When Banks Cheat Customers

Stan chart robs a doctor in Kolkata with churning and forgery. Will RBI act?

Dr Abhik De, a highly qualified doctor in Kolkata, had an account with Standard Chartered Bank. Since 2005, the Bank also managed his mutual fund investment which was Rs1.56 crore in 15 schemes. In a 19-month period after May 2008, Stanchart switched and churned his portfolio over 200 times causing a massive loss of Rs68.28 lakh. In so doing, the Bank often forged signatures on transaction slips. At least 50 transactions in July-August 2009, all loss-making, were a give-away since he was out of the country. Dr De confirmed the forgery by writing to each mutual fund and seeking photocopies of transaction slips. Dr De says that some of the forged signatures were even attested by Stanchart officials. When he complained, the Bank initially dismissed his complaint as false and frivolous. 

A reckless churning of mutual funds to earn commissions as well as entry- and exit-loads can only happen when there is a nexus between ‘wealth managers’ and the fund managers. Dr De complained to the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) but got nowhere. Over the past four years, he has slowly gathered enough evidence to file a police complaint.  

Dr De describes the attitude of regulators succinctly and colourfully. He says, “If a person is murdered with an unlicensed revolver, the judge does not ask for the source of the weapon. He conducts a murder trial.” Our regulators have all been focused on trivial technicalities rather than justice even when violation of their own regulations is very clear. 

Stanchart’s actions are a direct violation of SEBI’s prohibition of fraudulent and unfair trading practices regulations, as well as the code of conduct for mutual fund intermediaries. Readers would recall that Moneylife’s relentless pressure ensured SEBI action against HSBC in a similar case of churning involving singer-actress Suchitra Krishnamoorthi. The actress was eventually paid Rs1.3 crore by HSBC as a settlement. But SEBI has done nothing to help Abhik De.

Finally, the Kolkata police registered a first information report (FIR) based on his complaint in 2014. It caused Stanchart to wake up at long last. The Bank sacked its relationship manager and unilaterally transferred Rs35 lakh into Dr De’s account (November 2014) calling it a “full and final satisfaction of all claims, demands and contentions raised by you.” Adding insult to injury, it called this a “goodwill gesture to maintain cordial relations” with its victim. Obviously, Dr De is in no mood to accept or give up the battle. 

The question is why did RBI fail to redress the complaint? An ordinary consumer who cannot repay a small loan or defaults on credit card is declared a defaulter and his financial life is crippled. But a bank decimating a person’s savings through mis-selling faces no action. The collective clout of banks has swung the pendulum of justice far against the ordinary consumer. This cannot go on. RBI’s consumer charter, issued in 2014, is supposed to protect people from such brazen mis-selling. RBI must make an example of Dr De’s case. Awarding exemplary punishment will show that it is serious about fair treatment of consumers.

Article by Sucheta Dalal

The Best Doctor Gives the Least Medicine

Even though Ben Franklin lived over 200 hundred years ago, his advice is timeless. During Franklin’s time, the medical cure often killed the patient. Too much blood letting and leech treatment led to fatal outcomes.

The same can be said for hyper active portfolio management. As Morgan Housel likes to say, “99% of investing is doing nothing.” Doing nothing is a strategy that is often harder to implement than the most complicated algorithm. Fear and greed are uncontrollable emotions.

Modern medicine often confronts the same dilemma that Ben Franklin experienced. Doing too much is often worse than doing nothing at all. Gilbert Welch’s article in The Wall Street Journal, “Why the Best Doctors often Do Nothing,” gives three examples of “doctor overreach”.

Often a blood sugar pill can make your blood sugar too low. A CT scan of the spine will almost certainly find something wrong with your back. This can lead to unnecessary back surgery which turns annoying back pain into a chronic condition.

Often, after finding nothing abnormal in a head CT scan, a neck ultrasound is recommended. The radiologist may find a small thyroid cancer, which most of us have if we look hard enough. This could lead to rounds of cancer treatment, which could lead to multiple negative side effects.

The connection between too much medicine and incessant portfolio management is clear. Over monitoring a portfolio, just like prescribing too much medicine, is often worse than doing nothing at all.

Fidelity conducted a study to determine its best performing individual investor accounts. Its results were shocking. The best performers were people who had forgotten they had Fidelity accounts!!

Barry Ritholtz spoke about a study about families who inherited assets that were in dispute. Often 10-20 years went by before any activity was permitted in these accounts. Studies proved this period turned out to be the years in which the portfolios garnered their highest investment returns!

It is very clear that too much investment activity is worse than simply doing nothing. Index funds have proven, over time, to outperform actively-managed funds. The main reason is because of the so called “investment friction” found in active management.

These portfolios often incure high trading costs because of frenetic trading. This, in turn, will lead to taxes of over 50% if the account is held by a high-income individual, in a taxable account, and the gains are short term.

The fees on the fund are often excessive because the fund manager is being paid to trade a great deal and try to outperform the market. These individuals are paid a premium to fulfill their often unmet expectations.

We can see how this cycle of activity leads to an inferior outcome. The investor would be better off if he bought a low activity index fund and forget about it, like those lucky people at Fidelity.

The question is: Why do people believe there is a positive correlation between investment results and the constant shuffling of assets?

The answer lies in something called “Do Something Bias.” In an excellent article by Kara Lilly called “When Less is More: Overcoming the “Do Something Bias”, the answer is revealed.

“Most people need to act even though the situation doesn’t warrant it,” says Lilly. The reason people act in this irrational manner is that it gives them the perception that they are somehow able to control something that is unpredictable. This explains the phenomena of day trading and penny stock speculation.

Just like many doctors who are too impatient to let the body heal itself, traders try to control an outcome due to their anxiety about future unknowns. In both cases, the results will often lead to much worse outcomes than just letting things be.

Often the best strategy regarding investing is to do nothing at all. Though the statistics have proven that more activity lowers returns, investors ignore it because of their incessant search to acquire the illusion of control in an uncontrollable environment.

Maybe the best solution would be to attach a blood sucking leech to the back of an impatient investor when he attempts to “time” the market. This could serve as a not-so-friendly reminder to choose the best investment strategy: Just chill out.

In the words of Warren Buffet, “Doing very little is more profitable.”


Article by Anthony Isola

Importance of Goal Based Investment

Life is filled with desires and ambitions. A holiday abroad, a luxury car or a Big home, whatever it may be, we earn money to fulfill such goals. However, very often, when it comes to saving for our goals, most of us make investments without a proper plan. We buy financial products, without giving much thought whether those products will help us at the right time when goals are to be met.

This is where a goal-based investment plan makes right sense.
The concept of goal-based investment focuses on having a planned and disciplined approach in saving money for the important goals of life. By having an investment plan defined around your goals, you could allocate your finances to the right asset class, so that they are readily available to meet the big expenses of life. There is very high possibility of reaching your goal if the investments are properly linked and you stay committed .As most of the experts say “Being a Committed Investor is more important than being an Interested Investor” 

But the biggest challenge for the investor is to understand and decide on the Investment goals and most of them are unable to do it. The importance of doing it well and the pitfalls of doing it badly are illustrated below

 
My personal Experience:  

Example 1: In 2008, when I was undergoing training for LUTCF Certification, I happened to meet one trainer from an Insurance company. He was 53 years old. He used to tell everyone that he had planned for all his goals and he is going to retire at 55 itself. Inspite of having good understanding of various Investments, he was unable to figure out whether he was on right track or not.  He had more investment done in equity Mutual funds (Infra Fund, small and mid cap fund)   . In 2009 he was hospitalized and was not in a position to work for next 6 months. His financial life took a Big U- Turn .After seeing his experience I could realise the importance of Asset Allocation and Importance of Goal Based Investing. He simply failed to keep provisions for medical emergencies & Regular Monthly Household Expenses for 6 months. When he was actually in need of money, he could not liquidate his investments because his portfolio was down by 60%. Inspite of him being in Finance Industry, he failed to link his investments for any goal. Infact his case was the simplest case; many investors have much complex goals . Lesson what I learned from the above incident was, Investing without understanding the need or goal is of no use.
 
  Example 2 :  Goal based approach should not be restricted towards investment itself  . It can be practiced or can be followed in our day to day activity. The process which I am going to tell you would have been already in practice in your family. The solution is Bags/Covers/Purse.
My grandmother used to save money and she used to keep all her savings in different covers based on the requirement, Small cover for Yearly school funding and big cover for marriage funding. My mother currently keeps monthly expenses in different purses. She has a purse from which household expenses are taken , one purse for milk and maintenance  , one for vegetable maintenance and one for saving , which in turn she parks in liquid fund and withdraws in case of any contingency (i.e. Unexpected Expenses)  . While financially sophisticated readers will call this system as primitive and sub optimal, it has got lot going for it. It is a simple system, easy to implement and easy to understand and above all, it worked. Most importantly it adopted one of the golden rules of personal investment management – separate folios for separate goals.
 
I would end up by saying, A true advisor would always help his/her client in setting SMART (Specific, measurable. attainable, realistic and time bound) goals. Though there is No guarantee whether the goals will be achieved with the amount you save , because lot of factors needs to be considered and certain factors are not in any once control like inflation, school fees etc  . But one thing which is guaranteed is the clarity and a clear cut road map for your goal. As the saying goes, “What gets measured gets achieved”, will actually work if we all follow it delicately. 

Article by Nishith

Things Investors Should Read. Things Investors Should Avoid…

This is Warren Buffett's office at Berkshire Hathaway  headquarters in Omaha, Nebraska.

The portrait behind Buffett's right arm is his father. The file bin at the end of the desk reads "TOO HARD." There are some magazines, a pile of newspapers, and a phone.

But notice what you don't see. There are no stock tickers. No Bloomberg terminals. No charting software. No Twitter feeds. No pundits spouting forecasts. No computer monitors, and maybe not even a calculator. Buffett has created more than a quarter-trillion dollars of value for Berkshire shareholders from this desk over the last 50 years. And he did it while rejecting most of the "tools" investors utilize. We can all learn something from that.

We have more information than ever before. Are we better investors because of it? I don't know of any evidence that we are. In her book Bull!, Maggie Mahar writes: "The problem is that much of the information that investors want -- and think they need -- is just that, 'information,' not knowledge."
Good investors read a tremendous amount of information, of course. They're just more selective with what they read and pay attention to.

Here are few ways to become more selective.

Avoid explanations of random events. Pay more attention to historical context.
 
People can't stand the idea that events are random and unexplainable, so they try to attach meaning. You'll see things like, "Stocks fall 0.5% as investors react to manufacturing data" rather than the more honest, "Stocks fall 0.5% because they just do that sometimes."

Instead of reading explanations of what the market is doing, pay attention to what the market is doing in a historical context. The next time stocks have a down day, remember that they do that, on average, every other day. The next time stocks decline 10% from a recent high, remember that they've done that almost every year since the Civil War. And the next time we have a recession, remember that no one in history has made it to the 5th grade without living through at least one recession.

Trying to explain market moves gives us the impression that we can predict the future, which we can't. Looking at market moves in historical context reminds us to ignore the noise, which we can.

Avoid breaking news. Pay more attention to broad trends.
 
I found this headline from June 4, 2010: "Stocks Plunge After Weak Jobs Report."

It's true: There was a bad jobs report on June 4th, 2010, and stocks did plunge that day. But three years later, who cares? The initial jobs report was revised to show three times as many jobs created than originally thought, and the S&P 500 has since returned 59%. The must-read headlines from June 4, 2010 is now irrelevant and forgotten. The broader trend -- jobs slowly coming back, stocks still cheap -- was all that mattered for investors.
Breaking news is designed to tug at your emotions and give a sense of urgency, which is exactly when you're prone to making bad decisions. Broader trends are where the money's at.

Avoid strong opinions. Pay more attention to people who talk about their mistakes.
 
Psychologist Philip Tetlock has done some of the best work on the science of forecasts. One of his most startling findings is that analysts that are the most confident in their predictions have some of the worst track records, while those with the best records are constantly questioning their beliefs.
The media loves confidence and hates wavering views, so the analyst who yells the loudest gets the spotlight. Which explains another of Tetlock's findings: Analysts with the highest media profile have some of the worst track records.

Instead of paying attention to strong, loud opinions, give more weight to those who talk about why they could be wrong, what they've learned from past mistakes, and those who forecast in probabilities rather than certainties. They are less entertaining, but more likely to give good advice.

Avoid elaborate interpretations. Pay more attention to the handful of variables that matter most.
 
Most 300-page books can be summarized in 30 pages. The same one-tenth rule of thumb is true for most financial news and analysis. 

Investment bankers write incredibly elaborate 100-page deal presentations that I guarantee you no one reads. They just do it because they're making $1 million a year and they have to show their clients that they put in some effort. Journalists, while paid less, do the same.

You don't need to know the nitty-gritty details about finance or the economy. The big stuff -- how much you need to save to retire, broad valuation metrics, the few industries driving economic growth, the direction of jobs growth -- tell you most of what what matters. Not only is excessive volume a waste of your time, but the more granular an analyst becomes, the more prone he is to over thinking and confirmation bias. "It's better to be mostly right than precisely wrong," as the saying goes.

...Article by Morgan Housel

Simple Ideas For Reducing Debts

If this is a goal for you, don't miss these good-cents tips
 
Many people have faced their debt and won. Slowly and steadily, they have
reduced what they owe. If you have no money concerns, you can probably
imagine how good you could  feel.
 
If you would like to reduce your debt and want to be more financially secure, then you need to follow the below tips .
 
Ready to get started? Keep these three keys in mind:
  
Key 1: Put the brakes on new debt
 

Start by taking a hard look at your spending :  Know the in and out. Make a list of what money comes in each month and where it's going. This first step
can help you spot areas where you might save.

Set a budget:  Some expenses, such as rent, stay the same each month. Others, such as groceries and clothing, can vary. Budget for the fixed costs first. Then, for your other needs and wants, set a monthly limit - and
hold yourself to it.

Pay as you go :  As much as possible, avoid using credit cards. It's difficult to tackle debt if you keep adding to your balances.

Key 2: Whittle away at old debt
 
Here are a few smart ways to begin:
 
Start at the top: Focus on paying off bills with the highest interest rates first. And when you can, put a little extra toward those accounts.

Pay on time:  Make at least the minimum payment on all your bills. You don't want to add any penalties or fees to what you owe - or have an increase in your interest rates.

Make a map :  Get out a calendar - and figure out how long you'll need to pay off each debt. It helps to have goals to work toward!


Key 3: Seek help if needed
 
If you're struggling to keep up, consider steps such as these:

Be up-front: If you can't make a payment, contact the lenders. Ask if they can work with you on a payment plan. And they may be able to offer you a lower interest rate as well.

Go to the pros: You may also get advice from a credit counseling or debt relief service. Before seeking financial help, know the cost - and check a company's credentials with your state's consumer protection office.

 
Once your debt is under control, you'll want to make sure it stays that way. One way to do that is to become a super saver! Start putting away a little money for big purchases and unexpected bills.

Even a little each paycheck can add up over time. And you may find that you can do more - and soon you'll be on your way to a more secure financial future.

How everyone can make the market work for them with disciplined investments and planning

Babaji, our driver, will retire this month. When he came to work for us as a 24-year old in 1999, his story was that of many migrants to Mumbai. He left behind a small patch of rain-fed land with poor yields, a family of brothers, sisters and a widowed mother. Babaji was not sure if he was rich or poor. He had land, but no income from it. He earned his income in the city, but struggled with his finances every month. That was until we decided to plan his finances.

The first four years of his life in Mumbai were tough. He got married, but could not afford to set up home. His brother died in an accident. His sisters were married off. His mother looked after the farm and he sent money back to the family, living alone and frugally in Mumbai. Then we decided that Babaji needed retirement planning.

His heart was in the village, and he had to go back. But he could not do that without ensuring that he would earn enough back in the village to support his family. He now had a wife and two sons to take care of. We first had to convince him that he should work for that dream and set some money aside. To someone who took most of the salary as advances, due to persistent cash crunch, that was a tall order. To incentivize him to save, we agreed to match his saving with our contribution and build a Retirement Corpus for him . 

He began with Rs 500 a month, 12 years ago. Someone who looked at his finances would think that he needed emergency funding first, debt investments next, and only a small portion in equity. My analysis was different. Here was a man who needed a sizable corpus to take him back to his village. We had the benefit of time. So I took a 100% equity allocation. We simply began a systematic investment plan in a diversified equity fund, which had large, mid and small cap exposure.We not only wanted equity return, but also the benefit of a higher return from mid and small cap companies, and had to beat the index with a significant margin.

We not only wanted equity return, but also the benefit of a higher return from mid and small cap companies, and had to beat the index with a significant margin.

Read more at:
http://economictimes.indiatimes.com/articleshow/46419104.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

We not only wanted equity return, but also the benefit of a higher return from mid and small cap companies, and had to beat the index with a significant margin.

Read more at:
http://economictimes.indiatimes.com/articleshow/46419104.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

We not only wanted equity return, but also the benefit of a higher return from mid and small cap companies, and had to beat the index with a significant margin.

Read more at:
http://economictimes.indiatimes.com/articleshow/46419104.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Given Babaji's dire liquidity needs, it was important to keep the investments away from his reach. We got him to put aside a small percentage of his Diwali bonus too. We also did not report the performance of his portfolio to him, nor did he ask us. All he knew was that some money was being kept aside. In the time we managed this money for him, there were two bear cycles in the markets, and two bull cycles. Despite that, Babaji's money grew in value, due to the sheer power of time and equity returns.

After a few years of saving, we decided to let Babaji enjoy some benefits of his savings. He could draw small amounts each year for a specific need. He bore a well to draw water for his fields, fenced his farm and renovated his village house. Unexpectedly, his mother took ill and Babaji's retirement came unannounced. We did not have the time for niceties of portfolio re-balancing, but had to get his retirement corpus to work for him.

Babaji's sons were still in school. He needed a source of income since the earning from his farm might not be stable. We also agreed that the corpus should remain invested to meet long-term goals for his sons, but also generate some income. We decided that buying a light commercial vehicle would be a good idea. His village needed such services, and Babaji derived great pride and pleasure in driving and earning from it. We identified a second-hand vehicle in good condition.

Babaji's retirement corpus had grown to Rs 7.5 lakh. The contribution made by him over 12 years was about a lakh. We matched it. The equity markets and the magic of compounding took care of the rest. The name of the fund we chose is not important, as several equity funds returned over 20% over this long period of 12 years. Suffice it to say that the returns were earned by strategic and disciplined investing in an equity fund and not any luck from selection, timing, profit-booking or any such ill ill-advised jugglery . 

We decided to spend Rs 2.5 lakh on the vehicle and invest Rs 5 lakh in a balance fund. It would seem that a monthly income plan or a post office deposit would be a better idea. But the reality is that Babaji is not dependent on this corpus for all his income. He will have his transporter income, as well as income from his farm. He only needs some additional incomes to meet larger expenses. Therefore, we felt that if he drew on his corpus twice a year, for annual school fees and to meet Diwali expenses he would be fine

Babaji would have enough when his sons went to college. We agreed that 30-35% of the money should be allocated to income assets, and the rest need to grow in equity. That is why a balance fund suited his needs

Babaji is a happy man, proud of his savings and investment strategies. He does not know much about markets but represents hope for me. Investments, markets and planning are not merely esoteric topics or gyan but offer real solutions to real problems. I am not a practicing financial planner or adviser—I am only a teacher. Babaji makes me to believe that each one of us can make savings and investments work for us, and get the life of dignity and well being that we all strive for.

Source : ET

PENALTY ON LATE FILING OF INCOME TAX RETURN

Now A days all tax consultant ,business man,specially persons who have earned salary income ,are in rush to file their income tax return for financial year 2013-14 by due date i.e 31st July 2014.we are also one of them.

Due date of filing of income tax return for Assessment Year 2014-15 Financial year 2013-14 is as under

•     In case of person who are not liable to get their accounts audited is 31st July 2014 
•     In case of person who's accounts are liable to be audited under any law  and partner of such     firms and  all companies is 30.09.2014

Person earning income from following heads is covered under due date 31st July 2014 .

•     Salary ,Pension,
•     Income from other source like interest income ,
•     Income from capital gain ,
•     Income from house property and
•     Income from person owning small business and not liable to get their accounts audited are covered.

In brief all person other than those for which accounts are required to be audited is liable to file return on or before 31st July 2014 for Ay 2014-15

So in nutshell every body is trying to meet the deadline i.e.31st July 2014. we and you are also doing efforts in this direction ,but do you know

what is the penalty if some one failed to filed his return by due date.................i.e 31st July 2014?

any guesses..........

no guess ,we will tell you ,In fact there is no penalty as such for this fault ,absolutely no penalty ,do you believe ,we have said that there is no penalty on late filing of return as such.But this is the fact .

Specific penalty for late filing of return is prescribed u/s 271F which is briefed here under

   " If a person who is required to furnish a return of his income, as required under sub-section (1) of section 139 or by the provisos to that sub-section, fails to furnish such return before the end of the relevant assessment year, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of five thousand rupees"

so this section says end of relevant assessment year ,for previous year 2013-14, assessment year is 2014-15 and it will ends on 31.03.2015 ,means there is no penalty for late filing of income tax return up to 31.03.2015 and after that assessing officer(AO) can impose a penalty of 5000,and that is also his (AO) power which he may or may not exercise after giving due hearing to the assessee.

Now you would like to know why people are so much worried about the due date ,the reason is that as due date has been linked with various other section of the income tax act ,so it is significant in that manner .

so we have listed few impacts of late filing of the Income tax return and issues related to due date of income tax.

Impact of late filing of Income tax return and issue related to due date(The List is not exhaustive/complete)
 
Interest u/s 234A: If there is tax due after deducting advance tax ,TDS and self assessment tax than interest will be applicable @1% per month and part thereof up to the date of filing of the return besides interest applicable u/s 234B or 234C. Means this interest is applicable only if there is any tax payable in your return .

Loss of Interest on refund:You may loose interest on refund u/s 244A as delay in filing is attributable to assessee for the period by which you have filed late return.

Audit Report:Person who are liable to get their accounts audited should get the audit report on or before the due date of filing return i.e 30.09.2014.E filing of audit report s mandatory from ay 2013-14

Revised return : Late /belated return can not be revised .This is major draw back .if you failed to file return in time then you can not revise your income tax return. Though you may apply revision u/s 154 but it has few limitation and very lengthy process.

 Some of deduction under sub sections of Section 80 are not available for late return.

• Due date of income tax return is related to TDS deposit and dis allowance u/s 40a(ia).
• Due date of Income Tax return is related to tax saving u/s 54,54B,54F and some other issues in capital gain saving account deposit scheme.

Not able to carry forward the losses under various heads:You  will not be able to carry forward following type of losses if file return after due date

•    Speculation loss
•    Business loss excluding loss due to un absorbed depreciation and capital exp on scientific research
•    Short term capital loss
•    Long term capital loss
•    Loss due to owning and mainting. of horse races

However there is no impact on following type of losses even if return is furnished after the due date

•     Loss from house property
•     Business loss on account of unabsorbed depreciation and capital expenditure on scientific research.

Though delay can be condoned as per circular 8/2001 DT 16.5.2001 on fulfilling of certain condition) so if you are falls under the ambit of the above points then you should furnish your return up to 31st July 2014 .

Person who can afford to file late return
If you have already deposited due tax or due taxes has been deducted by your employer and nothing is due or you are not claiming a Major amount as refund or  you have no losses to be carried forward then you can fill return up to the end of the assessment year i.e 31.03.2015 without any penalty.

Person who should file return on time.

If you have balance tax to be deposited or short fall of tax or Huge amount of refund due to you orYou have losses to be carried forwarded as explained above then rush to Income Tax department website to file Your Income Tax Return in Time.

NOTE: All things as explained above is to not encourage people to file voluntarily late return but only to inform taxpayers their liability so that they can take informed decision.

Source : Income Tax