Real Estate----An ever appreciating investment option

Real estate means immovable property, such as land, and everything else that is permanently attached to it, such as residential buildings, malls, factory sheds etc. When you acquire real estate you also acquire the rights of possession, control and transfer.

Real estate investment involves buying of property with an aim to generate income through rental or lease and to achieve capital appreciation at the same time.

Understanding real estate investment is crucial because it usually involves a much higher investment than while investing in bonds, shares, gold or even a piece of art.

There are different ways of participating in real estate investment. You can buy a house/flat with an aim to rent the property out to a tenant. You will earn a continuous stream of rent from the tenant, but you will be responsible for paying taxes and the costs associated with maintaining the property. You will benefit from capital appreciation (a rise in the value of the property over time). You will run the risk of not finding a tenant and could suffer negative monthly cash flows with mortgage payments and maintenance charges.

Before purchasing a property one must keep in mind, the location, value and researching the title of the property.

One of the biggest advantage of investing in real estate is you will get bank loans at attractive rates. This is the only investment that you can make on borrowed money not only on very attractive rates and low margin (70-80% of the value can be obtained as loans), but you can get tax benefits too. Banks will not loan you money to buy shares, gold or any other investment at such low margins and low rates. Finally, the best argument for appreciation of real estate is perhaps the earth is getting no bigger while the population is increasing by the second.

Real Estate trading. Real estate traders generally purchase properties when a project is launched and thus can get the best deal in terms of price as well as the location of the unit. As the apartment complex comes nears completion, the trader generally sells off his/her unit and make a substantial gain. The risks involved in such trades are the apartment may take more time than anticipated and thus a higher lock-in period.

REITs or real estate investment trust is a corporation that invests in real estate. REITs can be equity REITs, mortgage REITs or hybrid REITs. REITs trade on major exchanges. A REIT uses investors' money to acquire and operate properties. As of now REITs are not yet available in India but will be available sooner than later.

The benefits of REITs are: REITs provide regular income in the form of dividends. Investors gain exposure to non-residential investments (like malls and office buildings). REITs are highly liquid and traded in the exchanges.

Like any other investment, before making an investment in real estate, you need to evaluate your risk appetite and investment capacity.

Art as Investment

The popularity of art as an alternative investment has risen significantly over the years, specially so following the financial crisis of 2008 due to a prolonged downturn in the stock market, a slowdown in the economy and low interest rates. Art is an alternative investment avenue which is considered profitable albeit extremely risky.

Art as an investment has been debated for long, but the corporate scandals, stock market losses and low interest rates have helped it to re-emerge.

Critics say art can never be considered as financial asset as investing in art disregards the traditional yardsticks of financial analysis since they do not generate income streams (interest payment as in bonds, rentals as in real estate or dividends as in stocks) that can be discounted. It is a bet on the price appreciation (as in commodities) of something whose value defies financial logic.

Whilst some artworks have appreciated enormously in value over time (Tyeb Mehta), it is difficult to make a case for artworks overall.

Art market is illiquid, opaque and unregulated. Transaction costs are too high, sometimes up to 30% and may in fact wipe out the profits. In the short-term, the art market volatility is relatively high compared with other asset classes.

The value of an art piece, art lovers say, will never go down to zero and it will never do a Global Trust Bank.

For investment-quality art, the limited supply adds to the increasing demand, this would mean a definite price appreciation over the long run. The main attraction of art as an investment is its low correlation with other financial assets. Art has the ability to reduce the risk of a portfolio when combined with the other assets and Art combines passion and investment.

Even under purely financial aspects, art is a genuine contender for a portion of any sophisticated portfolio. Art as an investment cannot be overlooked for one unique reason, an ever-increasing demand coupled with an absolutely limited supply.

Valuing art is very different from valuing financial instruments. Each art is different and prices for individual works may be unpredictable and difficult to compare. Valuation is based more on human emotion than on anything else. Multiple bidders who like the same piece can make the sale price soar beyond all gestimates.

The key for art investing success, as in stocks, is predicting which works of art will increase in value. Investors who are not hesitant of high risk can make the biggest gains at the lower end of the market by investing in lesser known and new artists. The real problem though is that there are so many unknown or lesser known artists in the world and finding the one that will become the next Leonardo da Vinci, Michelangelo Buonarroti, or Vincent van Gogh can be next to impossible.

As each work of art is different and the markets are anything but transparent, evaluating quality and price requires knowledge of the market inside out and art markets are often cloaked by veil of secrecy. There is no official registration office or certification authority that can authenticate the ownership of individual artworks. Other transaction risks include absence of clear title, forgery, mislabeling, and auction fraud. Another risk of investing in art is the ever changing taste of the so-called progressive art circles and thus taste swings can devaluate a piece of art temporarily. The upper end of the market although does not carry this particular risk and masterpieces will never lose value.

Most people who have made money over the years by buying and selling art had not bought art as an investment. Nearly everyone associated with the art market will emphasize that investment should never be the sole or even the primary reason to buy art. Art lovers buy what they love and even though it might go through a temporary devaluation (relatively known artist) or might never command a high price (new artists), the intrinsic value of the work (deriving visual pleasure) will always be there.

Among other things, many art owners view art as a symbol of their social status. This is an attribute which has existed for hundreds of years and in all likelihood will continue till eternity regardless of the merits of art as an investment. It is this attribute associated with art that creates an ever increasing number of people willing to pay through their nose to differentiate themselves in the society that will make art a profitable investment.

Worth Its Weight In Gold

Gold prices are linked to the strength of the dollar. The dollar is expected to weaken over the long-term and thus the demand and price of gold is expected to rise. Central banks of several countries have started adding to their gold reserves, notably RBI has recently bought 200 MT of gold from IMF. In the last 18 months, China has increased its gold holdings, by weight, by 75.69%, Russia by 18.78%, the Philippines by 18.50% and Mexico by 108.91%. This goes on to prove that gold will continue to hold its position as an alternative investment.

Gold can be bought in various forms and shapes. If you plan to buy gold as an investment, you can either buy it in the form of physical gold - bars, biscuits and/or coins or as exchange traded funds (ETF).

For most of us (Indians), gold purchases usually mean buying jewellery. Gold is perhaps the only asset class that you can wear (except to some extent platinum and silver). However, the disadvantage of buying gold in the form of jewellery is that its resale is hardly ever profitable. This is because when you go to sell the jewellery, the jeweller discounts what you paid as 'making charges' from the value of your jewellery. This shaves off a significant part of your investment. Its second disadvantage is that most jewellers do not give you cash for your gold, instead they allow you to exchange it for gold - jewellery or maybe a bar or coin making your investment in gold permanent. However, if your reason for buying gold is enjoying, wearing or flaunting it, just go for it.

Secondly, gold bars, biscuits and/or coin is another way of investing in physical gold. Again, here banks that sell gold bars charge a premium/commission as high as 10-15 percent for providing you with a 'certificate of purity'. However, when it's time to sell your gold, the bank does not buy it back and the jeweller that you sell it to will not pay for the certificate. So actually you end up paying a premium with no real value addition.

Finally, the exchange traded funds or ETFs. ETFs are the best way of investing in gold because it trades like a share, can be bought or sold in the exchanges and the price is the market price of gold. It is safe because gold ETF ensures that the custody and quality of gold is consistent. It is secure because the custodian (fund houses) stores the physical gold when they sell the ETF units. The transactions are secure because it takes place in stock exchanges and electronically. The costs involved are low as the expenses incurred in buying and selling Gold ETF are much lower than the cost of physical gold (commissions to the bank or making charge to the jweller).

An investment in gold should be based on macroeconomic considerations, i.e., fears of rising inflation, destabilizing deflation, or another financial crisis. A reasonable allocation in a conservative, diversified portfolio should be anywhere between 0 to 3%.

It should be noted equities or mutual funds dealing with gold mining companies offer greater leverage than direct ownership of the metal itself.

Today, like all investments and commodities, the price of gold is ultimately driven by demand and supply. Unlike most other commodities chances are that most of the gold ever mined still exists and is potentially able to come on to the market for the right price.

NAME AND ADDRESSES OF SEBI REGISTERED MUTUAL FUNDS

1. AEGON Mutual Fund
45, Maker Chambers VI,
Nariman Point,
Mumbai 400021
TEL : 66542614/15
Fax: 66542617
e-mail: aegonamc@aegonindia.com

2. Alliance Capital Mutual Fund,
Address for correspondence
C/o. AZB & Partners
Advocates & Solicitors,
Express Towers – 23rd Floor,
Nariman Point, Mumbai – 400 021

3. AIG Global Investment Group Mutual Fund
FCH House, Ground Floor
Peninsula Corporate Park
Ganpatrao Kadam Marg
Lower Parel
Mumbai – 400 013
TEL : 40930000
FAX: 40930077

4. Axis Mutual Fund,
11th Floor, Nariman Bhavan,
Vinay K. Shah Marg,
Nariman Point,
Mumbai – 400 021
TEL : 39403300
FAX : 22040130
WEB : www.axismf.com
www.axismutual.com
Email : customerservice@axismf.com
Toll Free No : 1800 3000 3300

5. Benchmark Mutual Fund,
405, Raheja Chambers,
213, Free Press Journal Marg,
Nariman Point,
Mumbai - 400 021
TEL : 56512727
FAX : 22003412
WEB : www.benchmarkfunds.com
Email : webmaster@benchmarkfunds.com

6. Baroda Pioneer Mutual Fund
501, Titanium, 5th floor,
Western Express Highway,
Goregaon (E), Mumbai 400 063.
TEL : 307410000, 42197999
FAX :30741001
WEB : www.barodapioneer.in
Email : info@barodapioneer.in

7. Birla Sunlife Mutual Fund
One India Bulls Centre, Tower-1,
17th Floor, Jupiter Mills Compound,
841, Senapati Bapat Marg,
Elphinstone Road, Mumbai- 400001
TEL : 43568000
FAX : 43568110/8111
WEB : www.birlasunlife.com

8. Bharti AXA Mutual Fund
51, 5th Floor,
Kalpataru Synergy, East Wing,
Vakola, Santacruz (E),
Mumbai 400 055.
TEL : 40479000
FAX : 40479001
Web : www.bhartiaxa-im.com
Email: info@bhartiaxa-im.com

9. Canara Robeco Mutual Fund
Construction House, 4th Floor,
5, Walchand Hirachand Marg,
Ballard Estate, Mumbai 400 001.
Tel : 6658 5000 to 5010
Fax 6658 5011 to 5013
WEB : www.canararobeco.com
Email : crmf@canararobeco.com

10. CRB Mutual Fund (Suspended)
Daruwala Mansion, 3rd Floor,
90 Chandanwadi Cross Lane,
Mumbai 400 020.
TEL : 2072719/20
FAX : 2096433

11. Deutsche Mutual Fund
2nd Floor, 222, Kodak House,
Dr. D. N. Road,
Mumbai 400 001.
TEL : 22072211
FAX : 22074411
WEB : http://www.deutschemutual.com
Email : deutsche.mutual@db.com

12. DSP BlackRock Mutual Fund,
Tulsiani Chambers,
West Wing, 11th Floor,
Nariman Point,
Mumbai 400 021.
TEL : 56578000
FAX: 56578181
WEB : www.dspblackrock.com
Email : service@dspblackrock.com
Toll Free No: 1800 345 4499

13. Edelweiss Mutual Fund
14th Floor, Express Towers,
Nariman Point, Mumbai – 400 021
TEL : 022-22864400
FAX : 022-4097 9970
Email Id: investor.amc@edelcap.com
Website: www.edelweissmf.com
Toll Free No: 1800 425 0090

14. Escorts Mutual Fund,
11, Scindia House,
Connaught Circus,
New Delhi 110 001.
TEL : 011-3321654 / 5177 / 3319991 / 3351343
FAX : 011-23761495, 23325177
WEB: www.escortsmutual.com
Email : help@escortsmutual.com
Mumbai Tel. Nos.
TEL : 30947097, 24218162

15. FORTIS Mutual Fund
101, 10th Floor, Sakhar Bhavan
Nariman Point
Mumbai 400 021
TEL : 91-22-5656 3848
FAX : 91-22-5656 3840
WEB : www.fortisinvestments.in
Email : v.krishnan@fortisinvestments.in

16. Franklin Templeton Mutual Fund
Level 4, Wockhardt Towers,
Bandra Kurla Complex,
Bandra (East),
Mumbai – 400 051
TEL : 6751 9100
FAX : 6649 0622
WEB : www.templetonindia.com

17. Fidelity Mutual Fund
56, 5th floor, Maker Chambers VI,
220, Nariman Point,
Mumbai 400 021
TEL: Toll Free number 1-600- 121262
Gurgaon : +91 (0124) 509 2104
(Investor Relations Officer's number)
Mumbai : + 91 (022) 5655 4000
FAX: Gurgaon : +91 (0124) 509 2100
Mumbai: +91 (022) 5655 4200
Email: investor.line@fidelity.co.in
WEB : www.fidelity.co.in

18. Goldman Sachs Mutual Fund
Rational House,
Appasaheb Marathe Marg,
Prabhadevi,
Mumbai 400025
TEL : 66169000
FAX : 66279240
Email: gsamindia@gs.com
WEB: www.gsam.in

19. HDFC Mutual Fund,
Ramon House, 3rd Floor,
169, Backbay Reclamation,
Churchgate,
Mumbai 400 020.
TEL : 22029111
FAX: 22028862
WEB : www.hdfcfund.com

20. HSBC Mutual Fund,
314 D N Road, Fort,
Mumbai 400 001.
TEL : 66145000
FAX: 40029600
Email : hsbcmf@hsbc.co.in

21. ICICI Securities Fund,
ICICI Towers, 7th Floor,
North Block,
Bandra-Kurla Complex,
Mumbai 400 051.
TEL : 6531414 / 6538988 (D)
FAX : 6531063 / 6531178

22. ING Mutual Fund,
Unit No. 101,
601/606, 6th Floor,
“Windsor”,
Off. C.S.T. Road,
Vidyanagari Marg,
Kalina, Santacruz (East),
Mumbai – 400 098
TEL : 022-39827999
Toll Free : 18004255433
FAX : 022-26500248
Email : information@in.ing.com
WEB : www.ingim.co.in

23. ICICI Prudential Mutual Fund
2nd Floor, 302, Block B-2,
Nirlon Knowledge Park,
Western Express Highway,
Mumbai - 400063.
Tel No. +9122 42090573
Registered Office :
12th Floor, Narain Manzil,
23, Barakhamba Road,
New Delhi – 110 001
WEB : www.pruicici.com

24. IDBI Mutual Fund
IDBI Building, 2nd Floor,
Plot No.39-41, Sector – 11,
CBD Belapur,
Navi Mumbai 400 614.
Tel.: 66096100/ 66096101
Fax: 66096110
E-mail: Krishnamurthy.vijayan@idbimutual.co.in
www.idbimutual.co.in

25. IDFC Mutual Fund,
One IndiaBulls Centre,
841, Jupiter Mills Compound,
Senapati Bapat Marg,
Elphinstone Road (West),
Mumbai – 400 013.
TEL : 22621111
FAX : 22693365
Email : investor@idfcmf.com
WEB : www.idfcmf.com

26. JM Financial Mutual Fund
5th Floor, Apeejay House,
3,Dinshaw Vachha Road,
Near K C College, Churchgate,
Mumbai - 400020
TEL : 39877777
FAX : 26528377-78
WEB : www.JMFinancialmf.com
Email : mktg@jmmutual.com

27. JP Morgan Mutual Fund
Kalpatau Synergy, 3rd Floor
West Wing, Santacruz - East
Mumbai 400 055
TEL : 6783 7000
FAX : 6783 7001
WEB : www.jpmorganmf.com
Email : india.investors@jpmorgan.com

28. Kotak Mahindra Mutual Fund,
5A, 5th Floor, Bakhtawar,
229, Nariman Point,
Mumbai – 400 021
TEL : 66384444
FAX : 66384455
WEB : www.kotakmutual.com

29. KJMC Mutual Fund,
168, Atlanta,
16th Floor,
Nariman Point
Mumbai 400 021
TEL : 22885201/22832350
FAX : 22852892
Email : kjmcmutual@kjmcmutual.com

30. LIC Mutual Fund
Industrial Assurance Bldg.,
4th Floor, Opp Churchgate Stn.,
Mumbai 400 020.
TEL : 22851661/22851663
FAX : 22040039
WEB : www.licmutual.com

31. L&T Mutual Fund
World Trade Centre, Centre I,
27th Floor, Unit 1, Cuffe Parade,
Mumbai 400 005.
TEL : 66574000
FAX : 66574004
WEB : www.lntmf.com
E-mail: ltmf@lntmf.com

32. Morgan Stanley Mutual Fund
Forbes Building,
Charanjit Rai Marg,
Mumbai - 400 001.
TEL : 22096600
FAX : 22096606 / 22096610
WEB : www.msgfindia.com

33. Mirae Asset Mutual Fund
Unit 606, 6th Floor, Windsor,
Off CST Road, Kalina, Santacruz (E),
MUMBAI 400 098
TEL : 67800300
FAX : 6725 3942 / 45
Email : customercare@miraeassetmf.co.in
WEB : www.miraeassetmf.co.in

34. Motilal Oswal Mutual Fund
81/82, 8th Floor,
Bajaj Bhawan,
Nariman Point 400 021
Tel: 39804200
Web: www.motilaloswal.com/assetmanagement

35. Peerless Mutual Fund
Peerless Mansion,
1 Chowringhee Square,
Kolkata-700069
TEL : 033-22435496
FAX : 033-22435339
Mumbai office:
Ground 03, Churchgate Chambers,
Premises Co-operative Housing Society Ltd,
Plot - 05, Sir. Vithaldas Thackersay Marg,
Next to American Centre,
Mumbai - 400 020
Email: pfmc@peerless.co.in
WEB : www.peerlessmf.co.in

36. Principal Mutual Fund
Exchange Plaza, 2nd Floor,
B Wing, NSE Building,
Bandra Kurla Complex,
Bandra(East)
Mumbai 400051.
TEL : 67720555
FAX : 2204 4990
Toll Free No: 1800225600
WEB : www.principalindia.com
Email : customer@principalindia.com

37. Quantum Mutual Fund,
505, 5th Floor,
Regent Chambers,
Nariman Point,
Mumbai – 400021
TEL : 22830322
FAX : 22854318
WEB : www.quantumamc.com

38. Reliance Mutual Fund
Express Building,
6th Floor, 14-E-Road,
Above Satkar Hotel,
Opposite Churchgate Station,
Churchgate,
Mumbai – 400 020
TEL : 30287168
FAX : 30414885
WEB: www.reliancemutual.com
Email : customer_care@reliancemutual.com

39. Religare Mutual Fund
3rd Floor, GYS Infinity,
Paranjpe “B” Scheme,
Subhash Road, Vile Parle (East),
Mumbai – 400 057.
TEL : 67310000
FAX : 28371565

40. Sahara Mutual Fund,
9th Floor, 97-98
Atlanta Building
Nariman Point
Mumbai – 400 021
Tel : 22-6752 0121 – 27
Fax : 66547855
WEB : www.saharamutual.com
Email: saharamutual@saharamutual.com

41. SBI Mutual Fund
191, Maker Towers "E"
Cuffe Parade
Mumbai 400005
TEL : 22180221-25,27
FAX : 22189663
WEB : www.sbimf.com

42. Shriram Mutual Fund
106, Shiv Chambers, 1stFloor,
‘B’ Wing Sector - 11,
C.B.D.Belapur,
Navi Mumbai 400 614.
TEL : 7901447/8
FAX : 7901449
Email: srmf@roltanet.com

43. Sundaram BNP Paribas Mutual Fund,
46, Whites Road,
Royapettah,
Chennai 600 014.
TEL : 044-28543362/28543367
FAX : 044-28543156

44. Shinsei Mutual Fund,
5th Floor, Harchandrai House,
81, Maharshi Karve Road,
Marine Lines, Mumbai – 400 002
TEL : 022-66142900
FAX : 022-66100148
WEB : www.shinseifunds.com

45. Taurus Mutual Fund
Ground Floor, AML Centre-1
8 Mahal Industrial Estate
Mahakali Caves Road
Andheri (E), Mumbai – 400093
Tel: 022- 66242700
Fax: 022- 66242722
Website: www.taurusmutualfund.com
Email: info@taurusmutualfund.com

46. Tata Mutual Fund,
Fort House, 221 Dr. D N Road,
Mumbai 400 001.
TEL : 66578282
FAX : 22613782
WEB : www.tatamutualfund.com
Email kiran@tataamc.com

47. UTI Mutual Fund
UTI Towers,
‘Gn’ Block, Bandra-Kurla Complex,
Bandra (East),
Mumbai 400 051
TEL : 56786666
FAX : 56786578
WEB : www.utimf.com


The Association of Mutual Funds of India
Association of Mutual Funds of India (AMFI)
706-708, Balarama,
Bandra Kurla Complex,
Bandra (East)
Mumbai – 400 051
TEL : 26590206 / 26590243
26590246 / 26590382
FAX : 26590209
WEB: www.amfiindia.com
Email: amfi@bom5.vsnl.net.in

SOURCE: http://www.sebi.gov.in

Life Insurance Companies of India

Here is the complete list of life insurance companies in India (in alphabetic order), their promoters and their websites:

1. AEGON Religare Life Insurance Co. Ltd.
Promoters: Religare Enterprise Ltd., Bennett, Coleman & company and Aegon (USA)
http://www.aegonreligare.com

2. Aviva Life Insurance Company India Ltd.
Promoters: Dabur Group & Aviva Group (UK)
http://www.avivaindia.com

3. Bajaj Allianz Life Insurance Co. Ltd.
Promoters: Bajaj Finserv & Allianz SE (Munich)
http://www.bajajallianzlife.co.in

4. Bharti AXA Life Insurance Co. Ltd.
Promoters: Bharti & AXA (France)
http://www.bharti-axalife.com

5. Birla Sun Life Insurance Co. Ltd.
Promoters: Aditya Birla Nuvo & Sunlife Financials (Canada)
http://www.birlasunlife.com

6. Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd.
Promoters: Canara Bank, Oriental Bank of Commerce & HSBC Insurance (Asia Pacific)
http://www.canarahsbclife.in

7. DLF Pramerica Life Insurance Co. Ltd.
Promoters: DLF Ltd. & Prudential International Insurance Holdings Ltd. (USA)
http://www.dlfpramericalife.com

8. Future Generali India Life Insurance Company Limited
Promoters: Future Group & Generali Group (Italy)
www.futuregenerali.in

9. HDFC Standard Life Insurance Co. Ltd.
Promoters: HDFC Ltd. & Standard Life Group (UK)
http://www.hdfcinsurance.com

10. ICICI Prudential Life Insurance Co. Ltd.
Promoters: ICICI Bank Ltd. & Prudential Plc. (UK)
http://www.iciciprulife.com

11. IDBI Fortis Life Insurance Co. Ltd.
Promoters: IDBI Bank, Federal Bank & Fortis (Europe)
http://www.idbifortis.com

12. IndiaFirst Life Insurance Co. Ltd.
Promoters: Bank of Baroda, Andhra Bank and Legal&General(UK)
http://www.diafirstlife.com

13. ING Vysya Life Insurance Co. Ltd.
Promoters: Exide Industries Ltd., Ambuja Cement Ltd., Enam Group & ING Group (Dutch)
http://www.inglife.co.in

14. Kotak Mahindra Old Mutual Life Insurance Co. Ltd.
Promoters: Kotak Mahindra Bank & its affiliates and Old Mutual (UK)
http://www.kotaklifeinsurance.com

15. Life Insurance Corporation of India
Promoter: Govt of India
http://www.licindia.in

16. Max New York Life Insurance Co. Ltd
Promoters: Max India Ltd. & New York Life (USA)
http://www.maxnewyorklife.com

17. Met Life India InsuranceCo. Ltd.
Promoters: Jammu & Kashmir Bank, M. Pallonji & Co. and MetLife International Holdings Inc. (USA)
http://www.metlife.co.in

18. Reliance Life Insurance Co. Ltd.
Promoters: Reliance Capital Ltd.- A Reliance ADA Group Company.
http://www.reliancelife.com

19. Sahara India Life Insurance Co. Ltd.
Promoters: The Sahara India Pariwar.
http://www.saharalife.com

20. SBI Life Insurance Co. Ltd
Promoters:State Bank of India & BNP Paribas Assurance(Europe)
http://www.sbilife.co.in

21. Shriram Life Insurance Co. Ltd.
Promoters: The Shriram Group & Sanlam Group (South Africa)
http://www.shriramlife.com

22. Star Union Dai-ichi Life Insurance Co. Ltd.
Promoters: Bank of India, Union Bank of India & Dai-ichi Mutual Life Insurance Co. (Japan)
http://www.sudlife.in

23. Tata AIG Life Insurance Co. Ltd.
Promoters: Tata Group & American International Group Inc. (USA)
http://www.tata-aig-life.com

The gullible investors and the EXPERTS on TV

I have copy pasted 2 commentaries on Shree Ganesh Jewellery House IPO from “moneycontrol.com” and the same had appeared in a business channel (owned by the same group) on the same day.

Once you go through the same, you will know how the so called experts are taking gullible investors through a ride by their free advice on television.

This is how it goes.

(The initial public offering (IPO) of Kolkata-based Shree Ganesh Jewellery House, an exporter of handcrafted gold jewellery, has been subscribed 0.88 times so far, as per data available on the NSE website.

The 142,69,831 equity shares issue will close on March 23. The company plans to raise around Rs 371-385.3 crore at a price band of Rs 260-270 a share.

Experts looked bullish on the IPO. Investment Advisor, SP Tulsian as well as Manish Bhatt of Prabhudas Lilladher said the issue looked good and recommended investors to subscribe to the issue.

Tulsian said, "Shree Ganesh is now going in for an expansion of about Rs 330 crore, for setting up new manufacturing facilities, expansion of existing manufacturing facilities and setting up retail outlets. This is largely financed by proposed fresh issue of about Rs 325 crore calculated at the upper price band. As all the expansion are likely to get completed in calendar year 2010, part benefits of this will be reflected in the financials of FY11, in which an EPS of over Rs 45 can be expected. As stated, present cash balance of Rs 625 crore will be able to meet the enhanced working capital requirements."
"A share at 270 is issued at a PE of about 8 times on historic earnings and about 6 times on FY11 earnings. This makes the issue attractive and investment is recommended in the issue at the upper price band," he said.

Bhatt said, "Shree Ganesh Jewellery is into hand made jewellery, has 550 employees on pay roll. It is expected to post turnover of Rs 3100 crore in FY10 and PAT of Rs 175 crore. It is available at 7-8 PE at price band of approximately Rs 260-270. Credit Suisse has 11% stake in company, which will be reduced to 7% in IPO.")

This was published on Friday, March 19, 2010, at 1743 hours in moneycontrol.com under the heading “Shree Ganesh Jewellery IPO opens; should you subscribe?”

The same so called “expert” SP Tulsian comments on the same stock again in the same channel and on the same website April 12, 2010 at 1107 hours.

(Investment Advisor, SP Tulsian is of the view that Shree Ganesh Jewellery can bounce back to Rs 200 in the near term.

Tulsian told CNBC-TV18, "Shree Ganesh Jewellery has been beaten down to what it deserves because if you take a valuation call, I was not expecting this stock to fall below Rs 200. But it has fallen. If you see the response, though we have been comparing this company with Gitanjali Gems etc, but if you see the recently listed which is Thangamayil Jewellery, which his a very small Madurai player, a reasonable player and now they expanding in the Southern region, especially in Tamil Nadu, I don’t think that you have disappointment on that.”

He further added, “One can expect and EPS of close to about Rs 40 going FY11. I have been impressed by their working capital management, they have a cash balance of close to Rs 600 crore, which is used for all their fund-based and non-fund based facilities, because you need a lot of fund based facility also in this trade. Going forward, with a topline of Rs 3,000 crore, I feel this should give a bounce back and move back at least to Rs 200 in the near–term.”)

How the same person can first says “This makes the issue attractive and investment is recommended in the issue at the upper price band.” Here the upper band meant Rs. 270.

The share had a dismal listing and lost around 39% on debut. This is when the same “expert” says “Shree Ganesh Jewellery has been beaten down to what it deserves.”

In 24 days flat (from closing day of the IPO to listing day) this so called expert has done a volte face and anybody who had listened to him in the first place must be licking his/her wounds now.

MORALE OF THE STORY: It is your money which is being invested and it is you who will make the profit or loss. If the people who are coming as “experts” really knew anything about the listing price or future prices, then they would not be coming to the television shows everyday and going through the length and breadth of the country as “experts” in investor camps to earn their bread. They would instead make loads and loads of money from the market itself.

The people who really know the stocks do not come on the TV to give minute by minute commentary and analysis? Even if they did they would have been gentleman enough to accept a wrong recommendation.

The greatest expert on stock market “Benjamin Graham” had years ago told us not to apply in IPOs as they are “it’s probably overpriced.”

Would you still watch or believe in the business channel’s experts. Well, do it at your own risk as it is your own money which will be lost and the “expert” will be paid by the channel for the rubbish they speak and the channel in turn by the advertisers.

Unit Linked Insurance Products or Unlimited Income Products for the insurance companies, banks (bancassurance) and agents

Unit linked insurance plan (ULIP) is life insurance products that provides for the benefits of protection and flexibility in investment.

UlIPs have always been controversial products that the insurance companies sell aggressively and were first launched in 2001. They are generally promoted as “short-term plans” by the agents. ULIPs in actuality are not short-term plans but have a span of 10-15 years and can be surrendered after 3 years.

ULIPs have a front loaded fee structure. In most of the ULIPs, only 30-45% of the first year premium is deducted as charges and the rest invested in the fund of choice, so for the fund to achieve break-even stage, it will generally take more than 3 years. Subsequently, the charges come down and a higher portion of the premium is allocated to the fund of choice.

ULIPs have a slew of charges in them and some of them are:

PREMIUM ALLOCATION CHARGE: A percentage of the premium is appropriated towards charges, initial and renewal expenses apart from commission expenses before allocating the units under the policy.

MORTALITY CHARGES: These are charges for the cost of insurance coverage and depend on number of factors such as age, amount of coverage, state of health etc.

FUND MANAGEMENT FEES: Fees charged for management of the fund and is deducted before arriving at the NAV.

ADMINISTRATION CHARGES: This is the charge for administration of the plan and is levied by cancellation of units.

SURRENDER CHARGES: Deducted for premature partial or full encashment of units. Surrender is not allowed for the first 3 years.

FUND SWITCHING CHARGE: Usually a limited number of fund switches are allowed each year without charge, with subsequent switches, subject to a charge.

SERVICE TAX DEDUCTIONS: Service tax is deducted from the risk portion of the premium.

The important thing to note about ULIPs is that the overall charge structure for the plan comes down substantially over a long term. However it may be noted that insurers have the right to revise fees and charges over a period of time.

Many investors, mostly retail, believe insurance to be a part of investment portfolio and the insurance companies capitalize on this false conception and sell ULIPs over traditional insurance products.

Insurance is primarily a product for protection, whereas mutual funds are products for investments. ULIPs provide very low cover as the cover is generally 5-7% of the premium. For a similar premium, the traditional policies would have a much higher life cover.

Insurance thus should be used to protect and mutual funds should be used to create wealth over the long term. Mixing the two benefits more to the insurance companies than to the insured (investor).

For any investment, one should look for transparency and liquidity, unfortunately ULIPs have neither and mutual funds on the other hand are both transparent and liquid. UlIPs are not transparent as the charges are ad hoc and hidden. UlIPs cannot be encashed before 3 years and thus do not have liquidity whereas mutual funds can be encashed at any given time. Mutual funds do not have any entry or exit load after the new regulations have kicked in whereas the ULIPs still have mind boggling charges.

The pitch that your friendly banker (bancassurance) or your agent may build in favor of ULIPs:

Tax efficiency: ULIPs are often pitched as tax-efficient because the investment is eligible for exemption under Section 80C of the Income Tax Act (subject to a limit of Rs 1 lakh) but investments in ELSS schemes of mutual funds and 5 years bank fixed deposits, PPF, NPS are also eligible for exemption under the same section. Besides the premium, the maturity amount in ULIPs is also tax-free, irrespective of whether the investment was in a balanced or debt plan. Here, the debt fund option of ULIPs have an edge on debt mutual funds, as debt funds are taxed at 10% without indexation and 20% with indexation. The point to note, however, is that with the high charges of ULIPs despite its tax-efficiency the post-tax returns will be negative to low because of high front-end costs (in all probability debt fund of ULIPs will give a negative return even after 6 years). Debt mutual funds do not have such charges.

Banks (bancassurance) and insurance agents get high commissions for ULIPs, and they get them in the initial years, not staggered over the term like in traditional policies. So the insurer recovers most of the charges in the initial years. Insurers charges heavy marketing and distribution charges (read commission to agents), averaging more than 30% of the first year’s premium, and dropping down in subsequent years. The older products (2004-2005) had even higher charges. Compare this with mutual funds’ fees of 0% on entry, 0% on exit uniformly for all schemes.

As an illustration an agent (bank or otherwise) who sells you a ULIP may get 30% of your first year’s premium. If your annual premium is Rs 100,000 and the agent’s commission in the first year is 30%, it means only Rs 70000 of your money is invested in the first year effectively meaning a 30% return will make you gain break even status.

On the other hand, if you invest Rs 100,000 in an equity scheme with a 0% entry load, Rs 100,000 gets invested and if the market gives a 30% return your investment is worth Rs 130,000. This shows how ULIPs work out expensive for investors.

So what is the best way to mix the insurance and investment? Undoubtedly, a mixture of term insurance (very low cost and high cover) and mix of equity and debt mutual funds.

From the above illustration (assuming market grows by 30%) and one deducts the cost of a term policy from the mutual fund returns, one can still make a good return as compared to breaking even in case of an ULIP.

The insurance companies have now come up with a novel “Highest NAV Guaranteed” schemes in the market. These products too are nothing but making a fool of the gullible investors. Before buying these products keep these two points in mind:
1. Let us assume the premium paid is 100,000 and one is paying the premium for 3 years (these products have only 3 premium paying years unlike traditional ULIPs which are 10-15 years policies and one cat stop paying after 3 years). So the total premium paid is 300,000. Now assuming the insurance company charges a total of 40% as various charges over the 3 years, meaning only 180,000 gets invested and 120,000 is deducted as charges. So even with the “Highest NAV” the investor is unlikely to make much profits, in this illustration 40% growth of NAV is required only to break even.
2. The “Highest NAV Guarantee” is only valid if you survive the insurance policy period, if you do not, the nominee gets the basic cover which from the second year is generally 1.25-2 times the premium.

ULIPs thus are products which are in Unlimited Income Products for the insurance companies, banks (bancassurance) and agents.