Letter from a Widow who is a Chartered Accountant

This is a must read letter for Everyone . I have not seen a better way to explain need for inculcating financial discipline and having an estate plan in place. 

Here goes the letter forwarded to me by Mr Sadique . Thank you Sadique for sharing, it’s appreciated… Nishith.B, Associate Financial Planner 

Here goes a Letter

Hello Friends,

Few things I learnt after Mithun’s death-

We always believe we will live forever. Bad things always happen to others.

Only when things hit us bang on our head do we realise… Life is so unpredictable….

My husband was an IT guy. All techie. And I am a chartered accountant. Awesome combination you may think.

Techie guy so everything is on his laptop.his to do list. his e-bill and his bank statements in his email. . He even maintained a folder which said IMPWDS. wherein he stored all login id and passwords for all his online accounts. And even his laptop had a password. Techie guy so all the passwords were alpha-numeric with a special character not an easy one to crack. Office policy said passwords needed to be changed every 30 days.So every time I accessed his laptop I would realise it’s a new password again. I would simply opt for asking him ‘What’s the latest password’ instead of taking the strain to memorise it.

You may think me being a Chartered Accountant would means everything is documented and filed properly. Alas many of my chartered accountant friends would agree that the precision we follow with our office documents and papers do not flow in to day to day home life. At office you have be epitome of Reliability / Competent / Diligent etc but. at home front there is always a tomorrow.

One fine morning my hubby expired in a bike accident on his way home from office.. He was just 33.His laptop with all his data crashed.everything on his hard disk wiped off.No folder of IMPWDS to refer back to.His mobile with all the numbers on it was smashed.But that was just the beginning. I realised I had lot to learn.

9 years married to one of the best human beings.with no kids.just the two of us to fall back on..but now I stood all alone and lost.

Being chartered accountant helped in more ways than one but it was not enough. I needed help.His saving bank accounts, his salary bank accounts had no nominee.On his insurance his mom was the nominee and it was almost 2 years back she had expired. but this was just a start.. I didn’t know the password to his email account where all his e-bill came.I didn’t know which expenses he paid by standing instructions.

His office front too was not easy. His department had changed recently.I didn’t know his reporting boss name to start with.when had he last claimed his shift allowance.his mobile reimbursement.

The house we bought with all the excitement.on a loan.thought with our joint salary we could afford the EMI.when the home loans guys suggested insurance on the loan.we decided the instead of paying the premium the difference in the EMI on account of the insurance could be used pay towards prepayment of the loan and get the tenure down.We never thought what we would do if we have to live on a single salary.So now there was huge EMI to look into .

I realised I was in for a long haul.

Road accident case. so everywhere I needed a Death certificate, FIR report, Post Mortem report. For everything there were forms running into pages.indemnity bonds.notary.surety to stand up for you.No objections certificates from your co-heirs..

I learnt other than your house, your land . your car, your bike are also your property… So what if you are the joint owner of the flat.you don’t become the owner just because your hubby is no more. So what if your hubby expired in the bike accident.and you are the nominee but if the bike is in a repairable condition .you have to get the bike transferred in your name to claim the insurance.And that was again not easy. the bike or car cannot be transferred in your name without going through a set of legal documents. Getting a Succession Certificate is another battle all together.

Then came the time you realise now you have to start changing all the bills, assets in your name.Your gas connection, electricity meter, your own house, your car, your investments and all sundries. And then change all the nominations where your own investments are concerned.And again a start of a new set of paperwork.

To say I was shaken.my whole life had just turned upside down was an understatement.You realise you don’t have time to morn and grieve for the person with whom you spend the best years of your life. because you are busy sorting all the paper work.

I realised then how much I took life for granted.I thought being a chartered accountant I am undergoing so many difficulties.what would have happened to someone who was house maker who wouldn’t understand this legal hotchpotch.

A sweet friend then told me dear this was not an end.you have no kids.your assets will be for all who stand to claim.after my hubby’s sudden death.I realised it was time I took life more seriously. I now needed to make a Will. I would have laughed if a few months back if he had asked me to make one.But now life had taken a twist.

Lessons learnt this hard way were meant to be shared.After all why should the people whom we love the most suffer after we are no more.Sorting some paperwork before we go will at least ease some of their grief.

1. Check all your nominations

It’s a usual practice to put a name (i.e in the first place if you have mentioned it) and royally forget about it. Most of us have named our parent as a nominee for investments, bank accounts opened before marriage. We have not changed the same even years after they are no longer there with us. Even your salary account usually has no nomination.. Kindly check all your Nominations.

- Bank Accounts
- Fixed Deposits, NSC
- Bank Lockers
- Demat Accounts
- Insurance (Life, Bike or Car or Property)
- Investments
- PF & Pension Forms

2. Passwords..

We have passwords for practically everything. Email accounts, Bank accounts, even for the laptop you use. What happens when your next in kin cannot access any of these simply because they do not know your password… Put it down on a paper.

3. Investments.

Every year for tax purpose we do investments. Do we maintain a excel sheet about it. If so is it on the same laptop of which the password you had not shared. Where are those physical investments hard copy.

4. Will.

Make a Will. I know you will smile even I would.had I not gone through all what I did.It would have made my life lot easier.a lot less paperwork.I wouldn’t had to provide an indemnity bond, get it notarised, ask surety to stand up, no objections certificates from others…

5. Liabilities.

When you take a loan say for your house or car.Check out on all the what ifs.what if I am not there tomorrow.what if I loose my job.Will the EMI still be within my range.If not get an insurance on the loan.The people left behind will not have to worry on something as basic as their own house.

My battles have just begun…But let us at least try and make few changes so that our loved ones would not suffer after we go.We do not know what will happen in the future.But as the Scout motto goes: “Be prepared”

Are we in better Condition

Everything Is Getting Gummed Up In Greece

Tourism, Greece’s second largest industry after the shipping industry, and already in a downdraft, is taking another hit as tour bus drivers will go on strike for four days next week; wage negotiations have deadlocked . Owners demand that drivers take a 50% cut in pay and benefits on top of the 20% cut they’ve already suffered.

The National Organization for Healthcare Provision (EOPYY), Greece’s state-owned health insurer, hasn't paid  pharmacists for months and owes them €540 million. In turn, pharmacists are refusing to sell medications to insured patients, including cancer patients, unless they’re paid in cash—and even hospitals are reporting shortages.

Greece’s ship repair and shipbuilding industry, a highly competitive activity in a global market, has collapsed . Over 90% of its union workers are jobless—though Greek shipping companies own 16% of the global merchant fleet, more than any other nation. They’re just not having their ships built and repaired in Greece anymore—whatever the reason, high cost of labor, lack of investment, changing shipping routes, strikes. A sign that there are fundamental problems related to competitiveness that a bailout, no matter how generous, won’t be able to solve.

And yet, President Barak Obama—whose reelection hinges on the US economy, which is wobbling, and on the jobs picture, which remains dismal—blamed European leaders, specifically German leaders, for refusing to bail out Greece and the rest of the tottering Eurozone at taxpayers’ expense, just so he could sail to four more years. Everything in the book, from the loss in US manufacturing jobs to cancelled IPOs, was “attributable to Europe and the cloud that’s coming over from the Atlantic,” he said at a fundraiser in Chicago.

German Chancellor Angela Merkel shrugged off the bullying and just said no to Eurobonds, again. Despised in Germany, they’re seen as an insidious transfer from bleeding German taxpayers to other countries. Instead, her government wants struggling Eurozone countries to overhaul their economies with utmost speed—and Germans are willing to dole out hundreds of billions of euros to make that possible—but it’s proving to be impossible, at least in Greece, and very painful everywhere, to unwind years of an economic gravy train fueled by cheap euro debt. .

And unpaid bills are now threatening Greece’s electricity supply. State-owned Electricity Market Operator (LAGIE), a clearing house for power transactions, hasn’t paid independent power producers for electricity it bought from them. They, in turn, haven’t paid their natural gas supplier, Public Gas Corporation (Depa), which now doesn’t have the money to pay its supplier. Payment is due on June 22. Alas, its supplier is Gazprom in Russia, and they insist on getting paid. If not, they will shut the valve, and Depa won’t get the gas to supply the independent producers, which will have to take their power plants off line, removing about a third of the country’s electricity production.

But Germany isn’t even worried about Greece’s return to the drachma anymore—a fait accompli. It’s worried about Spain and Italy. Greece simply is the model. The costs appear to be steep, but most of the actual costs have already been incurred. They’re hidden in Greece’s debt, now held largely by European institutions, such as the ECB, and in the infamous Target to balances within the European System of Central Banks. Hundreds of billions of euros. They were spent on everything: social benefits, German frigates, inflated wages, now weedy and abandoned Olympic facilities, profits, bribes, votes. What remains aren’t productive assets to service this debt, but simmering unrest and the debt itself.

International companies have long been preparing for Greece’s return to the drachma, quietly and in secret, but occasionally word seeped out. According to the latest revelation, Heineken NV has moved excess cash out of Greece, doing what the Greeks themselves have been doing. And currency traders were surprised  on Friday to see the new identifier for the drachma (XGD) on their Bloomberg terminals; a test, the company said, so that it would be ready for trading drachmas.

When Alexis Tsipras, leader of the Radical Left Coalition (Syriza)—in first place with 31.5% in the latest poll—laid out his Program, he left no doubt: his first action if he won the June 17 elections would be to annul the bailout memorandum signed by the previous government. The memorandum spelled out the structural reforms Greece would have to implement in order to receive further bailout payments. He’d stop the privatization of state-owned companies, undo wage and pension cuts, lower the Value Added Tax, offer debt relief to households, raise the minimum wage back to the original €751, raise unemployment benefits.... His program had vote-buying promises for practically everyone. And yet, he wanted to keep the euro and expected taxpayers of other countries to fund his promises. Program of “dignity and hope” he called it.

Antonis Samaras, leader of the conservative New Democracy—in second place with 25.5%—also laid out his Program. He’d renegotiate the bailout memorandum, though he stressed that Greece should stay in the euro—whose flood of cheap debt had made the Greek elite rich, and certainly he wouldn’t want to stop the gravy train. He promised to raise pensions, private-sector wages, child benefits ... undoing much of the economic restructuring already agreed to. And he threw in some new goodies: unemployment benefits for the self-employed and compensation to Greek institutions for the haircut they’d suffered on their Greek government bonds. Every item on the long list was at the expense of restive taxpayers in other countries.

Greek politicians, even the new generation, are sticking to their time-worn strategy: vote-buying with ruinous promises that can only be fulfilled with an endless flow of borrowed money. Thus, they define themselves as leaders who need a central bank that can print however much is needed to fund these promises, with periodic devaluations or defaults to get a fresh start. 
Article by Wolf Ritcher

Understanding the Depreciation of the Rupee

Every country exports and imports for its survival. As long as this equation of imports versus exports is balanced, it is good for the nation but when imports become more than exports, the value of the currency starts declining. It means that the country needs more from other countries while it has little to offer to them. Indian goods are bought with Indian rupees. Hence if the demand for Indian goods falls, consequently the demand for Indian rupee also falls.

India has dual challenges. While the demand for Indian goods seems to be waning, due to export slippage, India continues to import crude(petrol/diesel) and other imports vital for the economy at high international commodity prices and an inelastic demand for gold and silver. Therefore the demand for the dollars continues to be high. This situation puts further pressure on the Indian rupee widening the current account deficit.

What is the immediate fallout of the rupee depreciation:-

1) The price of petrol has gone up substantially. Also the price of diesel and
    LPG could spike. When the price of fuel goes up, the cost of transportation
    goes up and when the cost of transportation goes up, the cost of goods  
    goes up and thus inflation goes up. As we have a current account deficit,
    rupee depreciation has an inflationary impact.
   
2) Companies which are dependent on raw material imports or have imported 
    components could see profitability and market capitalization take a
    beating. This is because its profitability may get hit by higher input costs.
   
3) Foreign travel is set to get costlier. One would have to keep more rupees 
    on hand to purchase dollars to fund foreign travel.

4) Studying in foreign universities may get costly. This is the same in the
    case of foreign travel; more rupees would be needed to fund foreign
    education.
   
5) Several electronic goods which depend on imports and royalty payouts may
    get more expensive.
   
6) NRIs and exporters would be happy and can be expected to remit more
    dollars as they would get a higher price. Companies like IT software,
    Pharma and BPO would gain from the dollars that they earn by providing
    goods and service abroad.
   
As seen above, devaluation of the rupee is inflationary in nature, as we are net importers. There is a need by the Government to devise policies and tools to stem the fall of the rupee.

In this context it is important to examine the tools (short term and long term) that may be available:-


1) Government can buy Indian Rupees from the foreign exchange market by
    selling its dollars. This would however reduce the foreign exchange
    reserves which are needed to fund our imports. Hence this is not a
    sustainable solution.
   
2) Government can mandate banks to increase their Cash Reserve Ratio and
    Statutory Liquidity Ratio which means banks would have to deposit more
    rupees with the Reserve Bank. Alternately the central banks can issue
    bonds for the public. By these measures the central bank would reduce the
    liquidity in the system and try and make the rupee dearer. However, these
    measures have the effect of increasing interest rates which hurts
    profitability of companies and thus adversely 

3) The Government can ask companies who have dollar accounts to bring in
    the dollars back into the country and convert them into rupee accounts.
    This would increase demand for the rupee which in turn would stem the
    slide of the rupee.
   
4) The Government can make it easier for companies to borrow in dollars from
    abroad. Companies would get more rupees for every dollar borrowed. This
    would help them finance their working capital requirements. If the rupee
    regains its strength over a period of time, the borrower could have to
    return lesser rupees. However, if the rupee further slides then business
    would be at a disadvantage. Hence businesses would take this route based
    on their outlook of the rupee.
   
5) The Government can attract NRI dollar deposits by offering attractive
    interest rates
   
6) Government can reschedule / delay in paying off its dollar debts with the
    hope that the rupee would regain strength subsequently.Thus at a later
    day lesser rupees would have to be coughed up to repay the debts.
   
7) The Government can increase the limit of FII investment in debt papers.
    This would certainly bring hot money seeking quick gains. Some flow of hot
    money would be useful.
   
8) Government can liberalize foreign investments in insurance, aviation and
    retail, infrastructure sector, agro-based businesses as well as may reduce
    subsidy from various sectors. This would be one of the better moves as it
    would bring in serious long term money from abroad.
   
9) The Government could frame policies to restrict the import of gold by
    raising custom duty and thereby making investment in gold less attractive.
   
10)The Government could action some long standing economic reforms to
     induce both domestic and international investments. This would help in
     increasing production and productivity of the economy. Higher production
     along with productivity would help in increasing supply of goods and
     services and thereby reduce inflation. This would be a better and
     sustainable method for tackling both the rupee crisis as well as inflation.
     Economic reforms would bring in “Foreign Direct Investment”. Economic
     growth can improve investor confidence and this ultimately bringing back a
     higher trajectory of GDP growth.
   
The depreciation of the rupee has an immediate impact on India in many ways, as discussed above. It is important to understand the macro-economic situation and the ways and means by which the Government can battle the challenges and try to steady the economy.
 
Source : Tata Mutual Fund

A bit more pain could mean serious gains - Interesting Study by Morgan Stanley

Whenever the P/B multiple drops below 3, the Sensex has gained an average 30% in the 12 months following, avers Morgan Stanley

Investors in the Indian stocks markets may still have some reason to cheer.

The Bombay Stock Exchange Sensitive Index, or Sensex, has fallen sharply in recent months, down almost seven per cent since April. However, according to Morgan Stanley, if the price-to-book value (P/B) of the Sensex goes below three, the index gives 30 per cent returns in the next 12 months. On Monay, the Sensex closed at a P/B multiple of 2.98.

In three of the past four occasions, when the Sensex P/B has gone below three, the average returns in the following 12 months have been 30 per cent. But there is a caveat in the report, too. With a little more pain, that is if the P/B ratio comes down another 15 per cent from current levels, the chances of the market giving positive returns will be higher, said the Wall Street-based firm.


P/B is the ratio of the company’s or index’s marketcapitalisation to its book value, which is the total assets excluding intangible assets and liabilities. For example, a P/B of two indicates investors are valuing the company at twice the value of its hard assets. A lower P/B indicates the stock is undervalued.

In other words, P/B reflects investor sentiment on the value of the stock to its actual accounted value

Vikas Khemani, president and head of wholesale capital markets at Edelweiss, said price-to-book is a good indicator for taking contrarian bets in a bear market. “It’s ideal to invest in the market if you believe the earning power of the book is going to improve. Otherwise, the market can continue to trade at a low P/B multiple for a long time,” he said.

At the peak of the bull market in January 2008, the P/B multiple of the Sensex was nearly seven. The global financial meltdown that followed saw the 30-share index crash 60 per cent from the 20,873 on January 14, 2008, to 8,509 in October 2008. After the crash, the P/B multiple for the Sensex had declined to under three for the first time on October 10, 2008. In the following 12 months, the index had delivered a whopping 58 per cent return.

Similarly, on two such earlier occasions, in June 1999 and May 2004, after the Sensex P/B multiple went below the three mark, the market had given good returns.

“Buying equities is proving to be painful but we believe that, unless the world spins into another crisis, it is difficult to imagine Indian equities will go substantially lower on a relative basis,” said Ridham Desai, managing director & head of India equity research, Morgan Stanley.

The report notes India’s relative valuation to the Asia-Pacific (ex-Japan) market, in dollar terms, is currently lower than what it was during the 2008 crisis. And, though the market is 85 per cent above its March 2009 levels on an absolute basis, when adjusted for the growth in book value, the market is up just 15 per cent.

The brokerage, however, warns that given the macro situation, corporate earnings could fall by eight to 10 per cent in the ongoing financial year. It also observes that market participants in the valuations could be pricing things wrongly on the macro front.

How to get your home loan rate lowered

When Delhi-based Mahendra Gupta opened the recent letter from the housing finance company, there was both good and bad news for him. The dismal bit of information was that the 20-year home loan he had been repaying since 2008 still had 22 years to go.

Despite four years of regular repayments, the loan tenure had been extended because of the rise in the home loan rate from 10.25% in 2008 to 13% now.

The good news was that Gupta's lender was ready to convert the loan to a lower rate if he paid a one-time conversion fee. He paid Rs 7,300 and got the interest rate lowered to 10.5%. "My loan tenure came down from 272 months to 166 months. It was a straight gain of almost nine years," gushes the 35-year-old.

Gupta can consider himself lucky. Not every lender offers its customers this option. Worse, very few keep their customers updated about changes in interest rates or how they impact their repayment schedules.

Most banks just go by the wording of the loan agreement, which says the lender can increase the rate and accordingly extend the repayment tenure. If the term cannot be extended, the bank raises the EMI  amount or asks the borrower to pay a lump sum.

Be a proactive borrower

You need to be proactive about your loan repayment and check the interest rate you are being charged. When the base rate was introduced, home loan customers thought they would get more transparent deals from their lenders.

However, many banks continue to discriminate between old and new customers, charging the existing ones a higher rate than that being offered to new borrowers.

If you are being charged a higher rate, ask your bank to convert it to the rate applicable to new borrowers.

Don't assume your bank will not listen to your request. A slowdown in growth and intense competition in the housing finance sector have pushed banks to the wall.

Home loan growth slowed down from 15% in 2010-11 to 12.1% in 2011-12.

More importantly, the RBI has abolished the prepayment penalty levied by banks and housing finance companies. So, shifting to another bank is not as costly as it used to be.

"The RBI move has boosted borrowers' ability to negotiate," says Kapil Narang, chief operating officer, Ameriprise India, a financial planning firm.

Banks are willing to negotiate, especially if the borrower has a good repayment history. If a bank refuses to budge, a mild threat of shifting the loan to another lender can work wonders.

"There are instances where banks have offered to cut rates when the clients expressed their intention to transfer the loan to another bank," says Vipul Patel, director, Home Loan Advisors, an independent mortgage consultancy firm.

 

 

Balance tenure is crucial

Keep the remaining term of your loan in mind when you sit at the negotiating table. When Gupta got his interest rate converted to 10.5% from the earlier 13%, his tenure of 22 years and 8 months was cut down by 8 years and 10 months. Remember that if your loan has less than 10 years to go, the benefit may not be as spectacular. As the table shows, the benefit progressively reduces if your balance tenure is lesser.

A 1.5 percentage point cut in the rate will shave off nearly five years from a 20-year loan, but it will reduce the tenure by just 1 month if the loan has only five years to go. Since you are paying a conversion fee upfront, the change may not lead to any significant gain. Go for it only if the reduction is at least 2 percentage points and your loan has more than 10 years to go.

 

 

 

 

Cut the tenure, not the EMI

When the interest rate on your loan is lowered, don't make the mistake of reducing the EMI. It's a tempting thought because it eases the pressure on your monthly budget.

However, lower EMIs mean longer tenures and higher interest costs. Instead, bring down the tenure of the loan. "Our standard advice is to avoid reducing the EMI amount. As far as possible, one should opt for cutting down the loan tenure," says Patel.

Only if you genuinely find it difficult to pay the EMI, should you opt for a lower instalment.

This is especially true of individuals who have taken a large home loan on the basis of a projected income, but have not got the kind of pay hikes they expected.

Also, double-income families, where one spouse has lost a job or stopped working, may find this option useful.

Besides, you should check if the new rate that is being offered to you is linked to the base rate of the bank. Make sure it is not a promotional rate that is being offered to new customers. Banks offer low rates to attract customers but hike the rate after 2-3 years. Since home loan tenures are typically 10-15 years, don't go by just the short-term benefit offered on the loan. The loan agreement should clearly specify the spread between this rate and the bank's base rate.

The cost of change

Don't think you can opt for a new and lesser interest rate for free. This conversion entails a minor cost, with banks charging 0.5-1.5% of the outstanding amount . It is also a fairly straightforward procedure, which can be completed with one visit to the bank branch.

 

However, switching to a new bank is a lot costlier and requires more paperwork. Even if your previous lender does not levy a prepayment penalty, the new lender will demand 0.5-1.5% as processing charges. There is also the convenience aspect. You will have to go through the entire process of submitting documents-proofs of income and identity, and PAN card, etc. Therefore, do a cost-benefit analysis before deciding to convert or switch to another lender.

 

Source : ET

HSBC loots Suchitra Krishnamoorthi after big promises of 24% returns

This can happen to you—bank customers beware. Lack of financial literacy can cost you big time as reputed banks target the gullible with money to spare. PMS, insurance, loans are pushed by relationship managers to make a killing, at your cost!

HSBC Bank took Ms Suchitra Krishnamoorthi, a well-known singer and actor, for a ride over a five year period by promising an extravagant assured return of 24% from mutual fund as well as insurance. Each time the customer complained about losses in her account, the standard reply was that the relationship manager has been fired and that the bank will make up for the losses with judicious investments. Needless to say, the losses were never made good. The one-way road for the customer was downhill. If a well-known celebrity could be cheated with such impunity, it is surely happening routinely with others.

It is a case of systematic looting and exploitation of emotionally vulnerable who had got Rs3.6 crore as part of a settlement in September 2006. The money was supposed to be the means of livelihood for herself and for her daughter. The bank used confidential information about the hefty deposit in her savings account and began to market its toxic services to her. Since bankers are seen as trustworthy, she believed that her relationship manager was advising her correctly.

The modus operandi for HSBC in this case has been a combination of toxic churning of the portfolio management system (2% entry load on every purchase made by it on behalf of client), insurance products promising 24% returns, insisting her on taking a loan instead of withdrawing funds without even disclosing that the client was entitled for a smart loan.

The end result after five years was Rs83 lakh—direct loss from investment, Rs29 lakh in commission to HSBC, Rs8 lakh (50% of investment) lost from an insurance policy, Rs10 lakh (again, 50% of investment) valuation decline in insurance policy still in force, Rs4.5 lakh tax paid on redemption of short-term mutual funds (including Rs1.85 lakh penalty to the Income Tax department due to non-disclosure of gain by HSBC to the client) and Rs58 lakh interest on home loan earned by the bank.
When Suchitra wished to surrender her insurance policies, HSBC refused to act for her by contending that they no longer had any tie-up with Tata AIG and that it was not their business to get client’s money back that they had recommended in the first place.

Apart from the losses, the so-called customer service was pathetic after the relationship started getting sour. The bank was appallingly evasive and non cooperative even for basic requests such as furnishing of documents or revoking power of attorney for the investment portfolio. It took the bank four months and repeated requests to furnish inchoate standard forms that Suchitra had signed at the time of appointing HSBC as her portfolio manager. Moreover, the documentation was incomplete.

According to Suchitra, “It took my chartered accountant six months to authenticate the figures of losses—as not only was the HSBC team adept at covering its paper trail. They also very conveniently refused/evaded furnishing me the documents to which I am legally entitled for over a year—giving me one silly excuse after another like mismatch of signature/officers being on leave, etc.”

She adds, “While I was warned that the legal system in India is such that the matter will drag on forever probably causing me further expenditure and loss of peace of mind and reputation, I was determined to see this through. It is my moral responsibility and a warning to other vulnerable targets—small investors like me should not get conned by aggressive MBA's in suits who are preying on their customers like sharks in the big bad ocean. All the while getting richer and richer while making us small gold fish go bust.”

Last year Moneylife Foundation had conducted a seminar with Ravi Subramanian, banker and author of three well-known books like “If God Was a Banker”, “I Bought the Monk’s Ferrari” and “Devil in Pinstripes”. According to him, “Banks and relationship managers often indulge in cross-selling to earn more revenues and therefore, the customer has to be more careful while dealing with them. Bankers become ‘bhayankar’ when they fail to deliver what they have promised and try to hard-sell products on which they earn more money to the gullible customers. A customer can protect himself from falling into the hands of mercenary bankers by being alert, vigilant and at the same time doing due diligence.


Source: Money Life

Must Read: I’m saying this for first time

For the First time, I am sharing the article of one of my Friend Mr. Muthu in my Blog. His article reiterates the superiority of Equity Investment vis a vis other Investment Products over a period of time.

Please find below his edited article for a good reading.

Pointer and Explanations:

We always discuss about various asset class, the need for equity to be part of portfolio not only for capital appreciation but even for capital preservation.

I’ve been looking for data in public domain which captures last 33 years (since 1979-80 when Sensex base was kept at 100) of returns from Fixed deposits, Gold, Silver and Sensex, duly adjusted for inflation.I was unable to get the same.

Few days ago, I saw in a newspaper how FDs have scored over Sensex in the last 20 years. I was surprised with the comparison and it felt it was out of context. Firstly Sensex was at around 45 multiples twenty years ago due to Harshad Mehta pumping lot of money illegitimately from banking system. Currently the market is on sideways or consolidation phase for the last few years with around 15+ multiples.

Also post tax return from any investment also needs to be looked into. The huge tax benefits in equity over FDs have been completely ignored.Not only that when you calculate Sensex returns we’ve to take into account dividend yield. The data given in the newspaper has captured only capital appreciation but completely ignored dividend yield which is must for a proper comparison.

It would have been better if the newspaper has also pointed out how a retail investor investing regularly would have benefited over the above 20 year period.

Likewise whenever people talk about returns of gold and silver; I see there is lot of misunderstanding and misconception on long term return part.

When I happened to chat with Kashyap Vyas, an excellent professional and a good friend of mine from a fund house; we hit upon on idea to collate ourselves what we could not find in public domain and then share the same in public domain.

Some Important Observations from the collated data:

If you’ve kept as cash Rs.1 Lakh in a suitcase 33 years ago, its value is only Rs.7 thousand today. What it actually means? This means your cost of living has increased by 14 times (Rs.1,00,000/- divided by Rs.7000/-). To explain it little more, assuming the inflation rates are similar for next 33 years, the Rs.1 lakh you’ve today would be able to buy after 33 years goods worth only Rs.7000/- as on today’s value.

You can see for yourself what inflation has done to each asset year on year, for more than 3 decades. When we say, the investments have to beat inflation; some people have difficulty in connecting to what we say.

I’ll tell you a real life example. A family known to me is living on a corpus of Rs.10 lakh for more than 10 years, keeping the money in fixed deposit. Ten years ago, they were getting Rs.6700/- as monthly income (@8% interest per annum), which was sufficient to take care of their expenses. Now they are getting around Rs.7500/- as monthly income (@ 9% per annum). Their standard of living has extremely deteriorated because what 7k would purchase 10 years ago is lot more than what it can do today.


 To put it in the words of Buffett:

 “It makes no difference to a widow with her savings in a 5% passbook account whether she pays 100% income tax on her interest income during a period of zero inflation or pay no income taxes during years of 5% inflation. Either way she is ‘taxed’ in a manner that leaves her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous, a 100% income tax but doesn’t seem to notice that 5% inflation is economic equivalent.”


Sensex have given an annualized return of 16.92% in the last 33 years. Since every year dividend yield of Sensex is not available in public domain, I’ve not included the same in the year on year calculation. However assuming a dividend yield of 2% per annum, the annualized returns work out to 18.92%. So Rs.1 lakh invested in Sensex 33 years ago is now around Rs.1.74 crores. Adding the above dividend yield, the return would be Rs.3.04 crores.

The annualized rate of return for fixed deposits is 8.37%. So Rs.1 lakh invested in FD 33 years ago is worth Rs.14.22 lakhs today.

The annualized rate of return for gold is 11.22%. So Rs.1 lakh invested in gold 33 years ago is worth Rs.33.52 lakhs today.

The annualized rate of return for silver is 11.60% (more than gold!). So Rs.1 lakh invested in silver 33 years ago is worth Rs.37.44 lakhs today.


Still the above comparison has a catch. How to compare today’s Rs.1.74 crores or Rs.14.22 lakhs with that Rs.1 lakh 33 years ago. Money in two different periods is not comparable unless accounted for inflation. You can very easily relate to this. Many retired civil servants tell that they started as a clerk with a paltry salary of say Rs.100/- in 1955. You may feel that it is very less. But at an annual inflation of 10%, their salary would be worth Rs.23,000/- in today’s prices. Not bad, right?! It depends upon how well we’re able to understand the data

So the returns mentioned above for each asset class is nominal rate of returns. To compare what is 33 years ago with what is today, we’ve to adjust for inflation and arrive at real rate of return.

So Sensex at 16.92% annualized returns, after accounting for inflation is now worth Rs.12.54 lakhs. After including the dividend yield mentioned above, at 18.92% annualized returns is Rs.21.95 lakhs. Since I feel including the dividend yield is most appropriate, the capital has actually multiplied 22 times. For some reasons, you do not want to account for dividend yield still the capital has multiplied 13 times. Let me repeat, this is real returns and not nominal one; as we’ve seen above, if we do not adjust for inflation, in nominal terms the capital has multiplied by 174 and 304 times respectively (without and with dividend yield).

Let us now look at other asset classes:

If we apply inflation adjusted growth, FD has grown to only Rs.1.02 lakhs today. Almost zero capital appreciation over last 33 years. As FDs are taxed based on accruals and not on receipts, even this return does not reflect reality. Since only after paying tax or deduction at source, compounding happens in FD, your capital (purchasing power) would have eroded significantly.

If we apply inflation adjusted growth, Gold has grown to Rs.2.42 lakhs today. Capital appreciation of 2.4 times over last 33 years.

For Silver, if we apply inflation adjusted growth, it has grown to Rs.2.7 lakhs today. Capital appreciation of 2.7 times over last 33 years.

Gold and Silver had a severe price fall over two decades beginning 1980 in international markets. We did not feel the impact because rupee depreciated a lot during the same period.

Despite all these if you see in the above files, in terms of inflation adjusted value, gold and silver (even FD too) was able to decisively cross the original capital only after 25 years; fuelled by extreme increase in gold and silver prices for the last 8 years.

Even to my surprise, I observed that Sensex at no given time at has gone below the original investment value after adjusting for inflation.

One Dollar was worth Rs.8/- in 1981. Whereas the conversion rate was Rs.48/- in 2002.

Gold prices fell from $892 per ounce in 1980 to $272 in the year 2000. A fall of around 70% in value over 20 year period.

When gold has depreciated by 70%, the rupee has depreciated by 600% in the same period.

So the gain we saw in the Indian market while prices fell globally was due to the depreciation in the value of rupee and strong appreciation in the value of dollar.

This further strengthened our illusion that gold prices never fall.

As I’ve said before commodities have longer cycle. It is mentioned that on an average bull markets in commodities last more than a decade and bear market nearly 2 decades. So despite gold and silver at somewhere in the peak of cycle, despite due to strong currency depreciation in the past decades, gold and silver has been able to deliver only above returns. I’ve taken only Indian prices of gold and silver for the last 33 years.

What if the prices of gold fall again globally say by 30% and rupee conversion rate remains the same? We would also experience a fall in prices.

Again what if the gold prices fall globally and rupee strengthens, say Rs.40/- to a dollar. It would be a double whammy. The fall would be more.

Commodities like gold and silver generally have longer cycles whereas stock markets usually have shorter cycles.

This creates an illusion the stock markets are instable and gold is stable.

In stock markets the recovery also may be faster but in gold the recovery may be longer.

Globally it took 28 years to get the same price for gold (i.e.) the highest price reached in 1980 was again touched only in 2008. Zero return for 28 years! 

 Adjusting for inflation, a severe loss of capital.

I’m not against FDs or debt based products. You do know that I recommend them and suggest following the prescribed asset allocation.

But with out equity, you’ll not only be able to enhance wealth but even preserving wealth in terms of purchasing power is next to impossibility. The only exception may be people who have huge, really very huge corpus.

As I repeat, do not time the market. Enough studies and research has been done in this regard and the general pointer is, if you miss the best 1% of days (roughly 20 days) in 10 years, your return may probably equal a savings bank account return and if you miss 2% of days, you may not get any return at all or may even loose some capital. Instead of timing make investing a regular habit.

You may time only in the following situations- making lump sum investments when valuations are attractive, not making lump sum investments when valuations are expensive, start planning to phase out withdrawal a year or two before you near your goal – retirement, child’s higher education, daughter’s marriage etc. Again the term attractive or expensive valuation is relative. In a bear market, when you invest at attractive valuations, the markets can go further lower too and become more attractive That’s fine as our investment outlook is long term and notional loss should not bother us.

Likewise it is very difficult to know what is an expensive valuation in bull markets. Bull markets are very euphoric and we may think valuations are high, still it may run higher for even few years. Only in hindsight we’ll know when the valuations get peaked out; that’s also fine. It is better to be safer than sorry. In bull markets, especially at later stages, it is better to continue only monthly regular investments and not make any lump sum investments.

Whatever I mention as equity is only applicable to portfolio of stocks like mutual funds or index. Individual stock picking is completely a different game and what I say should not be applied for individual stocks.

The only asset class missing from comparison is real estate. I wish there is a reliable, long term and broadly accepted indices for the same. In the absence of it, comparison is not possible.

You may tell me about a particular piece of property multiplied by hundreds of times in last 30 years. I can even tell stocks multiplied by thousands of times!

Likewise some property might not have appreciated much, illiquid, got into litigation, occupied by goondas etc. Like wise there are stocks which have vanished in thin air over the years. So we can only do comparison as a basket.

Though the real estate sector lacks any reliable and broadly accepted indices like financial assets, some studies peg the annualized return of real estate as an asset class around 12%. I’ve no idea what the real number is.

Article by Muthu