There is no great secret to investing in volatile times. Imagine the situation of a person who is doing a Recurring Deposit in a bank…does he/she think what are the interest rates prevailing?

No. He just does his RD.

Why does he invest/save?

Because he/she has money to invest they do a RD. However equity investors get into a mind set of ‘I will not do SIP’…and the reasons could be:

1. Market is too high or 2. Market is too low.

to me both reasons look stupid. Also for long term money to be kept in debt sounds funny…from a current yield/ ytm point of view. Yes if it is money for 2-4 years, can still understand debt option, or treating it as a corpus for annuity withdrawal….not if it is money for 30 year goals!

So simply do your SIP…at some time in the future you will look back and say “Man in 2011 the markets were at 17000, it was a great time to be picking stocks, now the index is 34000′. And it may not be more than 5 years away .

Remember markets gave an outstanding run from 3k to 21k in 5 years..the excess has to soaked up so that the  markets can do a ‘Regression to the Mean’. This means if you take the returns from Indian equity markets from 2002 to 2032 it may show an average of say 16%p.a. So obviously the 2002 to 2007 super high returns will have to be reduced..so that the average catches up! As a common investor we have no clue whether this grind will take the sensex to 15k and then come back to 21k or go down to 12k and then bounce to 25k. Well I do not know, and those who know are not telling me. Nor are they telling you on the TV channels, so it is a secret which only Mr. Market knows.

So what can you do in the interim period? Stop worrying about negative interest rates (interest rates 10%, inflation 12%), slow grinding up / grinding down equity markets, volatile markets, falling dividends, poor Q3 results….and continue your SIP. For the common man it works.

Anil Rego (SIP article on Moneycontrol) and Sandeep Shanbag (Investing in volatile times article on Moneycontrol) are saying similar things.

Funny thing is all of us must have said similar things earlier also…please go out there and listen. You do not need to read so much about personal finance – doing it is far, far more important. So like Nike says

Just Do it.

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2. many fertilizer scams

3. food grains – procured poor quality grains at very high prices. Now rotting

4. DGCA scam

5. Can get any loan for any amount from a PSU bank scam

what is common to all these scams is simple. There is one babu who has a secured job. He has an indexed pension and the ability to do whatever he wants with our money and lives. If we do not act now, it may be too late.

Nepotism, corruption, …and what have you is so bad..that I am afraid to take a flight – on my way to the airport – who knows which joker is flying my plane. All this was predicted by Ayn Rand in ‘Atlas shrugged’ long, long ago. If you have not read Ayn Rand, please do.

Not that I believe all that she says – there are many shortcomings, but her view on the government, bureaucracy etc. are spot on. Even C Rajagopalachari told Nehru ‘Raja bane vyapari, praja bane bhikari’ – and we are seeing that happen. Our angst against corruption is not strong enough….and I wish it was stronger, much stronger. On Facebook you will find many people have signed up for the second dandi march today. Let us remember Rabindranath Tagore and pray..’

Where the head is held high…and the mind is without fear…..’

http://www.dnaindia.com/bangalore/report_time-for-a-dandi-march-against-corruption_1523580

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Here are some of the suggestions:

1. Simple, go to Google and find him / her.

2. See for well qualified people: Caveat: We are all well qualified people so we have a vested interest in making this suggestion. Since people who read all this stuff online, we will always say this and you will believe this. God bless all of us.

3. Look for a very, very rich distributor: If he is worth a few billion rupees, he may not harm you too much – it may not be worth the effort.

4. Look for people with vast experience: like a person who has spent 38 years in LIC. It helps because he may not know how all he can make money out of you, so you are safe slightly.

5. Look for people with industry awards: there are many industry awards like MDRT, etc. which means this guy has sold well. It is proof that he can sell well. Will he sell products suitable for you is your problem, not his. Only make sure you are not privy to his private conversations when he is in those groups. If you hear words like ‘chipka diya’, ‘so much wool in his head it was easy to pull it over his eyes’ , ‘Malaysia mein majha nahin, is saal Europe jana hai’…well they are talking about you.

6. Your nephew, niece, neighbor, that pyt from the bank: all similar so it does not matter whom you pick. Picking has no connection to competence – so what i say will not matter.

7. If after all this you do find him, ask him ‘Why do you still call it practice’ – and er..what do you refer to me as in your ‘practice’…I asked my doctor also but his English was not as good as yours…:)

Ok let me cut all the skepticism.

Simple: Get a savings bank account – one in a private sector bank and one in a public sector bank.

Get 2 credit cards: one with a limit of Rs. 50,000 and one with a limit of Rs. 500,000. Keep the big card at home and the small card in the purse. Use the small card online, offline, on the phone, etc. and pay off on time. Use the big card once in a while to keep it alive. Use it only in a very big hotel where u feel secure. Use the big card for an emergency if you need to admit somebody to hospital. Otherwise keep it under  a lock and key.

Get a term insurance FROM A COMPANY YOU TRUST. I have a friend who has bought term insurance from the cheapest company, ONLINE and every time we meet he says ‘I am sure they will not pay my wife….’. Then why buy? So please buy from a company YOU trust, but BUY it online.

Put money in equity funds with more than Rs. 7000 crores in assets under management – if you do not know how to locate them put it in Templeton India Index fund or in an ETF.

caveat: I am not a big fan of Index funds in India.

Make a will, communicate it to your kids.

If you think this advise is enough, go to www.amarseva.org and make a nice donation. They need it for doing a world of good to the kids in the world. or go to www.akshayapatra.org or go to www.ishafoundation.com ….or choose your own charitable organization, but tell me about them in the comments column.

Then chill.

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After all the ‘reader’ is looking for an escape when the opens a magazine – blame SEBI, the mutual fund industry, the bank, the life insurance company, the agent, …so that the ‘reader-client’ is happy.

Also one secret of the mutual fund industry is there is a HUGE GAP between the fund returns and the investor returns. The investor gets much less returns even in good schemes – because of the clients’ overconfidence, market timing, over-diversification, chasing winners of the last quarter, etc.

Unfortunately not enough research is available in India about IPO investing, chasing quarterly returns, etc. There is no scheme-wise monthly collection figures available anywhere. However when the markets are down (obviously the best time to put your money to work) NFOs will not work…and vice-versa. This hurts. Here is a good research report from Morningstar -obviously with American Data – but principles remain the same….Read on….

http://investment-fiduciary.com/2009/07/30/how-investors-lost-money-evidence-from-mutual-fund-flows/

interesting work – frankly do not think any Indian company is creating such work with Indian data – and give it away for free.

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I agree. I would love to have a big global bank with aggressive growth plans in markets like Asia, Africa, …and other parts. So inspite of the fact that it is not exactly cheap, I think it is a good company in which to put my money, so I will subscribe.

What will happen?

Well companies wait for the leader – then the followers run in. So Sony, Samsung, LG, Hyundai, Nokia, Pepsi, Coke, McDonalds..not necessarily in that order will all want to issue IDRs. This is good because most of them have been subject to much tougher regulations and shareholder movements. So these companies may payout better, there may be some shares more favorably priced.

Am saying this because in our office we ran a dividend yield screen on a world wide portfolio (on Bloomberg) and only 2 Indian companies even came to our list – Ongc and J&K Bank.That was last week – since then Ongc has gone up. Not sure now! If Japan is a yield market, suddenly you might get Sony shares at say 3% yield or a Samsung at a lower p/e than an Indian company.

All this is good news for the media (more ads), merchant bankers (more mandates), brokers, bankers, INVESTORS – Indian companies will learn to treat you better.

And Samsung, LG, Sony, Coke, Pepsi, McDonalds, Hyundai, Volvo, ….may all give you discount coupons. L O L.

Who will buy these shares – retail investors like you and me. Mutual funds – maybe? big investors, …so suddenly there will be a market cap of US $ 1-2 billion. Not bad.

What does the investor get? Exposure to a foreign market which likes dividend yield. Foreign exchange risk – a 10% gain in the foreign market being wiped out by a 10% strengthening of the Rupee…welcome to the world of uncertainty. Again banks will sell you a foreign exchange risk cover…..the circle continues. It is a White Man’s world…

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So when a small distributor of mutual fund (or life insurance) compares himself to a big distributor, it is unfair. If a small distributor (let us say he mobilizes Rs.0.2 million a year) for one fund house) thinks he should be treated the same way as a bank which mobilizes Rs. 1000 million a year he is being foolish.

If the regulator thinks that by one piece of legislation he can change the market from a ‘commission’ market to a ‘fee’ market, well the regulator is being naive.

Things do not change because there is somebody sitting in Delhi (with no knowledge of the markets) wants there to be some change.

Change happens when the industry and the players want to change. A mutual fund is allowed to charge ‘bank charges’, ‘custodial charges’, ‘advertising charges’ ….etc. to the scheme (yes not to its own p&L). All it has to tell a banker is ‘If you collect Rs. 1000 million for us in one year, we will pay you slightly higher bank charges’ – is it a commission? I do not know. Even better, if the banker is told – Please collect our cheques ‘At par’ from all our customers in all your branches and remit it to us in a week’s time….till then you can enjoy the float.

How many regulators or auditors are sniffing out such ‘soft rupee’ commissions (of income foregone) from the mutual fund to the bank – who provides banking services, custodial services, distribution services, ….etc.?

Sadly, but Frankly, none.

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The latest giga offer I have on an ELSS is stunning. I was being offerred 4.5% upfront commission – no trail I presume! The assumption being if I buy assets paying 4.5% upfront and the money sticks in my fund for the next 10 years, I hope to make some money! Fantastic thought, but flies in the face – what happens if 80% of the clients are ‘advised’ to remove it after 3 years? I have no clue and the thought is frightening. Does it mean that mutual funds make more money than the 1% fees that they are supposed to get? I think no. So why does a mutual fund give up its next 4.5 years’ income to accumulate assets? CEO’s ego? Creating an aum which they can sell to some new ‘bakra’ who will pay 7% for the AUM? I do not know. Do they have some hidden profits which myopic guys like me cannot see? I do not know.

Are they hoping that the ‘brokers’ will now start selling mutual funds and earn a lot of money? I already have calls coming in offerring free demat accounts, free mf buying and selling (no brokerage at all), from brokerage houses . One bank has offerred me a ‘mutual fund transaction account’ for Rs. 400 a year – no uprfront brokerage. Of course here one understands that the bank makes a trail commission (other than the 2%+ that the fund throws at him), …however the profitability of the fund industry (which comes from sticky assets) and the brokerage industry (which comes from velocity of transactions) may not be what the doctor ordered for the investor! God bless.

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Normally people think it is convenient to use the ECS method of payment. Like always this is normally the case. This reader had used ECS for making payment for gas, electricity, telephone bills. It was very convenient till his house went for reconstruction. He sent a letter to Mahanagar Gas, Reliance energy etc. saying I do not wish to make payments for these services now so please stop debiting the account. However he did not send a copy of this letter to the bank. Both Mahanagar Gas and Reliance Energy were happily debiting his account without giving him any service! This was inspite of the fact that the society had written a letter to both the service providers.

However when he went to the bank, the bank said “ECS is something which we cannot stop, you will have to go to the service providers”. Funny you thought you could decide whether anybody could debit your bank account, did you? Welcome to banking 101!

So off he went to Mahanagar Gas who agreed to stop the ECS on the basis of an email, but Reliance Energy said “procedure for stopping the ECS is the same you need to give your identity proof (Oh My God, not again) one cancelled cheque, one letter, your birth certificate, caste certificate….

The simple thing is to pay in advance if you are travelling, but otherwise make a net / cheque drop box payment for your expenses. Our utility companies are not the most polite of companies nor are they well organised to act immediately. Or be so well organised that if you pay in advance for 4 months know surely that you will live in that address for atleast 4 months. So what if you die? Tell Yama (the Indian God of death)- please wait I have paid for these services in advance….so please take me with you after the deposit is exhausted….LOL.

There is actually a RBI circular which says that the bank branches cannot or SHOULD not insist on a letter from the institution…read it here
http://blog.investraction.com/2010/03/ecs-easy-convenient-stupid.html

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R bhai is his name and was a typical old school broker – the word mattered – it did not matter whether it was written down or not. Very, very conservative his bank balance would be a banker’s delight. Never would he borrow, but he used to do a lot of lending in ‘badla’ which meant his interest income was very high. Taking a client on meant 2 directors had to check the credentials of the customer. From 1993 to 2000 we had NO BAD debts, and all our BAD DELIVERY problems would get sorted out in 15 days – and we had an exemplary track record with NSE.

However, we got the electrical work done by an electrician who also sold some shares through our company. Those shares came back as ‘fake’ and we had a huge ‘reputation’ crisis – remember this was a 100 year old firm! The electrician could not pay the money and ‘R’ bhai paid from his pocket (how can I tell the other shareholders that the people whom I recruited did not know the difference between a good share and a bad one? was his argument). So technically the company did not suffer any loss – he was only a 20% shareholder but took 100% of the loss. He felt it was ‘reputation premium’. The company had to pay the electrician Rs. 140,000 – which got adjusted so the loss was reduced to Rs. 160,000. This electrician was a young boy so ‘R’ bhai warned him and let him go.

About 6 months later the electrician’s father came with a bundle of Rs. 160,000 – offering to pay for his son’s loss. R bhai heard him out – the money came from selling the old man’s house – as he was now going back to his village, and he could afford to pay. R bhai smiled at him and said “I was greedy for brokerage, your son was greedy to make a quick buck. So both of us took risks. We need to pay the ‘risk premium’. You cannot suffer, take your money and go with a clean conscience. You OWE ME NOTHING. And ah yes…if your son at some stage in life can afford to pay me, I will take it from him.

Ethics and good behaviour is ‘caught’ not ‘taught’. R bhai is not even a graduate. On that day in R bhai’s cabin I graduated about 10 years after Bombay University had given me a Bcom degree.

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Do not wish to talk about this person, but it is really amazing how the people who ‘run’ and ‘govern’ and think they do understand the ultimate customer’s needs are actually only savers, never investors. If you see the SEBI committee on ‘Mutual Fund Advisory’ – it would be interesting to see the mutual fund investments of each of the members! The committee contains ‘manufacturers – the amcs’ – there is no representation of the Investor in mutual funds, or the distributor. The AMCs have been described by one the magazines (who anyway depend on the advertisements) as NFO factories because of their selling skills – the sales force can only sell NFOs! One bank was selling a NFO recently by telling the customer “Sir, you will get full allottment of these units at Rs. 10 if you buy it from our bank” – which is an amazingly true statement! So here is a committee which is indifferent to entry loads (though most of them privately admit that the entry load is a subsidy for their growth – other wise their salary bill will go through the roof), who have decided to abolish the entry load. Good. Will the small IFA die? No but he will surely shrink – his time given to the mutual fund business. He will get people to do more day trading, sell more life insurance, car loans, educational loans, post office schemes, etc. The question is how will the manufacturers react? Some old houses with a great reach can be more easily challenged – if they have the willingness to hire people and pay well – are JP Morgan, DWS, AIG, listening?

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