealth is "Knowledge"

How is PPF interest not calculated

How is interest calculated on a PPF account ? This has been a mystery and if you google you will find all kind of answers and based on the answers, people try to find the most efficient way to use their PPF account

A couple of ways in which PPF interest is not calculated

• It is not compounded monthly
• It is not calculated only in the month of March

Here is my take ,
Interest in a PPF account is calculated each month . Please note the stress is on calculated not credited .

Each month the least amount in the account between the 5th and the last day of the month is used for calculating the interest and 12 such calculations are done and finally in the month of March , the 12 interests are added together and  credited as interest for the year.

This is something unique ,

• This is not monthly compounding, though interest calculated so, as the interest amount is still not credited hence not considered for the next month's interest calculations
• Neither is the interest calculated only in the month of March , though interest is credited in March .

This means if you think crediting your money in March, is the best way to do so ... you are wrong , as in that case your would earn interest only for the month of March

You want to take full advantage of the PPF interest calculation ? then, deposit as much as you can in the month of April and if you can , before 5th of April ...that would be a smart move

Image : FreeDigitalPhotos.net,Photographer: jscreationzs

Are Market Crashes bad ?

The Indian stock market has been on a downward path for sometime now . Every time i switch on CNBC TV18 i see Udayan Mukherjee sitting there with a dud face saying "It has been a bad day for the markets"

Are Market Crashes really so bad ? ... think not .. for these reasons

i) Had the conviction to buy a stock at a higher prices , isn't it now available at a discount

ii) Lower your average purchase price by buying more at a lower price

iii) Dividend yield would be better if your average purchase price is lower

iv) Have a SIP ? , then you must be happy that , your SIP amount would now buy you more units

v) Did not buy a certain stock as it was pricey , now it should be available at lower price

vi) Buying for the long term , buy the crashed blue chips during a market crash

I would reiterate , what i said earlier , money is made when you buy , so buy at the right price .It is during the panic of a crash that you start seeing stock priced at a bargain . But to be able to buy during a crash, you would need to be prepared . Be prepared with the money , prepared with the list of stocks to pick and also prepared with, at what price to pick .

So start preparing for the crash that is impending

Image : FreeDigitalPhotos.net,Photographer: renjith krishnan

SIP, is this something new ?

"MANY DROPS MAKE A FLOOD"....Pigmy Deposit Scheme

After August 2010 , when SEBI removed entry load for Mutual Funds, it was no more as lucarative for financial advisors to recommend MFs .

MFs had to find ways not only for investor to continue to invest in them but also to stay invested and suddenly they started seeing SIPs as the panacea for all their problems.

If you see how SIP's works , it is exactly like a Recurring deposit . Recurring deposits are deposits where a investor is suppose to invest a fixed amount every month on a date chosen by the investor .

When we are on Recurring deposit , let me tell you about a very innovative scheme that was run since my childhood by Syndicate Bank this was called Pigmy Deposit Scheme . This was innovation in every sense of word , not ony did it generate employment for large number of people , but also helped people to save in denominations as small as Rs.10 and helped the bank raise low cost deposits .

The way Pigmy Deposit Scheme worked was exactly like a Recurring Deposit ,but the difference was, the Pigmy Agent would visit the investor and collect the amount from the investor's doorstep and deposit the amount in the bank and the agent would get paid a commision based on the amount collected.

Pigmy Agent was an agent of the bank and not an employee so that kind of freed the banks to engage large number of agents as there was no recruitment red tapism involved and for the investor it helped them build descipline to save and there was no question of forgetting to save , as the agents would promptly come to collect the amount.

This was a win win for all invoved . We now have to wait and see how successful would SIP prove for all involved .

Image : FreeDigitalPhotos.net,Photographer: hinnamsaisuy

Coinage and Cannibalization

As weird as these two words may sound , these are two terms from Consumer Goods Industry .

Coinage:
In India when a quick single bite chocolates are launched they are usually for Re.1 or Rs.2  or may be Rs.5 ,have you wondered why. Well this is more to do with Reserver Bank of India .

The reason is because we have currency coins of those denominations . That puts these companies in a fix, as they cannot change price from say Rs.2 to Rs.3 , as doing so would be disastrous and they would immediately lose market share. So either they would need to reduce size of the chocolate or try some other internal cost cutting mechanism

This constraint where the product price need to match the denomination of a currency coin is called Coinage

Cannibalization:
This term has nothing remotely violent about it . This term is used when a certain new product launched by a company starts eating into the market share of another product of the same company . Net result,company sees that sales of its new product has increased but it does not see any increase in its profits and later realises other product has lost market share to its new product

This is a nightmare for any company as the intent was that the new product was suppose to take the market share from its competitor not from its own product

Shariah index

Shariah is the religious law of the followers of Islam this guides their normal day to day life and also their investment decisions . Shariah prohibits "believers" from investing in companies dealing in alcohol, financial services as they earn by lend money and charging Interest , tobacco,entertainment (cinemas),pork,weapons.

This would mean , a whole range of companies are "Haram" for the believers , these includes companies like ITC,United Spirits,All our Banks , Housing Finance companies and lot of other companies.

So Shariah Index would be a index of companies listed on our stock exchange that conform to the tenets of Shariah Law

The Shariah Index would give a chance to the followers of Shariah law a chance to participate in the Indian stock market , if they so desire.

S&P CNX Nifty Shariah is a India based Shariah Index , know more about this Index and ETF based on this Index here

Image : FreeDigitalPhotos.net,Photographer: maple