Monday, 19 December, 2011

Chinese Credit Bubble Is Bursting

Chinese Credit Bubble Is Bursting

Another scary story from China - Apparently, the problem is not restricted to real estate prices crashing!!!

  • Chinese credit bubble starts bursting - "The BRICs are falling like bricks and the crises are home-blown, caused by their own boom-bust credit cycles. Industrial production is already falling in India, and Brazil will soon follow." - Albert Edwards at Societe Generale. This particular article, however, sticks to the crisis building up in the most secretive of the BRICs countries - China. If the article is indeed reliable, the impact on the global economy and the markets would make the Greek Crisis appear to be a minor pin-prick!!! (Oh! Before I could post this item on the blog, I just happened to read a forbes article which talks more about the Chinese real estate bubble - Chinese Property Prices Crash - Is this a bubble???)

While I've started sounding increasingly pessimistic in my blog posts of late, unfortunately, my worry that I may still be too optimistic and may actually be grossly underestimating the problems in the global and domestic economies. What's worse, I can't think of any meaningful manner in which we can actually shield ourselves from the coming onslaught of global financial chaos.

2012 looks bleak.

Perhaps the Mayans actually saw it coming!



Chinese Credit Bubble Is BurstingSocialTwist Tell-a-Friend

Sunday, 18 December, 2011

Now, it is official: Euro-mess is escalating rapidly

Now, it is official: Euro-mess is escalating rapidly

I've just got offical confirmation on something that all of us have been suspecting all along: The European crisis is actually much deeper, much worse, and is likely to last much longer than what any one of us currently imagine. This time, there is official confirmation of the actual degree of the chaotic problem that we are all facing right now.

Read on:

  • IMF Chief says: European crisis escalating rapidly - The IMF Boss, Christine Lagarde says: "Lagarde said that if countries don't work together, the world will face a situation similar to the 1930s, before the world slid into World War II. There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super- advanced economies that will be immune to the crisis that we see not only unfolding, but escalating at a point where everybody would actually have to focus on what it can do"



Now, it is official: Euro-mess is escalating rapidlySocialTwist Tell-a-Friend

Friday, 16 December, 2011

Cause for concern - Chinese Home Prices are crashing!

Cause for concern - Chinese Home Prices are crashing!

Take a look at:

Apparently, the pace of the crash in real estate prices in China is even worse than what the US experienced during the sub-prime crisis. And, interestingly, there are several chinese cities where as many as 70% of all apartments are empty.

Scary, indeed. Take care!



Cause for concern - Chinese Home Prices are crashing!SocialTwist Tell-a-Friend

Thoughts on Fixed Income Scenario

Thoughts on Fixed Income Scenario

All of us are familiar with the old adage about bankers offering umbrellas in summer and seeking a return of those umbrellas the moment it starts raining.

I just observed that a lot of banks have started advertising "Long-term Fixed Rate Home Loans". The latest one is from HSBC. When bankers want you to borrow money from them at a fixed rate, that too for a long duration of time, you can be fairly certain that:

  • Bankers expect that the rates are unlikely to go up much in the near and medium term
  • Bankers expect that the rates are actually likely to go down in the coming quarters

Combine the above two points, and a couple of simple strategies emerge for the retail folks:

  • If you are looking at taking a loan to buy a home or a car, go in for a floating rate product. Avoid the temptation to go in for a fixed-rate loan
  • If you have surplus cash that you wish to invest in debt products (like fixed deposits in banks, for instance), the time to act is now. Ideally, lock in your money in a good public sector bank with a long-term fixed deposit for a few years. Chances are bright that a few months later, a 3-5 year FD will fetch much lower returns than what they do right now.



Thoughts on Fixed Income ScenarioSocialTwist Tell-a-Friend

Wednesday, 14 December, 2011

Governance and impact on the economy

Governance and impact on the economy

Look at the year 2011 thus far - Domestically:

  • Series of Anna Hazare fasts - Resulting in policy paralysis
  • Multitude of scams, with several political bigwigs going behind bars - resulting in policy paralysis
  • Telangana crisis - Most of AP comes to a grinding halt
  • Manipur blockade - Large chunks of the north-east come to a grinding halt
  • Politicisation of a multitude of issues ranging from Mullaiperiyar dam, Dow Chemicals boycott demand, Afzal Guru "non-hanging", Rajiv Gandhi killers "non-hanging", etc.
  • Release of people "wrongly accused" of acts ranging from terrorism to murder - Obviously the suffering that those who were wrongly confined for no fault of theirs are not going to be happy Indians.

Each of the above, individually, can cause immense harm to the economy.

We've had ALL the above.

Unfortunately for us, despite all the above, the Euro crisis and the continuing US economic recession happen to be an even bigger threat to the Indian Economy. In addition, our neighbours - Pak, China, Nepal & Sri Lanka - Each of them have their own basket of problems which have a direct or indirect impact on our economy.


  • Runaway inflation that refuses to climb down
  • Significant slow-down in our GDP growth rates
  • Ever increasing inequality and vast disparity in income and wealth levels among different segments of society
  • Huge fiscal deficit becoming even worse

I don't see any of the aforementioned problems going away any time soon.

Each of the problems appears to be nowhere near a solution and is only likely to get much worse in 2012.

I'm sad to be a scare-monger. However, the problems are only too real. And growing bigger.

We need to be prepared.

Some suggestions on the financial front at an individual level:

  • Review your asset allocation and increase the weightage to safer asset classes
  • Increase the "Emergency Cash" levels
  • Be opportunistic (to utilise the violent moves in the equity markets and to use the temporary "high interest" offerings from reliable institutions like PSU Banks, Infrastructure bonds, etc.)
  • Reduce your "risky asset" allocation
  • Be very wary of complex financial products
  • Be prepared for violent fluctuations in the prices of Crude Oil, Gold, Metals, Agri-products, Forex rates, etc.
  • Be liquid to the extent you can.

Take care. Be very very cautious.



Governance and impact on the economySocialTwist Tell-a-Friend

Saturday, 19 November, 2011

Rule of law & Dangers of changing laws with retrospective effect

Rule of law & Dangers of changing laws with retrospective effect

Hi folks! This particular post of mine may be of interest only to those who are actually dealing directly with share brokers, and are either actually involved in or contemplating an active involvement in the derivatives market - whether shares, commodities or foreign exchange.

Take a look at this letter written by a futures & options broker to her clients, announcing the closure of her business:

When a broking house goes bust, as MF Global did, the rule of law as we understand things involve a clear and categorical separation of the client accounts and client money from the proprietary account of the broker and his / her funds. Bankruptcy of the broker ought to involve freezing the proprietary account, but certainly the clients ought to be allowed to withdraw their funds.

Apparently, subsequent to the closure of MF Global in US, the clients are stuck in a situation where they can't

  • Withdraw any money owed to them
  • Close any open futures & options contracts

Even worse, there is apparently some talk of "clawback" rules being enforced. This implies that any withdrawal by clients that took place within a certain days before the demise of MF global may in fact be reversed. This is nothing short of crazy and a nightmarish situation.

The relevance to you and me in the Indian context:

  • The respect for the rule of law and ease of enforcement of contracts is even less in India than in US. You just need to ask your friends in legal circles specialising in taxation related matters. They would enlighten you about the number of occasions when the Indian Parliament has actually changed the laws with retrospective effect, so as to enforce their point of view after the courts of the land have passed judgements against the government. In many instances, due to such retrospective change in laws, corporate entities are known to have lost several crores of rupees.
  • Hence, if any of the powerful brokerage houses go bust, you can be rest assured that their promoters would be able to "convince" the powers-that-be to cancel out any number of inconvenient contracts pertaining to their clients. I would not be unduly surprised.
  • In fact, I vaguely recall a few instances (including during the recent Muhurat trading on Diwali 2011 in the BSE) where contracts were reversed because of reasons ranging from "technical reasons" to "wild swings in prices" to "suspicious nature of transactions"

I'm not for a moment suggesting that there should be a free-for-all in the markets. There ought to be rules. But those rules must be framed in advance, and enforced uniformly at all points of time.

As a small investor, you may have, for instance, watch the news item a couple of years back about the Satyam mess and seen the share price coming down crashing from around Rs. 200/= to sub-Rs. 20/= levels.

You might have chosen to take a calculated risk and done the following series of transactions:

  • Sold a couple of lakhs worth of blue chips from your portfolio to generate adequate margins to go short on Satyam in the futures market
  • Gone short on Satyam at Rs. 150/=
  • Covered your shorts at Rs. 30/=
  • Gone long again on Satyam at Rs. 8/= in the cash markets with just your profits as a long-term investment.
  • Used your initial capital to buy back your original blue chip stocks at slightly higher prices than the original price at which you had sold in the morning panic.

You would have been thrilled that you had the presence of mind to react to the situation and be happy about the several thousands gained during the course of a few hours.

  • If SEBI suddenly wakes up and decides that the price movement in Satyam was "abnormal" and all transactions pertaining to Satyam or
  • If your broker had gone bankrupt as it had a huge "long position" on Satyam on the day before, due to which all transactions through that broker during the preceding 24 hours were to be treated as "null and void" and you are not even allowed to withdraw the funds from your broker

Imagine your plight??? Who will compensate for your losses? This is precisely what has happened in the case of MF Global in US. I will not be too surprised if similar reactions are there in Indian markets under similar circumstances.

Some suggested precautions for you to take:

  • Choose your brokers very carefully. Don't go exclusively by "lower brokerage" promises. Ensure that you have a reliable and trustworthy broker, preferably backed by a huge financial institution (like HDFC Securities or ICICI Direct, for instance)
  • Unless your portfolio size is too small, split your business over at least two different brokers. In case of need, you'll be able to shift to your second broker at very short notice.
  • If you must deal in futures and options, ensure that your risk is "manageable". Obviously, your F & O exposure must not be more than the amount that you can financially and psychologically afford to lose.
  • With all the online facilities available, make sure that you don't leave too much of "liquid cash" with your broker. After all, whenever you do need to transact, nothing prevents you from transferring funds online to the broker as and when it is actually needed.

More than anything else, remember: It is your money. If you don't care for it, who will?



Rule of law & Dangers of changing laws with retrospective effectSocialTwist Tell-a-Friend

Sunday, 13 November, 2011

Mistake or "Kite-flying"???

Mistake or "Kite-flying"???

I happened to read with keen interest the article about "Downgrading France's credit rating by mistake":

In these tough financial times, a simple typo in an ordinary letter would get a clerk sacked from his organisation. I certainly don't believe for a moment that an organisation supposedly in the business of credit rating can actually reduce the credit rating of an entire nation "by mistake".

So, what gives?

My guess: Certainly, there's more to it than meets the eye. The whole issue looks suspiciously like a case of "Kite flying". Some folks out there must have wanted to evaluate the potential reactions to a change in credit rating from the powers-that-be and the likely impact on the European mess before actually going ahead with an actual downgrade.

But then, ... ... ... ... ... isn't it rather silly?

Forget the ratings for a nation. If an organisation like CIBIL downgrades the credit rating of an indivividual "by mistake", I'm sure that they'll end up facing a demand for compensation in an appropriate consumer court.




Mistake or "Kite-flying"???SocialTwist Tell-a-Friend

Friday, 4 November, 2011

Petrol Price Hike - The Macro Picture

Petrol Price Hike - The Macro Picture

The price petrol of petrol has gone up by a couple of rupees per litre. And as usual, the Tamasha has started.

  • All political parties, including the Congress, are criticising the decision and want a "roll-back".
  • The Finance Minister claims (and so do the the Oil Marketing Companies) that petrol prices have been deregulated and hence the Government can do nothing about it.
  • Will someone care to explain the reasons as to why the price per litre of petrol is virtually identical in all petrol bunks, irrespective of whether you buy from Indian Oil or Bharat Petroleum or Hindustan Petroleum? The same person can also explain the rationale behind the petrol prices changing on precisely the same day, to the same extent.
  • If prices are truly deregulated, will not the consumers complain against cartelisation and won't the Competition Commission take appropriate action?
  • Virtually all the politicians, all newspapers and all TV Channels, "sympathise" with the "Aam Aadmi". According to publicly available statistics, India is a country where 35-40% of the population survive at less than a dollar per person per day (Rs. 50/= per day), with a further 40% (totalling virtually 80% of the overall population) survive at less than two dollars per person per day (Rs. 100/= per day). To the best of my limited knowledge, these people can't possibly be zipping by on a two-wheeler. They're more likely to be depending on public transport like buses and trains, which run don't run on petrol, and are subsidised in any case. My own guess is that these 80% of the Indian population can lay claim to membership of the Aam Aadmi club of India.
  • As per my comprehension of Economics and my knowledge of Pareto Principle, the balance 20% are pretty much likely to enjoy nothing less than 80% of the National Income. My school teacher who taught me Economics had told me that in any group of people those belonging to the top 20% in terms of income and wealth ought to be considered rich in that society. Unless they've changed the basic principles of Economics since my school days, the increase in petrol prices in India impacts the rich people and only the rich people. Certainly, it does not impact the proverbial "Aam Aadmi".
  • If anything, those riding two-wheelers can complain against the richest class belonging to the top 1-2% of the Indian Population - After all, the richest group of people drive around in fancy cars which are powered by diesel, which continues to enjoy a huge subsidy.

Hence, folks, don't be perturbed by all the hullabaloo over the hike in petrol prices. We need to wake up and behave like responsible citizens, and should not eat away the scarce resources which can very well go to give a slightly higher subsidy to people like poor farmers living below the poverty line, who are committing suicides at the rate of around 15000 persons per annum. Think about it!



Petrol Price Hike - The Macro PictureSocialTwist Tell-a-Friend

Interconnected Nature of the Euro Debt Crisis

Interconnected Nature of the Euro Debt Crisis

Take a look at this pictorial representation:

I'm more concerned about the implications for India.

People, especially politicians, tend to claim that the crisis will be resolved "somehow". I certainly don't believe that's likely.

Let me explain with a simple hypothetical micro example of an indebted individual software engineer from Bangalore with 2-3 credit cards which have maxed out, with "a few months salary" worth of costly personal loans, EMIs due for his home loan and car loan, a home-maker wife and a 12-year old kid. The scenario, while undesirable, is not too uncommon.

Typically, his reactions would be along the following lines:

  • Seek further debt from friends and banks to overcome his financial mess
    • Implies greater debt
    • At a higher cost
    • Getting deeper into the financial trouble that he's created for himself
  • Put on a show of being problem-free or underplay the problem with his immediate family, close relatives and employer till the problem balloons to a size that he considers to be unmanageable.
    • Implies maintaining the same life-style, with the usual round of dining out, weekend movies, occasional parties, etc.
    • Will again result in greater debt and the other consequences mentioned above
  • Hide the problem temporarily from his immediate family & employer, who are perhaps most likely to come up with any meaningful suggestions to come out of the problem
  • Pay up the guys who create the maximum trouble and delay, default and run away from the rest
  • Try to restructure his debts with various organisations

All the above steps will ensure that

  • His performance at his workplace will suffer
  • He will be irritable at home.
  • This will create a situation where the probability of any increments, promotions etc. will reduce and the probability of being "eased out" in case of a recession will increase.
  • Different lenders will talk in different voices and come up with different suggestions, depending on their own self-interest.
  • While he keeps trying to come out of his troubles, the Debt Meter will keep ticking, and the magnitude of the problem will keep multiplying exponentially.

In a nutshell, his financial problems will NOT disappear easily.

Now take a look at the New York Times picture again:

You can guess the magnitude of the European mess by multiplying our typical indebted software engineer's problem by a factor of a few million ordinary individuals in different European countries.

Coming back to the Euro Mess, here is my own basket of predictions:

When the shit hits the roof, as it inevitably must, all hell will break loose. I'm not sure about the timing, but the default of a few European nations and possibly several large banks on both sides of the Atlantic looks increasingly certain.

Some likely consequences would include:

  • Countries and Banks across the world will become very wary about lending to anyone else.
  • Cost of credit FOR ALL will shoot up
  • Global growth rates will tumble, perhaps resulting in a global recession
  • NPAs (Non-performing assets) for banks will increase rapidly
  • Individual consumer confidence will take a mighty beating
  • All individuals across the globe will try to "save more, spend less", resulting in even greater reduction in GDP growth rates, possibly hastening the recession.
  • Many businesses will go bankrupt
  • All business will suffer a reduction in profits
  • Many jobs will be lost across the world, including in India. (However, the impact on India would be less due to the fact that we are far more dependent on the domestic market vis-a-vis many other nations like China, Russia, etc.)
  • There will be utter chaos in the commodity markets, with very wild fluctuations in the prices of key commodities ranging from Crude Oil to Metals to Agri-commodities.
  • The inflation problem will continue to remain a major head-ache.
  • Fund flows will shift away from risky assets towards havens of perceived safety like US treasuries, Gold, Silver, Government Bonds of countries thought to be safe, etc.
  • Share markets will show huge volatility, with a strong and definite downward bias. We'll see very sharp earning downgrades globally, resulting in a significant bear market. However, every promise of any meaningful end to the mess coming from the Political Class will result in sharp intermediate rallies.

Suggestions for Indian Investors:

  • Increase the frequency of reviewing your asset allocation
  • Explore the possibility of increasing your contribution to relatively safe asset classes such as Cash & cash equivalents, Gold, Indian real estate in locations where the prices have not shot up to crazy levels, Public Sector Bank deposits, etc.
  • Review your equity portfolio more frequently. Keep sharper stop loss levels and lower profit targets for the trading portion of your portfolio
  • Use your cash judiciously to accumulate high quality blue chips for your long-term investment portfolio whenever their share prices come down to panic bottom levels due to the violent swings in the market

Most important, be alert, be awake.



Interconnected Nature of the Euro Debt CrisisSocialTwist Tell-a-Friend

Sunday, 16 October, 2011

Decline in Ethical Standards - And what we need to do ... ... ...

Decline in Ethical Standards - And what we need to do ... ... ...

I've unfortunately been reading disturbing articles about HDFC Mutual Fund. Apparently, they've been signing consent orders with SEBI, choosing to pay a fine without necessarily admitting guilt on charges of, among other things, frontrunning by their fund managers.

Considering the high ethical standards that one associates with the house of HDFC, I'm deeply disappointed and upset about the whole matter.

Especially, considering the fact that I'm not talking about some small fund house not even in the "Top 10 Fund houses in terms of Assets under Management". On the contrary, I'm talking about what happens to be THE largest Fund house in terms of Assets under Management as per the latest available records.

I would like to know about:

  • The exact nature of charges, and the number of HDFC MF personnel who have been accused
  • The essence of internal investigations by HDFC MF and what punishments have been meted out, if any, to those found to be indulging in activities considered potentially inappropriate (even if such activities may not be strictly considered guilty enough to be proven in a court of law)
  • The kind of systemic changes that HDFC MF has introduced to ensure that such "activities" are atleast detected internally at a nascent stage even if they cannot be prevented completely
  • The number of such consent orders signed by other large fund houses with SEBI, say, in the last three years
  • The details of such consent orders

I tried to find answers to the above queries by "googling around".

The HDFC Mutual fund website had nothing on the above that I could locate.

I had virtually the same experience with the SEBI website. No useful info that I could locate.

All that I could find were a few articles in newspapers and blogs.

So much for transparency.

So much for concern for the "Small Investor".


     What should we do in these times of declining ethical standards? 


Unfortunately, we can't really do much! There are a few things, however, that we ought to be doing.

  • Stick to your Asset Allocation
  • Diversify across fund houses, across sectors, across market cap
  • Restrict your investments to larger fund houses - They are more likely to
    • Have somewhat better systems & processes
    • Be bailed out in case of major goof-ups
    • Remain under the glare of the media & judiciary
  • Keep reviewing your investments with a hawk-eye
  • In case of need and/or suspicion, don't hesitate to walk out with your money.

Take care!



Decline in Ethical Standards - And what we need to do ... ... ...SocialTwist Tell-a-Friend

Saturday, 10 September, 2011

Illinois is Broke, with a capital B - Is USA next?

Illinois is Broke, with a capital B - Is USA next?

The state of Illinois, USA is broke. Bankrupt. Kaput. It has stopped paying bills. Not yesterday. Not last week. Not last month. At least from May 2010.

Take a look at this link:

If you thought that the above is a stray example picked up from the past, think again. The situation has not improved. On the contrary, it has obviously worsened. Take a look:

Why am I bringing your attention to the above articles in a blog on personal finance with a focus on Indian readers?

Two quick reasons:

  1. When the US catches a cold, the world sneezes. When the US sneezes, the world develops pneumonia.
  2. When people or governments (howsoever rich or resourceful,) fail to follow principles of fiscal prudence, the end result is financial ruin.

We've been hearing about problems of countries like Greece, Iceland, Italy, etc.

Occasionally, we've been hearing about the US at a macro level. The extent of financial troubles at the state level within the US is relatively unknown to the majority of us.

However, the problems of the states is not merely their own problems. It will certainly, over a period of time, result in:

  • Either higher taxes or lower welfare benefits or hyper-inflation, or a combination thereof
  • People, Industries WILL move out of high cost, high-tax, low-infrastructure states to low-cost, low-tax, high-infrastructure states.
  • Ditto for countries. If the US as a whole does not pull up its socks, it will become increasingly uncompetitive in the world markets and it will proceed towards bankruptcy as a nation. That would be a disaster with unimaginable and unforeseen consequences to the rest of the world

If that's the situation for the nation which has the luxury to print the reserve currency of the world, imagine the plight of a country like India.

Our fiscal deficit is a pathetic reflection of the overall financial mess that we are in. This is despite the fact that we haven't had much of government spending on developing infrastructure in recent years. Reasons are many. I hope to cover it in future posts.

Remember the basic principles of fiscal prudence. Take care.

We're living in dangerous times.



Illinois is Broke, with a capital B - Is USA next?SocialTwist Tell-a-Friend

Thursday, 8 September, 2011

Gold Deposit Scheme from SBI

Gold Deposit Scheme from SBI

Apparently, SBI (State Bank of India) has introduced a "Gold Deposit Scheme" some time back. Wonder why enough publicity has not been given for the same.

Take a look at this mail that I got from one of the Yahoo Groups. This could be of significant interest to

  • HNIs for diversification across asset classes
  • Those who are interested in generating returns on gold over and above the normal appreciation in gold prices
  • Upper middle class individuals from traditional families with very young daughters / grand daughters (who want to accumulate gold, but are wary about buying jewels as fashions do change over a period of a couple of decades)

Do take a look at this:

BI GOLD DEPOSIT SCHEME (GDS) an ideal deposit plan for HNIs/Trusts etc. 


SBI Gold Deposit Scheme (GDS) is in the nature of a fixed deposit in gold. The customers can deposit their idle gold under GDS which will provide them safety, interest earnings, tax benefits and a lot more. Under this scheme, you can deposit minimum 500 gram of gold with SBI and maximum as much as you want. Many Temples and trusts in India deposit literally hundreds of KGs of gold every year with SBI. Once you deposit your gold with SBI, The gold deposited is melted, assayed (tested) and minted (coined) at the India Government Mint (IGM) before the Gold Deposit Certificate is sent to the depositor within 90 days from the day the gold is deposited (The expenses incurred in
this connection will be borne by the bank). It will indicate the weight of pure gold in the gold deposited, in 999 fineness. However, a provisional receipt is issued by the bank immediately upon receiving the deposit. With the help of the certificate, the depositor can claim the gold upon maturity of the deposit (alternatively, the depositor can claim back the INR equivalent of gold deposited at prices ruling on the day).


You will not get your jewellery back in the same form what you deposited. SBI melts the deposited gold and check the purity and then converts it into gold bars. Depending on the purity of the gold you deposited SBI send you  a gold deposit certificate within 90 days. The Bank bears all expenses associated with this process. The gold is returned in bar/bullion or equivalent cash. If you deposit in bar or bullion, the Scheme is more beneficial.

However, unlike the regular deposits, interest here is calculated in grams and not in rupees. Thus, an investment of 500 grams of gold for three years shall earn 5 grams of gold as interest per annum, compounded annually. At the end of the maturity term, the interest so earned shall be converted into rupee equivalent of gold then and paid to the investor like other bank fixed deposit

For the principal investment, investor will have an option to claim back pure gold (0.999 purity) or cash equivalent of gold as on that day. The scheme is also attractive from tax perspective as the interest earned as well as tax on any capital gains arising from rise in price of gold after maturity
is exempt from tax. Gold so deposited has also been exempted from wealth tax.

Main features of GDS are as follows  




To mobilize the idle gold in the country and put it into productive use.           

To provide the customers an opportunity to earn interest income on their idle gold holdings.                  


Any Resident Indian of the following categories:

(i)  Individuals, singly or jointly (as Former or Survivor)

(ii)  HUFs
(iii)  Trusts
(iv)  Companies

Minimum Quantity

500 gms (gross)
(No upper limit for deposit)

Period of deposit

3 yrs,4 yrs or 5 yrs

Rate of Interest & Payment


The current interest rates w. e f. 01.09.2010 are: 0.75% p.a. for 3 years, 1.00% for 4 years and 1.00% for 5 years.           

Interest is calculated in Gold currency (XAU) and paid in equivalent rupees.                  

Interest rate is subject to change.                  

Option for Interest Payment: Non-Cumulative (on 31st March) every year or Cumulative (On Maturity)                  

Acceptance of gold

Gold i.e. Gold bars, Coins, Jewellery etc. will be accepted in scrap form only.           

Customers to submit Application Form, Identification Proof, Address Proof and Inventory Form.                  

Provisional Receipt issued at the time of acceptance of gold.                  

Issue of Gold Deposit Certificate

Gold Deposit Certificate will be issued by Nodal Branch (i.e. Bullion Branch, Mumbai) after the gold is melted, assayed and minted at India Govt. Mint (IGM).           

The certificate will be issued for pure gold contents (i.e. in 999 fineness).                  

Multiple certificates (max 5) can be issued.                  

Gold Deposit Certificate (GDC) will be sent to the depositor within 90 days from the deposit of gold.                  


Effective Date

Date of assay certificate of IGM or 30 days of receipt of gold whichever is earlier.


Nomination facility

Available for deposits in single names in individual capacity.



Transferable by endorsement and delivery.
Transfer to be noted with Nodal Branch.


Option to take repayment of principal either in gold or equivalent rupees as on the date of maturity.


Premature payment

Premature payment permitted after a lock-in period of 1 year with a penalty on applicable interest rate



Can be renewed any time after maturity provided the renewal is for a future period for the term and interest rate as available on the date of maturity


Loan facility

Rupee loans available at any branch of SBI up to 75% of the notional value of gold.


Tax benefits

Exemptions from Income Tax, Wealth Tax and Capital Gains Tax available.



Designated  SBI Branches for acceptance of gold:


Agra Main

Chennai, T. Nagar

Kanpur Main


Ahmedabad Main


Kolkata Main




Lucknow Main


Bangalore Main

Dehradun Main



Baroda Main

Darbargadh (Bhavnagar)


Shivaji Park, Mumbai





Bhopal Main


Meerut Cantt


Bhubaneswar Main




Bullion Branch, Mumbai


Mumbai Main



Hyderabad Main

Nagpur Main



Indore Main



Chandigarh Main

Jaipur Special

Patna Main


Chandni Chowk Delhi

Jallandhar Main

PBB, New Delhi 



Pune Main



Gold Deposit Scheme from SBISocialTwist Tell-a-Friend

Saturday, 27 August, 2011

Collapse of the Dollar - A Mathematical Certainty???

Collapse of the Dollar - A Mathematical Certainty???

Take a look at this video:

The video presents a very interesting "Black Swan" moment.

After 2008, After Lehman Brothers, it is difficult to totally ignore the above video as something that's "Impossible".

Obviously, if something of that sort materialises in reality, the share markets will go into a tailspin. A true and total disaster. Globally. And, when the US catches a cold, all of us get a fever.

How do we prepare for it? Really speaking, we can't be fully prepared.

Some quick suggestions:

  • Review your Asset Allocation.
  • Ensure that at least a certain portion of your total assets are allocated to real assets rather than paper assets. Some potential ideas could include
    • Precious metals like Gold, Silver, Platinum, etc.
    • Agri-Commodities or companies that invest in Agri-commodities
    • Companies that derive a strong percentage of their revenues from domestic markets (Especially those who have taken large dollar loans, as when the dollar goes for a toss, repayment will become child's play)
    • Real estate in high growth economies like India, China, Brazil, etc. Certainly not in US, West Europe, etc.
  • Pray

As the video clip says,

  • While it is possible to ignore reality, it is impossible to ignore or escape the consequences of ignoring reality.

Take care!



Collapse of the Dollar - A Mathematical Certainty???SocialTwist Tell-a-Friend

Thursday, 25 August, 2011

High-risk Low Return Opportunities

High-risk Low Return Opportunities

All of you must have heard a lot about fly-by-night "blade companies" which promise extremely high returns and disappear after your friends invested their hard-earned money.

Some of you must have a first-hand experience with one or more of such companies from the past.

Typically, such companies offer returns which are too good to be true.

Often, indeed they are too good to be true! Simply because they are false!

To be more precise, when such companies offer "assured" returns significantly in excess of the kind of returns offered by bank deposits, you know that you should run from them at the first available point.

Taking this on a global plane, I'd invite you to take a look at the following yield curve that I got from the net:

If a finance company offers a return of anything over 14-15% per annum, I'll have grave doubts about whether I'll get my principal back!

When the yield of a sovereign nation scales levels of 30% and above per annum (as the above figure shows), essentially it indicates the high probability of soverign default.

When a company defaults, people who had invested their money in it and a few stakeholders like employees, suppliers, etc. suffer to a certain extent.

When a bank defaults, (like Lehman Brothers did in 2008) a lot more people suffer, because of the impact of "linkages". This is what so-called experts call a "systemic risk".

When an entire nation defaults, believe me, all hell is likely to break loose.

And the danger of highly indebted nations like Greece actually defaulting is increasing every day.

If something like that happens, all bets are off as to how the world markets would be impacted.

That's one of the reasons why traditional "safe" assets like Gold & Silver are going up so much these days.

Take care of your portfolio.


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Tuesday, 23 August, 2011

Timing the Market - Quotable quote from Templeton

Timing the Market

John Templeton says: "I do not know anybody who knows anybody who has been able to time the market EVERY TIME!"



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Friday, 12 August, 2011

Why Investing in Equity makes a lot of sense - Prashant Jain

Why Investing in Equity makes a lot of sense - Prashant Jain

Here's an absolutely delightfully written article on why Equity investments makes sense:

I especially liked the following lines:

  • And finally for the pessimist, if you don't believe that markets will perform over a reasonable time and if indeed that turns out to be true, then, it is even better for your long term wealth provided you are a saver. This is so because, the longer the markets stay low, the more is the money that can be invested in equities and therefore higher will be the wealth whenever the markets finally move. This is important, since nearly everyone in India is a saver!

Hope you find the time to read the whole article. This one is a gem. Don't miss it.



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Sunday, 7 August, 2011

S & P Cuts US Credit Rating

S & P Cuts US Credit Rating

On July 19, 2011, I'd posted in these columns a short note:

In that post, I'd clearly mentioned, "Wonder when (not whether) the other major credit rating agencies are going to actually downgrade the AAA rating for USA???"

Apparently, I didn't have to wait for long. On Friday night (on August 5, 2011), after market hours in US, S & P dropped the bombshell. The USA is no more a triple-A economy.

As I'd mentioned in my earlier post, all bets are now off.

Optimistic Scenario:

  • If strong reformist measures are quickly announced by both US & Europe AND
  • If actual implementation of such measures quickly - very quickly AND
  • If strong financial empires led by folks who put big-time money behind their prediction that the world economy would go into a double-dip recession leading to an outright depression, Then & only Then
  • Things may stabilise and there can be a semblence of calm in the markets. In which case, we may end up with a sideways market with a gradual shift in financial power to the markets which are still somewhat stable and showing growth. Which could possibly be a positive for India. Obviously, all this would take time. In months, certainly not weeks.

Pessimistic Scenario:

  • If any of the elements of the Optimistic Scenario mentioned above does not play out, the result would naturally be utter chaos.

In addition, we can have chaos if one or more of the following events occur:

  • Crude Oil and / or Food Grain prices go crazy
  • Any of the "minor conflicts" erupts into a full-fledged war (which can be a diversionary tactic adopted by some crazy politicians somewhere in this globe) - Potential areas where such conflicts can erupt: Southern Europe (from among the PIIGS countries), West Asia (due to Oil), Indo-Pak border (due to Kashmir), the China Factor (conflicts due to border skirmishes with India or the problems in the South China Sea or border issues with Japan), the Korean problems, etc.
  • Many of the funds around the world which are "Compelled by their mandates" to invest exclusively in AAA rated securities may dump the US bonds and treasuries.

Virtually any of the above can result in all the above negative scenarios falling in place and occuring forthwith.

All I can say is:

  • The situation is fluid and complex at the same time
  • Any action by any of the players can have completely unintended consequences
  • More "negative unintended consequences" are likely than positive ones
  • There will certainly be violent swings in markets all over the world.

Take care and keep lots of your cash ready for some amazing buying opportunities in the months ahead.



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Saturday, 6 August, 2011

More lies in dismal times

More lies in dismal times

On July 30, 2011, less than 10 days back, I had written this post:

At that time, I never realised that I'll get an amazing (or awful, depending on your perspective) example from the US Official Statistics so soon to prove my point about the reliability (or rather the lack of it) of official statistics. Especially during these dismal times.

The latest Jobs report for July from the Department of Labour claimed that the unemployment fell to 9.1% and that the economy ADDED 117000 jobs in July.

Strictly speaking, the above report is indeed factually accurate.

However, like any good mini-skirt, it hides the vital parts quite amazingly. The real truth appears just beneath the surface. When you go into the details. When you look at the fine print.

For further details, take a look at this write up from CNBC:

As always, whenever the source of your data / information is from the Official Babus from any corner of the world, take it with a nice pinch of salt!



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Long-term Investing - Reality & Myth

Long-term Investing - Problems with the advice given by Financial Advisors
An occasional post in what, hopefully, would be a multi-part series on this subject

As the adage goes, never ask a barber whether you need a haircut. You know what reply you'll get. Even if you're bald!

In a similar vein, many financial advisors ranging from Share Brokers, Insurance Agents selling ULIPs, Mutual Fund distributors, etc. keep eulogising the benefits of Long-term Investing.

Considering their skill levels (At selling, not in the world of Personal Finance), they are quite pursuasive.

And use half-truths extensively. Occasionally, non-truths as well.

Some examples:

  • "Timing the market does not make you money. Time IN the market makes you money." - This is at best partially true. When your financial advisors quote this, ask them about returns generated by investing in
    • Nikkei ETFs of Japan over the past couple of decades
    • DOW Jones index between 2001 and 2011 - A full decade, no less.
    • SENSEX from 1992 to 2002 - A full decade, no less.
  • "If you miss out on the 'Top 10 / 50 / 100 days of market return, your overall returns will plummet by xxx percentage points" - They never tell you about how your returns would have increased by missing out on the 'Bottom 10 / 50 / 100 days of market return!
  • Untold truths about Equity Mutual Funds - Returns of Mutual Fund Distributors (not Your returns) depend on how long you hold your investments - Ask them about trail commissions. And ask yourself about why they ought to be getting any trail commission in the first place??? Imagine your reaction if your real estate broker whom you used to buy your house expects you to receive a certain percentage of the ever-increasing value of the house by way of brokerage as long as you continue to own that house!!! (This ought to be the subject for a separate post altogether. Do remind me to come up with one!)
  • Untold truth about your share broker - When you buy, you have to sell. As long as he keeps pressurising you to buy, he knows that his brokerage income from the eventual sale of such shares is virtually assured. Can't think of too many occasions when I (or any of my friends, relatives, colleagues, classmates, their uncles or their neighbours) bought any shares from one broker, but used a different broker to sell the same shares.

When people talk about the impossibility of "Market timing", they are indeed stating an obvious fact. However, does it mean that one just buys a share or a mutual fund and forgets about it? While there's a lot of clarity about "Buying", the same degree of clarity is, unfortunately, missing when it comes to "Selling".

I'm not against long-term investing. Far from it. In fact, I'm a guy who firmly believes in long-term investing. After all, other than real estate (where the ticket size is so huge that it is not a meaningful investing option for a vast majority of ordinary retail investors), equities are the only option to generate returns that beat inflation. Hence, obviously, when one invests in equities directly or through mutual funds, it is indeed essential to have a long-term time horizon in mind.

However, it is equally important to remember the actual objective - "To make money", and not to  "Stay Invested"!

One needs to keep in mind the above while going through the process of investing.

How does it translate into actual action while investing?

Watch this space for more inputs on the same.



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Friday, 5 August, 2011

Gyrating Markets - And what to do

Gyrating Markets - And what to do

Hi friends!

On January 23, 2011, I'd posted this entry on these very pages:

On January 24, Nifty closed at around 5740, Sensex closed at around 19,150.

On February 11, 2011, Nifty was around 5250 and Sensex around 17460. This was hardly a couple of weeks later.

And I had posted another entry on February 11, 2011:

Even though I was recommending "Buying", I clearly mentioned in the above post that the reasons mentioned in my January 23 post still remain quite valid. Just the fact that the prices have come down for those very reasons prompted me to recommend buying. And use the volatility to your advantage.

As luck would have it, the indices indeed moved right back up - all the way to around 5900 on the Nifty in April, later to 5350 in May, 5700 in June and 5200 in August 2011.

Each upward move and each downward move amounted to nothing less than 10% on an average - For the indices.

Along with that, the individual share prices zoomed up and crashed down like crazy. Often, the individual moves even among index heavyweights were much more than 10%.

Perhaps, the hard-core traders, professional technical analysts and perfect liars would be in a position to claim having moved in and out of stocks by timing the market perfectly.

The traditional "Long-term" investors who are supposed to "Buy & Hold" would have gone nowhere.

What are "relaxed investors" like you and me supposed to do in such wild times when the market does a perfect yo-yo???

Here are a few simple suggestions:

  • Identify the "Asset Allocation" for investing in equity shares
  • Identify a subset of the above as a "self-imposed limit" for active trading in shares (Nothing intra-day about it. Strictly delivery-based trading)
  • Identify a few individual stocks - Not more than a maximum of 7-10 companies
  • Identify "desired" buy levels and "desired" sell levels 
  • Whenever your preferred stock reaches your "desired" buy levels, buy that share right away, without bothering about whether it will go down further or not. After all, you want to accumulate that stock and you're willing to pay the current price.
  • Likewise, when your preferred stock reaches your "desired" sell levels, sell that share right away (to the extent of your original purchase value), without bothering about whether it will go up further or not. This would result in "Free Shares" being accumulated in your demat account. (For more details on accumulating "Free Shares", refer to my earlier post on the subject (Don't you like to have free shares? Read on to find out how you can accumulate the same!)
Execute the ideas given above, and relax in these crazy times.



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Tuesday, 2 August, 2011

Green Initiative or "Cutting Corners" Initiative?

Green Initiative or "Cutting Corners" Initiative?

Many of you who happen to be shareholders of various companies would have received emails such as the one given below:

Sub: Service/dispatch of documents through email by 'XYZ Limited' - Request to register/update E-Mail addresses  Reg.

The Ministry of Corporate Affairs (MCA) vide it's Circular Nos.17/2011 and 18/2011 dated 21.04.2011and 29.04.2011 respectively, informed that, it has taken a 'Green Initiative in the Corporate Governance' by allowing paperless compliances by the Companies after considering Sections 2, 4, 5 and 81 of the Information Technology Act, 2000 for legal validity of compliances under the Companies Act, 1956 through electronic mode.

'Certificate of Posting' is one of the accepted mode of service for service of documents as per Section 53 of the Companies Act, 1956 and the Department of Posts has recently discontinued postal facility through the 'Certificate of Posting' vide their Circular dated 23.02.2011.

The MCA has clarified that, a Company would have complied with Section 53 of the Companies Act, 1956, if the service of document has been made through electronic mode, provided the Company has obtained e-mail addresses of it's members for sending the notices/documents through e-mail by giving an advance opportunity to every shareholders to register their e-mail address and changes therein from time to time with the Company. It is also clarified that, in cases where any member has not registered his e-mail address with the Company, the service of document etc., will be effected by the other modes of service as provided under Section 53 of the Companies Act, 1956.

As per the above circulars the Company may serve/dispatch the notice/documents (i.e Balance Sheet, Profit & Loss a/c, Directors' Report, Auditors' Report and Notice calling for the general meetings, etc.,) to the shareholders of the Company by way of electronic mode. Hence, we hereby request all the shareholders to register/update their e-mail addresses as per the detials given below to receive notices/documents through electronic mode and update their e-mail addresses from time to time. 

They claim that this is supposed to be a "Green Initiative" so as to save paper, avoid cutting trees, etc., "All in alignment with SEBI Approved Norms"

However, I find a few objectionable aspects to this whole "Green Initiative":

  • Why are they making "Email Copies" the default option? Whenever any change is proposed to be introduced, the "Status quo ante" ought to be the default option. Any proposed option to change should be sought to be implemented by obtaining a specific approval from the shareholder. I'm not aware of a SINGLE COMPANY that has made the "Physical Copy" the default option!

  • Is the real purpose to "Go Green" or to save some money? If the genuine purpose is to "Go Green", is there a single company which has transferred the money so saved to any of the following "reserves"?:
    • "Future Dividend Payment Reserve" which will be kept in a distinct fund which will not be used by the company for routine business operations
    • "Investor Education Reserve" - so that the funds will be used for investor education purposes
    • "Contribution to charities approved by shareholders Reserve" - which will be identified and approved by the shareholders at the AGM.

Wonder if any listed company will care to respond???



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Saturday, 30 July, 2011

Lies, Damned Lies, Statistics, Government Statistics and Official Government Statisics in troubled times!

Lies, Damned Lies, Statistics, Government Statistics and Official Government Statisics in troubled times!

We've all been conscious of the statistics brought out by Indian authorities.

Many of the figures are especially heart-breaking to the real "aam-aadmi", and hilarious to those who understand economics.

Especially in the areas of:

  • Official Inflation figures - Week after week, the official figures are in single digits. Wonder if they have ever gone out to buy vegetables, buy groceries, catch a cab or auto, filled up their fuel tanks, bought some jewels, watched a movie, dined out at a restaurant, booked an apartment, etc. If the government officials had actually spent any money of their own on any of these activities, they would know that the "real" inflation experienced by you and me is at least in low double digits, if not upwards of 20% per annum.
  • Defining "Poverty" for the purpose of providing subsidies to "Below Poverty Line" families
  • Determining "Market Rates" while determining compensation levels for acquiring land from farmers

Many of us would have been under the impression that "This happens only in India".

Apparently not. Obfuscation of reality in financial matters is another area where we've learnt a great deal from the west!

Take a look at this article about the GDP figures for USA and you'll realise that the Western Government economists are as adept as we are in the art of generating "figures that please the boss":



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Friday, 29 July, 2011

SEBI's new Announcement impacting Retail Investors

SEBI's new Announcement impacting Retail Investors

Disclaimer: I'm writing this post based on the memory of what I watched on TV earlier in the day. Facts need to be verified after the implementation process starts in due course!

SEBI has made a series of announcements regarding mutual fund investments, IPO investing, Takeover norms, etc.

Here is a quick synopsis along with my brief comments:

  • Transaction Charges of Rs. 100/= to Rs. 150/= announced for investment in mutual funds. Some kind of differentiation is being made between new and existing investors.

    • Is this the beginning of the attempt to re-introduce entry loads once more? - Almost for sure, I guess!

    • How is it going to be collected? Will it be deducted from the initial sum invested? Then why is it not a minor / microscopic percentage of the sum invested? A fixed charge is obviously regressive - Penalises the small and middle class investor more than the large investors

    • Is it a one-time fee for a particular year? For investment in a particular scheme? For investment in a particular fund house? No clarity as of now.

    • It would have been much more honest if SEBI had simply re-introduced an entry load or retain the present system of the fees being negotiated by the distributor with the investor.

    • Will the transaction charge be applicable only for equity funds or even for stuff like debt funds? No clarity.

  • New & Improved "Unified KYC norms" being introduced.

    • This almost looks like a "New & Improved Surf" or "New & Improved Hamam"!

    • Either you're going to insist on true KYC norms on a logical basis - which will involve providing proof of Identity, Address, Date of Birth, and, in some cases, financial status. Or you're going to be lax in the name of being "customer-friendly". For Heaven's sake, let SEBI decide once for all which one it wants. And stick to that.

    • We're way too tired, having moved from virtually nothing, to providing a photo & address proof, to providing PAN card details, to providing a MAPIN reference to the current system of KYC norms, which is again sought to be changed.

    • I only hope and pray that presently KYC compliant customers are not harassed once more to re-invent the wheel and provide all and sundry details!

  • IPO Forms to be modified and simplified.

    • I'll just need to wait and respond.

    • For most of us who depend on online options for IPO investing, fortunately, things are already fairly simple. This is one area where SEBI has been reasonably helpful. (Caveat - IPOs need to be sold for promoters to get the required funds. Perhaps the pressure from promoters and merchang bankers have ensured that the IPO investing process has become so simple!)

  • New Mutual Fund Advertisement norms to be implemented. Ads to mention absolute returns and not CAGR returns.

    • This is truly amazing. CAGR is the only truly comparable piece of data that is relevant. To claim that it is "Too complex" for investors to understand is indeed strange. If CAGR is too complex, how are they supposed to really comprehend the obfuscating risk factors including claims about "past performance do not necessarily predict future performance" or "the name of the Scheme does not in any manner indicate the quality of the Scheme, its future prospects or returns"? Give me a break!

  • Takeover norms being changed - Trigger moved from 15 to 25%; Minimum quantum of open offer to be 26% instead of 20%; No-compete Fees banned.

    • Will enable strategic investors to enter to a greater extent without worrying about the need to make an open offer.

    • 100% Open offer would have perhaps been better for retail investors, but pressure groups seem to have prevailed in this regard.

    • The removal of a separate "No-compete Fees" given exclusively to promoters is indeed a step in the right direction.

    • On the whole the proposed changes in takeover norms seem to be fairly balanced, keeping in mind the overall constraints in the Indian scenario.

As I mentioned right at the outset, let's wait for the details to come out and then react further, if required.



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