www.outlookmoney.com

12 DECEMBER 2012

`

Rajiv Bose (L), 39, is using Ulips to

save for retirement and Manish Dak, 33,

took a pure term plan to get a high risk cover. Both gave traditional

plans a miss

12 DECEMBER 2012 VOLUME 11

ISSUE 25

www.outlookmoney.com 12 DECEMBER 2012 OUTLOOK MONEY 1

HEAD OFFICE AB-10, S.J. Enclave, New Delhi 110 029; Tel: (011) 33505500, Fax: (011) 26191420 OTHER OFFICES Bangalore: (080) 33236100, Fax: (080) 25582810; Kolkata: (033) 33545400, Fax: (033) 22823593; Chennai: (044) 33506300, Fax: 28582250; Hyde rabad: (040) 23371144, Fax: (040) 23375676; Mumbai: (022) 33545000, Fax: (022) 33545100. Printed and published by Vinayak Aggarwal on behalf of Outlook Publishing (India) Pvt. Ltd. Editor: Udayan Ray. Printed at IPP Limited, C4-C 11, Phase-II, Noida and published from AB-10 Safdarjung Enclave, New Delhi 110029For Subscription queries, please call: 011-33505653, or email: yourhelpline@outlookmoney.com

Published for the fortnight of Nov 29-12 December, 2012; Release date: Nov 28, 2012. Total no. of pages 72 + Covers

Outlook Money does not accept responsibility for any investment decision taken by readers on the basis of information provided herein. The objective is to keep readers better informed and help them decide for themselves.

Cover Design: MANOJIT DATTA; Cover Photo: BHUPINDER SINGH NEXT ISSUE

DATED26 DEC 2012

ON STANDS12 DEC2012

While term plans are the ideal life policies, of late, endowment plans are being hard sold as being ‘secure’. In reality, they may not fulfil your fut-ure needs as inflation will outsprint them. Ulips still remain the plans to invest in for those combining insurance and investments and willing to pay the associated costs. Plus, guides on buying term plans, attaching riders to enhance coverage and analysis of Ulip fund performances

THE ‘LOW-RISK’ MYTH BUSTED

COVER STORY

pg

24

BHUPINDER SINGH

18 IN HIGH GEARDespite the current slowdown in the economy and rising fuel prices, the most recent sales figures for automobiles indicate a still significant growth for auto companies. This is more pro-nounced for companies that gets the bulk of its sales from diesel vehicles. While the stock prices of such companies have moved up due to these developments, can their stocks remain in the same or higher gear? We evaluate the prospects of four auto majors

2 OUTLOOK MONEY 12 DECEMBER 2012 www.outlookmoney.com

4 Internet Contents Action in our Web world6 Editor’s Note8 Letters69 Fortnight Figures72 Sunny’s Money Idiot Box Story

UPDATE10 Newsroll 2G auction failure widens govt’s fiscal deficit gap; RBI bans gold financing; Sebi allows fund houses to charge for security transactions; New NSE

indices; 2G auction flop helps telecom stocks; Cummins’ export woes; Sintex stock tanks 16 Queries Your queries on matters affecting your personal finance answered

REGULARS

START20 AVANT GARDE Demand for Indian goods and services are on a low and that isn’t good news for equity markets or the economy, writes Mohit Satyanand

22 STOCK PICKHere’s why the merged entity of Tech-Mahindra and Mahindra Satyam will make a good option for your portfolio

23 INVESTORS BEWAREThe Stock Guru India scam just shows how ill-informed we are in money mat-ters. The lessons we can learn

41 INSURANCE MADE EASYRemodelled Ulips are best suited for long-term investment. Take advantage

42 TAX BITES Securities held as investment are taxed very differently from those held as stocks in trade

44 HEAD STARTChildren often have to look after their parents in old age or manage their finances. Here’s a step-by-step guide

46 MY PLAN Financial roadmap for Ramakrishnans

48 OLM 50This fortnight’s fund performances; plus HSBC MIP Savings dissected

50 LIFE GOALSMutual funds offer schemes targeted for your child’s future and your retire-ment. Should you invest in them?

MANAGE52 FAMILY TRANSITIONThe groundwork Amit Kukreja did before leaving his IT career to be a financial planner served him in good stead

54 LEAD STRONG Base metals are all set to gather pace following rising demand from China

55 DIY MONEYBuy term life insurance covers online at a lower price

SENIOR MONEY56 CAREER RETREADED Use your skills and time to have a career after your retirement and boost your retirement funds

SPEND 58 TAIL LIGHT Honda ready with its diesel

60 HEALTH Prevent and keep diabetes in check

62 INTERIORS Prepare your home for the winter

67 FOR WHAT IT’S WORTHThere’s often a thin line between being economic and miserly, writes Sumana Mukherjee

68 YOUR SPACE Readers’ own space to share personal finance thoughts and win prizes

pg

50

pg

16

As we go to press, the government is all set to embark on its disinvest-ment programme for this financial year with the offloading of shares of Hindustan Copper and NTPC. A lot is riding on the success of these and the subsequent issues lined up, given the kind of revenue shortfall the govern-ment is facing. More so after the fiasco of 2G spectrum auctions which could only raise `9,407 crore instead of the target of `40,000 crore set by the gov-ernment, thanks to the lukewarm participation of telecom companies. Success of the programme could boost market sentiments while a less-than-favourable outcome will not only mean bad news for the government coffers, but also affect economic and investor sentiments. As in the 2G auctions, much depends on how smartly the pricing is done. A reasonable price—in the eyes of the market—will be far more helpful for the government’s cause than the approach of vacuum cleaning as much cash as is possible.

Regardless of the stockmarket sentiments, you can never compromise on your life insurance cover. You owe it to your loved ones to create an arrange-ment where they can have the same standard of life even in the event of your absence—something only an appropriate life insurance cover can provide. The best bet is to go for a low-cost, high-cover term plan. After having taken care of your life risks, you can invest in pure investment products ranging from Public Provident Fund (PPF) to diversified equity funds. Of course, that is what you should ideally be doing. However, if you must combine insurance and invest-ment, for a variety of reasons such as the convenience for which you are will-ing to pay the associated charges and sacrifice a part of the returns, we still think it is unit-linked insurance plans (Ulips) that you should be putting your money into. It is far more transparent than traditional insurance products, such as endowment plans, and, most importantly, these give you access to the equity markets. While many experts don’t tire of mentioning the impact of product costs on returns, what’s easily forgotten is that the access to modern financial products and credible advice is still very limited in our country. I would prefer ordinary citizens to benefit from access to expected economic growth and that of Indian equities, especially through equity funds and Ulips than it being restricted to foreign institutional investors. It is also easy to lose sight of the fact that almost 90 per cent of the returns from an investment gets determined by the asset class one is invested in. It is in this backdrop that one needs to view the sales spiel given in hardselling traditional insurance plans after the regulator hammered down the remuneration provided to distributors of Ulips—the top-selling product category until not so long ago.

Before I sign off, I’ll remind you that you can now read Outlook Money Digital, our weekly e-magazine, on the iPad and be on the ball with your finances. ❒

Buffer That Isn’t

6 OUTLOOK MONEY 12 DECEMBER 2012 www.outlookmoney.com

NOW ON iPadOutlook Money Digital can now be viewed on the go

(Udayan Ray)editor@outlookmoney.com

http://twitter.com/udayanray

www.udayanray.blogspot.in

HIDDEN RISKS‘Low-risk’ traditional plans can actually

put your long-term goals at risk

30

x http://twitter.com/OutlookMoney; http://www.facebook.com/olmindia

x Newsroll 10 x Queries 16

10 OUTLOOK MONEY 12 DECEMBER 2012 www.outlookmoney.com

ast fortnight the value of 2G spec-trum sold through auction was `9,407crore as against the target

of `40,000 crore and reserved base price of `28,000 crore. There were 144 blocks of 2G on offer for which the gov-ernment got bid for 101 blocks. How-ever, the costliest circles attracted no bidders. Metro cities such as Delhi and Mumbai, which accounted for 40 per cent of the base prices `14,000 crore, drew no bidders. On the other hand, as against the disinvestment target of `30,000 crore, the government had proposed to raise from stake-sales in the

public sector undertakings, not one has started yet. Due to higher outflows on oil and subsidies the government has revised the fiscal deficit target from 5.1 per cent of gross domestic product (GDP) to 5.3 per cent. But with revenue collection not improving to reach a clo-sure and with a higher outflow there is a likelihood of missing even the revised target. The Reserve Bank of India is not likely to cut rates unless fiscal position consolidates and there is a significant reduction in inflation. It has indicated that unless the government took steps to improve the fiscal position it will not reduce policy rates. Even with marginal reduction, the Wholesale Price Index inflation was 7.45 per cent for the month of October, which is way above RBI’s comfort zone of 4-4.5 per cent. ❒

NAVEEN KUMAR

NewsRoll

2G AUCTION OPENS PANDORA’S BOX

RBI BANS GOLD FINANCING

he Reserve Bank of India (RBI) on 19 November issued a guideline ask-

ing banks not to finance gold purchas-es. The RBI in its second quarterly review of monetary policy had indicat-ed concerns about the significant rise in gold import to India and wanted banks to refrain from funding advances for investing in gold. RBI wanted to restrict the flow of money from banks for the speculative investment in gold. The recent guideline issued by the central bank has asked banks to stay away from financing purchase of gold in any form, including primary gold, gold bul-lion, jewellery, coins, units of gold exchange traded funds (ETF) and units of gold mutual funds. The RBI, in its notification, says: “The significant rise in imports of gold in recent years is a cause for concern as direct bank financing for purchase of gold in any form such as bullion, primary gold, jewellery, gold coin and so on could lead to fuelling of demand for gold.” Banks usually do not finance for specu-lative investments and this finance restriction was earlier put on equity investment. So, if you wish to buy gold you will not get a bank loan for this. ❒

N.K.

Small Change by VARUN VASHISHTHA

12 OUTLOOK MONEY 12 DECEMBER 2012 www.outlookmoney.com

SEBI GUIDELINES

ast fortnight the Securities and Exchange Board of India (Sebi) has

announced that a mutual fund (MF) house can charge investors for securities transactions. “The brokerage and trans-action cost incurred for the purpose of execution of trade may be capitalised to the extent of 12 basis points (bps) and 5 bps for cash market transactions and derivatives transactions respectively,” says the Sebi circular. Any expenditure in excess shall be borne by the asset management company or by the trustee or sponsors. So, the fund house can charge the scheme 0.12 per cent for cash market transactions and 0.05 per

cent for derivative transactions, includ-ing service tax. This will help reduce the portfolio turnover where the fund man-agers buy and sell portfolio holdings fre-quently. Under this provision, if the fund managers did so, the additional transac-tion cost beyond 0.12 per cent will be borne by the fund house.

Sebi has also capped the permissible holding by a debt MF scheme in a par-ticular sector. The regulation says: “Fund houses shall ensure that total exposure of debt schemes of MFs in a particular sector shall not exceed 30 per cent of the net assets of the scheme.” This excludes investments in bank convertible debentures, collatera-lised borrowing and lending obligation, G-secs, T-bills and AAA rated securities issued by financial institutions and public sector banks. ❒

KUNDAN KISHORE

NSE’S NEW INDICES

hree new indices were introduced by the National Stock Exchange (NSE)

recently. India Index Services & Products (IISP), a joint venture of NSE and Crisil, launched the CNX Low Volatility Index, the CNX High Beta Index and the CNX Alpha Index. The stocks in these indices are chosen from the top 300 stocks listed on the NSE based on their average free-float market capitalisation and aggregate turnover for the last six months. Says Nitin Murarka, head-derivatives, SMC Global Securities: “This is a major step towards giving investors the choice to build the right portfolio.” The index has 50 scrips and the NSE scrip, having the lowest-volatility, gets the highest weight. Says Mayuresh Joshi, vice-president (institu-tion), Angel Broking: “This index would ensure that the investor is not losing a substantial amount of money.” The CNX High Beta Index would comprise 50 scrips having high beta. Weights for the scrips would be assigned according to beta value. (Beta is a measure of the volatility of stock price when com-pared to the market). The CNX Alpha Index would comprise 50 scrips with high alpha. Scrips with the highest alpha would be given the highest weight. (Alpha is a measure of stock performance on a risk adjusted basis). The indices would be calculated on an end-of-day basis. ❒

KAVYA BALAJI

TRANSACTIONSIndia is expected to be the world’s top recipient of remittances from its diaspora in 2012, according to a World Bank report. The country will receive about $70 billion by the end of 2012

COPPER DUSTIn an effort to woo investors with a 71 per cent discount to market rate, the government has announced a base price of `155 a share for stake sale in Hindustan Copper

x http://twitter.com/OutlookMoney; http://www.facebook.com/olmindia

2G

AUCTION

PSU SELLOFF

GOVERNMENT

Ugh! Yuk! My frog

didn’t turn into a prince