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Monthly Archives: September 2012

Insurance regulator reads out the riot act to insurers

Posted on September 26, 2012 by monikahalan
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Expense Account, Mint

The relief across the financial sector is palpable. North Block is now under the control of a minister who has not delegated the work to a compromised cabal. And even better, he is a person who understands the markets and finance. After the mutual fund announcements last week, this week the ministerial gaze turns to life insurance. The aim is possibly to rework the broken parts of the insurance industry, with the worry being that the life insurance sector has seen falling business. Life insurance premiums have been the traditional way in India to plug small savings into big finance. Insurance companies, especially the public sector behemoth the Life Insurance Corp. of India (LIC) has been ready with large war chests to soak up public issues and prop up markets.

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Posted in Expense Account | Tagged Expense Account, Hari Narain, Irda, Personal Finance, questions | Leave a reply

Stopped SIPs. Green shoots of hope. And a runaway girl.

Posted on September 19, 2012 by monikahalan
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Expense Account, Mint

he last fortnight has been good for our money. Europe looks as if it will survive a while longer. The US bit the bullet and gave an annuity to the people printing dollars. Closer home, the purge in North Block was completed and most people cheered as baby steps of reforms got taken. Markets are up in response though the scepticism about the political spine to push through these baby steps remains. While the macro events played out, the tiny community of financial planners in India exhaled. It’s been difficult to keep the faith in equity going and the systematic investment plans (SIPs) funded specially over the last one year. The point to point five-year equity return looked terrible, especially in comparison with fixed deposits and gold. But those who remained invested, had a good portfolio of funds and continued their SIPs would have seen a change from red to black in their account statements. A point-to-point comparison for a period less than 10 years is a poor measure of equity return, a better indicator is to look at SIP returns. Try any SIP calculator (there is a good one on http://www.valueresearchonline.com) and put in different dates and times to see how little difference the choice of an SIP initiation date makes. Also true is that a chunk of the pull-back happens in the early days of a reversal of a bear phase, but retail investors like us tend to lose faith as the downturn is bottoming out and exit. By the time we get back in, the multiplier that can really boost returns is over. One of the toughest tasks for a financial planner is to manage the expectations of clients, both in boom and doom times. One argument that I find powerful (and use to stay invested myself) is this: We know that over the long term, equities will outperform most other asset classes. This is especially true of growth economies and India has 30 years of growth ahead, but the biggest threat to us is our own politics. If growth unravels, we’re looking at huge social unrest—the demographic dividend will turn into a bomb. There are then two scenarios—doom or boom. The luxury of a stable 5% growth does not exist for India—we’ll unravel if the economic ambitions of the bulge of population pouring into the workforce are not addressed. The investment choices in such a scenario are only two: go full into gold if you think we’ll implode (not even land, gold you can carry out of the country) or remain invested in a basket of products and believe that the politics will come around. I stay with the SIPs. Happy to report that after a long period of red on the account statement, this week begins well. The green shoots of black are back.

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Posted in Expense Account | Tagged Expense Account, Mint, money box, monika, Personal Finance | Leave a reply

What happens when a Rs.20,000 crore industry is tamed?

Posted on September 12, 2012 by monikahalan
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Expense Account, Mint

What we know anecdotally is now there as data in the Reserve Bank of India annual report 20011-12, that Indian household savings are moving from financial assets to real assets. The household savings rate has remained almost constant at about 23% of gross domestic product (GDP) (at current market prices) but there has been a portfolio reallocation within this broad number. Net financial savings of households (remove home loans and other personal loans from gross financial savings to get the net figure) have dropped from just over 12% in 2009-10 to just below 8% in 2011-12. Valuables, like gold, have more than doubled their share from 1.3% in 2008-09 to 2.8% of GDP in the last financial year. The slowdown has been most severe in small savings, bank deposits and life funds. Go deeper into the numbers and you see that households pulled money out of mutual funds in 2011-12 and invested less in insurance funds. We invested Rs.33,000 crore in mutual funds (MFs) in 2009-10, but pulled out Rs.10,600 crore last year. We bought Rs.2,59,800 crore of life insurance in 2008-09 but bought Rs.36,400 crore less (Rs.2,23,400 crore) last year.

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Posted in Expense Account | Tagged agents, Expense Account, Mint, mutual funds, Personal Finance, planning, savings, Smart Money | Leave a reply
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