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!

Regards,

N

---

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:

• Illinois deep in debt, not paying its bills

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:

• Illinois identified as a "Sinkhole", along with five other US states

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.

Regards,

N

---

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  

 

Purpose

 

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.                  

Eligibility

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.

 

Transferability

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

Repayment

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

 

Renewal

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

Raipur

Ahmedabad Main

Coimbatore

Kolkata Main

Rajkot

Amritsar

Cuttack

Lucknow Main

Ranchi

Bangalore Main

Dehradun Main

Ludhiana

Secunderabad

Baroda Main

Darbargadh (Bhavnagar)

Madurai

Shivaji Park, Mumbai

Belgaum

Ernakulam

Mangalore

Surat

Bhopal Main

Guwahati

Meerut Cantt

Tirupati

Bhubaneswar Main

Gwalior

Moradabad

Thrissur

Bullion Branch, Mumbai

Howrah

Mumbai Main

Tirivananthapuram

Burdwan

Hyderabad Main

Nagpur Main

Varanasi

Calicut

Indore Main

Panaji

Vijayawada

Chandigarh Main

Jaipur Special

Patna Main

Vishakhapatnam

Chandni Chowk Delhi

Jallandhar Main

PBB, New Delhi 

Chennai-AnnaSalai

Jammu

Pune Main

Regards,

N

---

Collapse of the Dollar - A Mathematical Certainty???

Collapse of the Dollar - A Mathematical Certainty???

Take a look at this video:

• Collapse of the Dollar - A Mathematical Certainty???

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!

Regards,

N

---

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.

Regards,

N